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CFA Level 1 - LOS Changes 2014 - 2015

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)

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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

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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

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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

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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

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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

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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

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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

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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

www.passingscore.net

New

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

www.passingscore.net

New

New

New

New

New

New

New

New

38

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