Professional Documents
Culture Documents
1.1.a 1.1.b
state the six components of the Code of Ethics and the seven explain the ethical responsibilities required by the Code and
Standards of Professional Conduct; Standards.
1.2.a 1.2.b
recommend practices and procedures designed to prevent
demonstrate a thorough knowledge of the Code of Ethics and
violations of the Code of Ethics and Standards of Professional
Standards of Professional Conduct by applying the Code and
Conduct.
Standards to specific situations;
1.3.a 1.3.b
define soft‐dollar arrangements and state the general critique company soft‐dollar practices and policies;
principles of the Soft Dollar Standards;
1.3.c 1.4.a
determine whether a product or service qualifies as explain the objectives of the Research Objectivity Standards;
“permissible research” that can be purchased with client
brokerage.
1.4.b 2.5.a
critique the practices and policies presented;
critique company policies and practices related to research
objectivity, and distinguish between changes required and
changes recommended for compliance with the Research
Objectivity Standards.
2.5.b 2.6.a
explain the appropriate action to take in response to conduct critique the practices and policies presented;
that violates the CFA Institute Code of Ethics and Standards of
Professional Conduct.
2.6.b 2.7.a
explain the appropriate action to take in response to conduct critique the practices and policies presented;
that violates the CFA Institute Code of Ethics and Standards of
Professional Conduct.
2.7.b 2.8.a
critique trade allocation practices, and determine whether
explain the appropriate action to take in response to conduct
compliance exists with the CFA Institute Standards of
that violates the CFA Institute Code of Ethics and Standards of
Professional Conduct addressing fair dealing and client loyalty;
Professional Conduct.
2.8.b 2.9.a
discuss appropriate actions to take in response to trade critique the disclosure of investment objectives and basic
allocation practices that do not adequately respect client policies and determine whether they comply with the CFA
interests. Institute Standards of Professional Conduct;
2.9.b 2.10.a
discuss appropriate actions needed to ensure adequate explain the basic principles of the new Prudent Investor Rule;
disclosure of the investment process.
2.10.b 2.10.c
differentiate between the old Prudent Man Rule and the new
explain the general fiduciary standards to which a trustee
Prudent Investor Rule;
must adhere;
2.10.d 3.11.a
explain the key factors that a trustee should consider when calculate and interpret a sample covariance and a sample
investing and managing trust assets. correlation coefficient, and interpret a scatter plot;
3.11.b 3.11.c
explain the limitations to correlation analysis, including formulate a test of the hypothesis that the population
outliers and spurious correlation; correlation coefficient equals zero, and determine whether
the hypothesis is rejected at a given level of significance;
3.11.d 3.11.e
explain the assumptions underlying linear regression, and
distinguish between the dependent and independent variables
interpret the regression coefficients;
in a linear regression;
3.11.f 3.11.g
calculate and interpret the standard error of estimate, the formulate a null and alternative hypothesis about a population
coefficient of determination, and a confidence interval for a value of a regression coefficient, select the appropriate test
regression coefficient; statistic, and determine whether the null hypothesis is
rejected at a given level of significance;
3.11.h 3.11.i
calculate a predicted value for the dependent variable, given describe the use of analysis of variance (ANOVA) in regression
an estimated regression model and a value for the analysis, interpret ANOVA results, and calculate and interpret
independent variable, and calculate and interpret a confidence an F‐statistic;
interval for the predicted value of a dependent variable
3.11.j 3.12.a
formulate a multiple regression equation to describe the
discuss the limitations of regression analysis.
relation between a dependent variable and several
independent variables, determine the statistical significance of
each independent variable, and interpret the estimated
coefficients and their p‐val
3.12.b 3.12.c
formulate a null and an alternative hypothesis about the calculate and interpret 1) a confidence interval for the
population value of a regression coefficient, calculate the population value of a regression coefficient and 2) a predicted
value of the test statistic, determine whether to reject the null value for the dependent variable, given an estimated
hypothesis at a given level of significance by using a one‐tailed regression model and assumed values for the independent
or two variables;
3.12.d 3.12.e
explain the assumptions of a multiple regression model; calculate and interpret the F‐statistic, and discuss how it is
used in regression analysis;
3.12.f 3.12.g
infer how well a regression model explains the dependent
distinguish between and interpret the R2 and adjusted R2 in
variable by analyzing the output of the regression equation
multiple regression;
and an ANOVA table;
3.12.h 3.12.i
formulate a multiple regression equation by using dummy discuss the types of heteroskedasticity and the effects of
variables to represent qualitative factors, and interpret the heteroskedasticity and serial correlation on statistical
coefficients and regression results; inference;
3.12.j 3.12.k
describe multicollinearity, and discuss its causes and effects in discuss the effects of model misspecification on the results of
regression analysis; a regression analysis, and explain how to avoid the common
forms of misspecification;
3.12.l 3.12.m
interpret the economic meaning of the results of multiple
discuss models with qualitative dependent variables;
regression analysis and critique a regression model and its
results.
3.13.a 3.13.b
calculate and evaluate the predicted trend value for a time discuss the factors that determine whether a linear or a log‐
series, modeled as either a linear trend or a log‐linear trend, linear trend should be used with a particular time series, and
given the estimated trend coefficients; evaluate the limitations of trend models;
3.13.c 3.13.d
explain the requirement for a time series to be covariance discuss the structure of an autoregressive (AR) model of order
stationary, and discuss the significance of a series that is not p, and calculate one‐ and two‐period‐ahead forecasts given
stationary; the estimated coefficients;
3.13.e 3.13.f
explain mean reversion, and calculate a mean‐reverting level;
explain how autocorrelations of the residuals can be used to
test whether the autoregressive model fits the time series;
3.13.g 3.13.h
contrast in‐sample and out‐of‐sample forecasts, and compare discuss the instability of coefficients of time‐series models;
the forecasting accuracy of different time‐series models based
on the root mean squared error criterion;
3.13.i 3.13.j
describe the characteristics of random walk processes, and discuss the implications of unit roots for time‐series analysis,
contrast them to covariance stationary processes; explain when unit roots are likely to occur and how to test for
them, and demonstrate how a time series with a unit root can
be transformed so it can be analyzed with an AR model;
3.13.k 3.13.l
discuss how to test and correct for seasonality in a time‐series
discuss the steps of the unit root test for nonstationarity, and
model, and calculate and interpret a forecasted value using an
explain the relation of the test to autoregressive time‐series
AR model with a seasonal lag;
models;
3.13.m 3.13.n
explain autoregressive conditional heteroskedasticity (ARCH), explain how time‐series variables should be analyzed for
and discuss how ARCH models can be applied to predict the nonstationarity and/or cointegration before use in a linear
variance of a time series; regression;
3.13.o 4.14.a
select and justify the choice of a particular time‐series model define the sources of economic growth, and discuss the
from a group of models. preconditions for economic growth;
4.14.b 4.14.c
discuss how faster economic growth can be achieved by
discuss how the one‐third rule can be used to explain the
increasing the growth of physical capital, technological
contributions of labor and technological change to growth in
advances, and investment in human capital;
labor productivity;
4.14.d 4.15.a
compare and contrast classical growth theory, neoclassical explain the rationale for government regulation in the form of
growth theory, and new growth theory. 1) economic regulation of natural monopolies and 2) social
regulation of nonmonopolistic industries;
4.15.b 4.15.c
discuss the potential benefits and possible negative side differentiate between the capture hypothesis and the share‐
effects of social regulation; the‐gains, share‐thepains theory of regulator behavior.
4.16.a 4.16.b
compare and contrast tariffs, nontariff barriers, quotas, and
explain comparative advantage and how countries can gain
voluntary export restraints;
from international trade;
4.16.c 4.17.a
critique the arguments for trade restrictions. define an exchange rate, and differentiate between the
nominal exchange rate and the real exchange rate;
4.17.b 4.17.c
explain the factors that influence supply and demand in the discuss how the supply and demand for a currency changes
foreign exchange market; the exchange rate;
4.17.d 4.17.e
describe the balance of payments accounts;
differentiate between interest rate parity and purchasing
power parity;
4.17.f 4.18.a
describe the following exchange rate policies: flexible define direct and indirect methods of foreign exchange
exchange rates, fixed exchange rates, and crawling pegs. quotations, and convert direct (indirect) foreign exchange
quotations into indirect (direct) foreign exchange quotations;
4.18.b 4.18.c
calculate and interpret the spread on a foreign currency calculate and interpret currency cross rates, given two spot
quotation, and explain how spreads on foreign currency exchange quotations involving three currencies;
quotations can differ as a result of market conditions,
bank/dealer positions, and trading volume;
4.18.d 4.18.e
distinguish between the spot and forward markets for foreign
calculate the profit on a triangular arbitrage opportunity, given
exchange;
the bid–ask quotations for the currencies of three countries
involved in the arbitrage;
4.18.f 4.18.g
calculate and interpret the spread on a forward foreign calculate and interpret a forward discount or premium and
currency quotation, and explain how spreads on forward express it as an annualized rate;
foreign currency quotations can differ as a result of market
conditions, bank/dealer positions, trading volume, and
maturity/length of contract;
4.18.h 4.18.i
explain interest rate parity, and illustrate covered interest distinguish between spot and forward transactions, calculate
arbitrage; the annualized forward premium/discount for a given
currency, and infer whether the currency is “strong” or
“weak.”
4.19.a 4.19.b
explain the role of each component of the balance of
explain how exchange rates are determined in a flexible (or
payments accounts;
floating) exchange rate system;
4.19.c 4.19.d
explain how current account deficits or surpluses and financial describe the factors that cause a nation’s currency to
account deficits or surpluses affect an economy; appreciate or depreciate;
4.19.e 4.19.f
explain how monetary and fiscal policies affect the exchange describe a fixed exchange rate and a pegged exchange rate
rate and balance of payments components; system;
4.19.g 4.19.h
calculate the end‐of‐period exchange rate implied by
discuss absolute purchasing power parity and relative
purchasing power parity, given the beginning‐of‐period
purchasing power parity;
exchange rate and the inflation rates;
4.19.i 4.19.j
discuss the international Fisher relation; calculate the real interest rate, given nominal interest rates
and expected inflation rates, using the international Fisher
relation and its linear approximation;
4.19.k 4.19.l
discuss the theory of uncovered interest rate parity, and calculate the expected change in the exchange rate, given
explain the theory’s relation to other exchange rate parity interest rates and the assumption that uncovered interest rate
theories; parity holds;
4.19.m 4.20.a
distinguish between the measures of economic activity (i.e.,
discuss the foreign exchange expectation relation between the
gross domestic product, gross national income, and net
forward exchange rate and the expected exchange rate.
national income), including their components;
4.20.b 4.20.c
differentiate between GDP at market prices and GDP at factor differentiate between current and constant prices, and
cost; describe the GDP deflator.
5.21.a 5.21.b
explain and calculate the effect of inflation and deflation of discuss LIFO reserve and LIFO liquidation and their effects on
inventory costs on the financial statements and ratios of financial statements and ratios;
companies that use different inventory valuation methods
(cost formulas or cost flow assumptions);
5.21.c 5.21.d
discuss the implications of valuing inventory at net realisable
demonstrate how to adjust a company’s reported financial
value for financial statements and ratios;
statements from LIFO to FIFO for purposes of comparison;
5.21.e 5.21.f
analyze and compare the financial statements and ratios of discuss issues that analysts should consider when examining a
companies, including those that use different inventory company’s inventory disclosures and other sources of
valuation methods; information.
5.22.a 5.22.b
discuss the implications for financial statements and ratios of discuss the implications for financial statements and ratios of
capitalising versus expensing costs in the period in which they the different depreciation methods for property, plant, and
are incurred; equipment;
5.22.c 5.22.d
analyze and interpret the financial statement disclosures
discuss the implications for financial statements and ratios of
regarding long‐lived assets;
impairment and revaluation of property, plant, and
equipment, and intangible assets;
5.22.e 5.22.f
discuss the implications for financial statements and ratios of discuss the implications for financial statements and ratios of
leasing assets instead of purchasing assets; finance leases and operating leases from the perspective of
both the lessor and the lessee. 2011 Level
6.23.a 6.23.b
describe the classification, measurement, and disclosure under distinguish between IFRS and U.S. GAAP in the classification,
the International Financial Reporting Standards (IFRS) for 1) measurement, and disclosure of investments in financial
investments in financial assets, 2) investments in associates, 3) assets, investments in associates, joint ventures, business
joint ventures, 4) business combinations, and 5) special combinations, and special purpose and variable interest
purpose entities;
6.23.c 6.24.a
discuss the types of post‐employment benefit plans and the
analyze the effects on financial ratios of the different methods
implications for financial reports;
used to account for intercorporate investments.
6.24.b 6.24.c
explain the measures of a defined benefit pension plan’s describe the components of a company’s defined benefit
liability (i.e., defined benefit obligation and projected benefit pension expense;
obligation);
6.24.d 6.24.e
explain the impact of a defined benefit plan’s assumptions on explain the impact on financial statements of International
the defined benefit obligation and periodic expense; Financial Reporting Standards (IFRS) and U.S. Generally
Accepted Accounting Principles (U.S. GAAP) for pension and
other post‐employment benefits that permit items to be
reported in the footnotes
6.24.f 6.24.g
evaluate the underlying economic liability (or asset) of a
evaluate pension plan footnote disclosures including cash flow
company’s pension and other post‐employment benefits;
related information;
6.24.h 6.24.i
calculate the underlying economic pension expense (income) discuss the issues involved in accounting for share‐based
and other postemployment expense (income) based on compensation;
disclosures;
6.24.j 6.25.a
explain the impact on financial statements of accounting for distinguish among presentation currency, functional currency,
stock grants and stock options, and the importance of and local currency;
companies’ assumptions in valuing these grants and options.
6.25.b 6.25.c
compare and contrast the current rate method and the
analyze the impact of changes in exchange rates on the
temporal method, analyze and evaluate the effects of each on
translated sales of the subsidiary and parent company;
the parent company’s balance sheet and income statement,
and determine which method is appropriate in various
scenarios;
6.25.d 6.25.e
calculate the translation effects, evaluate the translation of a analyze how using the temporal method versus the current
subsidiary’s balance sheet and income statement into the rate method will affect the parent company’s financial ratios;
parent company’s currency, and analyze the different effects
of the current rate method and the temporal method on the
subsidiary’s f
6.25.f 7.26.a
illustrate and analyze alternative accounting methods for distinguish among the various definitions of earnings (e.g.,
subsidiaries operating in hyperinflationary economies. EBITDA, operating earnings, net income, etc.);
7.26.b 7.26.c
provide a simplified description of the accounting treatment
illustrate how trends in cash flow from operations can be more
for derivatives being used to hedge exposure to changes in
reliable than trends in earnings;
the value of assets and liabilities, exposure to variable cash
flow, and a foreign currency exposure of an instrument in a
forei
7.27.a 7.27.b
contrast cash‐basis and accrual‐basis accounting and explain describe the relation between the level of accruals and the
why accounting discretion exists in an accrual accounting persistence of earnings and the relative multiples that the cash
system; and accrual components of earnings should rationally receive
in valuation;
7.27.c 7.27.d
discuss the opportunities and motivations for management to discuss earnings quality and the measures of earnings quality,
intervene in the external financial reporting process and the and compare and contrast the earnings quality of peer
mechanisms that discipline such intervention; companies;
7.27.e 7.27.f
discuss problems with the quality of financial reporting,
explain mean reversion in earnings and how the accruals
including revenue recognition, expense recognition, balance
component of earnings affects the speed of mean reversion;
sheet issues, and cash flow statement issues, and interpret
warning signs of these potential problems.
7.28.a 7.28.b
demonstrate the use of a framework for the analysis of identify financial reporting choices and biases that affect the
financial statements, given a particular problem, question, or quality and comparability of companies’ financial statements
purpose (e.g., valuing equity based on comparables, critiquing and illustrate how such biases affect financial decisions;
a credit rating, obtaining a comprehensive picture of financial
leverage,
7.28.c 7.28.d
evaluate the quality of a company’s financial data and predict the impact on financial statements and ratios, given a
recommend appropriate adjustments to improve quality and change in accounting rules, methods, or assumptions;
comparability with similar companies, including adjustments
for differences in accounting rules, methods, and assumptions;
7.28.e 8.29.a
compute the yearly cash flows of an expansion capital project
analyze and interpret the effects of balance sheet
and a replacement capital project and evaluate how the choice
modifications, earnings normalization, and cash‐flow‐
of depreciation method affects those cash flows;
statement‐related modifications on a company’s financial
statements, financial ratios, and overall financial condition.
8.29.b 8.29.c
discuss the effects of inflation on capital budgeting analysis; evaluate and select the optimal capital project in situations of
1) mutually exclusive projects with unequal lives, using either
the least common multiple of lives approach or the equivalent
annual annuity approach, and 2) capital rationing;
8.29.d 8.29.e
explain how sensitivity analysis, scenario analysis, and Monte discuss the procedure for determining the discount rate to be
Carlo simulation can be used to assess the stand‐alone risk of a used in valuing a capital project and calculate a project’s
capital project; required rate of return using the capital asset pricing model
(CAPM);
8.29.f 8.29.g
discuss common capital budgeting pitfalls;
discuss the types of real options and evaluate a capital project
using real options
8.29.h 8.29.i
calculate and interpret accounting income and economic differentiate among and evaluate a capital project using the
income in the context of capital budgeting; following valuation models: economic profit, residual income,
and claims valuation.
8.30.a 8.30.b
discuss the Modigliani–Miller propositions concerning capital explain the target capital structure and why actual capital
structure, including the impact of leverage, taxes, financial structure may fluctuate around the target;
distress, agency costs, and asymmetric information on a
company’s cost of equity, cost of capital, and optimal capital
structure;
8.30.c 8.30.d
explain the factors an analyst should consider in evaluating the
review the role of debt ratings in capital structure policy;
impact of capital structure policy on valuation;
8.30.e 8.31.a
discuss international differences in financial leverage and the compare and contrast theories of dividend policy, and explain
implications for investment analysis. the implications of each for share value given a description of
a corporate dividend action;
8.31.b 8.31.c
discuss the types of information (signals) that dividend illustrate how clientele effects and agency issues may affect a
initiations, increases, decreases, and omissions may convey; company’s payout policy;
8.31.d 8.31.e
calculate and interpret the effective tax rate on a given
discuss the factors that affect dividend policy;
currency unit of corporate earnings under double‐taxation,
split rate, and tax imputation dividend tax regimes;
8.31.f 8.31.g
compare and contrast stable dividend, target payout, and discuss the choice between paying cash dividends and
residual dividend payout policies, and calculate the dividend repurchasing shares;
under each policy;
8.31.h 8.31.i
discuss global trends in corporate dividend policies; calculate and interpret dividend coverage ratios based on 1)
net income and 2) free cash flow;
8.31.j 9.32.a
explain corporate governance, discuss the objectives and the
discuss the symptoms of companies that may not be able to
core attributes of an effective corporate governance system,
sustain their cash dividend.
and evaluate whether a company’s corporate governance has
those attributes;
9.32.b 9.32.c
compare and contrast the major business forms and describe discuss the conflicts that arise in agency relationships,
the conflicts of interest associated with each; including manager–shareholder conflicts and director–
shareholder conflicts;
9.32.d 9.32.e
describe the responsibilities of the board of directors and illustrate effective corporate governance practice as it relates
explain the qualifications and core competencies that an to the board of directors and evaluate the strengths and
investment analyst should look for in the board of directors; weaknesses of a company’s corporate governance practice;
9.32.f 9.32.g
discuss the valuation implications of corporate governance.
describe the elements of a company’s statement of corporate
governance policies that investment analysts should assess;
9.33.a 9.33.b
categorize merger and acquisition (M&A) activities based on explain the common motivations behind M&A activity;
forms of integration and types of mergers;
9.33.c 9.33.d
illustrate how earnings per share (EPS) bootstrapping works discuss the relation between merger motivations and types of
and calculate a company’s postmerger EPS; mergers based on industry life cycles;
9.33.e 9.33.f
distinguish and describe pre‐offer and post‐offer takeover
contrast merger transaction characteristics by form of
defense mechanisms;
acquisition, method of payment, and attitude of target
management;
9.33.g 9.33.h
summarize U.S. antitrust legislation; calculate the Herfindahl–Hirschman Index and evaluate the
likelihood of an antitrust challenge for a given business
combination;
9.33.i 9.33.j
compare and contrast the three major methods for valuing a calculate free cash flows for a target company and estimate
target company, including the advantages and disadvantages the company’s intrinsic value based on discounted cash flow
of each; analysis;
9.33.k 9.33.l
evaluate a merger bid, calculate the estimated post‐merger
estimate the intrinsic value of a company using comparable
value of an acquirer, and calculate the gains accrued to the
company analysis and comparable transaction analysis;
target shareholders versus the acquirer shareholders;
9.33.m 9.33.n
explain the effects of price and payment method on the describe the empirical evidence related to the distribution of
distribution of risks and benefits in a merger transaction; benefits in a merger;
9.33.o 9.33.p
compare and contrast divestitures, equity carve‐outs, spin‐ discuss the major reasons for divestitures.
offs, split‐offs, and liquidation;
10.34.p 10.35.a
define valuation and intrinsic value, and explain possible
valuation by Graham and Dodd and John Burr Williams are
sources of perceived mispricing;
reflected in modern techniques of equity valuation.
10.35.b 10.35.c
explain the going concern assumption, contrast a going discuss the uses of equity valuation;
concern value to a liquidation value, and identify the definition
of value most relevant to public company valuation;
10.35.d 10.35.e
explain the elements of industry and competitive analysis and contrast absolute and relative valuation models, and describe
the importance of evaluating the quality of financial statement examples of each type of model;
information;
10.35.f 10.36.a
explain the historical differences in market organization;
illustrate the broad criteria for choosing an appropriate
approach for valuing a given company.
10.36.b 10.36.c
differentiate between an order‐driven market and a price‐ calculate the impact of different national taxes on the return
driven market, and explain the risks and advantages of each; of an international investment;
10.36.d 10.36.e
discuss components of execution costs (including commissions describe an American Depositary Receipt (ADR), and
and fees, market impact, and opportunity cost) and differentiate among the various forms of ADRs in terms of
approaches to reducing these costs; trading and information supplied by the listed company;
10.36.f 10.36.g
state the determinants of the value of a closed‐end country
explain why companies choose to be listed abroad, and
fund;
calculate the cost difference between buying shares listed
abroad and buying ADRs;
10.36.h 10.36.i
describe exchange‐traded funds (ETFs), and explain the pricing discuss the advantages and disadvantages of alternatives to
of international ETFs in relation to their net asset value (NAV); direct international investing.
10.37.a 10.37.b
distinguish among expected holding period return, realized calculate and interpret an equity risk premium using historical
holding period return, required return, return from and forwardlooking estimation approaches;
convergence of price to intrinsic value, discount rate, and
internal rate of return;
10.37.c 10.37.d
discuss beta estimation for public companies, thinly traded
demonstrate the use of the capital asset pricing model
public companies, and nonpublic companies;
(CAPM), the Fama–French model (FFM), the Pastor–
Stambaugh model (PSM), macroeconomic multifactor models,
and the build‐up method (for example, bond yield plus risk
premium) for estimating the required
10.37.e 10.37.f
analyze the strengths and weaknesses of methods used to discuss international considerations in required return
estimate the required return on an equity investment; estimation;
10.37.g 10.37.h
explain and calculate the weighted average cost of capital for a evaluate the appropriateness of using a particular rate of
company; return as a discount rate, given a description of the cash flow
to be discounted and other relevant facts.
11.38.a 11.38.b
discuss approaches to equity analysis (ratio analysis and
distinguish between country analysis and industry analysis,
discounted cash flow models, including the franchise value
and evaluate an industry’s demand, life cycle, competition
model);
structure, and risk elements;
11.38.c 11.38.d
analyze the effects of inflation on asset valuation; discuss multifactor models in a global context.
11.39.a 11.39.b
distinguish among the five competitive forces that drive illustrate how the competitive forces drive industry
industry profitability in the medium and long run; profitability;
11.39.c 11.39.d
indicate why eliminating rivals is a risky strategy;
describe why industry growth rate, technology and innovation,
government, and complementary products and services are
fleeting factors rather than forces shaping industry structure;
11.39.e 11.40.a
show how positioning a company, exploiting industry change, discuss the key components that should be included in an
and the ability to shape industry structure are creative industry analysis model;
strategies for achieving a competitive advantage.
11.40.b 11.40.c
illustrate the life cycle of a typical industry; analyze the effects of business cycles on industry classification
(i.e., growth, defensive, cyclical);
11.40.d 11.40.e
illustrate the inputs and methods used in preparing industry
analyze the impact of external factors (e.g., technology,
demand and supply analyses;
government, foreign influences, demography, and social
changes) on industries;
11.40.f 11.41.a
explain factors that affect industry pricing practices. describe how inflation affects the estimation of cash flows for
a company domiciled in an emerging market;
11.41.b 11.41.c
evaluate an emerging market company using a discounted discuss the arguments for adjusting cash flows, rather than
cash flow model based on nominal and real financial adjusting the discount rate, to account for emerging market
projections; risks (e.g., inflation, macroeconomic volatility, capital control,
and political risk) in a scenario analysis;
11.41.d 11.42.a
compare and contrast dividends, free cash flow, and residual
estimate the cost of capital for emerging market companies,
income as alternative measures in discounted cash flow
and calculate and interpret a country risk premium.
models, and identify the investment situations for which each
measure is suitable;
11.42.b 11.42.c
calculate and interpret the value of a common stock using the calculate the value of a common stock using the Gordon
dividend discount model (DDM) for one‐, two‐, and multiple‐ growth model, and explain the model’s underlying
period holding periods assumptions;
11.42.d 11.42.e
calculate the implied growth rate of dividends using the calculate and interpret the present value of growth
Gordon growth model and current stock price; opportunities (PVGO) and the component of the leading price‐
to‐earnings ratio (P/E) related to PVGO;
11.42.f 11.42.g
calculate the value of noncallable fixed‐rate perpetual
calculate the justified leading and trailing P/Es using the
preferred stock;
Gordon growth model;
11.42.h 11.42.i
explain the strengths and limitations of the Gordon growth explain the assumptions and justify the selection of the two‐
model, and justify its selection to value a company’s common stage DDM, the H‐model, the three‐stage DDM, or
shares; spreadsheet modeling to value a company’s common shares;
11.42.j 11.42.k
explain the growth phase, transitional phase, and maturity explain terminal value, and discuss alternative approaches to
phase of a business; determining the terminal value in a DDM;
11.42.l 11.42.m
estimate a required return based on any DDM, the Gordon
calculate and interpret the value of common shares using the
growth model, and the H‐model;
two‐stage DDM, the H‐model, and the three‐stage DDM;
11.42.n 11.42.o
calculate and interpret the sustainable growth rate of a illustrate the use of spreadsheet modeling to forecast
company, and demonstrate the use of DuPont analysis to dividends and value common shares;
estimate a company’s sustainable growth rate;
11.42.p 12.43.a
evaluate whether a stock is overvalued, fairly valued, or compare and contrast the free cash flow to the firm (FCFF) and
undervalued by the market based on a DDM estimate of value. free cash flow to equity (FCFE) approaches to valuation;
12.43.b 12.43.c
discuss the appropriate adjustments to net income, earnings
contrast the ownership perspective implicit in the FCFE
before interest and taxes (EBIT), earnings before interest,
approach to the ownership perspective implicit in the dividend
taxes, depreciation, and amortization (EBITDA), and cash flow
discount approach;
from operations (CFO) to calculate FCFF and FCFE;
12.43.d 12.43.e
calculate FCFF and FCFE; discuss approaches for forecasting FCFF and FCFE;
12.43.f 12.43.g
contrast the recognition of value in the FCFE model with the explain how dividends, share repurchases, share issues, and
recognition of value in dividend discount models; changes in leverage may affect future FCFF and FCFE;
12.43.h 12.43.i
discuss the single‐stage (stable‐growth), two‐stage, and three‐
critique the use of net income and EBITDA as proxies for cash
stage FCFF and FCFE models, and select and justify the
flow in valuation;
appropriate model given a company’s characteristics;
12.43.j 12.43.k
estimate a company’s value using the appropriate model(s); explain the use of sensitivity analysis in FCFF and FCFE
valuations;
12.43.l 12.44.a
discuss approaches for calculating the terminal value in a differentiate between the method of comparables and the
multistage valuation model. method based on forecasted fundamentals as approaches to
using price multiples in valuation, and discuss the economic
rationales for each approach;
12.44.b 12.44.c
discuss rationales for and possible drawbacks to using price
define and interpret a justified price multiple;
multiples (including P/E, P/B, P/S, P/CF) and dividend yield in
valuation;
12.44.d 12.44.e
calculate and interpret alternative price multiples and calculate and interpret underlying earnings;
dividend yield;
12.44.f 12.44.g
discuss methods of normalizing EPS, and calculate normalized explain and justify the use of earnings yield (E/P);
EPS;
12.44.h 12.44.i
calculate and interpret the justified price‐to‐earnings ratio
discuss the fundamental factors that influence alternative
(P/E), price‐to‐book ratio (P/B), and price‐to‐sales ratio (P/S)
price multiples and dividend yield;
for a stock, based on forecasted fundamentals;
12.44.j 12.44.k
calculate and interpret a predicted P/E, given a cross‐sectional evaluate a stock by the method of comparables, and explain
regression on fundamentals, and explain limitations to the the importance of fundamentals in using the method of
cross‐sectional regression methodology; comparables;
12.44.l 12.44.m
calculate and interpret the P/E‐to‐growth ratio (PEG), and calculate and explain the use of price multiples in determining
explain its use in relative valuation; terminal value in a multistage discounted cash flow (DCF)
model;
12.44.n 12.44.o
calculate and interpret enterprise value multiples, and critique
discuss alternative definitions of cash flow used in price and
the use of EV/EBITDA;
enterprise value multiples, and explain the limitations of each
definition;
12.44.p 12.44.q
discuss the sources of differences in cross‐border valuation describe momentum indicators and their use in valuation;
comparisons;
12.44.r 12.44.s
evaluate whether a stock is overvalued, fairly valued, or discuss the use of the arithmetic mean, the harmonic mean,
undervalued based on comparisons of multiples; the weighted harmonic mean, and the median to describe the
central tendency of a group of multiples;
12.44.t 12.45.a
calculate and interpret residual income, economic value
explain the use of stock screens in investment management.
added, and market value added;
12.45.b 12.45.c
discuss the uses of residual income models; calculate the intrinsic value of a common stock using the
residual income model, and contrast the recognition of value
in the residual income model to value recognition in other
present value models;
12.45.d 12.45.e
discuss the fundamental determinants of residual income; explain the relation between residual income valuation and
the justified price‐tobook ratio based on forecasted
fundamentals;
12.45.f 12.45.g
calculate an implied growth rate in residual income given the
calculate and interpret the intrinsic value of a common stock
market price‐tobook ratio and an estimate of the required rate
using single‐stage (constant‐growth) and multistage residual
of return on equity;
income models;
12.45.h 12.45.i
explain continuing residual income and justify an estimate of compare and contrast the residual income model to the
continuing residual income at the forecast horizon given dividend discount and free cash flow to equity models;
company and industry prospects;
12.45.j 12.45.k
discuss the strengths and weaknesses of the residual income justify the selection of the residual income model to value a
model; company’s common stock;
12.45.l 12.45.m
evaluate whether a stock is overvalued, fairly valued, or
discuss accounting issues in applying residual income models;
undervalued by the market based on a residual income model.
12.46.a 12.46.b
compare and contrast public and private company valuation; discuss the uses of private business valuation, and explain
applications of greatest concern to financial analysts;
12.46.c 12.46.d
explain alternative definitions of value, and demonstrate how discuss the income, market, and asset‐based approaches to
different definitions can lead to different estimates of value; private company valuation and the factors relevant to the
selection of each approach;
12.46.e 12.46.f
demonstrate the free cash flow, capitalized cash flow, and
discuss cash flow estimation issues related to private
excess earnings methods of private company valuation;
companies and the adjustments required to estimate
normalized earnings;
12.46.g 12.46.h
discuss factors that require adjustment when estimating the compare and contrast models used to estimate the required
discount rate for private companies; rate of return to private company equity (for example, the
CAPM, the expanded CAPM, and the build‐up approach);
12.46.i 12.46.j
demonstrate the market approaches to private company demonstrate the asset‐based approach to private company
valuation (for example, guideline public company method, valuation;
guideline transaction method, and prior transaction method),
and discuss the advantages and disadvantages of each;
12.46.k 12.46.l
describe the role of valuation standards in valuing private
discuss the use of discounts and premiums in private company
companies.
valuation;
13.47.a 13.47.b
illustrate, for each type of real property investment, the main evaluate a real estate investment using net present value
value determinants, investment characteristics, principal risks, (NPV) and internal rate of return (IRR) from the perspective of
and most likely investors; an equity investor;
13.47.c 13.47.d
calculate the after‐tax cash flow and the after‐tax equity explain the potential problems associated with using IRR as a
reversion from real estate properties; measurement tool in real estate investments.
13.48.a 13.48.b
determine the capitalization rate by the market‐extraction
explain the relation between a real estate capitalization rate
method, band‐ofinvestment method, and built‐up method,
and a discount rate
and justify each method’s use in capitalization rate
determination;
13.48.c 13.48.d
estimate the market value of a real estate investment using contrast the limitations of the direct capitalization approach to
the direct income capitalization approach and the gross those of the gross income multiplier technique.
income multiplier technique;
13.49.a 13.49.b
explain the sources of value creation in private equity; explain how private equity firms align their interests with
those of the managers of portfolio companies;
13.49.c 13.49.d
discuss the valuation issues in buyout and venture capital
distinguish between the characteristics of buyout and venture
transactions;
capital investments;
13.49.e 13.49.f
explain alternative exit routes in private equity and their explain private equity fund structures, terms, valuation, and
impact on value; due diligence in the context of an analysis of private equity
fund returns;
13.49.g 13.49.h
explain the risks and costs of investing in private equity; interpret and compare financial performance of private equity
funds from the perspective of an investor;
13.49.i 13.49.j
calculate pre‐money valuation, post‐money valuation,
calculate management fees, carried interest, net asset value,
ownership fraction, and price per share applying the venture
distributed to paid in (DPI), residual value to paid in (RVPI),
capital method 1) with single and multiple financing rounds
and total value to paid in (TVPI) of a private equity fund;
and 2) in terms of IRR;
13.49.k 13.50.a
demonstrate alternative methods to account for risk in explain why commodity futures such as gold have limited
venture capital. “contango,” whereas others such as oil often have natural
“backwardation,” and indicate why these conditions might be
less prevalent in the future;
13.50.b 13.50.c
discuss how “roll yield” in a commodity futures position can be discuss the argument that commodity futures are not an asset
positive (negative); class;
13.50.d 13.50.e
discuss why investing in commodities offers diversification
demonstrate how the geometric return of an actively
opportunities during periods of economic fluctuation in the
managed commodity basket can be positive, whereas the
short run and inflation in the long run.
underlying average commodity has a geometric return near
zero;
13.51.a 13.51.b
discuss how the characteristics of hedge funds affect compare and contrast the use of market indices, hedge fund
traditional methods of performance measurements; indices, and positive risk‐free rates to evaluate hedge fund
performance.
13.52.a 13.52.b
discuss common types of investment risks for hedge funds; evaluate maximum drawdown and value‐at‐risk for measuring
risks of hedge funds.
14.53.a 14.53.b
explain and analyze the key components of credit analysis;
distinguish among default risk, credit spread risk, and
downgrade risk;
14.53.c 14.53.d
calculate and interpret the key financial ratios used by credit evaluate the credit quality of an issuer of a corporate bond,
analysts; given such data as key financial ratios for the issuer and the
industry;
14.53.e 14.53.f
analyze why and how cash flow from operations is used to explain and interpret the typical elements of the corporate
assess the ability of an issuer to service its debt obligations structure and debt structure of a high‐yield issuer and the
and to assess the financial flexibility of a company; effect of these elements on the risk position of the lender;
14.53.g 14.53.h
explain how the credit worthiness of municipal bonds is
discuss the factors considered by rating agencies in rating
assessed, and contrast the analysis of tax‐backed debt with
asset‐backed securities;
the analysis of revenue obligations;
14.53.i 14.53.j
discuss the key considerations used by Standard & Poor’s in contrast the credit analysis required for corporate bonds to
assigning sovereign ratings, and describe why two ratings are that required for 1) asset‐backed securities, 2) municipal
assigned to each national government; securities, and 3) sovereign debt.
14.54.a 14.54.b
contrast the concept of liquidity as “appetite for risk” with the describe how Minsky’s “financial instability hypothesis”
more traditional view that liquidity is created by the central predicts a mortgage market crisis as debt creation journeys
bank; from conservative hedging activities to more speculative
activities, and finally to a Ponzi scheme phase;
14.54.c 14.55.a
illustrate and explain parallel and nonparallel shifts in the yield
explain how subprime mortgage borrowers are granted a free
curve, a yield curve twist, and a change in the curvature of the
at‐the‐money call option on the value of their property.
yield curve (i.e., a butterfly shift);
14.55.b 14.55.c
describe the factors that drive U.S. Treasury security returns, explain the various universes of Treasury securities that are
and evaluate the importance of each factor; used to construct the theoretical spot rate curve, and evaluate
their advantages and disadvantages;
14.55.d 14.55.e
explain the swap rate curve (LIBOR curve), and discuss why illustrate the theories of the term structure of interest rates
market participants have used the swap rate curve rather than (i.e., pure expectations, liquidity, and preferred habitat), and
a government bond yield curve as a benchmark; discuss the implications of each for the shape of the yield
curve;
14.55.f 14.55.g
compute and interpret yield volatility, distinguish between
compute and interpret the yield curve risk of a security or a
historical yield volatility and implied yield volatility, and
portfolio by using key rate duration;
explain how yield volatility is forecasted.
14.56.a 14.56.b
evaluate, using relative value analysis, whether a security is evaluate the importance of benchmark interest rates in
undervalued or overvalued; interpreting spread measures;
14.56.c 14.56.d
illustrate the backward induction valuation methodology compute the value of a callable bond from an interest rate
within the binomial interest rate tree framework; tree;
14.56.e 14.56.f
explain the effect of volatility on the arbitrage‐free value of an
illustrate the relations among the values of a callable (putable)
option;
bond, the corresponding option‐free bond, and the embedded
option;
14.56.g 14.56.h
interpret an option‐adjusted spread with respect to a nominal illustrate how effective duration and effective convexity are
spread and to benchmark interest rates; calculated using the binomial model;
14.56.i 14.56.j
calculate the value of a putable bond, using an interest rate describe and evaluate a convertible bond and its various
tree; component values;
14.56.k 15.57.a
describe a mortgage loan, and illustrate the cash flow
compare and contrast the risk‐return characteristics of a
characteristics of a fixedrate, level payment, and fully
convertible bond with the risk‐return characteristics of
amortized mortgage loan;
ownership of the underlying common stock.
15.57.b 15.57.c
illustrate the investment characteristics, payment calculate the prepayment amount for a month, given the
characteristics, and risks of mortgage passthrough securities; single monthly mortality rate;
15.57.d 15.57.e
compare and contrast the conditional prepayment rate (CPR) explain why the average life of a mortgage‐backed security is
with the Public Securities Association (PSA) prepayment more relevant than the security’s maturity;
benchmark;
15.57.f 15.57.g
illustrate how a collateralized mortgage obligation (CMO) is
explain the factors that affect prepayments and the types of
created and how it provides a better matching of assets and
prepayment risks;
liabilities for institutional investors;
15.57.h 15.57.i
distinguish among the sequential pay tranche, the accrual evaluate the risk characteristics and the relative performance
tranche, the planned amortization class tranche, and the of each type of CMO tranche, given changes in the interest
support tranche in a CMO; rate environment;
15.57.j 15.57.k
explain the investment characteristics of stripped mortgage‐ compare and contrast agency and nonagency mortgage‐
backed securities; backed securities;
15.57.l 15.57.m
describe the basic structure of a CMBS, and illustrate the ways
distinguish credit risk analysis of commercial mortgage‐backed
in which a CMBS investor may realize call protection at the
securities (CMBS) from credit risk analysis of residential
loan level and by means of the CMBS structure.
nonagency mortgage‐backed securities;
15.58.a 15.58.b
illustrate the basic structural features of and parties to a explain and contrast prepayment tranching and credit
securitization transaction; tranching;
15.58.c 15.58.d
distinguish between the payment structure and collateral distinguish among the various types of external and internal
structure of a securitization backed by amortizing assets and credit enhancements;
non‐amortizing assets;
15.58.e 15.58.f
describe collateralized debt obligations (CDOs), including cash
describe the cash flow and prepayment characteristics for
and synthetic CDOs;
securities backed by home equity loans, manufactured
housing loans, automobile loans, student loans, SBA loans, and
credit card receivables;
15.58.g 15.59.a
distinguish among the primary motivations for creating a illustrate the computation, use, and limitations of the cash
collateralized debt obligation (arbitrage and balance sheet flow yield, nominal spread, and zero‐volatility spread for a
transactions). mortgage‐backed security and an assetbacked security;
15.59.b 15.59.c
describe the Monte Carlo simulation model for valuing a describe path dependency in passthrough securities and the
mortgage‐backed security; implications for valuation models;
15.59.d 15.59.e
evaluate a mortgage‐backed security using option‐adjusted
illustrate how the option‐adjusted spread is computed using
spread analysis;
the Monte Carlo simulation model and how this spread
measure is interpreted;
15.59.f 15.59.g
discuss why effective durations reported by various dealers analyze the interest rate risk of a security given the security’s
and vendors may differ; effective duration and effective convexity;
15.59.h 15.59.i
explain other measures of duration used by practitioners in determine whether the nominal spread, zero‐volatility spread,
the mortgage‐backed market (e.g., cash flow duration, coupon or option‐adjusted spread should be used to evaluate a
curve duration, and empirical duration), and describe the specific fixed income security.
limitations of these duration measures;
16.60.a 16.60.b
calculate and interpret the price and the value of an equity
explain how the value of a forward contract is determined at
forward contract, assuming dividends are paid either
initiation, during the life of the contract, and at expiration;
discretely or continuously;
16.60.c 16.60.d
calculate and interpret the price and the value of 1) a forward evaluate credit risk in a forward contract, and explain how
contract on a fixed‐income security, 2) a forward rate market value is a measure of the credit risk to a party in a
agreement (FRA), and 3) a forward contract on a currency; forward contract.
16.61.a 16.61.b
explain why the futures price must converge to the spot price determine the value of a futures contract;
at expiration;
16.61.c 16.61.d
describe the monetary and nonmonetary benefits and costs
explain how forward and futures prices differ;
associated with holding the underlying asset, and explain how
they affect the futures price;
16.61.e 16.61.f
describe backwardation and contango; discuss whether futures prices equal expected spot prices;
16.61.g 16.61.h
describe the difficulties in pricing Eurodollar futures and calculate and interpret the price of Treasury bond futures,
creating a pure arbitrage opportunity; stock index futures, and currency futures.
17.62.a 17.62.b
calculate and interpret prices of interest rate options and
calculate and interpret the prices of a synthetic call option,
options on assets using one‐ and two‐period binomial models;
synthetic put option, synthetic bond, and synthetic underlying
stock, and infer why an investor would want to create such
instruments;
17.62.c 17.62.d
explain the assumptions underlying the Black–Scholes–Merton explain how an option price, as represented by the Black–
model and their limitations; Scholes–Merton model, is affected by each of the input values
(the option Greeks);
17.62.e 17.62.f
explain the delta of an option, and demonstrate how it is used explain the gamma effect on an option’s price and delta and
in dynamic hedging; how gamma can affect a delta hedge;
17.62.g 17.62.h
demonstrate the methods for estimating the future volatility
discuss the effect of the underlying asset’s cash flows on the
of the underlying asset (i.e., the historical volatility and the
price of an option;
implied volatility methods);
17.62.i 17.62.j
illustrate how put‐call parity for options on forwards (or compare and contrast American options on forwards and
futures) is established; futures with European options on forwards and futures, and
identify the appropriate pricing model for European options.
17.63.a 17.63.b
distinguish between the pricing and valuation of swaps; explain the equivalence of 1) interest rate swaps to a series of
off‐market forward rate agreements (FRAs) and 2) a plain
vanilla swap to a combination of an interest rate call and an
interest rate put;
17.63.c 17.63.d
calculate and interpret the fixed rate, if applicable, and the
calculate and interpret the fixed rate on a plain vanilla interest
foreign notional principal for a given domestic notional
rate swap and the market value of the swap during its life;
principal on a currency swap, and determine the market
values of each of the different types of currency swaps during
their lives;
17.63.e 17.63.f
calculate and interpret the fixed rate, if applicable, on an explain and interpret the characteristics and uses of
equity swap and the market values of the different types of swaptions, including the difference between payer and
equity swaps during their lives; receiver swaptions;
17.63.g 17.63.h
identify and calculate the possible payoffs and cash flows of an calculate and interpret the value of an interest rate swaption
interest rate swaption; on the expiration day;
17.63.i 17.63.j
define swap spread and relate it to credit risk.
evaluate swap credit risk for each party and during the life of
the swap, distinguish between current credit risk and potential
credit risk, and illustrate how swap credit risk is reduced by
both netting and marking to market;
17.64.a 17.64.b
demonstrate how both a cap and a floor are packages of compute the payoff for a cap and a floor, and explain how a
options on interest rates and options on fixed‐income collar is created.
instruments;
17.65.a 17.65.b
describe the characteristics of a credit default swap, and explain the advantages of using credit derivatives over other
compare and contrast a credit default swap with a corporate credit instruments;
bond;
17.65.c 17.65.d
discuss credit derivatives trading strategies and how they are
explain the use of credit derivatives by the various market
used by hedge funds and other managers.
participants;
18.66.a 18.66.b
discuss mean–variance analysis and its assumptions, and explain the minimum‐variance and efficient frontiers, and
calculate the expected return and the standard deviation of discuss the steps to solve for the minimum‐variance frontier;
return for a portfolio of two or three assets;
18.66.c 18.66.d
discuss diversification benefits, and explain how the calculate the variance of an equally weighted portfolio of n
correlation in a two‐asset portfolio and the number of assets stocks, explain the capital allocation and the capital market
in a multi‐asset portfolio affect the diversification benefits; lines (CAL and CML) and the relation between them, and
calculate the values of one of the variables given the values of
the remainin
18.66.e 18.66.f
discuss the security market line (SML), the beta coefficient, the
explain the capital asset pricing model (CAPM), including its
market risk premium, and the Sharpe ratio, and calculate the
underlying assumptions and the resulting conclusions;
value of one of these variables given the values of the
remaining variables;
18.66.g 18.66.h
explain the market model, and state and interpret the market calculate an adjusted beta, and discuss the use of adjusted and
model’s predictions with respect to asset returns, variances, historical betas as predictors of future betas;
and covariances;
18.66.i 18.66.j
discuss reasons for and problems related to instability in the discuss and compare macroeconomic factor models,
minimum‐variance frontier; fundamental factor models, and statistical factor models;
18.66.k 18.66.l
discuss the arbitrage pricing theory (APT), including its
calculate the expected return on a portfolio of two stocks,
underlying assumptions and its relation to the multifactor
given the estimated macroeconomic factor model for each
models, calculate the expected return on an asset given an
stock;
asset’s factor sensitivities and the factor risk premiums, and
determine whethe
18.66.m 18.66.n
explain the sources of active risk, define and interpret tracking compare and contrast the conclusions and the underlying
error, tracking risk, and the information ratio, and explain assumptions of the CAPM and the APT models, and explain
factor portfolio and tracking portfolio; why an investor can possibly earn a substantial premium for
exposure to dimensions of risk unrelated to market
movements.
18.67.a 18.67.b
discuss the efficiency of the market portfolio in the CAPM and discuss the practical consequences that follow when
the relation between the expected return and beta of an asset restrictions on borrowing at the risk‐free rate and on short
when restrictions on borrowing at the risk‐free rate and on selling exist.
short selling exist;
18.68.a 18.68.b
discuss the factors that favor international market integration;
explain international market integration and segmentation
and the impediments to international capital mobility;
18.68.c 18.68.d
discuss the assumptions of the domestic capital asset pricing justify the extension of the domestic CAPM to an international
model (CAPM); context (the extended CAPM), and discuss the assumptions
needed to make the extension;
18.68.e 18.68.f
determine whether the real exchange rate has changed in a calculate the expected 1) exchange rate and 2) domestic‐
period; currency holding period return on a foreign bond (security);
18.68.g 18.68.h
calculate a foreign currency risk premium, and explain a
calculate the end‐of‐period real exchange rate and the
foreign currency risk premium in terms of interest rate
domestic‐currency ex‐post return on a foreign bond (security);
differentials and forward rates;
18.68.i 18.68.j
state the risk pricing relation and the formula for the explain the effect of market segmentation on the ICAPM;
international capital asset pricing model (ICAPM), and
calculate the expected return on a stock using the model;
18.68.k 18.68.l
define currency exposure, and explain exposures in terms of discuss the likely exchange rate exposure of a company based
correlations; on a description of the company’s activities, and explain the
impact of both real and nominal exchange rate changes on the
valuation of the company;
18.68.m 18.68.n
contrast the traditional trade approach ( j‐curve) and the
discuss the currency exposures of national economies, equity
money demand approach to modeling the relation between
markets, and bond markets;
real exchange rate changes and domestic economic activity.
18.69.a 18.69.b
justify active portfolio management when security markets are discuss the steps and the approach of the Treynor‐Black model
nearly efficient; for security selection;
18.69.c 18.70.a
describe how an analyst’s accuracy in forecasting alphas can explain the importance of the portfolio perspective;
be measured and how estimates of forecasting can be
incorporated into the Treynor‐Black approach.
18.70.b 18.70.c
define investment objectives and constraints, and explain and
describe the steps of the portfolio management process and
distinguish among the types of investment objectives and
the components of those steps;
constraints;
18.70.d 18.70.e
discuss the role of the investment policy statement in the explain how capital market expectations and the investment
portfolio management process, and explain the elements of an policy statement help influence the strategic asset allocation
investment policy statement; decision, and discuss how an investor’s investment time
horizon may influence the investor’s strategic asset allocation;
18.70.f 18.70.g
contrast the types of investment time horizons, determine the justify ethical conduct as a requirement for managing
time horizon for a particular investor, and evaluate the effects investment portfolios.
of this time horizon on portfolio choice;