Break through for the 2014

CFA Level II Exam

Agenda

CFA Exam Fast Facts & Challenges

Why Candidates Fail?

Exam Forecast & Program Highlights

Q
Q&A
Few while important words to L2 Candidates

ƒ CFA Level 2 Exam is challenging but not that

threatening
ƒ Simply
p y reading
g Schweser Notes will not be
sufficient enough to pass the exams
ƒ Having a big picture in your mind is very
necessary
ƒ After studying level two you are equivalent to a
finance master degree graduate

Let’s get the ball running

Level II Challenges
 Why Level II is a big Challenge
Perspective from the Pass Rates

Year Level 2 Pass Rate

(Exam Actually Taken)
2005 56%
2006 48%
2007 40%
2008 46%
2009 41%
2010 39%
2011 43%
2012 42%
 Why Level II is a big Challenge
Perspective from the Pass Rates

Around 40% recently

 Body of Knowledge
• Ethical and Professional Standards

• Quantitative
Q tit ti Methods
M th d
• Economics Investment
• Financial Statement Analysis Tools
• Corporate Finance

• Analysis of Equity Investments

• Analysis of Debt Investments Asset
• Analysis of Derivatives Valuation
• Analysis of Alternative Investments

• Portfolio Management and Performance

Portfolio
P tf li
Presentation
Management
考试内容
 Why Level II is a big Challenge
Perspective from the Content

Exam Topic Focus Learning Focus

Level I Investment Knowledge
Tools
oo s and
a d Ethical
t ca Sta
Standards
da ds

Level II Asset Application

pp
Valuation and Ethical Standards

Level III Portfolio Synthesis and

Management Ethical Standards
 Why Level II is a big Challenge
Perspective from the Exam Format

How is Level 2 Different from Level 1?

ƒ Level 1 is “building block” for Level 2 (like a prerequisite for a
university course)
ƒ Level
Le el 1 command words:ords “define
“define,”” “e
“explain,”
plain ” “describe
“describe,””
“calculate”
ƒ Level 2 command words: “analyze,”
analyze, “formulate,”
formulate, “evaluate,”
evaluate,
“contrast,” “modify,” “demonstrate,” “illustrate”
ƒ Questions can address combined LOS
 2013 Level 2 Exam Format

ƒ 120 “selected response” questions (more commonly known

as multiple choice)
ƒ Grouped into six-question “item sets”
ƒ 1 minute
i t = 1 point;
i t 3 minutes
i t per question;
ti 18 minutes
i t per
item set; 360 minutes (6 hours) for exam
ƒ 60 Q’s
Q s (10 item sets) in 3-hour AM session
ƒ 60 Q’s (10 item sets) in 3-hour PM session
 2013 Topic Area Weights

Topic
p % Item Sets
Ethics 10% 2
Quantitative Methods 5 - 10% 1-2
Economics 5 - 10% 1-2
Financial Statement Analysis 15 - 25% 3-5
Corporate Finance 5 - 15% 1-3
Equity 20 - 30% 4-6
Fixed Income 5 - 15% 1-3
Derivatives 5 - 15% 1-3
Alternative Investments 5 - 15% 1-3
Portfolio Management 5 - 15% 1-3
 Exam Major Focus - Cannot follow?

Do not Worry, will covered during revision

course
 Exam Forecast: Ethics (2 Item Sets)

ƒ Standards of Practice is the same as Level 1

(and this is also the key to success at Level 2)

ƒ Al
Also iincludes
l d P Prudent
d t IInvestor
t R Rule,
l S Soft
ft
Dollar Standards, and Research Objectivity
St d d
Standards
 Ethics

ƒ The most important topics are (1) soft dollars

arrangements,
t (2) fid
fiduciary
i d
duties
ti (i(including
l di
the prudent man vs. prudent investor rules),
andd (3) R
Research
h Obj
Objective
ti St
Standard.
d d

ƒ However, in one item set you must be well

acquainted
q with the Standards of Professional
Conduct. Be ready for a random sampling of
topics.
p
 Quant (1 - 2 Item Sets)

ƒ Correlation Analysis
y ((Simple
p and
Straightforward)
ƒ Simple Linear regression with one
independent variable (the basics)
ƒ Multiple Regression with more than one
independent variable (basics again plus model
misspecification and problems with regression)
ƒ Time Series Analysis (observations over
successive
i ti
time periods;
i d e.g. monthly
thl stock
t k
returns, quarterly revenue data)
 Economics (1 - 2 Item Sets)

ƒ Currencyy Exchange
g Rate determination and
forecasting
ƒ International Finance (FX markets, Spot Vs Forward, parity
conditions, arbitrage)
ƒ Balance of Payment
ƒ Carry Trade
ƒ Monetary and Fiscal policies on exchange rate
ƒ Determinants of Economic growth
ƒ Growth Theories
ƒ Government Regulation
 Financial Statement Analysis (3 - 5 Item Sets)

ƒ Inventory Valuation and Long-term Asset

ƒ Intercorporate Investment (Cost method vs
equity
q y method vs consolidation vs p proportionate
p
consolidation)
ƒ Employee compensation：Defined contribution
plan, defined benefit plan; share based
compensation
ƒ Multinational Operations: FX translation
ƒ Earnings
E i Q
Quality
lit and
d sustainable
t i bl cash h flflow
ƒ Integration of Financial Statement Analysis
Techniques
 Corporate Finance (1 - 3 Item Sets)

ƒ Capital
p Budgeting
g g ((evaluating
gpprojects
j with
NPV)
ƒ Capital Structure (optimal capital structure;
lots of theory)
ƒ Dividend Policy (optimal dividend policy)
and Share Repurchase analysis
ƒ Corporate
C t Governance
G
ƒ Merger and Acquisitions (Quantitative
Questions)
 Equity (4 - 6 Item Sets)

ƒ Equity Valuation: Applications and Processes

ƒ Return Concepts
ƒ Porter’s Competitive Strategy Model
ƒ Your strategy needs a strategy(new)
ƒ Industryy and companyy analysis(new)
y ( )
ƒ Dividend Discount Models
ƒ Free cash Flow Models
ƒ Market-Based Valuation: Price and Enterprise
Value Multiples
ƒ Residual Income Model and EVA
ƒ Private Company Valuation
 Alternative Investments (1 - 2 Item Sets)

ƒ Private Real Estate Investments

ƒ Publicly Traded Real Estate Securities
ƒ Private Equity Valuation
ƒ Investing in Hedge Funds: A Survey
ƒ A primer on commodity investing (new)

ƒ There are basically two things you can see here

here. The first is
venture capital. The likely scenario is a question from the
viewpoint of a pension fund portfolio manager.

ƒ The second possible topic is real estate. In real estate, you will
see either a numerical real estate valuation problem or
discussion problem of the value of real estate as a diversification
tool for an equity portfolio. Be ready for either
 Fixed Income (1 - 3 Item Sets)

ƒ Credit analysis models (modified)

ƒ Term Structure Theories
ƒ Valuing Callable,
Callable Puttable
Puttable, Convertible bonds
(the binomial model)
ƒ Mortgage-backed
Mortgage backed and AssetAsset-backed
backed Securities
(different types of MBS and ABS and their
features)
ƒ Valuing Mortgage-Backed and Asset-Backed
S
Securities
iti
 Derivatives (1 - 3 Item Sets)

ƒ Valuation of:
ƒ Forward Markets and Contracts
ƒ Futures Markets and Contracts
ƒ Options Markets and Contracts
ƒ Swaps Markets and Contracts
ƒ Interest Rate Derivative Instruments
ƒ Credit Default Swaps (modified)
 Portfolio Management (1 - 3 Item Sets)

ƒ Portfolio concepts:
p CAPM and APT,, Multi-Factor
Models
ƒ Residual Risk and Return: The Information Ratio
(new)
ƒ The Fundamental Law of Active Management
(Treynor-Black model) (modified)
ƒ Portfolio
P tf li Management
M t Process
P (intro
(i t tot Level
L l 3)
Solution to Success: Find An Effective
Study
y Strategy
gy
 Points about The CFAI Curriculum Book

Remember:

• They are not Schweser Study Notes

- Repackaged textbook readings as set by CFA
Institute
- Equally voluminous and unwieldy as previous
volumes,, which used to be for separate
p p
purchase
 Study Approach

1. Attend class and make 2. Practice questions in the

notes in slide packs 3 slide
3. lid packs
k

3. Work through study material

4. Practice Mock Exams
further annotating slide packs
 Mock Exam & Review

• T
Target
t important
i t t BOK
• Dry run for the real exam
• Find weak areas
• Focus additional review
• Time management and techniques
The End！

Q
Q&A