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You are on page 1of 44

Topic

LOS

Ethics

1.1.a

Ethics

1.1.b

Ethics

1.1.c

Ethics

1.2.a

Ethics

1.2.b

Ethics

1.2.c

Ethics

1.3.a

Ethics

1.3.b

Ethics

1.3.c

Ethics

1.4.a

Level I - 2014 (532 LOS)

Level I - 2015 (529 LOS)

LOS

**describe the structure of the CFA
**

Institute Professional Conduct Program

and the process for the enforcement of

the Code and Standards

state the six components of the Code of

Ethics and the seven Standards of

Professional Conduct

explain the ethical responsibilities

required by the Code and Standards,

including the sub-sections of each

Standard

demonstrate the application of the Code

of Ethics and Standards of Professional

Conduct to situations involving issues of

professional integrity

distinguish between conduct that

conforms to the Code and Standards

and conduct that violates the Code and

Standards

recommend practices and procedures

designed to prevent violations of the

Code of Ethics and Standards of

Professional Conduct

explain why the GIPS standards were

created, what parties the GIPS

standards apply to, and who is served

by the standards

explain the construction and purpose of

composites in performance reporting

explain the requirements for verification

describe the key features of the GIPS

standards and the fundamentals of

compliance

1.1.a

1.1.b

1.1.c

1.2.a

1.2.b

1.2.c

1.3.a

1.3.b

1.3.c

1.4.a

Compared

**describe the structure of the CFA
**

Institute Professional Conduct Program

and the process for the enforcement of

the Code and Standards

state the six components of the Code of

Ethics and the seven Standards of

Professional Conduct

explain the ethical responsibilities

required by the Code and Standards,

including the sub-sections of each

Standard

demonstrate the application of the Code

of Ethics and Standards of Professional

Conduct to situations involving issues of

professional integrity

distinguish between conduct that

conforms to the Code and Standards

and conduct that violates the Code and

Standards

recommend practices and procedures

designed to prevent violations of the

Code of Ethics and Standards of

Professional Conduct

explain why the GIPS standards were

created, what parties the GIPS

standards apply to, and who is served

by the standards

explain the construction and purpose of

composites in performance reporting

explain the requirements for verification

describe the key features of the GIPS

standards and the fundamentals of

compliance

www.passingscore.net

1

Ethics

1.4.b

Ethics

1.4.c

Ethics

1.4.d

Quantitative

2.5.a

Quantitative

2.5.b

Quantitative

2.5.c

Quantitative

2.5.d

Quantitative

2.5.e

Quantitative

2.5.f

Quantitative

2.6.a

Quantitative

2.6.b

Quantitative

2.6.c

**describe the scope of the GIPS
**

standards with respect to an investment

firm’s definition and historical

performance record

explain how the GIPS standards are

implemented in countries with existing

standards for performance reporting

and describe the appropriate response

when the GIPS standards and local

regulations conflict

describe the nine major sections of the

GIPS standards

interpret interest rates as required rates

of return, discount rates, or opportunity

costs

explain an interest rate as the sum of a

real risk-free rate, and premiums that

compensate investors for bearing

distinct types of risk

calculate and interpret the effective

annual rate, given the stated annual

interest rate and the frequency of

compounding

solve time value of money problems for

different frequencies of compounding

calculate and interpret the future value

(FV) and present value (PV) of a single

sum of money, an ordinary annuity, an

annuity due, a perpetuity (PV only), and

a series of unequal cash flows

demonstrate the use of a time line in

modeling and solving time value of

money problems

calculate and interpret the net present

value (NPV) and the internal rate of

return (IRR) of an investment

contrast the NPV rule to the IRR rule,

and identify problems associated with

the IRR rule

calculate and interpret a holding period

return (total return)

1.4.b

1.4.c

1.4.d

2.5.a

2.5.b

2.5.c

2.5.d

2.5.e

2.5.f

2.6.a

2.6.b

2.6.c

**describe the scope of the GIPS
**

standards with respect to an investment

firm’s definition and historical

performance record

explain how the GIPS standards are

implemented in countries with existing

standards for performance reporting

and describe the appropriate response

when the GIPS standards and local

regulations conflict

describe the nine major sections of the

GIPS standards

interpret interest rates as required rates

of return, discount rates, or opportunity

costs

explain an interest rate as the sum of a

real risk-free rate, and premiums that

compensate investors for bearing

distinct types of risk

calculate and interpret the effective

annual rate, given the stated annual

interest rate and the frequency of

compounding

solve time value of money problems for

different frequencies of compounding

calculate and interpret the future value

(FV) and present value (PV) of a single

sum of money, an ordinary annuity, an

annuity due, a perpetuity (PV only), and

a series of unequal cash flows

demonstrate the use of a time line in

modeling and solving time value of

money problems

calculate and interpret the net present

value (NPV) and the internal rate of

return (IRR) of an investment

contrast the NPV rule to the IRR rule,

and identify problems associated with

the IRR rule

calculate and interpret a holding period

return (total return)

www.passingscore.net

2

Quantitative

2.6.d

Quantitative

2.6.e

Quantitative

2.6.f

Quantitative

2.7.a

Quantitative

2.7.b

Quantitative

2.7.c

Quantitative

2.7.d

Quantitative

2.7.e

Quantitative

2.7.f

Quantitative

2.7.g

**calculate and compare the moneyweighted and time-weighted rates of
**

return of a portfolio and evaluate the

performance of portfolios based on

these measures

calculate and interpret the bank

discount yield, holding period yield,

effective annual yield, and money

market yield for U.S. Treasury bills and

other money market instruments

convert among holding period yields,

money market yields, effective annual

yields, and bond equivalent yields

distinguish between descriptive

statistics and inferential statistics,

between a population and a sample,

and among the types of measurement

scales

define a parameter, a sample statistic,

and a frequency distribution

calculate and interpret relative

frequencies and cumulative relative

frequencies, given a frequency

distribution

describe the properties of a data set

presented as a histogram or a

frequency polygon

calculate and interpret measures of

central tendency, including the

population mean, sample mean,

arithmetic mean, weighted average or

mean, geometric mean, harmonic

mean, median, and mode

calculate and interpret quartiles,

quintiles, deciles, and percentiles

calculate and interpret 1) a range and a

mean absolute deviation and 2) the

variance and standard deviation of a

population and of a sample

2.6.d

2.6.e

2.6.f

2.7.a

2.7.b

2.7.c

2.7.d

2.7.e

2.7.f

2.7.g

**calculate and compare the moneyweighted and time-weighted rates of
**

return of a portfolio and evaluate the

performance of portfolios based on

these measures

calculate and interpret the bank

discount yield, holding period yield,

effective annual yield, and money

market yield for U.S. Treasury bills and

other money market instruments

convert among holding period yields,

money market yields, effective annual

yields, and bond equivalent yields

distinguish between descriptive

statistics and inferential statistics,

between a population and a sample,

and among the types of measurement

scales

define a parameter, a sample statistic,

and a frequency distribution

calculate and interpret relative

frequencies and cumulative relative

frequencies, given a frequency

distribution

describe the properties of a data set

presented as a histogram or a

frequency polygon

calculate and interpret measures of

central tendency, including the

population mean, sample mean,

arithmetic mean, weighted average or

mean, geometric mean, harmonic

mean, median, and mode

calculate and interpret quartiles,

quintiles, deciles, and percentiles

calculate and interpret 1) a range and a

mean absolute deviation and 2) the

variance and standard deviation of a

population and of a sample

www.passingscore.net

3

Quantitative

2.7.h

Quantitative

2.7.i

Quantitative

2.7.j

Quantitative

2.7.k

Quantitative

2.7.l

Quantitative

2.7.m

Quantitative

2.8.a

Quantitative

2.8.b

Quantitative

2.8.c

Quantitative

2.8.d

Quantitative

2.8.e

Quantitative

2.8.f

Quantitative

2.8.g

**calculate and interpret the proportion of
**

observations falling within a specified

number of standard deviations of the

mean using Chebyshev’s inequality

calculate and interpret the coefficient of

variation and the Sharpe ratio

explain skewness and the meaning of a

positively or negatively skewed return

distribution

describe the relative locations of the

mean, median, and mode for a

unimodal, nonsymmetrical distribution

explain measures of sample skewness

and kurtosis

compare the use of arithmetic and

geometric means when analyzing

investment returns

define a random variable, an outcome,

an event, mutually exclusive events,

and exhaustive events

state the two defining properties of

probability and distinguish among

empirical, subjective, and a priori

probabilities

state the probability of an event in

terms of odds for and against the event

distinguish between unconditional and

conditional probabilities

explain the multiplication, addition, and

total probability rules

calculate and interpret 1) the joint

probability of two events, 2) the

probability that at least one of two

events will occur, given the probability

of each and the joint probability of the

two events, and 3) a joint probability of

any number of independent events

distinguish between dependent and

independent events

2.7.h

2.7.i

2.7.j

2.7.k

2.7.l

2.7.m

2.8.a

2.8.b

2.8.c

2.8.d

2.8.e

2.8.f

2.8.g

**calculate and interpret the proportion of
**

observations falling within a specified

number of standard deviations of the

mean using Chebyshev’s inequality

calculate and interpret the coefficient of

variation and the Sharpe ratio

explain skewness and the meaning of a

positively or negatively skewed return

distribution

describe the relative locations of the

mean, median, and mode for a

unimodal, nonsymmetrical distribution

explain measures of sample skewness

and kurtosis

compare the use of arithmetic and

geometric means when analyzing

investment returns

define a random variable, an outcome,

an event, mutually exclusive events,

and exhaustive events

state the two defining properties of

probability and distinguish among

empirical, subjective, and a priori

probabilities

state the probability of an event in

terms of odds for and against the event

distinguish between unconditional and

conditional probabilities

explain the multiplication, addition, and

total probability rules

calculate and interpret 1) the joint

probability of two events, 2) the

probability that at least one of two

events will occur, given the probability

of each and the joint probability of the

two events, and 3) a joint probability of

any number of independent events

distinguish between dependent and

independent events

www.passingscore.net

4

Quantitative

2.8.h

Quantitative

2.8.i

Quantitative

2.8.j

Quantitative

2.8.k

Quantitative

2.8.l

Quantitative

2.8.m

Quantitative

2.8.n

Quantitative

2.8.o

Quantitative

3.9.a

Quantitative

3.9.b

Quantitative

3.9.c

Quantitative

3.9.d

Quantitative

3.9.e

Quantitative

3.9.f

Quantitative

3.9.g

**calculate and interpret an unconditional
**

probability using the total probability

rule

explain the use of conditional

expectation in investment applications

explain the use of a tree diagram to

represent an investment problem

calculate and interpret covariance and

correlation

calculate and interpret the expected

value, variance, and standard deviation

of a random variable and of returns on

a portfolio

calculate and interpret covariance given

a joint probability function

calculate and interpret an updated

probability using Bayes’ formula

identify the most appropriate method to

solve a particular counting problem, and

solve counting problems using factorial,

combination, and permutation concepts

define a probability distribution and

distinguish between discrete and

continuous random variables and their

probability functions

describe the set of possible outcomes of

a specified discrete random variable

interpret a cumulative distribution

function

calculate and interpret probabilities for

a random variable, given its cumulative

distribution function

define a discrete uniform random

variable, a Bernoulli random variable,

and a binomial random variable

calculate and interpret probabilities

given the discrete uniform and the

binomial distribution functions

construct a binomial tree to describe

stock price movement

2.8.h

2.8.i

2.8.j

2.8.k

2.8.l

2.8.m

2.8.n

2.8.o

3.9.a

3.9.b

3.9.c

3.9.d

3.9.e

3.9.f

3.9.g

**calculate and interpret an unconditional
**

probability using the total probability

rule

explain the use of conditional

expectation in investment applications

explain the use of a tree diagram to

represent an investment problem

calculate and interpret covariance and

correlation

calculate and interpret the expected

value, variance, and standard deviation

of a random variable and of returns on

a portfolio

calculate and interpret covariance given

a joint probability function

calculate and interpret an updated

probability using Bayes’ formula

identify the most appropriate method to

solve a particular counting problem, and

solve counting problems using factorial,

combination, and permutation concepts

define a probability distribution and

distinguish between discrete and

continuous random variables and their

probability functions

describe the set of possible outcomes of

a specified discrete random variable

interpret a cumulative distribution

function

calculate and interpret probabilities for

a random variable, given its cumulative

distribution function

define a discrete uniform random

variable, a Bernoulli random variable,

and a binomial random variable

calculate and interpret probabilities

given the discrete uniform and the

binomial distribution functions

construct a binomial tree to describe

stock price movement

www.passingscore.net

5

Quantitative

3.9.h

Quantitative

3.9.i

Quantitative

3.9.j

Quantitative

3.9.k

Quantitative

3.9.l

Quantitative

3.9.m

Quantitative

3.9.n

Quantitative

3.9.o

Quantitative

3.9.p

Quantitative

3.9.q

Quantitative

3.9.r

Quantitative

3.10.a

Quantitative

3.10.b

**calculate and interpret tracking error
**

define the continuous uniform

distribution and calculate and interpret

probabilities, given a continuous

uniform distribution

explain the key properties of the normal

distribution

distinguish between a univariate and a

multivariate distribution, and explain

the role of correlation in the

multivariate normal distribution

determine the probability that a

normally distributed random variable

lies inside a given interval

define the standard normal distribution,

explain how to standardize a random

variable, and calculate and interpret

probabilities using the standard normal

distribution

define shortfall risk, calculate the safetyfirst ratio, and select an optimal

portfolio using Roy’s safety-first

criterion

explain the relationship between normal

and lognormal distributions and why the

lognormal distribution is used to model

asset prices

distinguish between discretely and

continuously compounded rates of

return, and calculate and interpret a

continuously compounded rate of

return, given a specific holding period

return

explain Monte Carlo simulation and

describe its major applications and

limitations

compare Monte Carlo simulation and

historical simulation

define simple random sampling and a

sampling distribution

explain sampling error

3.9.h

3.9.i

3.9.j

3.9.k

3.9.l

3.9.m

3.9.n

3.9.o

3.9.p

3.9.q

3.9.r

3.10.a

3.10.b

**calculate and interpret tracking error
**

define the continuous uniform

distribution and calculate and interpret

probabilities, given a continuous

uniform distribution

explain the key properties of the normal

distribution

distinguish between a univariate and a

multivariate distribution, and explain

the role of correlation in the

multivariate normal distribution

determine the probability that a

normally distributed random variable

lies inside a given interval

define the standard normal distribution,

explain how to standardize a random

variable, and calculate and interpret

probabilities using the standard normal

distribution

define shortfall risk, calculate the safetyfirst ratio, and select an optimal

portfolio using Roy’s safety-first

criterion

explain the relationship between normal

and lognormal distributions and why the

lognormal distribution is used to model

asset prices

distinguish between discretely and

continuously compounded rates of

return, and calculate and interpret a

continuously compounded rate of

return, given a specific holding period

return

explain Monte Carlo simulation and

describe its applications and limitations

compare Monte Carlo simulation and

historical simulation

define simple random sampling and a

sampling distribution

explain sampling error

www.passingscore.net

Wording

Change

6

Quantitative

3.10.c

Quantitative

3.10.d

Quantitative

3.10.e

Quantitative

3.10.f

Quantitative

3.10.g

Quantitative

3.10.h

Quantitative

3.10.i

Quantitative

3.10.j

Quantitative

3.10.k

Quantitative

3.11.a

Quantitative

3.11.b

Quantitative

3.11.c

Quantitative

3.11.d

**distinguish between simple random and
**

stratified random sampling

distinguish between time-series and

cross-sectional data

explain the central limit theorem and its

importance

calculate and interpret the standard

error of the sample mean

identify and describe desirable

properties of an estimator

distinguish between a point estimate

and a confidence interval estimate of a

population parameter

describe properties of Student’s tdistribution and calculate and interpret

its degrees of freedom

calculate and interpret a confidence

interval for a population mean, given a

normal distribution with 1) a known

population variance, 2) an unknown

population variance, or 3) an unknown

variance and a large sample size

describe the issues regarding selection

of the appropriate sample size, datamining bias, sample selection bias,

survivorship bias, look-ahead bias, and

time-period bias

define a hypothesis, describe the steps

of hypothesis testing, and describe and

interpret the choice of the null and

alternative hypotheses

distinguish between one-tailed and twotailed tests of hypotheses

explain a test statistic, Type I and Type

II errors, a significance level, and how

significance levels are used in

hypothesis testing

explain a decision rule, the power of a

test, and the relation between

confidence intervals and hypothesis

tests

3.10.c

3.10.d

3.10.e

3.10.f

3.10.g

3.10.h

3.10.i

3.10.j

3.10.k

3.11.a

3.11.b

3.11.c

3.11.d

**distinguish between simple random and
**

stratified random sampling

distinguish between time-series and

cross-sectional data

explain the central limit theorem and its

importance

calculate and interpret the standard

error of the sample mean

identify and describe desirable

properties of an estimator

distinguish between a point estimate

and a confidence interval estimate of a

population parameter

describe properties of Student’s tdistribution and calculate and interpret

its degrees of freedom

calculate and interpret a confidence

interval for a population mean, given a

normal distribution with 1) a known

population variance, 2) an unknown

population variance, or 3) an unknown

variance and a large sample size

describe the issues regarding selection

of the appropriate sample size, datamining bias, sample selection bias,

survivorship bias, look-ahead bias, and

time-period bias

define a hypothesis, describe the steps

of hypothesis testing, and describe and

interpret the choice of the null and

alternative hypotheses

distinguish between one-tailed and twotailed tests of hypotheses

explain a test statistic, Type I and Type

II errors, a significance level, and how

significance levels are used in

hypothesis testing

explain a decision rule, the power of a

test, and the relation between

confidence intervals and hypothesis

tests

www.passingscore.net

7

Quantitative

3.11.e

Quantitative

3.11.f

Quantitative

3.11.g

Quantitative

3.11.h

Quantitative

3.11.i

Quantitative

3.11.j

Quantitative

3.11.k

Quantitative

3.12.a

**distinguish between a statistical result
**

and an economically meaningful result

explain and interpret the p-value as it

relates to hypothesis testing

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning the

population mean of both large and small

samples when the population is

normally or approximately distributed

and the variance is 1) known or 2)

unknown

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning the equality

of the population means of two at least

approximately normally distributed

populations, based on independent

random samples with 1) equal or 2)

unequal assumed variances

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning the mean

difference of two normally distributed

populations

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning 1) the

variance of a normally distributed

population, and 2) the equality of the

variances of two normally distributed

populations based on two independent

random samples

distinguish between parametric and

nonparametric tests and describe

situations in which the use of

nonparametric tests may be appropriate

explain principles of technical analysis,

its applications, and its underlying

assumptions

3.11.e

3.11.f

3.11.g

3.11.h

3.11.i

3.11.j

3.11.k

3.12.a

**distinguish between a statistical result
**

and an economically meaningful result

explain and interpret the p-value as it

relates to hypothesis testing

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning the

population mean of both large and small

samples when the population is

normally or approximately distributed

and the variance is 1) known or 2)

unknown

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning the equality

of the population means of two at least

approximately normally distributed

populations, based on independent

random samples with 1) equal or 2)

unequal assumed variances

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning the mean

difference of two normally distributed

populations

identify the appropriate test statistic

and interpret the results for a

hypothesis test concerning 1) the

variance of a normally distributed

population, and 2) the equality of the

variances of two normally distributed

populations based on two independent

random samples

distinguish between parametric and

nonparametric tests and describe

situations in which the use of

nonparametric tests may be appropriate

explain principles of technical analysis,

its applications, and its underlying

assumptions

www.passingscore.net

8

Quantitative

3.12.b

Quantitative

3.12.c

Quantitative

3.12.d

Quantitative

3.12.e

Quantitative

3.12.f

Quantitative

3.12.g

Quantitative

3.12.h

Economics

4.13.a

Economics

4.13.b

Economics

4.13.c

Economics

4.13.d

Economics

4.13.e

Economics

4.13.f

Economics

4.13.g

Economics

4.13.h

**describe the construction of different
**

types of technical analysis charts and

interpret them

explain uses of trend, support,

resistance lines, and change in polarity

describe common chart patterns

describe common technical analysis

indicators (price-based, momentum

oscillators, sentiment, and flow of

funds)

explain how technical analysts use

cycles

describe the key tenets of Elliott Wave

Theory and the importance of Fibonacci

numbers

describe intermarket analysis as it

relates to technical analysis and asset

allocation

distinguish among types of markets

explain the principles of demand and

supply

describe causes of shifts in and

movements along demand and supply

curves

describe the process of aggregating

demand and supply curves

describe the concept of equilibrium

(partial and general), and mechanisms

by which markets achieve equilibrium

distinguish between stable and unstable

equilibria, including price bubbles, and

identify instances of such equilibria

calculate and interpret individual and

aggregate demand, and inverse demand

and supply functions, and interpret

individual and aggregate demand and

supply curves

calculate and interpret the amount of

excess demand or excess supply

associated with a non-equilibrium price

3.12.b

3.12.c

3.12.d

3.12.e

3.12.f

3.12.g

3.12.h

4.13.a

4.13.b

4.13.c

4.13.d

4.13.e

4.13.f

4.13.g

4.13.h

**describe the construction of different
**

types of technical analysis charts and

interpret them

explain uses of trend, support,

resistance lines, and change in polarity

describe common chart patterns

describe common technical analysis

indicators (price-based, momentum

oscillators, sentiment, and flow of

funds)

explain how technical analysts use

cycles

describe the key tenets of Elliott Wave

Theory and the importance of Fibonacci

numbers

describe intermarket analysis as it

relates to technical analysis and asset

allocation

distinguish among types of markets

explain the principles of demand and

supply

describe causes of shifts in and

movements along demand and supply

curves

describe the process of aggregating

demand and supply curves

describe the concept of equilibrium

(partial and general), and mechanisms

by which markets achieve equilibrium

distinguish between stable and unstable

equilibria, including price bubbles, and

identify instances of such equilibria

calculate and interpret individual and

aggregate demand, and inverse demand

and supply functions, and interpret

individual and aggregate demand and

supply curves

calculate and interpret the amount of

excess demand or excess supply

associated with a non-equilibrium price

www.passingscore.net

9

Economics

4.13.i

Economics

4.13.j

Economics

4.13.k

Economics

4.13.l

Economics

4.13.m

Economics

4.14.a

Economics

4.14.b

Economics

4.14.c

Economics

4.14.d

Economics

4.14.e

Economics

4.14.f

Economics

4.15.a

Economics

4.15.b

Economics

4.15.c

Economics

4.15.d

Economics

4.15.e

**describe types of auctions and calculate
**

the winning price(s) of an auction

calculate and interpret consumer

surplus, producer surplus, and total

surplus

describe how government regulation

and intervention affect demand and

supply

forecast the effect of the introduction

and the removal of a market

interference (e.g., a price floor or

ceiling) on price and quantity

calculate and interpret price, income,

and cross-price elasticities of demand

and describe factors that affect each

measure

describe consumer choice theory and

utility theory

describe the use of indifference curves,

opportunity sets, and budget constraints

in decision making

calculate and interpret a budget

constraint

determine a consumer’s equilibrium

bundle of goods based on utility

analysis

compare substitution and income effects

distinguish between normal goods and

inferior goods, and explain Giffen goods

and Veblen goods in this context

calculate, interpret, and compare

accounting profit, economic profit,

normal profit, and economic rent

calculate and interpret and compare

total, average, and marginal revenue

describe a firm’s factors of production

calculate and interpret total, average,

marginal, fixed, and variable costs

determine and describe breakeven and

shutdown points of production

4.13.i

4.13.j

4.13.k

4.13.l

4.13.m

4.14.a

4.14.b

4.14.c

4.14.d

4.14.e

4.14.f

4.15.a

4.15.b

4.15.c

4.15.d

4.15.e

**describe types of auctions and calculate
**

the winning price(s) of an auction

calculate and interpret consumer

surplus, producer surplus, and total

surplus

describe how government regulation

and intervention affect demand and

supply

forecast the effect of the introduction

and the removal of a market

interference (e.g., a price floor or

ceiling) on price and quantity

calculate and interpret price, income,

and cross-price elasticities of demand

and describe factors that affect each

measure

describe consumer choice theory and

utility theory

describe the use of indifference curves,

opportunity sets, and budget constraints

in decision making

calculate and interpret a budget

constraint

determine a consumer’s equilibrium

bundle of goods based on utility

analysis

compare substitution and income effects

distinguish between normal goods and

inferior goods, and explain Giffen goods

and Veblen goods in this context

calculate, interpret, and compare

accounting profit, economic profit,

normal profit, and economic rent

calculate and interpret and compare

total, average, and marginal revenue

describe a firm’s factors of production

calculate and interpret total, average,

marginal, fixed, and variable costs

determine and describe breakeven and

shutdown points of production

www.passingscore.net

10

Economics

4.15.f

Economics

4.15.g

Economics

4.15.h

Economics

4.15.i

Economics

4.15.j

Economics

4.15.k

Economics

4.15.l

Economics

4.16.a

Economics

4.16.b

Economics

4.16.c

Economics

4.16.d

Economics

4.16.e

Economics

4.16.f

Economics

4.16.g

Economics

4.16.h

**describe approaches to determining the
**

profit-maximizing level of output

describe how economies of scale and

diseconomies of scale affect costs

distinguish between short-run and longrun profit maximization

distinguish among decreasing-cost,

constant-cost, and increasing-cost

industries and describe the long-run

supply of each

calculate and interpret total, marginal,

and average product of labor

describe the phenomenon of diminishing

marginal returns and calculate and

interpret the profit-maximizing

utilization level of an input

determine the optimal combination of

resources that minimizes cost

describe characteristics of perfect

competition, monopolistic competition,

oligopoly, and pure monopoly

explain relationships between price,

marginal revenue, marginal cost,

economic profit, and the elasticity of

demand under each market structure

describe a firm’s supply function under

each market structure

describe and determine the optimal

price and output for firms under each

market structure

explain factors affecting long-run

equilibrium under each market structure

describe pricing strategy under each

market structure

describe the use and limitations of

concentration measures in identifying

market structure

identify the type of market structure

within which a firm operates

4.15.f

4.15.g

4.15.h

4.15.i

4.15.j

4.15.k

4.15.l

4.16.a

4.16.b

4.16.c

4.16.d

4.16.e

4.16.f

4.16.g

4.16.h

**describe approaches to determining the
**

profit-maximizing level of output

describe how economies of scale and

diseconomies of scale affect costs

distinguish between short-run and longrun profit maximization

distinguish among decreasing-cost,

constant-cost, and increasing-cost

industries and describe the long-run

supply of each

calculate and interpret total, marginal,

and average product of labor

describe the phenomenon of diminishing

marginal returns and calculate and

interpret the profit-maximizing

utilization level of an input

determine the optimal combination of

resources that minimizes cost

describe characteristics of perfect

competition, monopolistic competition,

oligopoly, and pure monopoly

explain relationships between price,

marginal revenue, marginal cost,

economic profit, and the elasticity of

demand under each market structure

describe a firm’s supply function under

each market structure

describe and determine the optimal

price and output for firms under each

market structure

explain factors affecting long-run

equilibrium under each market structure

describe pricing strategy under each

market structure

describe the use and limitations of

concentration measures in identifying

market structure

identify the type of market structure

within which a firm operates

www.passingscore.net

11

Economics

5.17.a

Economics

5.17.b

Economics

5.17.c

Economics

5.17.d

Economics

5.17.e

Economics

5.17.f

Economics

5.17.g

Economics

5.17.h

Economics

5.17.i

**calculate and explain gross domestic
**

product (GDP) using expenditure and

income approaches

compare the sum-of-value-added and

value-of-final-output methods of

calculating GDP

compare nominal and real GDP and

calculate and interpret the GDP deflator

compare GDP, national income, personal

income, and personal disposable income

explain the fundamental relationship

among saving, investment, the fiscal

balance, and the trade balance

explain the IS and LM curves and how

they combine to generate the aggregate

demand curve

explain the aggregate supply curve in

the short run and long run

explain causes of movements along and

shifts in aggregate demand and supply

curves

describe how fluctuations in aggregate

demand and aggregate supply cause

short-run changes in the economy and

the business cycle

Economics

5.17.a

5.17.b

5.17.c

5.17.d

5.17.e

5.17.f

5.17.g

5.17.h

5.17.i

5.17.j

Economics

5.17.j

Economics

5.17.k

Economics

5.17.l

**explain how a short-run macroeconomic
**

equilibrium may occur at a level above

or below full employment

analyze the effect of combined changes

in aggregate supply and demand on the

economy

describe sources, measurement, and

sustainability of economic growth

5.17.k

5.17.l

5.17.m

**calculate and explain gross domestic
**

product (GDP) using expenditure and

income approaches

compare the sum-of-value-added and

value-of-final-output methods of

calculating GDP

compare nominal and real GDP and

calculate and interpret the GDP deflator

compare GDP, national income, personal

income, and personal disposable income

explain the fundamental relationship

among saving, investment, the fiscal

balance, and the trade balance

explain the IS and LM curves and how

they combine to generate the aggregate

demand curve

explain the aggregate supply curve in

the short run and long run

explain causes of movements along and

shifts in aggregate demand and supply

curves

describe how fluctuations in aggregate

demand and aggregate supply cause

short-run changes in the economy and

the business cycle

distinguish between the following types

of macroeconomic equilibria: long-run

full employment, short-run recessionary

gap, short-run inflationary gap, and

short-run stagflation

explain how a short-run macroeconomic

equilibrium may occur at a level above

or below full employment

analyze the effect of combined changes

in aggregate supply and demand on the

economy

describe sources, measurement, and

sustainability of economic growth

www.passingscore.net

New

12

Economics

5.17.m

Economics

5.17.n

Economics

5.18.a

Economics

5.18.b

Economics

5.18.c

Economics

5.18.d

Economics

5.18.e

Economics

5.18.f

Economics

5.18.g

Economics

5.18.h

Economics

5.18.i

Economics

5.19.a

Economics

5.19.b

Economics

5.19.c

Economics

5.19.d

Economics

5.19.e

Economics

5.19.f

Economics

5.19.g

Economics

5.19.h

Economics

**describe the production function
**

approach to analyzing the sources of

economic growth

distinguish between input growth and

growth of total factor productivity as

components of economic growth

describe the business cycle and its

phases

describe how resource use, housing

sector activity, and external trade sector

activity vary as an economy moves

through the business cycle

describe theories of the business cycle

describe types of unemployment and

measures of unemployment

explain inflation, hyperinflation,

disinflation, and deflation

explain the construction of indices used

to measure inflation

compare inflation measures, including

their uses and limitations

distinguish between cost-push and

demand-pull inflation

describe economic indicators, including

their uses and limitations

compare monetary and fiscal policy

describe functions and definitions of

money

explain the money creation process

describe theories of the demand for and

supply of money

describe the Fisher effect

describe roles and objectives of central

banks

contrast the costs of expected and

unexpected inflation

describe tools used to implement

monetary policy

5.17.n

5.17.o

5.18.a

5.18.b

5.18.c

5.18.d

5.18.e

5.18.f

5.18.g

5.18.h

5.18.i

5.19.a

5.19.b

5.19.c

5.19.d

5.19.e

5.19.f

5.19.g

5.19.h

5.19.i

**describe the production function
**

approach to analyzing the sources of

economic growth

distinguish between input growth and

growth of total factor productivity as

components of economic growth

describe the business cycle and its

phases

describe how resource use, housing

sector activity, and external trade sector

activity vary as an economy moves

through the business cycle

describe theories of the business cycle

describe types of unemployment and

measures of unemployment

explain inflation, hyperinflation,

disinflation, and deflation

explain the construction of indices used

to measure inflation

compare inflation measures, including

their uses and limitations

distinguish between cost-push and

demand-pull inflation

describe economic indicators, including

their uses and limitations

compare monetary and fiscal policy

describe functions and definitions of

money

explain the money creation process

describe theories of the demand for and

supply of money

describe the Fisher effect

describe roles and objectives of central

banks

contrast the costs of expected and

unexpected inflation

describe tools used to implement

monetary policy

describe the monetary transmission

mechanism

www.passingscore.net

New

13

Economics

5.19.i

Economics

5.19.j

Economics

5.19.k

Economics

5.19.l

Economics

5.19.m

Economics

5.19.n

Economics

5.19.o

Economics

5.19.p

Economics

5.19.q

Economics

5.19.r

Economics

5.19.s

Economics

6.20.a

Economics

6.20.b

Economics

6.20.c

Economics

6.20.d

Economics

6.20.e

Economics

6.20.f

**describe qualities of effective central
**

banks

explain the relationships between

monetary policy and economic growth,

inflation, interest, and exchange rates

contrast the use of inflation, interest

rate, and exchange rate targeting by

central banks

determine whether a monetary policy is

expansionary or contractionary

describe limitations of monetary policy

describe roles and objectives of fiscal

policy

describe tools of fiscal policy, including

their advantages and disadvantages

describe the arguments about whether

the size of a national debt relative to

GDP matters

explain the implementation of fiscal

policy and difficulties of implementation

determine whether a fiscal policy is

expansionary or contractionary

explain the interaction of monetary and

fiscal policy

compare gross domestic product and

gross national product

describe benefits and costs of

international trade

distinguish between comparative

advantage and absolute advantage

explain the Ricardian and

Heckscher–Ohlin models of trade and

the source(s) of comparative advantage

in each model

compare types of trade and capital

restrictions and their economic

implications

explain motivations for and advantages

of trading blocs, common markets, and

economic unions

5.19.j

5.19.k

5.19.l

5.19.m

5.19.n

5.19.o

5.19.p

5.19.q

5.19.r

5.19.s

5.19.t

6.20.a

6.20.b

6.20.c

6.20.d

6.20.e

6.20.f

**describe qualities of effective central
**

banks

explain the relationships between

monetary policy and economic growth,

inflation, interest, and exchange rates

contrast the use of inflation, interest

rate, and exchange rate targeting by

central banks

determine whether a monetary policy is

expansionary or contractionary

describe limitations of monetary policy

describe roles and objectives of fiscal

policy

describe tools of fiscal policy, including

their advantages and disadvantages

describe the arguments about whether

the size of a national debt relative to

GDP matters

explain the implementation of fiscal

policy and difficulties of implementation

determine whether a fiscal policy is

expansionary or contractionary

explain the interaction of monetary and

fiscal policy

compare gross domestic product and

gross national product

describe benefits and costs of

international trade

distinguish between comparative

advantage and absolute advantage

explain the Ricardian and

Heckscher–Ohlin models of trade and

the source(s) of comparative advantage

in each model

compare types of trade and capital

restrictions and their economic

implications

explain motivations for and advantages

of trading blocs, common markets, and

economic unions

www.passingscore.net

14

Economics

6.20.g

Economics

6.20.g

Economics

6.20.h

Economics

6.20.i

Economics

6.21.a

Economics

6.21.b

Economics

6.21.c

Economics

6.21.d

Economics

6.21.e

Economics

6.21.f

Economics

6.21.g

Economics

6.21.h

Economics

6.21.i

Economics

6.21.j

Financial

Reporting

7.22.a

**describe the balance of payments
**

accounts including their components

explain how decisions by consumers,

firms, and governments affect the

balance of payments

describe functions and objectives of the

international organizations that facilitate

trade, including the World Bank, the

International Monetary Fund, and the

World Trade Organization

define an exchange rate, and

distinguish between nominal and real

exchange rates and spot and forward

exchange rates

describe functions of and participants in

the foreign exchange market

calculate and interpret the percentage

change in a currency relative to another

currency

calculate and interpret currency crossrates

convert forward quotations expressed

on a points basis or in percentage terms

into an outright forward quotation

explain the arbitrage relationship

between spot rates, forward rates, and

interest rates

calculate and interpret a forward

discount or premium

calculate and interpret the forward rate

consistent with the spot rate and the

interest rate in each currency

describe exchange rate regimes

explain the effects of exchange rates on

countries’ international trade and capital

flows

describe the roles of financial reporting

and financial statement analysis

6.20.h

6.20.i

6.20.j

6.21.a

6.21.b

6.21.c

6.21.d

6.21.e

6.21.f

6.21.g

6.21.h

6.21.i

6.21.j

7.22.a

**describe common objectives of capital
**

restrictions imposed by governments

describe the balance of payments

accounts including their components

explain how decisions by consumers,

firms, and governments affect the

balance of payments

describe functions and objectives of the

international organizations that facilitate

trade, including the World Bank, the

International Monetary Fund, and the

World Trade Organization

define an exchange rate, and

distinguish between nominal and real

exchange rates and spot and forward

exchange rates

describe functions of and participants in

the foreign exchange market

calculate and interpret the percentage

change in a currency relative to another

currency

calculate and interpret currency crossrates

New

**convert forward quotations expressed
**

on a points basis or in percentage terms

into an outright forward quotation

explain the arbitrage relationship

between spot rates, forward rates, and

interest rates

calculate and interpret a forward

discount or premium

calculate and interpret the forward rate

consistent with the spot rate and the

interest rate in each currency

describe exchange rate regimes

explain the effects of exchange rates on

countries’ international trade and capital

flows

describe the roles of financial reporting

and financial statement analysis

www.passingscore.net

15

Financial

Reporting

7.22.b

Financial

Reporting

7.22.c

Financial

Reporting

7.22.d

Financial

Reporting

7.22.e

Financial

Reporting

7.22.f

Financial

Reporting

7.23.a

Financial

Reporting

7.23.b

Financial

Reporting

7.23.c

Financial

Reporting

7.23.d

Financial

Reporting

7.23.e

**describe the roles of the key financial
**

statements (statement of financial

position, statement of comprehensive

income, statement of changes in equity,

and statement of cash flows) in

evaluating a company’s performance

and financial position

describe the importance of financial

statement notes and supplementary

information—including disclosures of

accounting policies, methods, and

estimates— and management’s

commentary

describe the objective of audits of

financial statements, the types of audit

reports, and the importance of effective

internal controls

identify and describe information

sources that analysts use in financial

statement analysis besides annual

financial statements and supplementary

information

describe the steps in the financial

statement analysis framework

explain the relationship of financial

statement elements and accounts, and

classify accounts into the financial

statement elements

explain the accounting equation in its

basic and expanded forms

describe the process of recording

business transactions using an

accounting system based on the

accounting equation

describe the need for accruals and other

adjustments in preparing financial

statements

describe the relationships among the

income statement, balance sheet,

statement of cash flows, and statement

of owners’ equity

7.22.b

7.22.c

7.22.d

7.22.e

7.22.f

7.23.a

7.23.b

7.23.c

7.23.d

7.23.e

**describe the roles of the key financial
**

statements (statement of financial

position, statement of comprehensive

income, statement of changes in equity,

and statement of cash flows) in

evaluating a company’s performance

and financial position

describe the importance of financial

statement notes and supplementary

information—including disclosures of

accounting policies, methods, and

estimates— and management’s

commentary

describe the objective of audits of

financial statements, the types of audit

reports, and the importance of effective

internal controls

identify and describe information

sources that analysts use in financial

statement analysis besides annual

financial statements and supplementary

information

describe the steps in the financial

statement analysis framework

explain the relationship of financial

statement elements and accounts, and

classify accounts into the financial

statement elements

explain the accounting equation in its

basic and expanded forms

describe the process of recording

business transactions using an

accounting system based on the

accounting equation

describe the need for accruals and other

adjustments in preparing financial

statements

describe the relationships among the

income statement, balance sheet,

statement of cash flows, and statement

of owners’ equity

www.passingscore.net

16

Financial

Reporting

Financial

Reporting

7.23.f

7.23.g

Financial

Reporting

7.24.a

Financial

Reporting

7.24.b

Financial

Reporting

7.24.c

Financial

Reporting

7.24.d

Financial

Reporting

7.24.e

Financial

Reporting

7.24.f

Financial

Reporting

7.24.g

**describe the flow of information in an
**

accounting system

describe the use of the results of the

accounting process in security analysis

describe the objective of financial

statements and the importance of

financial reporting standards in security

analysis and valuation

describe roles and desirable attributes

of financial reporting standard-setting

bodies and regulatory authorities in

establishing and enforcing reporting

standards, and describe the role of the

International Organization of Securities

Commissions

describe the status of global

convergence of accounting standards

and ongoing barriers to developing one

universally accepted set of financial

reporting standards

describe the International Accounting

Standards Board’s conceptual

framework, including the objective and

qualitative characteristics of financial

statements, required reporting

elements, and constraints and

assumptions in preparing financial

statements

describe general requirements for

financial statements under IFRS

compare key concepts of financial

reporting standards under IFRS and

U.S. GAAP reporting systems

identify characteristics of a coherent

financial reporting framework and the

barriers to creating such a framework

7.23.f

7.23.g

7.24.a

7.24.b

7.24.c

7.24.d

7.24.e

7.24.f

7.24.g

**describe the flow of information in an
**

accounting system

describe the use of the results of the

accounting process in security analysis

describe the objective of financial

statements and the importance of

financial reporting standards in security

analysis and valuation

describe roles and desirable attributes

of financial reporting standard-setting

bodies and regulatory authorities in

establishing and enforcing reporting

standards, and describe the role of the

International Organization of Securities

Commissions

describe the status of global

convergence of accounting standards

and ongoing barriers to developing one

universally accepted set of financial

reporting standards

describe the International Accounting

Standards Board’s conceptual

framework, including the objective and

qualitative characteristics of financial

statements, required reporting

elements, and constraints and

assumptions in preparing financial

statements

describe general requirements for

financial statements under International

Financial Reporting Standards (IFRS)

compare key concepts of financial

reporting standards under IFRS and US

generally accepted accounting principles

(US GAAP) reporting systems

identify characteristics of a coherent

financial reporting framework and the

barriers to creating such a framework

www.passingscore.net

Wording

Change

Wording

Change

17

Financial

Reporting

7.24.h

Financial

Reporting

7.24.i

Financial

Reporting

8.25.a

Financial

Reporting

8.25.b

Financial

Reporting

8.25.c

Financial

Reporting

8.25.d

Financial

Reporting

8.25.e

Financial

Reporting

8.25.f

**describe implications for financial
**

analysis of differing financial reporting

systems and the importance of

monitoring developments in financial

reporting standards

analyze company disclosures of

significant accounting policies

describe the components of the income

statement and alternative presentation

formats of that statement

describe general principles of revenue

recognition and accrual accounting,

specific revenue recognition applications

(including accounting for long-term

contracts, installment sales, barter

transactions, gross and net reporting of

revenue), and implications of revenue

recognition principles for financial

analysis

calculate revenue given information that

might influence the choice of revenue

recognition method

describe general principles of expense

recognition, specific expense recognition

applications, and implications of

expense recognition choices for financial

analysis

describe the financial reporting

treatment and analysis of non-recurring

items (including discontinued

operations, extraordinary items,

unusual or infrequent items) and

changes in accounting standards

distinguish between the operating and

non-operating components of the

income statement

7.24.h

7.24.i

8.25.a

8.25.b

8.25.c

8.25.d

8.25.e

8.25.f

**describe implications for financial
**

analysis of differing financial reporting

systems and the importance of

monitoring developments in financial

reporting standards

analyze company disclosures of

significant accounting policies

describe the components of the income

statement and alternative presentation

formats of that statement

describe general principles of revenue

recognition and accrual accounting,

specific revenue recognition applications

(including accounting for long-term

contracts, installment sales, barter

transactions, gross and net reporting of

revenue), and implications of revenue

recognition principles for financial

analysis

calculate revenue given information that

might influence the choice of revenue

recognition method

describe general principles of expense

recognition, specific expense recognition

applications, and implications of

expense recognition choices for financial

analysis

describe the financial reporting

treatment and analysis of non-recurring

items (including discontinued

operations, extraordinary items,

unusual or infrequent items) and

changes in accounting standards

distinguish between the operating and

non-operating components of the

income statement

www.passingscore.net

18

Financial

Reporting

8.25.g

Financial

Reporting

8.25.h

Financial

Reporting

8.25.i

Financial

Reporting

8.25.j

Financial

Reporting

8.25.k

Financial

Reporting

8.25.l

Financial

Reporting

Financial

Reporting

Financial

Reporting

8.26.a

8.26.b

8.26.c

Financial

Reporting

8.26.d

Financial

Reporting

8.26.e

Financial

Reporting

8.26.f

Financial

Reporting

8.26.g

Financial

Reporting

8.26.h

**describe how earnings per share is
**

calculated and calculate and interpret a

company’s earnings per share (both

basic and diluted earnings per share)

for both simple and complex capital

structures

distinguish between dilutive and

antidilutive securities, and describe the

implications of each for the earnings per

share calculation

convert income statements to commonsize income statements

evaluate a company’s financial

performance using common-size income

statements and financial ratios based on

the income statement

describe, calculate, and interpret

comprehensive income

describe other comprehensive income,

and identify major types of items

included in it

describe the elements of the balance

sheet: assets, liabilities, and equity

describe uses and limitations of the

balance sheet in financial analysis

describe alternative formats of balance

sheet presentation

distinguish between current and noncurrent assets, and current and noncurrent liabilities

describe different types of assets and

liabilities and the measurement bases of

each

describe the components of

shareholders’ equity

analyze balance sheets and statements

of changes in equity

convert balance sheets to common-size

balance sheets and interpret commonsize balance sheets

8.25.g

8.25.h

8.25.i

8.25.j

8.25.k

8.25.l

8.26.a

8.26.b

8.26.c

8.26.d

8.26.e

8.26.f

8.26.g

**describe how earnings per share is
**

calculated and calculate and interpret a

company’s earnings per share (both

basic and diluted earnings per share)

for both simple and complex capital

structures

distinguish between dilutive and

antidilutive securities, and describe the

implications of each for the earnings per

share calculation

convert income statements to commonsize income statements

evaluate a company’s financial

performance using common-size income

statements and financial ratios based on

the income statement

describe, calculate, and interpret

comprehensive income

describe other comprehensive income,

and identify major types of items

included in it

describe the elements of the balance

sheet: assets, liabilities, and equity

describe uses and limitations of the

balance sheet in financial analysis

describe alternative formats of balance

sheet presentation

distinguish between current and noncurrent assets, and current and noncurrent liabilities

describe different types of assets and

liabilities and the measurement bases of

each

describe the components of

shareholders’ equity

convert balance sheets to common-size

balance sheets and interpret commonsize balance sheets

www.passingscore.net

Separation

Separation

19

Financial

Reporting

8.26.i

Financial

Reporting

8.27.a

Financial

Reporting

8.27.b

Financial

Reporting

8.27.c

Financial

Reporting

8.27.d

Financial

Reporting

8.27.e

Financial

Reporting

8.27.f

Financial

Reporting

Financial

Reporting

8.27.g

8.27.h

Financial

Reporting

8.27.i

Financial

Reporting

8.28.a

Financial

Reporting

8.28.b

**calculate and interpret liquidity and
**

solvency ratios

compare cash flows from operating,

investing, and financing activities and

classify cash flow items as relating to

one of those three categories given a

description of the items

describe how non-cash investing and

financing activities are reported

contrast cash flow statements prepared

under International Financial Reporting

Standards (IFRS) and U.S. generally

accepted accounting principles (U.S.

GAAP)

distinguish between the direct and

indirect methods of presenting cash

from operating activities and describe

arguments in favor of each method

describe how the cash flow statement is

linked to the income statement and the

balance sheet

describe the steps in the preparation of

direct and indirect cash flow

statements, including how cash flows

can be computed using income

statement and balance sheet data

convert cash flows from the indirect to

direct method

analyze and interpret both reported and

common-size cash flow statements

calculate and interpret free cash flow to

the firm, free cash flow to equity, and

performance and coverage cash flow

ratios

describe tools and techniques used in

financial analysis, including their uses

and limitations

classify, calculate, and interpret activity,

liquidity, solvency, profitability, and

valuation ratios

8.26.h

8.27.a

8.27.b

8.27.c

8.27.d

8.27.e

8.27.f

8.27.g

8.27.h

8.27.i

8.28.a

8.28.b

**calculate and interpret liquidity and
**

solvency ratios

compare cash flows from operating,

investing, and financing activities and

classify cash flow items as relating to

one of those three categories given a

description of the items

describe how non-cash investing and

financing activities are reported

contrast cash flow statements prepared

under International Financial Reporting

Standards (IFRS) and U.S. generally

accepted accounting principles (U.S.

GAAP)

distinguish between the direct and

indirect methods of presenting cash

from operating activities and describe

arguments in favor of each method

describe how the cash flow statement is

linked to the income statement and the

balance sheet

describe the steps in the preparation of

direct and indirect cash flow

statements, including how cash flows

can be computed using income

statement and balance sheet data

convert cash flows from the indirect to

direct method

analyze and interpret both reported and

common-size cash flow statements

calculate and interpret free cash flow to

the firm, free cash flow to equity, and

performance and coverage cash flow

ratios

describe tools and techniques used in

financial analysis, including their uses

and limitations

classify, calculate, and interpret activity,

liquidity, solvency, profitability, and

valuation ratios

www.passingscore.net

20

Financial

Reporting

8.28.c

Financial

Reporting

8.28.d

Financial

Reporting

8.28.e

Financial

Reporting

8.28.f

Financial

Reporting

8.28.g

Financial

Reporting

9.29.a

Financial

Reporting

9.29.b

Financial

Reporting

9.29.c

Financial

Reporting

9.29.d

Financial

Reporting

9.29.e

Financial

Reporting

9.29.f

Financial

Reporting

9.29.g

Financial

Reporting

9.29.h

**describe relationships among ratios and
**

evaluate a company using ratio analysis

demonstrate the application of DuPont

analysis of return on equity, and

calculate and interpret effects of

changes in its components

calculate and interpret ratios used in

equity analysis and credit analysis

explain the requirements for segment

reporting, and calculate and interpret

segment ratios

describe how ratio analysis and other

techniques can be used to model and

forecast earnings

distinguish between costs included in

inventories and costs recognized as

expenses in the period in which they are

incurred

describe different inventory valuation

methods (cost formulas)

calculate cost of sales and ending

inventory using different inventory

valuation methods and explain the

effect of the inventory valuation method

choice on gross profit

calculate and compare cost of sales,

gross profit, and ending inventory using

perpetual and periodic inventory

systems

compare cost of sales, ending inventory,

and gross profit using different

inventory valuation methods

describe the measurement of inventory

at the lower of cost and net realisable

value

describe the financial statement

presentation of and disclosures relating

to inventories

calculate and interpret ratios used to

evaluate inventory management

8.28.c

8.28.d

8.28.e

8.28.f

8.28.g

9.29.a

9.29.b

9.29.c

9.29.d

9.29.e

9.29.f

9.29.g

9.29.h

**describe relationships among ratios and
**

evaluate a company using ratio analysis

demonstrate the application of DuPont

analysis of return on equity, and

calculate and interpret effects of

changes in its components

calculate and interpret ratios used in

equity analysis and credit analysis

explain the requirements for segment

reporting, and calculate and interpret

segment ratios

describe how ratio analysis and other

techniques can be used to model and

forecast earnings

distinguish between costs included in

inventories and costs recognised as

expenses in the period in which they are

incurred

describe different inventory valuation

methods (cost formulas)

calculate cost of sales and ending

inventory using different inventory

valuation methods and explain the

effect of the inventory valuation method

choice on gross profit

calculate and compare cost of sales,

gross profit, and ending inventory using

perpetual and periodic inventory

systems

compare cost of sales, ending inventory,

and gross profit using different

inventory valuation methods

describe the measurement of inventory

at the lower of cost and net realisable

value

describe the financial statement

presentation of and disclosures relating

to inventories

calculate and interpret ratios used to

evaluate inventory management

www.passingscore.net

sp

21

Financial

Reporting

9.30.a

Financial

Reporting

9.30.b

Financial

Reporting

9.30.c

Financial

Reporting

9.30.d

Financial

Reporting

9.30.e

Financial

Reporting

Financial

Reporting

9.30.f

9.30.g

Financial

Reporting

9.30.h

Financial

Reporting

9.30.i

Financial

Reporting

9.30.j

Financial

Reporting

9.30.k

**distinguish between costs that are
**

capitalized and costs that are expensed

in the period in which they are incurred

compare the financial reporting of the

following types of intangible assets:

purchased, internally developed,

acquired in a business combination

describe the different depreciation

methods for property, plant, and

equipment, the effect of the choice of

depreciation method on the financial

statements, and the effects of

assumptions concerning useful life and

residual value on depreciation expense

calculate depreciation expense

describe the different amortization

methods for intangible assets with finite

lives, the effect of the choice of

amortization method on the financial

statements, and the effects of

assumptions concerning useful life and

residual value on amortization expense

9.30.a

9.30.b

9.30.c

9.30.d

9.30.e

9.30.f

**calculate amortization expense
**

describe the revaluation model

explain the imparment of property,

plant, and equipment and intangible

assets

explain the derecognition of property,

plant, and equipment and intangible

assets

describe the financial statement

presentation of and disclosures relating

to property, plant, and equipment and

intangible assets

compare the financial reporting of

investment property with that of

property, plant, and equipment

9.30.g

9.30.h

9.30.i

9.30.j

9.30.k

**distinguish between costs that are
**

capitalized and costs that are expensed

in the period in which they are incurred

compare the financial reporting of the

following types of intangible assets:

purchased, internally developed,

acquired in a business combination

describe the different depreciation

methods for property, plant, and

equipment, the effect of the choice of

depreciation method on the financial

statements, and the effects of

assumptions concerning useful life and

residual value on depreciation expense

calculate depreciation expense

describe the different amortization

methods for intangible assets with finite

lives, the effect of the choice of

amortization method on the financial

statements, and the effects of

assumptions concerning useful life and

residual value on amortization expense

calculate amortization expense

describe the revaluation model

explain the impairment of property,

plant, and equipment and intangible

assets

explain the derecognition of property,

plant, and equipment and intangible

assets

describe the financial statement

presentation of and disclosures relating

to property, plant, and equipment and

intangible assets

compare the financial reporting of

investment property with that of

property, plant, and equipment

www.passingscore.net

22

Financial

Reporting

9.31.a

Financial

Reporting

9.31.b

Financial

Reporting

9.31.c

Financial

Reporting

9.31.d

Financial

Reporting

9.31.e

Financial

Reporting

9.31.f

Financial

Reporting

9.31.g

Financial

Reporting

9.31.h

Financial

Reporting

9.31.i

**describe the differences between
**

accounting profit and taxable income,

and define key terms, including deferred

tax assets, deferred tax liabilities,

valuation allowance, taxes payable, and

income tax expense

explain how deferred tax liabilities and

assets are created and the factors that

determine how a company’s deferred

tax liabilities and assets should be

treated for the purposes of financial

analysis

calculate the tax base of a company’s

assets and liabilities

calculate income tax expense, income

taxes payable, deferred tax assets, and

deferred tax liabilities, and calculate and

interpret the adjustment to the financial

statements related to a change in the

income tax rate

evaluate the impact of tax rate changes

on a company's financial statements

and ratios

distinguish between temporary and

permanent differences in pre-tax

accounting income and taxable income

describe the valuation allowance for

deferred tax assets—when it is required

and what impact it has on financial

statements

compare a company’s deferred tax

items

analyze disclosures relating to deferred

tax items and the effective tax rate

reconciliation, and explain how

information included in these

disclosures affects a company’s financial

statements and financial ratios

9.31.a

9.31.b

9.31.c

9.31.d

9.31.e

9.31.f

9.31.g

9.31.h

9.31.i

**describe the differences between
**

accounting profit and taxable income,

and define key terms, including deferred

tax assets, deferred tax liabilities,

valuation allowance, taxes payable, and

income tax expense

explain how deferred tax liabilities and

assets are created and the factors that

determine how a company’s deferred

tax liabilities and assets should be

treated for the purposes of financial

analysis

calculate the tax base of a company’s

assets and liabilities

calculate income tax expense, income

taxes payable, deferred tax assets, and

deferred tax liabilities, and calculate and

interpret the adjustment to the financial

statements related to a change in the

income tax rate

evaluate the impact of tax rate changes

on a company’s financial statements

and ratios

distinguish between temporary and

permanent differences in pre-tax

accounting income and taxable income

describe the valuation allowance for

deferred tax assets—when it is required

and what impact it has on financial

statements

compare a company’s deferred tax

items

analyze disclosures relating to deferred

tax items and the effective tax rate

reconciliation, and explain how

information included in these

disclosures affects a company’s financial

statements and financial ratios

www.passingscore.net

23

Financial

Reporting

9.31.j

Financial

Reporting

9.32.a

Financial

Reporting

9.32.b

Financial

Reporting

Financial

Reporting

9.32.c

9.32.d

Financial

Reporting

9.32.e

Financial

Reporting

9.32.f

Financial

Reporting

9.32.g

Financial

Reporting

9.32.h

Financial

Reporting

Financial

Reporting

9.32.i

9.32.j

Financial

Reporting

9.32.k

Financial

Reporting

9.32.l

**identify the key provisions of and
**

differences between income tax

accounting under IFRS and U.S. GAAP

determine the initial recognition, initial

measurement and subsequent

measurement of bonds

describe the effective interest method

and calculate interest expense,

amortisation of bond

discounts/premiums, and interest

payments

explain the derecognition of debt

describe the role of debt covenants in

protecting creditors

describe the financial statement

presentation of and disclosures relating

to debt

explain the motivations for leasing

assets instead of purchasing them

distinguish between a finance lease and

an operating lease from the

perspectives of the lessor and the

lessee

determine the initial recognition, initial

measurement, and subsequent

measurement of finance leases

compare the disclosures relating to

finance and operating leases

describe defined contribution and

defined benefit pension plans

compare the presentation and

disclosure of defined contribution and

defined benefit pension plans

calculate and interpret leverage and

coverage ratios

9.31.j

9.32.a

9.32.b

9.32.c

9.32.d

9.32.e

9.32.f

9.32.g

9.32.h

9.32.i

**identify the key provisions of and
**

differences between income tax

accounting under International Financial

Reporting Standards (IFRS) and US

generally accepted accounting principles

(GAAP)

determine the initial recognition, initial

measurement and subsequent

measurement of bonds

describe the effective interest method

and calculate interest expense,

amortisation of bond

discounts/premiums, and interest

payments

explain the derecognition of debt

describe the role of debt covenants in

protecting creditors

describe the financial statement

presentation of and disclosures relating

to debt

explain motivations for leasing assets

instead of purchasing them

distinguish between a finance lease and

an operating lease from the

perspectives of the lessor and the

lessee

determine the initial recognition, initial

measurement, and subsequent

measurement of finance leases

compare the disclosures relating to

finance and operating leases

Wording

Change

Wording

Change

Removed

9.32.j

9.32.k

**compare the presentation and
**

disclosure of defined contribution and

defined benefit pension plans

calculate and interpret leverage and

coverage ratios

www.passingscore.net

24

Financial

Reporting

10.33.a

Financial

Reporting

Financial

Reporting

10.33.b

10.33.c

Financial

Reporting

10.33.a

Financial

Reporting

10.33.b

Financial

Reporting

10.33.c

**describe incentives that might induce a
**

company’s executives to manage

reported earnings, financial positions,

and cash flows

describe activities that will result in a

low quality of earnings

describe the three conditions that are

generally present when fraud occurs,

including the risk factors related to

these conditions

10.33.d

10.33.e

10.33.f

Financial

Reporting

10.33.g

Financial

Reporting

10.33.h

10.33.d

Financial

Reporting

10.34.a

Financial

Reporting

10.34.b

**describe common accounting warning
**

signs and methods for detecting each

describe reasons for investors to assess

the quality of cash flow statements

analyze and describe the following ways

to manage or manipulate the cash flow

statement: stretching out payables,

financing of payables, securitization of

receivables, issuing stock options, and

using stock buybacks

**describe motivations that might cause
**

management to issue financial reports

that are not high quality

New

New

New

Wording

Change

Separation

Financial

Reporting

Financial

Reporting

**distinguish between financial reporting
**

quality and quality of reported results

(including quality of earnings, cash flow,

and balance sheet items)

describe a spectrum for assessing

financial reporting quality

distinguish between conservative and

aggressive accounting

10.33.i

**describe conditions that are conducive
**

to issuing low-quality, or even

fraudulent, financial reports

describe mechanisms that discipline

financial reporting quality and the

potential limitations of those

mechanisms

describe presentation choices, including

non-GAAP measures, that could be used

to influence an analyst’s opinion

describe accounting methods (choices

and estimates) that could be used to

manage earnings, cash flow, and

balance sheet items

describe accounting warning signs and

methods for detecting manipulation of

information in financial reports

www.passingscore.net

Separation

New

New

New

Wording

Change

Removed

Removed

25

Financial

Reporting

10.35.a

Financial

Reporting

10.35.b

Financial

Reporting

10.35.c

Financial

Reporting

10.35.d

Financial

Reporting

10.35.e

Corporate

Finance

11.36.a

Corporate

Finance

11.36.b

Corporate

Finance

11.36.c

Corporate

Finance

11.36.d

Corporate

Finance

11.36.e

**evaluate a company’s past financial
**

performance and explain how a

company’s strategy is reflected in past

financial performance

forecast a company’s future net income

and cash flow

describe the role of financial statement

analysis in assessing the credit quality

of a potential debt investment

describe the use of financial statement

analysis in screening for potential equity

investments

explain appropriate analyst adjustments

to a company’s financial statements to

facilitate comparison with another

company

describe the capital budgeting process,

including the typical steps of the

process, and distinguish among the

various categories of capital projects

describe the basic principles of capital

budgeting, including cash flow

estimation

explain how the evaluation and

selection of capital projects is affected

by mutually exclusive projects, project

sequencing, and capital rationing

calculate and interpret the results using

each of the following methods to

evaluate a single capital project: net

present value (NPV), internal rate of

return (IRR), payback period,

discounted payback period, and

profitability index (PI)

explain the NPV profile, compare the

NPV and IRR methods when evaluating

independent and mutually exclusive

projects, and describe the problems

associated with each of the evaluation

methods

10.34.a

10.34.b

10.34.c

10.34.d

10.34.e

11.35.a

11.35.b

11.35.c

11.35.d

11.35.e

**evaluate a company’s past financial
**

performance and explain how a

company’s strategy is reflected in past

financial performance

forecast a company’s future net income

and cash flow

describe the role of financial statement

analysis in assessing the credit quality

of a potential debt investment

describe the use of financial statement

analysis in screening for potential equity

investments

explain appropriate analyst adjustments

to a company’s financial statements to

facilitate comparison with another

company

describe the capital budgeting process

and distinguish among the various

categories of capital projects

describe the basic principles of capital

budgeting

explain how the evaluation and

selection of capital projects is affected

by mutually exclusive projects, project

sequencing, and capital rationing

**calculate and interpret net present
**

value (NPV), internal rate of return

(IRR), payback period, discounted

payback period, and profitability index

(PI) of a single capital project

explain the NPV profile, compare the

NPV and IRR methods when evaluating

independent and mutually exclusive

projects, and describe the problems

associated with each of the evaluation

methods

www.passingscore.net

Wording

Change

Wording

Change

Wording

Change

26

Corporate

Finance

11.36.f

Corporate

Finance

11.37.a

Corporate

Finance

11.37.b

Corporate

Finance

11.37.c

Corporate

Finance

11.37.d

Corporate

Finance

11.37.e

Corporate

Finance

11.37.f

Corporate

Finance

11.37.g

Corporate

Finance

11.37.h

Corporate

Finance

Corporate

Finance

11.37.i

11.37.j

Corporate

Finance

11.37.k

Corporate

Finance

11.37.l

**describe expected relations among an
**

investment’s NPV, company value, and

share price

calculate and interpret the weighted

average cost of capital (WACC) of a

company

describe how taxes affect the cost of

capital from different capital sources

explain alternative methods of

calculating the weights used in the

WACC, including the use of the

company’s target capital structure

explain how the marginal cost of capital

and the investment opportunity

schedule are used to determine the

optimal capital budget

explain the marginal cost of capital’s

role in determining the net present

value of a project

calculate and interpret the cost of debt

capital using the yield-to-maturity

approach and the debt-rating approach

calculate and interpret the cost of

noncallable, nonconvertible preferred

stock

calculate and interpret the cost of

equity capital using the capital asset

pricing model approach, the dividend

discount model approach, and the bondyield-plus risk-premium approach

calculate and interpret the beta and

cost of capital for a project

describe uses of country risk premiums

in estimating the cost of equity

describe the marginal cost of capital

schedule, explain why it may be upwardsloping with respect to additional

capital, and calculate and interpret its

break-points

explain and demonstrate the correct

treatment of flotation costs

11.35.f

11.36.a

11.36.b

11.36.c

11.36.d

11.36.e

11.36.f

11.36.g

11.36.h

11.36.i

11.36.j

11.36.k

11.36.l

**describe expected relations among an
**

investment’s NPV, company value, and

share price

calculate and interpret the weighted

average cost of capital (WACC) of a

company

describe how taxes affect the cost of

capital from different capital sources

describe the use of target capital

structure in estimating WACC and how

target capital structure weights may be

determined

explain how the marginal cost of capital

and the investment opportunity

schedule are used to determine the

optimal capital budget

explain the marginal cost of capital’s

role in determining the net present

value of a project

calculate and interpret the cost of debt

capital using the yield-to-maturity

approach and the debt-rating approach

calculate and interpret the cost of

noncallable, nonconvertible preferred

stock

calculate and interpret the cost of

equity capital using the capital asset

pricing model approach, the dividend

discount model approach, and the bondyield-plus risk-premium approach

calculate and interpret the beta and

cost of capital for a project

describe uses of country risk premiums

in estimating the cost of equity

describe the marginal cost of capital

schedule, explain why it may be upwardsloping with respect to additional

capital, and calculate and interpret its

break-points

explain and demonstrate the correct

treatment of flotation costs

www.passingscore.net

Wording

Change

27

Corporate

Finance

11.38.a

Corporate

Finance

11.38.b

Corporate

Finance

11.38.c

Corporate

Finance

11.38.d

Corporate

Finance

11.38.e

Corporate

Finance

11.39.a

Corporate

Finance

11.39.b

Corporate

Finance

11.39.c

Corporate

Finance

11.39.d

Corporate

Finance

11.39.e

Corporate

Finance

11.39.f

**define and explain leverage, business
**

risk, sales risk, operating risk, and

financial risk, and classify a risk, given a

description

calculate and interpret the degree of

operating leverage, the degree of

financial leverage, and the degree of

total leverage

describe the effect of financial leverage

on a company’s net income and return

on equity

calculate the breakeven quantity of

sales and determine the company's net

income at various sales levels

calculate and interpret the operating

breakeven quantity of sales

describe regular cash dividends, extra

dividends, stock dividends, stock splits,

and reverse stock splits, including their

expected effect on shareholders’ wealth

and a company’s financial ratios

describe dividend payment chronology,

including the significance of declaration,

holder-of-record, ex-dividend, and

payment dates

compare share repurchase methods

calculate and compare the effect of a

share repurchase on earnings per share

when 1) the repurchase is financed with

the company’s excess cash and 2) the

company uses debt to finance the

repurchase

calculate the effect of a share

repurchase on book value per share

explain why a cash dividend and a share

repurchase of the same amount are

equivalent in terms of the effect on

shareholders’ wealth, all else being

equal

11.37.a

11.37.b

11.37.c

11.37.d

11.37.e

11.38.a

11.38.b

11.38.c

11.38.d

11.38.e

11.38.f

**define and explain leverage, business
**

risk, sales risk, operating risk, and

financial risk, and classify a risk

calculate and interpret the degree of

operating leverage, the degree of

financial leverage, and the degree of

total leverage

analyze the effect of financial leverage

on a company’s net income and return

on equity

calculate the breakeven quantity of

sales and determine the company’s net

income at various sales levels

calculate and interpret the operating

breakeven quantity of sales

describe regular cash dividends, extra

dividends, liquidating dividends, stock

dividends, stock splits, and reverse

stock splits, including their expected

effect on shareholders’ wealth and a

company’s financial ratios

describe dividend payment chronology,

including the significance of declaration,

holder-of-record, ex-dividend, and

payment dates

Wording

Change

Wording

Change

Wording

Change

**compare share repurchase methods
**

calculate and compare the effect of a

share repurchase on earnings per share

when 1) the repurchase is financed with

the company’s excess cash and 2) the

company uses debt to finance the

repurchase

calculate the effect of a share

repurchase on book value per share

explain why a cash dividend and a share

repurchase of the same amount are

equivalent in terms of the effect on

shareholders’ wealth, all else being

equal

www.passingscore.net

28

Corporate

Finance

11.40.a

Corporate

Finance

11.40.b

Corporate

Finance

11.40.c

Corporate

Finance

11.40.d

Corporate

Finance

11.40.e

Corporate

Finance

11.40.f

Corporate

Finance

11.40.g

Corporate

Finance

11.41.a

Corporate

Finance

11.41.b

Corporate

Finance

11.41.c

Corporate

Finance

11.41.d

**describe primary and secondary sources
**

of liquidity and factors that influence a

company’s liquidity position

compare a company’s liquidity

measures with those of peer companies

evaluate working capital effectiveness of

a company based on its operating and

cash conversion cycles, and compare

the company’s effectiveness with that of

peer companies

describe how different types of cash

flows affect a company’s net daily cash

position

calculate and interpret comparable

yields on various securities, compare

portfolio returns against a standard

benchmark, and evaluate a company’s

short-term investment policy guidelines

evaluate a company’s management of

accounts receivable, inventory, and

accounts payable over time and

compared to peer companies

evaluate the choices of short-term

funding available to a company and

recommend a financing method

define corporate governance

describe practices related to board and

committee independence, experience,

compensation, external consultants,

and frequency of elections, and

determine whether they are supportive

of shareowner protection

describe board independence and

explain the importance of independent

board members in corporate

governance

identify factors that an analyst should

consider when evaluating the

qualifications of board members

11.39.a

11.39.b

11.39.c

11.39.d

11.39.e

11.39.f

11.39.g

11.40.a

11.40.b

11.40.c

11.40.d

**describe primary and secondary sources
**

of liquidity and factors that influence a

company’s liquidity position

compare a company’s liquidity

measures with those of peer companies

evaluate working capital effectiveness of

a company based on its operating and

cash conversion cycles, and compare

the company’s effectiveness with that of

peer companies

describe how different types of cash

flows affect a company’s net daily cash

position

calculate and interpret comparable

yields on various securities, compare

portfolio returns against a standard

benchmark, and evaluate a company’s

short-term investment policy guidelines

evaluate a company’s management of

accounts receivable, inventory, and

accounts payable over time and

compared to peer companies

evaluate the choices of short-term

funding available to a company and

recommend a financing method

define corporate governance

describe practices related to board and

committee independence, experience,

compensation, external consultants,

and frequency of elections, and

determine whether they are supportive

of shareowner protection

describe board independence and

explain the importance of independent

board members in corporate

governance

identify factors that an analyst should

consider when evaluating the

qualifications of board members

www.passingscore.net

29

Corporate

Finance

11.41.e

Corporate

Finance

11.41.f

Corporate

Finance

11.41.g

Portfolio

Management

12.42.a

Portfolio

Management

12.42.b

Portfolio

Management

Portfolio

Management

12.42.c

12.42.d

Portfolio

Management

12.42.e

Portfolio

Management

12.43.a

Portfolio

Management

12.43.b

Portfolio

Management

12.43.c

Portfolio

Management

Portfolio

Management

12.43.d

12.43.e

**describe responsibilities of the audit,
**

compensation, and nominations

committees and identify factors an

investor should consider when

evaluating the quality of each

committee

explain provisions that should be

included in a strong corporate code of

ethics

evaluate, from a shareowner’s

perspective, company policies related to

voting rules, shareowner sponsored

proposals, common stock classes, and

takeover defenses

describe the portfolio approach to

investing

describe types of investors and

distinctive characteristics and needs of

each

describe defined contribution and

defined benefit pension plans

describe the steps in the portfolio

management process

describe mutual funds and compare

them with other pooled investment

products

calculate and interpret major return

measures and describe their appropriate

uses

describe characteristics of the major

asset classes that investors consider in

forming portfolios

calculate and interpret the mean,

variance, and covariance (or

correlation) of asset returns based on

historical data

explain risk aversion and its implications

for portfolio selection

calculate and interpret portfolio

standard deviation

11.40.e

11.40.f

11.40.g

12.41.a

12.41.b

12.41.c

12.41.d

12.41.e

12.42.a

12.42.b

12.42.c

12.42.d

12.42.e

**describe responsibilities of the audit,
**

compensation, and nominations

committees and identify factors an

investor should consider when

evaluating the quality of each

committee

describe provisions that should be

included in a strong corporate code of

ethics

evaluate, from a shareowner’s

perspective, company policies related to

voting rules, shareowner sponsored

proposals, common stock classes, and

takeover defenses

describe the portfolio approach to

investing

describe types of investors and

distinctive characteristics and needs of

each

describe defined contribution and

defined benefit pension plans

describe the steps in the portfolio

management process

describe mutual funds and compare

them with other pooled investment

products

calculate and interpret major return

measures and describe their appropriate

uses

describe characteristics of the major

asset classes that investors consider in

forming portfolios

calculate and interpret the mean,

variance, and covariance (or

correlation) of asset returns based on

historical data

explain risk aversion and its implications

for portfolio selection

calculate and interpret portfolio

standard deviation

www.passingscore.net

Wording

Change

30

Portfolio

Management

12.43.f

Portfolio

Management

12.43.g

Portfolio

Management

12.43.h

Portfolio

Management

12.44.a

Portfolio

Management

12.44.b

Portfolio

Management

12.44.c

Portfolio

Management

12.44.d

Portfolio

Management

12.44.e

Portfolio

Management

12.44.f

Portfolio

Management

Portfolio

Management

Portfolio

Management

Portfolio

Management

Portfolio

Management

12.44.g

12.44.h

12.45.a

12.45.b

12.45.c

**describe the effect on a portfolio’s risk
**

of investing in assets that are less than

perfectly correlated

describe and interpret the minimumvariance and efficient frontiers of risky

assets and the global minimum-variance

portfolio

discuss the selection of an optimal

portfolio, given an investor’s utility (or

risk aversion) and the capital allocation

line

describe the implications of combining a

risk-free asset with a portfolio of risky

assets

explain the capital allocation line (CAL)

and the capital market line (CML)

explain systematic and nonsystematic

risk, including why an investor should

not expect to receive additional return

for bearing nonsystematic risk

explain return generating models

(including the market model) and their

uses

calculate and interpret beta

explain the capital asset pricing model

(CAPM), including its assumptions, and

the security market line (SML)

calculate and interpret the expected

return of an asset using the CAPM

describe and demonstrate applications

of the CAPM and the SML

describe the reasons for a written

investment policy statement (IPS)

describe the major components of an

IPS

describe risk and return objectives and

how they may be developed for a client

12.42.f

12.42.g

12.42.h

12.43.a

12.43.b

12.43.c

12.43.d

12.43.e

12.43.f

12.43.g

12.43.h

12.44.a

12.44.b

12.44.c

**describe the effect on a portfolio’s risk
**

of investing in assets that are less than

perfectly correlated

describe and interpret the minimumvariance and efficient frontiers of risky

assets and the global minimum-variance

portfolio

discuss the selection of an optimal

portfolio, given an investor’s utility (or

risk aversion) and the capital allocation

line

describe the implications of combining a

risk-free asset with a portfolio of risky

assets

explain the capital allocation line (CAL)

and the capital market line (CML)

explain systematic and nonsystematic

risk, including why an investor should

not expect to receive additional return

for bearing nonsystematic risk

explain return generating models

(including the market model) and their

uses

calculate and interpret beta

explain the capital asset pricing model

(CAPM), including its assumptions, and

the security market line (SML)

calculate and interpret the expected

return of an asset using the CAPM

describe and demonstrate applications

of the CAPM and the SML

describe the reasons for a written

investment policy statement (IPS)

describe the major components of an

IPS

describe risk and return objectives and

how they may be developed for a client

www.passingscore.net

31

Portfolio

Management

12.45.d

Portfolio

Management

12.45.e

Portfolio

Management

12.45.f

Portfolio

Management

12.45.g

Equity

13.46.a

Equity

13.46.b

Equity

13.46.c

Equity

13.46.d

Equity

13.46.e

Equity

13.46.f

Equity

13.46.g

Equity

13.46.h

Equity

13.46.i

**distinguish between the willingness and
**

the ability (capacity) to take risk in

analyzing an investor’s financial risk

tolerance

describe the investment constraints of

liquidity, time horizon, tax concerns,

legal and regulatory factors, and unique

circumstances and their implications for

the choice of portfolio assets

explain the specification of asset classes

in relation to asset allocation

discuss the principles of portfolio

construction and the role of asset

allocation in relation to the IPS

explain the main functions of the

financial system

describe classifications of assets and

markets

describe the major types of securities,

currencies, contracts, commodities, and

real assets that trade in organized

markets, including their distinguishing

characteristics and major subtypes

describe types of financial

intermediaries and services that they

provide

compare positions an investor can take

in an asset

calculate and interpret the leverage

ratio, the rate of return on a margin

transaction, and the security price at

which the investor would receive a

margin call

compare execution, validity, and

clearing instructions

compare market orders with limit orders

define primary and secondary markets

and explain how secondary markets

support primary markets

12.44.d

12.44.e

12.44.f

12.44.g

13.45.a

13.45.b

13.45.c

13.45.d

13.45.e

13.45.f

13.45.g

13.45.h

13.45.i

**distinguish between the willingness and
**

the ability (capacity) to take risk in

analyzing an investor’s financial risk

tolerance

describe the investment constraints of

liquidity, time horizon, tax concerns,

legal and regulatory factors, and unique

circumstances and their implications for

the choice of portfolio assets

explain the specification of asset classes

in relation to asset allocation

describe the principles of portfolio

construction and the role of asset

allocation in relation to the IPS

explain the main functions of the

financial system

describe classifications of assets and

markets

describe the major types of securities,

currencies, contracts, commodities, and

real assets that trade in organized

markets, including their distinguishing

characteristics and major subtypes

describe types of financial

intermediaries and services that they

provide

compare positions an investor can take

in an asset

calculate and interpret the leverage

ratio, the rate of return on a margin

transaction, and the security price at

which the investor would receive a

margin call

compare execution, validity, and

clearing instructions

Wording

Change

**compare market orders with limit orders
**

define primary and secondary markets

and explain how secondary markets

support primary markets

www.passingscore.net

32

Equity

13.46.j

Equity

13.46.k

Equity

Equity

13.46.l

13.47.a

Equity

13.47.b

Equity

13.47.c

Equity

13.47.d

Equity

13.47.e

Equity

13.47.f

Equity

Equity

Equity

13.47.g

13.47.h

13.47.i

Equity

13.47.j

Equity

13.47.k

Equity

13.48.a

Equity

13.48.b

Equity

13.48.c

Equity

13.48.d

Equity

13.48.e

Equity

13.48.f

**describe how securities, contracts, and
**

currencies are traded in quote-driven,

order-driven, and brokered markets

describe characteristics of a wellfunctioning financial system

describe objectives of market regulation

describe a security market index

calculate and interpret the value, price

return, and total return of an index

describe the choices and issues in index

construction and management

compare the different weighting

methods used in index construction

calculate and analyze the value and

return of an index given its weighting

method

describe rebalancing and reconstitution

of an index

describe uses of security market indices

describe types of equity indices

describe types of fixed-income indices

describe indices representing alternative

investments

compare types of security market

indices

describe market efficiency and related

concepts, including their importance to

investment practitioners

distinguish between market value and

intrinsic value

explain factors that affect a market’s

efficiency

contrast weak-form, semi-strong-form,

and strong-form market efficiency

explain the implications of each form of

market efficiency for fundamental

analysis, technical analysis, and the

choice between active and passive

portfolio management

describe selected market anomalies

13.45.j

13.45.k

13.45.l

13.46.a

13.46.b

13.46.c

13.46.d

13.46.e

13.46.f

13.46.g

13.46.h

13.46.i

13.46.j

13.46.k

13.47.a

13.47.b

13.47.c

13.47.d

13.47.e

13.47.f

**describe how securities, contracts, and
**

currencies are traded in quote-driven,

order-driven, and brokered markets

describe characteristics of a wellfunctioning financial system

describe objectives of market regulation

describe a security market index

calculate and interpret the value, price

return, and total return of an index

describe the choices and issues in index

construction and management

compare the different weighting

methods used in index construction

calculate and analyze the value and

return of an index given its weighting

method

describe rebalancing and reconstitution

of an index

describe uses of security market indices

describe types of equity indices

describe types of fixed-income indices

describe indices representing alternative

investments

compare types of security market

indices

describe market efficiency and related

concepts, including their importance to

investment practitioners

distinguish between market value and

intrinsic value

explain factors that affect a market’s

efficiency

contrast weak-form, semi-strong-form,

and strong-form market efficiency

explain the implications of each form of

market efficiency for fundamental

analysis, technical analysis, and the

choice between active and passive

portfolio management

describe selected market anomalies

www.passingscore.net

33

Equity

13.48.g

Equity

14.49.a

Equity

14.49.b

Equity

14.49.c

Equity

14.49.d

Equity

14.49.e

Equity

14.49.f

Equity

14.49.g

Equity

14.49.h

Equity

14.50.a

Equity

14.50.b

Equity

14.50.c

Equity

14.50.d

Equity

14.50.e

**contrast the behavioral finance view of
**

investor behavior to that of traditional

finance

describe characteristics of types of

equity securities

describe differences in voting rights and

other ownership characteristics among

different equity classes

distinguish between public and private

equity securities

describe methods for investing in nondomestic equity securities

compare the risk and return

characteristics of different types of

equity securities

explain the role of equity securities in

the financing of a company’s assets

distinguish between the market value

and book value of equity securities

compare a company’s cost of equity, its

(accounting) return on equity, and

investors’ required rates of return

explain uses of industry analysis and

the relation of industry analysis to

company analysis

compare methods by which companies

can be grouped, current industry

classification systems, and classify a

company, given a description of its

activities and the classification system

explain the factors that affect the

sensitivity of a company to the business

cycle and the uses and limitations of

industry and company descriptors such

as “growth,” “defensive,” and “cyclical”

explain the relation of “peer group,” as

used in equity valuation, to a company’s

industry classification

describe the elements that need to be

covered in a thorough industry analysis

13.47.g

14.48.a

14.48.b

14.48.c

14.48.d

14.48.e

14.48.f

14.48.g

14.48.h

14.49.a

14.49.b

14.49.c

14.49.d

14.49.e

**contrast the behavioral finance view of
**

investor behavior to that of traditional

finance

describe characteristics of types of

equity securities

describe differences in voting rights and

other ownership characteristics among

different equity classes

distinguish between public and private

equity securities

describe methods for investing in nondomestic equity securities

compare the risk and return

characteristics of different types of

equity securities

explain the role of equity securities in

the financing of a company’s assets

distinguish between the market value

and book value of equity securities

compare a company’s cost of equity, its

(accounting) return on equity, and

investors’ required rates of return

explain uses of industry analysis and

the relation of industry analysis to

company analysis

compare methods by which companies

can be grouped, current industry

classification systems, and classify a

company, given a description of its

activities and the classification system

explain the factors that affect the

sensitivity of a company to the business

cycle and the uses and limitations of

industry and company descriptors such

as “growth,” “defensive,” and “cyclical”

explain how “peer group” as used in

equity valuation relates to a company’s

industry classification

describe the elements that need to be

covered in a thorough industry analysis

www.passingscore.net

Wording

Change

34

Equity

14.50.f

Equity

14.50.g

Equity

14.50.h

Equity

14.50.i

Equity

14.50.j

Equity

14.50.k

Equity

14.51.a

Equity

14.51.b

Equity

14.51.c

Equity

14.51.d

Equity

14.51.e

**describe the principles of strategic
**

analysis of an industry

explain the effects of barriers to entry,

industry concentration, industry

capacity, and market share stability on

pricing power and return on capital

describe product and industry life cycle

models, classify an industry as to life

cycle phase (embryonic, growth,

shakeout, maturity, and decline), and

describe limitations of the life-cycle

concept in forecasting industry

performance

compare characteristics of

representative industries from the

various economic sectors

describe demographic, governmental,

social, and technological influences on

industry growth, profitability, and risk

14.49.f

14.49.g

14.49.h

14.49.i

14.49.j

**describe the elements that should be
**

covered in a thorough company analysis

evaluate whether a security, given its

current market price and a value

estimate, is overvalued, fairly valued, or

undervalued by the market

describe major categories of equity

valuation models

explain the rationale for using present

value models to value equity and

describe the dividend discount and freecash-flow-to-equity models

14.49.k

**calculate the intrinsic value of a noncallable, non-convertible preferred stock
**

calculate and interpret the intrinsic

value of an equity security based on the

Gordon (constant) growth dividend

discount model or a two-stage dividend

discount model, as appropriate

14.50.d

14.50.a

14.50.b

14.50.c

14.50.e

**describe the principles of strategic
**

analysis of an industry

explain the effects of barriers to entry,

industry concentration, industry

capacity, and market share stability on

pricing power and return on capital

describe product and industry life cycle

models, classify an industry as to life

cycle phase (embryonic, growth,

shakeout, maturity, and decline), and

describe limitations of the life-cycle

concept in forecasting industry

performance

compare characteristics of

representative industries from the

various economic sectors

describe demographic, governmental,

social, and technological influences on

industry growth, profitability, and risk

describe the elements that should be

covered in a thorough company analysis

evaluate whether a security, given its

current market price and a value

estimate, is overvalued, fairly valued, or

undervalued by the market

describe major categories of equity

valuation models

explain the rationale for using present

value models to value equity and

describe the dividend discount and freecash-flow-to-equity models

calculate the intrinsic value of a noncallable, non-convertible preferred stock

calculate and interpret the intrinsic

value of an equity security based on the

Gordon (constant) growth dividend

discount model or a two-stage dividend

discount model, as appropriate

www.passingscore.net

35

Equity

14.51.f

Equity

14.51.g

Equity

14.51.h

Equity

14.51.i

Equity

14.51.j

Equity

14.51.k

Fixed Income 15.52.a

Fixed Income 15.52.b

Fixed Income 15.52.c

Fixed Income 15.52.d

Fixed Income 15.52.e

Fixed Income 15.52.f

Fixed Income 15.53.a

Fixed Income 15.53.b

Fixed Income 15.53.c

**identify companies for which the
**

constant growth or a multistage

dividend discount model is appropriate

explain the rationale for using price

multiples to value equity and distinguish

between multiples based on

comparables versus multiples based on

fundamentals

calculate and interpret the following

multiples: price to earnings, price to an

estimate of operating cash flow, price to

sales, and price to book value

describe enterprise value multiples and

their use in estimating equity value

describe asset-based valuation models

and their use in estimating equity value

explain advantages and disadvantages

of each category of valuation model

describe the basic features of a fixedincome security

describe functions of a bond indenture

compare affirmative and negative

covenants and identify examples of

each

describe how legal, regulatory, and tax

considerations affect the issuance and

trading of fixed-income securities

describe how cash flows of fixed-income

securities are structured

describe contingency provisions

affecting the timing and/or nature of

cash flows of fixed-income securities

and identify whether such provisions

benefit the borrower or the lender

describe classifications of global fixedincome markets

describe the use of interbank offered

rates as reference rates in floating-rate

debt

describe mechanisms available for

issuing bonds in primary markets

14.50.f

14.50.g

14.50.h

14.50.i

14.50.j

14.50.k

15.51.a

15.51.b

15.51.c

15.51.d

15.51.e

15.51.f

15.52.a

15.52.b

15.52.c

**identify companies for which the
**

constant growth or a multistage

dividend discount model is appropriate

explain the rationale for using price

multiples to value equity and distinguish

between multiples based on

comparables versus multiples based on

fundamentals

calculate and interpret the following

multiples: price to earnings, price to an

estimate of operating cash flow, price to

sales, and price to book value

describe enterprise value multiples and

their use in estimating equity value

describe asset-based valuation models

and their use in estimating equity value

explain advantages and disadvantages

of each category of valuation model

describe the basic features of a fixedincome security

describe functions of a bond indenture

compare affirmative and negative

covenants and identify examples of

each

describe how legal, regulatory, and tax

considerations affect the issuance and

trading of fixed-income securities

describe how cash flows of fixed-income

securities are structured

describe contingency provisions

affecting the timing and/or nature of

cash flows of fixed-income securities

and identify whether such provisions

benefit the borrower or the lender

describe classifications of global fixedincome markets

describe the use of interbank offered

rates as reference rates in floating-rate

debt

describe mechanisms available for

issuing bonds in primary markets

www.passingscore.net

36

Fixed Income 15.53.d

Fixed Income 15.53.e

Fixed Income 15.53.f

Fixed Income 15.53.g

Fixed Income 15.53.h

Fixed Income 15.54.a

Fixed Income 15.54.b

Fixed Income 15.54.c

Fixed Income 15.54.d

Fixed Income 15.54.e

Fixed Income 15.54.f

Fixed Income 15.54.g

Fixed Income 15.54.h

Fixed Income 15.54.i

Fixed Income

**describe secondary markets for bonds
**

describe securities issued by sovereign

governments, non-sovereign

governments, government agencies,

and supranational entities

describe types of debt issued by

corporations

describe short-term funding alternatives

available to banks

describe repurchase agreements (repos)

and their importance to investors who

borrow short term

calculate a bond’s price given a market

discount rate

identify the relationships among a

bond’s price, coupon rate, maturity, and

market discount rate (yield-to-maturity)

define spot rates and calculate the price

of a bond using spot rates

describe and calculate the flat price,

accrued interest, and the full price of a

bond

describe matrix pricing

calculate and interpret yield measures

for fixed-rate bonds, floating-rate notes,

and money market instruments

define and compare the spot curve,

yield curve on coupon bonds, par curve,

and forward curve

define forward rates and calculate spot

rates from forward rates, forward rates

from spot rates, and the price of a bond

using forward rates

compare, calculate, and interpret yield

spread measures

15.52.d

15.52.e

15.52.f

15.52.g

15.52.h

15.53.a

15.53.b

15.53.c

15.53.d

15.53.e

15.53.f

15.53.g

15.53.h

15.53.i

15.54.a

**describe secondary markets for bonds
**

describe securities issued by sovereign

governments, non-sovereign

governments, government agencies,

and supranational entities

describe types of debt issued by

corporations

describe short-term funding alternatives

available to banks

describe repurchase agreements (repos)

and their importance to investors who

borrow short term

calculate a bond’s price given a market

discount rate

identify the relationships among a

bond’s price, coupon rate, maturity, and

market discount rate (yield-to-maturity)

define spot rates and calculate the price

of a bond using spot rates

describe and calculate the flat price,

accrued interest, and the full price of a

bond

describe matrix pricing

calculate and interpret yield measures

for fixed-rate bonds, floating-rate notes,

and money market instruments

define and compare the spot curve,

yield curve on coupon bonds, par curve,

and forward curve

define forward rates and calculate spot

rates from forward rates, forward rates

from spot rates, and the price of a bond

using forward rates

compare, calculate, and interpret yield

spread measures

explain benefits of securitization for

economies and financial markets

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37

Fixed Income

15.54.b

Fixed Income

15.54.c

Fixed Income

15.54.d

Fixed Income

15.54.e

Fixed Income

15.54.f

Fixed Income

15.54.g

Fixed Income

15.54.h

Fixed Income 16.55.a

Fixed Income 16.55.b

Fixed Income 16.55.c

Fixed Income

**calculate and interpret the sources of
**

return from investing in a fixed-rate

bond

define, calculate, and interpret

Macaulay, modified, and effective

durations

explain why effective duration is the

most appropriate measure of interest

rate risk for bonds with embedded

options

16.55.a

16.55.b

16.55.c

16.55.d

**describe the securitization process,
**

including the parties to the process, the

roles they play, and the legal structures

involved

describe types and characteristics of

residential mortgage loans that are

typically securitized

describe types and characteristics of

residential mortgage-backed securities,

and explain the cash flows and credit

risk for each type

explain the motivation for creating

securitized structures with multiple

tranches (e.g., collateralized mortgage

obligations), and the characteristics and

risks of securitized structures

describe the characteristics and risks of

commercial mortgage-backed securities

describe types and characteristics of

non-mortgage asset-backed securities,

including the cash flows and credit risk

of each type

describe collateralized debt obligations,

including their cash flows and credit risk

calculate and interpret the sources of

return from investing in a fixed-rate

bond

define, calculate, and interpret

Macaulay, modified, and effective

durations

explain why effective duration is the

most appropriate measure of interest

rate risk for bonds with embedded

options

define key rate duration and describe

the key use of key rate durations in

measuring the sensitivity of bonds to

changes in the shape of the benchmark

yield curve

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Fixed Income 16.55.d

Fixed Income 16.55.e

Fixed Income 16.55.f

Fixed Income 16.55.g

Fixed Income 16.55.h

Fixed Income 16.55.i

Fixed Income 16.55.j

Fixed Income 16.55.k

Fixed Income 16.56.a

Fixed Income 16.56.b

Fixed Income 16.56.c

Fixed Income 16.56.d

Fixed Income 16.56.e

**explain how a bond’s maturity, coupon,
**

embedded options, and yield level affect

its interest rate risk

calculate the duration of a portfolio and

explain the limitations of portfolio

duration

calculate and interpret the money

duration of a bond and price value of a

basis point (PVBP)

calculate and interpret approximate

convexity and distinguish between

approximate and effective convexity

estimate the percentage price change of

a bond for a specified change in yield,

given the bond’s approximate duration

and convexity

describe how the term structure of yield

volatility affects the interest rate risk of

a bond

describe the relationships among a

bond’s holding period return, its

duration, and the investment horizon

explain how changes in credit spread

and liquid affect yield-to-maturity of a

bond and how duration and convexity

can be used to estimate the price effect

of the changes

describe credit risk and credit-related

risks affecting corporate bonds

describe seniority rankings of corporate

debt and explain the potential violation

of the priority of claims in a bankruptcy

proceeding

distinguish between corporate issuer

credit ratings and issue credit ratings

and describe the rating agency practice

of “notching”

explain risks in relying on ratings from

credit rating agencies

explain the components of traditional

credit analysis

16.55.e

16.55.f

16.55.g

16.55.h

16.55.i

16.55.j

16.55.k

16.55.l

16.56.a

16.56.b

16.56.c

16.56.d

16.56.e

**explain how a bond’s maturity, coupon,
**

embedded options, and yield level affect

its interest rate risk

calculate the duration of a portfolio and

explain the limitations of portfolio

duration

calculate and interpret the money

duration of a bond and price value of a

basis point (PVBP)

calculate and interpret approximate

convexity and distinguish between

approximate and effective convexity

estimate the percentage price change of

a bond for a specified change in yield,

given the bond’s approximate duration

and convexity

describe how the term structure of yield

volatility affects the interest rate risk of

a bond

describe the relationships among a

bond’s holding period return, its

duration, and the investment horizon

explain how changes in credit spread

and liquidity affect yield-to-maturity of

a bond and how duration and convexity

can be used to estimate the price effect

of the changes

describe credit risk and credit-related

risks affecting corporate bonds

describe seniority rankings of corporate

debt and explain the potential violation

of the priority of claims in a bankruptcy

proceeding

distinguish between corporate issuer

credit ratings and issue credit ratings

and describe the rating agency practice

of “notching”

explain risks in relying on ratings from

credit rating agencies

explain the components of traditional

credit analysis

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39

Fixed Income 16.56.f

Fixed Income 16.56.g

Fixed Income 16.56.h

Fixed Income 16.56.i

Fixed Income 16.56.j

Derivatives

17.57.a

Derivatives

17.57.b

Derivatives

17.57.c

Derivatives

17.57.d

Derivatives

17.57.e

**calculate and interpret financial ratios
**

used in credit analysis

evaluate the credit quality of a

corporate bond issuer and a bond of

that issuer, given key financial ratios of

the issuer and the industry

describe factors that influence the level

and volatility of yield spreads

calculate the return impact of spread

changes

explain special considerations when

evaluating the credit of high yield,

sovereign, and municipal debt issuers

and issues

define a derivative, and distinguish

between exchange-traded and over-thecounter derivatives

contrast forward commitments with

contingent claims

define forward contracts, futures

contracts, options (calls and puts),

swaps, and credit derivatives, and

compare their basic characteristics

describe purposes of, and controversies

related to, derivative markets

explain arbitrage and the role it plays in

determining prices and promoting

market efficiency

16.56.f

16.56.g

16.56.h

16.56.i

16.56.j

17.57.a

17.57.b

17.57.c

17.57.d

17.57.e

Derivatives

17.58.a

Derivatives

17.58.b

Derivatives

17.58.c

**calculate and interpret financial ratios
**

used in credit analysis

evaluate the credit quality of a

corporate bond issuer and a bond of

that issuer, given key financial ratios of

the issuer and the industry

describe factors that influence the level

and volatility of yield spreads

calculate the return impact of spread

changes

explain special considerations when

evaluating the credit of high yield,

sovereign, and municipal debt issuers

and issues

define a derivative, and distinguish

between exchange-traded and over-thecounter derivatives

contrast forward commitments with

contingent claims

define forward contracts, futures

contracts, options (calls and puts),

swaps, and credit derivatives, and

compare their basic characteristics

describe purposes of, and controversies

related to, derivative markets

explain arbitrage and the role it plays in

determining prices and promoting

market efficiency

explain how the concepts of arbitrage,

replication, and risk neutrality are used

in pricing derivatives

distinguish between value and price of

forward and futures contracts

explain how the value and price of a

forward contract are determined at

expiration, during the life of the

contract, and at initiation

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**describe monetary and nonmonetary
**

benefits and costs associated with

17.58.d holding the underlying asset, and

explain how they affect the value and

price of a forward contract

define a forward rate agreement and

17.58.e

describe its uses

explain why forward and futures prices

17.58.f

differ

explain how swap contracts are similar

17.58.g to but different from a series of forward

contracts

distinguish between the value and price

17.58.h

of swaps

explain how the value of a European

17.58.i

option is determined at expiration

explain the exercise value, time value,

17.58.j

and moneyness of an option

identify the factors that determine the

value of an option, and explain how

17.58.k

each factor affects the value of an

option

explain put–call parity for European

17.58.l

options

explain put–call–forward parity for

17.58.m

European options

explain how the value of an option is

17.58.n determined using a one-period binomial

model

explain under which circumstances the

17.58.o values of European and American

options differ

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

17.58.a

Derivatives

17.58.b

Derivatives

17.58.c

**explain delivery/settlement and default
**

risk for both long and short positions in

a forward contract

describe the procedures for settling a

forward contract at expiration, and how

termination prior to expiration can

affect credit risk

distinguish between a dealer and an end

user of a forward contract

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Derivatives

17.58.d

Derivatives

17.58.e

Derivatives

17.58.f

Derivatives

17.58.g

Derivatives

17.58.h

Derivatives

17.59.a

Derivatives

17.59.b

Derivatives

17.59.c

Derivatives

17.59.d

Derivatives

17.59.e

Derivatives

17.59.f

Derivatives

17.60.a

Derivatives

17.60.b

Derivatives

17.60.c

**describe characteristics of equity
**

forward contracts and forward contracts

on zero-coupon and coupon bonds

describe characteristics of the

Eurodollar time deposit market, and

define LIBOR and Euribor

describe forward rate agreements

(FRAs) and calculate the gain/loss on a

FRA

calculate and interpret the payoff of a

FRA and explain each of the component

terms of the payoff formula

describe characteristics of currency

forward contracts

describe the characteristics of futures

contracts

compare futures contracts and forward

contracts

distinguish between margin in the

securities markets and margin in the

futures markets, and explain the role of

initial margin, maintenance margin,

variation margin, and settlement in

futures trading

describe price limits and the process of

marking to market, and calculate and

interpret the margin balance, given the

previous day’s balance and the change

in the futures price

describe how a futures contract can be

terminated at or prior to expiration

describe characteristics of the following

types of futures contracts: Treasury bill,

Eurodollar, Treasury bond, stock index,

and currency

describe call and put options

distinguish between European and

American options

define the concept of moneyness of an

option

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42

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

Derivatives

**compare exchange-traded options and
**

over-the-counter options

identify the types of options in terms of

17.60.e

the underlying instruments

compare interest rate options with

17.60.f

forward rate agreements (FRAs)

define interest rate caps, floors, and

17.60.g

collars

calculate and interpret option payoffs

17.60.h and explain how interest rate options

differ from other types of options

define intrinsic value and time value,

17.60.i

and explain their relationship

determine the minimum and maximum

17.60.j values of European options and

American options

calculate and interpret the lowest prices

of European and American calls and

17.60.k

puts based on the rules for minimum

values and lower bounds

explain how option prices are affected

17.60.l by the exercise price and the time to

expiration

explain put–call parity for European

options, and explain how put–call parity

17.60.m

is related to arbitrage and the

construction of synthetic options

explain how cash flows on the

17.60.n underlying asset affect put–call parity

and the lower bounds of option prices

determine the directional effect of an

17.60.o interest rate change or volatility change

on an option’s price

describe characteristics of swap

17.61.a contracts and explain how swaps are

terminated

describe, calculate, and interpret the

payments of currency swaps, plain

17.61.b

vanilla interest rate swaps, and equity

swaps

17.60.d

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43

Derivatives

17.62.a

Derivatives

17.62.b

Alternative

Investments

Alternative

Investments

18.63.a

18.63.b

Alternative

Investments

18.63.c

Alternative

Investments

18.63.d

Alternative

Investments

18.63.e

Alternative

Investments

18.63.f

Alternative

Investments

18.63.g

**determine the value at expiration, the
**

profit, maximum profit, maximum loss,

breakeven underlying price at

expiration, and payoff graph of the

strategies of buying and selling calls

and puts and determine the potential

outcomes for investors using these

strategies

determine the value at expiration,

profit, maximum profit, maximum loss,

breakeven underlying price at

expiration, and payoff graph of a

covered call strategy and a protective

put strategy, and explain the risk

management application of each

strategy

compare alternative investments with

traditional investments

describe categories of alternative

investments

describe potential benefits of alternative

investments in the context of portfolio

management

describe hedge funds, private equity,

real estate, commodities, and other

alternative investments, including, as

applicable, strategies, sub-categories,

potential benefits and risks, fee

structures, and due diligence

describe issues in valuing, and

calculating returns on, hedge funds,

private equity, real estate, and

commodities

describe, calculate, and interpret

management and incentive fees and netof-fees returns to hedge funds

describe risk management of alternative

investments

17.59.a

17.59.b

18.60.a

18.60.b

18.60.c

18.60.d

18.60.e

18.60.f

18.60.g

**determine the value at expiration, the
**

profit, maximum profit, maximum loss,

breakeven underlying price at

expiration, and payoff graph of the

strategies of buying and selling calls

and puts and determine the potential

outcomes for investors using these

strategies

determine the value at expiration,

profit, maximum profit, maximum loss,

breakeven underlying price at

expiration, and payoff graph of a

covered call strategy and a protective

put strategy, and explain the risk

management application of each

strategy

compare alternative investments with

traditional investments

describe categories of alternative

investments

describe potential benefits of alternative

investments in the context of portfolio

management

describe hedge funds, private equity,

real estate, commodities, and other

alternative investments, including, as

applicable, strategies, sub-categories,

potential benefits and risks, fee

structures, and due diligence

describe issues in valuing, and

calculating returns on, hedge funds,

private equity, real estate, and

commodities

describe, calculate, and interpret

management and incentive fees and netof-fees returns to hedge funds

describe risk management of alternative

investments

www.passingscore.net

44

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