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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.
demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situations;
recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.
define soft‐dollar arrangements and state the general principles of the Soft Dollar Standards;
critique company soft‐dollar practices and policies;
determine whether a product or service qualifies as “permissible research” that can be purchased with client brokerage.
explain the objectives of the Research Objectivity Standards;
critique company policies and practices related to research objectivity, and distinguish between changes required and changes recommended for compliance with the Research Objectivity Standards.
critique the practices and policies presented;
explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct.
critique the practices and policies presented;
explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct.
critique the practices and policies presented;
explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct.
critique trade allocation practices, and determine whether compliance exists with the CFA Institute Standards of Professional Conduct addressing fair dealing and client loyalty;
discuss appropriate actions to take in response to trade allocation practices that do not adequately respect client interests.
critique the disclosure of investment objectives and basic policies and determine whether they comply with the CFA Institute Standards of Professional Conduct;
discuss appropriate actions needed to ensure adequate disclosure of the investment process.
explain the basic principles of the new Prudent Investor Rule;
explain the general fiduciary standards to which a trustee must adhere;
differentiate between the old Prudent Man Rule and the new Prudent Investor Rule;
explain the key factors that a trustee should consider when investing and managing trust assets.
calculate and interpret a sample covariance and a sample correlation coefficient, and interpret a scatter plot;
3.11. 3. 3.g formulate a null and alternative hypothesis about a population value of a regression coefficient.f calculate and interpret the standard error of estimate. 3.11.e explain the assumptions underlying linear regression.11. select the appropriate test statistic.11.11. 3. and determine whether the hypothesis is rejected at a given level of significance. and determine whether the null hypothesis is rejected at a given level of significance. and interpret the regression coefficients. .c formulate a test of the hypothesis that the population correlation coefficient equals zero. including outliers and spurious correlation. and a confidence interval for a regression coefficient.d distinguish between the dependent and independent variables in a linear regression.b explain the limitations to correlation analysis. 3. the coefficient of determination.11.
12.12. 3.i describe the use of analysis of variance (ANOVA) in regression analysis. determine the statistical significance of each independent variable. interpret ANOVA results. calculate the value of the test statistic.c calculate and interpret 1) a confidence interval for the population value of a regression coefficient and 2) a predicted value for the dependent variable. and interpret the estimated coefficients and their p‐val 3.b formulate a null and an alternative hypothesis about the population value of a regression coefficient.12.11.a formulate a multiple regression equation to describe the relation between a dependent variable and several independent variables.j discuss the limitations of regression analysis.11. given an estimated regression model and assumed values for the independent variables. determine whether to reject the null hypothesis at a given level of significance by using a one‐tailed or two 3. . 3. and calculate and interpret an F‐statistic. 3.h calculate a predicted value for the dependent variable. given an estimated regression model and a value for the independent variable.11. and calculate and interpret a confidence interval for the predicted value of a dependent variable 3.
3.12.i discuss the types of heteroskedasticity and the effects of heteroskedasticity and serial correlation on statistical inference. and discuss how it is used in regression analysis.12.12.f distinguish between and interpret the R2 and adjusted R2 in multiple regression.g infer how well a regression model explains the dependent variable by analyzing the output of the regression equation and an ANOVA table.12. 3.12. and interpret the coefficients and regression results.12. .h formulate a multiple regression equation by using dummy variables to represent qualitative factors. 3. 3. 3.d explain the assumptions of a multiple regression model.e calculate and interpret the F‐statistic. 3.
3.13.12. . and evaluate the limitations of trend models.13.a calculate and evaluate the predicted trend value for a time series.12. 3. given the estimated trend coefficients.l discuss models with qualitative dependent variables. modeled as either a linear trend or a log‐linear trend. and explain how to avoid the common forms of misspecification.m interpret the economic meaning of the results of multiple regression analysis and critique a regression model and its results. 3. 3. 3.k discuss the effects of model misspecification on the results of a regression analysis. 3.b discuss the factors that determine whether a linear or a log‐ linear trend should be used with a particular time series.12.j describe multicollinearity.12. and discuss its causes and effects in regression analysis.
f explain mean reversion. and calculate one‐ and two‐period‐ahead forecasts given the estimated coefficients.g contrast in‐sample and out‐of‐sample forecasts.h discuss the instability of coefficients of time‐series models.c explain the requirement for a time series to be covariance stationary. 3.13.d discuss the structure of an autoregressive (AR) model of order p. 3. and calculate a mean‐reverting level.13. 3. 3.13.13. and compare the forecasting accuracy of different time‐series models based on the root mean squared error criterion. 3. 3. and discuss the significance of a series that is not stationary.13. .e explain how autocorrelations of the residuals can be used to test whether the autoregressive model fits the time series.13.
explain when unit roots are likely to occur and how to test for them. 3. and calculate and interpret a forecasted value using an AR model with a seasonal lag.13. and discuss how ARCH models can be applied to predict the variance of a time series.j discuss the implications of unit roots for time‐series analysis.n explain how time‐series variables should be analyzed for nonstationarity and/or cointegration before use in a linear regression.13. 3.l discuss how to test and correct for seasonality in a time‐series model.13.13. .13. and demonstrate how a time series with a unit root can be transformed so it can be analyzed with an AR model. 3. and contrast them to covariance stationary processes. 3.i describe the characteristics of random walk processes.k discuss the steps of the unit root test for nonstationarity. and explain the relation of the test to autoregressive time‐series models.m explain autoregressive conditional heteroskedasticity (ARCH). 3. 3.13.
b discuss how the one‐third rule can be used to explain the contributions of labor and technological change to growth in labor productivity.c discuss how faster economic growth can be achieved by increasing the growth of physical capital. 4. and investment in human capital. technological advances. 4. .a explain the rationale for government regulation in the form of 1) economic regulation of natural monopolies and 2) social regulation of nonmonopolistic industries.14.14. 4. 4. 3.o select and justify the choice of a particular time‐series model from a group of models. and new growth theory.d compare and contrast classical growth theory. 4.a define the sources of economic growth. and discuss the preconditions for economic growth. neoclassical growth theory.220.127.116.11.
a define an exchange rate.15.b compare and contrast tariffs. and differentiate between the nominal exchange rate and the real exchange rate.16.15. share‐thepains theory of regulator behavior. . 4. quotas. 4.17. 4.16. nontariff barriers.b discuss the potential benefits and possible negative side effects of social regulation.c critique the arguments for trade restrictions.a explain comparative advantage and how countries can gain from international trade. 4.c differentiate between the capture hypothesis and the share‐ the‐gains.16. 4. 4. and voluntary export restraints.
b explain the factors that influence supply and demand in the foreign exchange market.17.a define direct and indirect methods of foreign exchange quotations. 4. 4. .18. and convert direct (indirect) foreign exchange quotations into indirect (direct) foreign exchange quotations.17. 4.d differentiate between interest rate parity and purchasing power parity.f describe the following exchange rate policies: flexible exchange rates.e describe the balance of payments accounts. 4. 4. 4.17. and crawling pegs. fixed exchange rates.c discuss how the supply and demand for a currency changes the exchange rate.17.17.
4. given two spot exchange quotations involving three currencies.18. 4. trading volume.g calculate and interpret a forward discount or premium and express it as an annualized rate. .18. and trading volume. bank/dealer positions. 4.b calculate and interpret the spread on a foreign currency quotation. 4.d calculate the profit on a triangular arbitrage opportunity. bank/dealer positions. and explain how spreads on forward foreign currency quotations can differ as a result of market conditions. 4. and explain how spreads on foreign currency quotations can differ as a result of market conditions. and maturity/length of contract.e distinguish between the spot and forward markets for foreign exchange.18.18. given the bid–ask quotations for the currencies of three countries involved in the arbitrage.f calculate and interpret the spread on a forward foreign currency quotation. 4.c calculate and interpret currency cross rates.18.18.
19.b explain the role of each component of the balance of payments accounts. 4.19. 4. 4.c explain how current account deficits or surpluses and financial account deficits or surpluses affect an economy.a explain how exchange rates are determined in a flexible (or floating) exchange rate system. calculate the annualized forward premium/discount for a given currency.18. 4.d describe the factors that cause a nation’s currency to appreciate or depreciate. 4.19.18. . and infer whether the currency is “strong” or “weak. and illustrate covered interest arbitrage.” 4.i distinguish between spot and forward transactions.19.h explain interest rate parity.
i discuss the international Fisher relation. using the international Fisher relation and its linear approximation. 4.g discuss absolute purchasing power parity and relative purchasing power parity.19.j calculate the real interest rate.19. 4.f describe a fixed exchange rate and a pegged exchange rate system. given nominal interest rates and expected inflation rates.h calculate the end‐of‐period exchange rate implied by purchasing power parity. 4.e explain how monetary and fiscal policies affect the exchange rate and balance of payments components. 4.19. given the beginning‐of‐period exchange rate and the inflation rates.19.19. 4. 4. .19.
19.20.c differentiate between current and constant prices.19.m discuss the foreign exchange expectation relation between the forward exchange rate and the expected exchange rate. gross national income. 4. and net national income). 4. given interest rates and the assumption that uncovered interest rate parity holds. .20.20. 4. and explain the theory’s relation to other exchange rate parity theories. 4. and describe the GDP deflator.a distinguish between the measures of economic activity (i. including their components. 4.k discuss the theory of uncovered interest rate parity. 4.e. gross domestic product.b differentiate between GDP at market prices and GDP at factor cost.19..l calculate the expected change in the exchange rate.
.b discuss LIFO reserve and LIFO liquidation and their effects on financial statements and ratios. including those that use different inventory valuation methods.f discuss issues that analysts should consider when examining a company’s inventory disclosures and other sources of information. 5. 5.e analyze and compare the financial statements and ratios of companies. 5.21. 5.21. 5. 5.21.d discuss the implications of valuing inventory at net realisable value for financial statements and ratios.21.c demonstrate how to adjust a company’s reported financial statements from LIFO to FIFO for purposes of comparison.a explain and calculate the effect of inflation and deflation of inventory costs on the financial statements and ratios of companies that use different inventory valuation methods (cost formulas or cost flow assumptions).21.21.
plant.22. 5.e discuss the implications for financial statements and ratios of leasing assets instead of purchasing assets. and equipment.d analyze and interpret the financial statement disclosures regarding long‐lived assets.c discuss the implications for financial statements and ratios of impairment and revaluation of property. and intangible assets.22. and equipment. 5. 5.a discuss the implications for financial statements and ratios of capitalising versus expensing costs in the period in which they are incurred.f discuss the implications for financial statements and ratios of finance leases and operating leases from the perspective of both the lessor and the lessee.22. plant. 5. 5.22. 2011 Level . 5.22.b discuss the implications for financial statements and ratios of the different depreciation methods for property.22.
6.23. and special purpose and variable interest entities. GAAP in the classification.a describe the classification.e. defined benefit obligation and projected benefit obligation). and 5) special purpose 6.24. 6.24.24. 6.c analyze the effects on financial ratios of the different methods used to account for intercorporate investments.c describe the components of a company’s defined benefit pension expense.23. joint ventures. measurement.b explain the measures of a defined benefit pension plan’s liability (i.a discuss the types of post‐employment benefit plans and the implications for financial reports. . 3) joint ventures. business combinations. and disclosure of investments in financial assets. investments in associates. measurement. 6.23.. 2) investments in associates.b distinguish between IFRS and U. 4) business combinations. 6. and disclosure under the International Financial Reporting Standards (IFRS) for 1) investments in financial assets.S.
24.24. 6.g evaluate the underlying economic liability (or asset) of a company’s pension and other post‐employment benefits.24. 6.d explain the impact of a defined benefit plan’s assumptions on the defined benefit obligation and periodic expense. Generally Accepted Accounting Principles (U. 6. 6. GAAP) for pension and other post‐employment benefits that permit items to be reported in the footnotes 6.e explain the impact on financial statements of International Financial Reporting Standards (IFRS) and U.f evaluate pension plan footnote disclosures including cash flow related information.24.h calculate the underlying economic pension expense (income) and other postemployment expense (income) based on disclosures.S.24. .24.S.i discuss the issues involved in accounting for share‐based compensation. 6.
and local currency.25. 6.b analyze the impact of changes in exchange rates on the translated sales of the subsidiary and parent company. evaluate the translation of a subsidiary’s balance sheet and income statement into the parent company’s currency. 6.25. 6. and analyze the different effects of the current rate method and the temporal method on the subsidiary’s f 6.c compare and contrast the current rate method and the temporal method.25. and determine which method is appropriate in various scenarios. and the importance of companies’ assumptions in valuing these grants and options.d calculate the translation effects. analyze and evaluate the effects of each on the parent company’s balance sheet and income statement. 6.25.25.j explain the impact on financial statements of accounting for stock grants and stock options.24.a distinguish among presentation currency. 6. . functional currency.e analyze how using the temporal method versus the current rate method will affect the parent company’s financial ratios.
f illustrate and analyze alternative accounting methods for subsidiaries operating in hyperinflationary economies.27.25.g.26. 7.c provide a simplified description of the accounting treatment for derivatives being used to hedge exposure to changes in the value of assets and liabilities.a contrast cash‐basis and accrual‐basis accounting and explain why accounting discretion exists in an accrual accounting system.). and a foreign currency exposure of an instrument in a forei 7. EBITDA. etc.a distinguish among the various definitions of earnings (e..26.27. .b illustrate how trends in cash flow from operations can be more reliable than trends in earnings. 7. operating earnings.26. 7. 7.b describe the relation between the level of accruals and the persistence of earnings and the relative multiples that the cash and accrual components of earnings should rationally receive in valuation. net income. exposure to variable cash flow. 6.
obtaining a comprehensive picture of financial leverage. . 7.28.27. and cash flow statement issues. 7. critiquing a credit rating.27.27. 7.28. given a particular problem.a demonstrate the use of a framework for the analysis of financial statements.c discuss the opportunities and motivations for management to intervene in the external financial reporting process and the mechanisms that discipline such intervention.27. or purpose (e. question.g. and compare and contrast the earnings quality of peer companies. valuing equity based on comparables.f discuss problems with the quality of financial reporting. 7. 7..e explain mean reversion in earnings and how the accruals component of earnings affects the speed of mean reversion.b identify financial reporting choices and biases that affect the quality and comparability of companies’ financial statements and illustrate how such biases affect financial decisions. 7. expense recognition.d discuss earnings quality and the measures of earnings quality. including revenue recognition. and interpret warning signs of these potential problems. balance sheet issues.
d predict the impact on financial statements and ratios. 7. given a change in accounting rules. and overall financial condition. and cash‐flow‐ statement‐related modifications on a company’s financial statements. 8.c evaluate the quality of a company’s financial data and recommend appropriate adjustments to improve quality and comparability with similar companies.a compute the yearly cash flows of an expansion capital project and a replacement capital project and evaluate how the choice of depreciation method affects those cash flows. earnings normalization.29. . 8. including adjustments for differences in accounting rules.28.29. financial ratios. methods. and 2) capital rationing.c evaluate and select the optimal capital project in situations of 1) mutually exclusive projects with unequal lives. methods.29.28. 7.b discuss the effects of inflation on capital budgeting analysis. and assumptions.e analyze and interpret the effects of balance sheet modifications. or assumptions. 8.28. 7. using either the least common multiple of lives approach or the equivalent annual annuity approach.
8. and Monte Carlo simulation can be used to assess the stand‐alone risk of a capital project.g discuss common capital budgeting pitfalls.29.f discuss the types of real options and evaluate a capital project using real options 8.e discuss the procedure for determining the discount rate to be used in valuing a capital project and calculate a project’s required rate of return using the capital asset pricing model (CAPM).29.29. 8.h calculate and interpret accounting income and economic income in the context of capital budgeting.i differentiate among and evaluate a capital project using the following valuation models: economic profit. 8.29. 8. . 8. scenario analysis. residual income.d explain how sensitivity analysis. and claims valuation.29.29.
financial distress.30. and asymmetric information on a company’s cost of equity. including the impact of leverage. 8. 8.30.c review the role of debt ratings in capital structure policy. taxes. .e discuss international differences in financial leverage and the implications for investment analysis. and optimal capital structure.31.30. 8.d explain the factors an analyst should consider in evaluating the impact of capital structure policy on valuation.30. cost of capital. agency costs. 8.b explain the target capital structure and why actual capital structure may fluctuate around the target. and explain the implications of each for share value given a description of a corporate dividend action. 8. 8.a compare and contrast theories of dividend policy.a discuss the Modigliani–Miller propositions concerning capital structure.30.
and tax imputation dividend tax regimes. and calculate the dividend under each policy. 8. decreases.31.31. and omissions may convey. 8. and residual dividend payout policies.31.31. 8. 8.f compare and contrast stable dividend.c illustrate how clientele effects and agency issues may affect a company’s payout policy. 8.d discuss the factors that affect dividend policy. . split rate.31. increases. 8. target payout.31.g discuss the choice between paying cash dividends and repurchasing shares.e calculate and interpret the effective tax rate on a given currency unit of corporate earnings under double‐taxation.b discuss the types of information (signals) that dividend initiations.
b compare and contrast the major business forms and describe the conflicts of interest associated with each. and evaluate whether a company’s corporate governance has those attributes. 9. 9. including manager–shareholder conflicts and director– shareholder conflicts. 8.32.c discuss the conflicts that arise in agency relationships.a explain corporate governance. 8.i calculate and interpret dividend coverage ratios based on 1) net income and 2) free cash flow. discuss the objectives and the core attributes of an effective corporate governance system.31. 8.32.31. . 9.31.j discuss the symptoms of companies that may not be able to sustain their cash dividend.32.h discuss global trends in corporate dividend policies.
9. 9.f describe the elements of a company’s statement of corporate governance policies that investment analysts should assess.32. 9.d describe the responsibilities of the board of directors and explain the qualifications and core competencies that an investment analyst should look for in the board of directors.e illustrate effective corporate governance practice as it relates to the board of directors and evaluate the strengths and weaknesses of a company’s corporate governance practice.32.b explain the common motivations behind M&A activity.33.a categorize merger and acquisition (M&A) activities based on forms of integration and types of mergers.33.g discuss the valuation implications of corporate governance. . 9.32. 9.32. 9.
33. antitrust legislation. and attitude of target management.c illustrate how earnings per share (EPS) bootstrapping works and calculate a company’s postmerger EPS. 9.d discuss the relation between merger motivations and types of mergers based on industry life cycles. 9.S. 9. 9.33.e contrast merger transaction characteristics by form of acquisition.33. 9. . 9.33.f distinguish and describe pre‐offer and post‐offer takeover defense mechanisms.g summarize U.33.h calculate the Herfindahl–Hirschman Index and evaluate the likelihood of an antitrust challenge for a given business combination.33. method of payment.
and calculate the gains accrued to the target shareholders versus the acquirer shareholders.m explain the effects of price and payment method on the distribution of risks and benefits in a merger transaction. 9. 9. 9.33. .k estimate the intrinsic value of a company using comparable company analysis and comparable transaction analysis.j calculate free cash flows for a target company and estimate the company’s intrinsic value based on discounted cash flow analysis. calculate the estimated post‐merger value of an acquirer.33. including the advantages and disadvantages of each.33.l evaluate a merger bid.33.33. 9. 9.n describe the empirical evidence related to the distribution of benefits in a merger.i compare and contrast the three major methods for valuing a target company.33. 9.
35.33. 10. and identify the definition of value most relevant to public company valuation. 10. and explain possible sources of perceived mispricing. 9.c discuss the uses of equity valuation. split‐offs. and liquidation. contrast a going concern value to a liquidation value.34. 9.a define valuation and intrinsic value. 10. . 10.p valuation by Graham and Dodd and John Burr Williams are reflected in modern techniques of equity valuation.35.b explain the going concern assumption. equity carve‐outs.35.p discuss the major reasons for divestitures.o compare and contrast divestitures. spin‐ offs.33.
and explain the risks and advantages of each.a explain the historical differences in market organization.35.36. 10. 10.35. 10.36.f illustrate the broad criteria for choosing an appropriate approach for valuing a given company.e contrast absolute and relative valuation models. .c calculate the impact of different national taxes on the return of an international investment.d explain the elements of industry and competitive analysis and the importance of evaluating the quality of financial statement information. 10. 10. 10.b differentiate between an order‐driven market and a price‐ driven market.35.36. and describe examples of each type of model.
10.36.36. 10. 10.36. and opportunity cost) and approaches to reducing these costs.36.e describe an American Depositary Receipt (ADR).i discuss the advantages and disadvantages of alternatives to direct international investing. and explain the pricing of international ETFs in relation to their net asset value (NAV). and calculate the cost difference between buying shares listed abroad and buying ADRs.g state the determinants of the value of a closed‐end country fund. 10. 10.36. and differentiate among the various forms of ADRs in terms of trading and information supplied by the listed company.h describe exchange‐traded funds (ETFs). .36.d discuss components of execution costs (including commissions and fees. 10. market impact.f explain why companies choose to be listed abroad.
f discuss international considerations in required return estimation.37. the Fama–French model (FFM).c demonstrate the use of the capital asset pricing model (CAPM).37. and nonpublic companies. return from convergence of price to intrinsic value. macroeconomic multifactor models. 10. discount rate. the Pastor– Stambaugh model (PSM).37. 10. realized holding period return.37.37. .d discuss beta estimation for public companies. and the build‐up method (for example. bond yield plus risk premium) for estimating the required 10. required return. thinly traded public companies.a distinguish among expected holding period return. 10.37. 10. 10.e analyze the strengths and weaknesses of methods used to estimate the required return on an equity investment. and internal rate of return.b calculate and interpret an equity risk premium using historical and forwardlooking estimation approaches.
10.38.g explain and calculate the weighted average cost of capital for a company. and evaluate an industry’s demand.h evaluate the appropriateness of using a particular rate of return as a discount rate.b discuss approaches to equity analysis (ratio analysis and discounted cash flow models. 11. 10.38.37.a distinguish between country analysis and industry analysis.c analyze the effects of inflation on asset valuation. given a description of the cash flow to be discounted and other relevant facts.37.d discuss multifactor models in a global context.38.38. and risk elements. life cycle. . 11. 11. competition structure. including the franchise value model). 11.
. 11. technology and innovation. and the ability to shape industry structure are creative strategies for achieving a competitive advantage.39.a discuss the key components that should be included in an industry analysis model.39.39.a distinguish among the five competitive forces that drive industry profitability in the medium and long run. and complementary products and services are fleeting factors rather than forces shaping industry structure.c describe why industry growth rate. government.40.39.d indicate why eliminating rivals is a risky strategy. 11.e show how positioning a company. 11. exploiting industry change. 11.39.b illustrate how the competitive forces drive industry profitability. 11. 11.
40. demography. cyclical). 11. foreign influences. 11.41.g.f explain factors that affect industry pricing practices.. and social changes) on industries.b illustrate the life cycle of a typical industry.40. technology.40.. growth. 11. .c analyze the effects of business cycles on industry classification (i.e illustrate the inputs and methods used in preparing industry demand and supply analyses. 11.a describe how inflation affects the estimation of cash flows for a company domiciled in an emerging market.d analyze the impact of external factors (e. defensive. 11. government.40.e.40. 11.
11. . free cash flow.42. 11. and identify the investment situations for which each measure is suitable.b calculate and interpret the value of a common stock using the dividend discount model (DDM) for one‐. macroeconomic volatility. and residual income as alternative measures in discounted cash flow models.42. and multiple‐ period holding periods 11..c discuss the arguments for adjusting cash flows.g.41. and explain the model’s underlying assumptions.41. two‐. 11.a compare and contrast dividends.42.d estimate the cost of capital for emerging market companies. capital control. 11. rather than adjusting the discount rate.41.b evaluate an emerging market company using a discounted cash flow model based on nominal and real financial projections. 11.c calculate the value of a common stock using the Gordon growth model. and calculate and interpret a country risk premium. to account for emerging market risks (e. and political risk) in a scenario analysis. inflation.
11.42. 11.h explain the strengths and limitations of the Gordon growth model.f calculate the justified leading and trailing P/Es using the Gordon growth model. .42.42.e calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price‐ to‐earnings ratio (P/E) related to PVGO.42. 11. or spreadsheet modeling to value a company’s common shares.d calculate the implied growth rate of dividends using the Gordon growth model and current stock price. the H‐model.i explain the assumptions and justify the selection of the two‐ stage DDM.g calculate the value of noncallable fixed‐rate perpetual preferred stock. 11. 11. 11. the three‐stage DDM. and justify its selection to value a company’s common shares.42.42.
and the H‐model. the Gordon growth model. and maturity phase of a business.42. 11.42. the H‐model. transitional phase. and discuss alternative approaches to determining the terminal value in a DDM.o illustrate the use of spreadsheet modeling to forecast dividends and value common shares.42. 11. 11.42.l calculate and interpret the value of common shares using the two‐stage DDM.m estimate a required return based on any DDM. 11.42. and the three‐stage DDM.42. 11. .k explain terminal value.n calculate and interpret the sustainable growth rate of a company.j explain the growth phase. and demonstrate the use of DuPont analysis to estimate a company’s sustainable growth rate. 11.
depreciation. . 12. or undervalued by the market based on a DDM estimate of value.43.42. taxes. 12.43. 11. 12.43.p evaluate whether a stock is overvalued.c discuss the appropriate adjustments to net income.b contrast the ownership perspective implicit in the FCFE approach to the ownership perspective implicit in the dividend discount approach. earnings before interest.43.43. 12.a compare and contrast the free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) approaches to valuation.e discuss approaches for forecasting FCFF and FCFE. 12.d calculate FCFF and FCFE. and cash flow from operations (CFO) to calculate FCFF and FCFE. and amortization (EBITDA). fairly valued. earnings before interest and taxes (EBIT).
j estimate a company’s value using the appropriate model(s).i discuss the single‐stage (stable‐growth).43.k explain the use of sensitivity analysis in FCFF and FCFE valuations.43. 12.43. two‐stage. and changes in leverage may affect future FCFF and FCFE. 12. share repurchases.f contrast the recognition of value in the FCFE model with the recognition of value in dividend discount models. 12. . and select and justify the appropriate model given a company’s characteristics.h critique the use of net income and EBITDA as proxies for cash flow in valuation. 12.43.43.g explain how dividends. share issues. 12. and three‐ stage FCFF and FCFE models. 12.43.
.d calculate and interpret alternative price multiples and dividend yield. 12. and discuss the economic rationales for each approach.c discuss rationales for and possible drawbacks to using price multiples (including P/E. P/B.43.44.b define and interpret a justified price multiple.44. P/CF) and dividend yield in valuation.e calculate and interpret underlying earnings. 12.44. 12. 12. 12. 12.l discuss approaches for calculating the terminal value in a multistage valuation model.a differentiate between the method of comparables and the method based on forecasted fundamentals as approaches to using price multiples in valuation. P/S.44.44.
and explain the importance of fundamentals in using the method of comparables. 12.f discuss methods of normalizing EPS. 12.44. 12.44. .i calculate and interpret the justified price‐to‐earnings ratio (P/E). price‐to‐book ratio (P/B).j calculate and interpret a predicted P/E. 12.k evaluate a stock by the method of comparables. 12.h discuss the fundamental factors that influence alternative price multiples and dividend yield. and calculate normalized EPS. based on forecasted fundamentals.g explain and justify the use of earnings yield (E/P).44. and price‐to‐sales ratio (P/S) for a stock.44. 12.44.44. given a cross‐sectional regression on fundamentals. and explain limitations to the cross‐sectional regression methodology.
and explain its use in relative valuation.p discuss the sources of differences in cross‐border valuation comparisons.q describe momentum indicators and their use in valuation.44.44.o calculate and interpret enterprise value multiples. 12.44. 12.m calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model. and critique the use of EV/EBITDA.l calculate and interpret the P/E‐to‐growth ratio (PEG).n discuss alternative definitions of cash flow used in price and enterprise value multiples.44. 12. 12.44. and explain the limitations of each definition. 12. 12. .44.
45. . 12.r evaluate whether a stock is overvalued. economic value added. and market value added.a calculate and interpret residual income. fairly valued.t explain the use of stock screens in investment management. 12. the weighted harmonic mean. or undervalued based on comparisons of multiples. 12.45. 12.s discuss the use of the arithmetic mean.45. 12. 12.44.b discuss the uses of residual income models. the harmonic mean. and the median to describe the central tendency of a group of multiples.44. and contrast the recognition of value in the residual income model to value recognition in other present value models.c calculate the intrinsic value of a common stock using the residual income model.44.
45. . 12. 12.i compare and contrast the residual income model to the dividend discount and free cash flow to equity models.45. 12.45.45.f calculate and interpret the intrinsic value of a common stock using single‐stage (constant‐growth) and multistage residual income models. 12.h explain continuing residual income and justify an estimate of continuing residual income at the forecast horizon given company and industry prospects.45.g calculate an implied growth rate in residual income given the market price‐tobook ratio and an estimate of the required rate of return on equity. 12.45.e explain the relation between residual income valuation and the justified price‐tobook ratio based on forecasted fundamentals.d discuss the fundamental determinants of residual income. 12.
.45.46. 12.46.j discuss the strengths and weaknesses of the residual income model.k justify the selection of the residual income model to value a company’s common stock. 12. 12. 12. and explain applications of greatest concern to financial analysts.b discuss the uses of private business valuation. or undervalued by the market based on a residual income model. 12.45.45.m evaluate whether a stock is overvalued.l discuss accounting issues in applying residual income models. 12.45.a compare and contrast public and private company valuation. fairly valued.
12.f demonstrate the free cash flow.e discuss cash flow estimation issues related to private companies and the adjustments required to estimate normalized earnings.46.h compare and contrast models used to estimate the required rate of return to private company equity (for example. .46. 12. capitalized cash flow.46. 12. and asset‐based approaches to private company valuation and the factors relevant to the selection of each approach. and excess earnings methods of private company valuation.46. the CAPM.c explain alternative definitions of value. 12.46. and the build‐up approach).g discuss factors that require adjustment when estimating the discount rate for private companies.46. 12. the expanded CAPM.d discuss the income. market. and demonstrate how different definitions can lead to different estimates of value. 12.
demonstrate the market approaches to private company valuation (for example, guideline public company method, guideline transaction method, and prior transaction method), and discuss the advantages and disadvantages of each;
demonstrate the asset‐based approach to private company valuation;
discuss the use of discounts and premiums in private company valuation;
describe the role of valuation standards in valuing private companies.
illustrate, for each type of real property investment, the main value determinants, investment characteristics, principal risks, and most likely investors;
evaluate a real estate investment using net present value (NPV) and internal rate of return (IRR) from the perspective of an equity investor;
calculate the after‐tax cash flow and the after‐tax equity reversion from real estate properties;
explain the potential problems associated with using IRR as a measurement tool in real estate investments.
explain the relation between a real estate capitalization rate and a discount rate
determine the capitalization rate by the market‐extraction method, band‐ofinvestment method, and built‐up method, and justify each method’s use in capitalization rate determination;
estimate the market value of a real estate investment using the direct income capitalization approach and the gross income multiplier technique;
contrast the limitations of the direct capitalization approach to those of the gross income multiplier technique.
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;
distinguish between the characteristics of buyout and venture capital investments;
discuss the valuation issues in buyout and venture capital transactions;
explain alternative exit routes in private equity and their impact on value;
explain private equity fund structures, terms, valuation, and due diligence in the context of an analysis of private equity fund returns;
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;
calculate management fees, carried interest, net asset value, distributed to paid in (DPI), residual value to paid in (RVPI), and total value to paid in (TVPI) of a private equity fund;
calculate pre‐money valuation, post‐money valuation, ownership fraction, and price per share applying the venture capital method 1) with single and multiple financing rounds and 2) in terms of IRR;
demonstrate alternative methods to account for risk in venture capital.
explain why commodity futures such as gold have limited “contango,” whereas others such as oil often have natural “backwardation,” and indicate why these conditions might be less prevalent in the future;
hedge fund indices.51. 13. 13. and positive risk‐free rates to evaluate hedge fund performance. 13.b compare and contrast the use of market indices.d demonstrate how the geometric return of an actively managed commodity basket can be positive. . 13.e discuss why investing in commodities offers diversification opportunities during periods of economic fluctuation in the short run and inflation in the long run.50.b discuss how “roll yield” in a commodity futures position can be positive (negative). 13.50.c discuss the argument that commodity futures are not an asset class.a discuss how the characteristics of hedge funds affect traditional methods of performance measurements.50. 13.50. whereas the underlying average commodity has a geometric return near zero.51.
d evaluate the credit quality of an issuer of a corporate bond.53. 13.b evaluate maximum drawdown and value‐at‐risk for measuring risks of hedge funds.a distinguish among default risk. given such data as key financial ratios for the issuer and the industry. 14.c calculate and interpret the key financial ratios used by credit analysts. 14. and downgrade risk.52. 14.a discuss common types of investment risks for hedge funds.53.b explain and analyze the key components of credit analysis. credit spread risk. 14.52.53. 13. .53.
53.53.i discuss the key considerations used by Standard & Poor’s in assigning sovereign ratings.j contrast the credit analysis required for corporate bonds to that required for 1) asset‐backed securities.53. 14. and describe why two ratings are assigned to each national government. 14.g discuss the factors considered by rating agencies in rating asset‐backed securities.f explain and interpret the typical elements of the corporate structure and debt structure of a high‐yield issuer and the effect of these elements on the risk position of the lender. 14. . and contrast the analysis of tax‐backed debt with the analysis of revenue obligations. 14. 14.53. 2) municipal securities. 14.53.53. and 3) sovereign debt.e analyze why and how cash flow from operations is used to assess the ability of an issuer to service its debt obligations and to assess the financial flexibility of a company.h explain how the credit worthiness of municipal bonds is assessed.
14.54.a contrast the concept of liquidity as “appetite for risk” with the more traditional view that liquidity is created by the central bank.55.S. and evaluate their advantages and disadvantages.b describe the factors that drive U. and evaluate the importance of each factor. a butterfly shift).55. and a change in the curvature of the yield curve (i..e. a yield curve twist.b describe how Minsky’s “financial instability hypothesis” predicts a mortgage market crisis as debt creation journeys from conservative hedging activities to more speculative activities. 14. Treasury security returns. 14. 14. and finally to a Ponzi scheme phase.55.c explain how subprime mortgage borrowers are granted a free at‐the‐money call option on the value of their property.c explain the various universes of Treasury securities that are used to construct the theoretical spot rate curve. 14.54. . 14.54.a illustrate and explain parallel and nonparallel shifts in the yield curve.
using relative value analysis. .. distinguish between historical yield volatility and implied yield volatility. 14. 14. and preferred habitat). 14. and discuss why market participants have used the swap rate curve rather than a government bond yield curve as a benchmark. 14.e. whether a security is undervalued or overvalued.d explain the swap rate curve (LIBOR curve).56.a evaluate. pure expectations.f compute and interpret the yield curve risk of a security or a portfolio by using key rate duration. and discuss the implications of each for the shape of the yield curve.55. and explain how yield volatility is forecasted. liquidity.55.g compute and interpret yield volatility.55.55. 14.b evaluate the importance of benchmark interest rates in interpreting spread measures.56.e illustrate the theories of the term structure of interest rates (i. 14.
14.56. and the embedded option.56.56. the corresponding option‐free bond.d compute the value of a callable bond from an interest rate tree.f explain the effect of volatility on the arbitrage‐free value of an option. 14. .56. 14.c illustrate the backward induction valuation methodology within the binomial interest rate tree framework.56. 14.e illustrate the relations among the values of a callable (putable) bond.56.g interpret an option‐adjusted spread with respect to a nominal spread and to benchmark interest rates. 14. 14.h illustrate how effective duration and effective convexity are calculated using the binomial model.
15.56. and fully amortized mortgage loan.57. given the single monthly mortality rate.56. and risks of mortgage passthrough securities. level payment. 14. 14. . payment characteristics.b illustrate the investment characteristics.j describe and evaluate a convertible bond and its various component values. and illustrate the cash flow characteristics of a fixedrate.57. 15. 14.c calculate the prepayment amount for a month. 15.i calculate the value of a putable bond.k compare and contrast the risk‐return characteristics of a convertible bond with the risk‐return characteristics of ownership of the underlying common stock. using an interest rate tree.a describe a mortgage loan.56.57.
15. 18.104.22.168. 15.e explain why the average life of a mortgage‐backed security is more relevant than the security’s maturity. the planned amortization class tranche.d compare and contrast the conditional prepayment rate (CPR) with the Public Securities Association (PSA) prepayment benchmark.f explain the factors that affect prepayments and the types of prepayment risks. 15.g illustrate how a collateralized mortgage obligation (CMO) is created and how it provides a better matching of assets and liabilities for institutional investors.57. .h distinguish among the sequential pay tranche. 15. 15.i evaluate the risk characteristics and the relative performance of each type of CMO tranche. given changes in the interest rate environment.57.57. and the support tranche in a CMO. the accrual tranche.
a illustrate the basic structural features of and parties to a securitization transaction. 15. 15.57. 15. 15.m describe the basic structure of a CMBS.k compare and contrast agency and nonagency mortgage‐ backed securities. 15.57.b explain and contrast prepayment tranching and credit tranching. 15.j explain the investment characteristics of stripped mortgage‐ backed securities. and illustrate the ways in which a CMBS investor may realize call protection at the loan level and by means of the CMBS structure.22.214.171.124. .l distinguish credit risk analysis of commercial mortgage‐backed securities (CMBS) from credit risk analysis of residential nonagency mortgage‐backed securities.
and credit card receivables.58.d distinguish among the various types of external and internal credit enhancements. . 15.58. 15. student loans.c distinguish between the payment structure and collateral structure of a securitization backed by amortizing assets and non‐amortizing assets.58.g distinguish among the primary motivations for creating a collateralized debt obligation (arbitrage and balance sheet transactions). nominal spread. 15.f describe collateralized debt obligations (CDOs). manufactured housing loans.e describe the cash flow and prepayment characteristics for securities backed by home equity loans. automobile loans. use.58. and limitations of the cash flow yield. and zero‐volatility spread for a mortgage‐backed security and an assetbacked security.58. 15. 15. SBA loans.59. including cash and synthetic CDOs.a illustrate the computation. 15.
59.e evaluate a mortgage‐backed security using option‐adjusted spread analysis. 15. 15. 15.d illustrate how the option‐adjusted spread is computed using the Monte Carlo simulation model and how this spread measure is interpreted.b describe the Monte Carlo simulation model for valuing a mortgage‐backed security.59. 15. 15.59. . 15.59.f discuss why effective durations reported by various dealers and vendors may differ.59.c describe path dependency in passthrough securities and the implications for valuation models.g analyze the interest rate risk of a security given the security’s effective duration and effective convexity.59.
h explain other measures of duration used by practitioners in the mortgage‐backed market (e.a explain how the value of a forward contract is determined at initiation. and describe the limitations of these duration measures..60.59.g.60. and explain how market value is a measure of the credit risk to a party in a forward contract.c calculate and interpret the price and the value of 1) a forward contract on a fixed‐income security. 15. 16.d evaluate credit risk in a forward contract. zero‐volatility spread. 2) a forward rate agreement (FRA). .59. 16. coupon curve duration. assuming dividends are paid either discretely or continuously. during the life of the contract. 15. and 3) a forward contract on a currency.b calculate and interpret the price and the value of an equity forward contract.i determine whether the nominal spread. 16. and empirical duration).60. and at expiration. cash flow duration. or option‐adjusted spread should be used to evaluate a specific fixed income security.60. 16.
16.61. 16.c explain how forward and futures prices differ.a explain why the futures price must converge to the spot price at expiration. 16. 16. and explain how they affect the futures price.61.61.61.e describe backwardation and contango.b determine the value of a futures contract.61. 16. .61. 16.d describe the monetary and nonmonetary benefits and costs associated with holding the underlying asset.f discuss whether futures prices equal expected spot prices.
61. is affected by each of the input values (the option Greeks).a calculate and interpret the prices of a synthetic call option. stock index futures. 16.62. synthetic put option.d explain how an option price.62. as represented by the Black– Scholes–Merton model. 17.62. and synthetic underlying stock. . 17. synthetic bond. 17. and currency futures.62.h calculate and interpret the price of Treasury bond futures.61. 17.b calculate and interpret prices of interest rate options and options on assets using one‐ and two‐period binomial models.g describe the difficulties in pricing Eurodollar futures and creating a pure arbitrage opportunity. and infer why an investor would want to create such instruments. 16.c explain the assumptions underlying the Black–Scholes–Merton model and their limitations.
17. 17.62.62.f explain the gamma effect on an option’s price and delta and how gamma can affect a delta hedge. 17. the historical volatility and the implied volatility methods).e. .62.62.g discuss the effect of the underlying asset’s cash flows on the price of an option. 17.h demonstrate the methods for estimating the future volatility of the underlying asset (i.62. and identify the appropriate pricing model for European options. and demonstrate how it is used in dynamic hedging..62. 17. 17.j compare and contrast American options on forwards and futures with European options on forwards and futures.i illustrate how put‐call parity for options on forwards (or futures) is established.e explain the delta of an option.
f explain and interpret the characteristics and uses of swaptions.63.63. and determine the market values of each of the different types of currency swaps during their lives. 17.d calculate and interpret the fixed rate.a distinguish between the pricing and valuation of swaps. 17. .63. if applicable.e calculate and interpret the fixed rate. 17. including the difference between payer and receiver swaptions. 17.63. and the foreign notional principal for a given domestic notional principal on a currency swap.c calculate and interpret the fixed rate on a plain vanilla interest rate swap and the market value of the swap during its life. on an equity swap and the market values of the different types of equity swaps during their lives. if applicable.63. 17. 17.b 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.63.
j define swap spread and relate it to credit risk.64.a demonstrate how both a cap and a floor are packages of options on interest rates and options on fixed‐income instruments.64. 17.g identify and calculate the possible payoffs and cash flows of an interest rate swaption.63. 17.63. and illustrate how swap credit risk is reduced by both netting and marking to market.b compute the payoff for a cap and a floor. and explain how a collar is created. 17. 17.63.h calculate and interpret the value of an interest rate swaption on the expiration day. 17. 17. distinguish between current credit risk and potential credit risk.63.i evaluate swap credit risk for each party and during the life of the swap. .
66.66. and compare and contrast a credit default swap with a corporate bond. and discuss the steps to solve for the minimum‐variance frontier. 17.65.c explain the use of credit derivatives by the various market participants.65. 18. and calculate the expected return and the standard deviation of return for a portfolio of two or three assets.b explain the advantages of using credit derivatives over other credit instruments. .65. 17.65. 17.a describe the characteristics of a credit default swap.b explain the minimum‐variance and efficient frontiers.a discuss mean–variance analysis and its assumptions. 18. 17.d discuss credit derivatives trading strategies and how they are used by hedge funds and other managers.
18.e explain the capital asset pricing model (CAPM). and discuss the use of adjusted and historical betas as predictors of future betas.66. .66. and explain how the correlation in a two‐asset portfolio and the number of assets in a multi‐asset portfolio affect the diversification benefits. and calculate the value of one of these variables given the values of the remaining variables.d calculate the variance of an equally weighted portfolio of n stocks. explain the capital allocation and the capital market lines (CAL and CML) and the relation between them. and covariances.66.66.h calculate an adjusted beta. 18.c discuss diversification benefits. 18. including its underlying assumptions and the resulting conclusions. variances. and the Sharpe ratio.g explain the market model. and calculate the values of one of the variables given the values of the remainin 18. 18.66. 18. the market risk premium.66. the beta coefficient. and state and interpret the market model’s predictions with respect to asset returns.f discuss the security market line (SML).
66. define and interpret tracking error.n compare and contrast the conclusions and the underlying assumptions of the CAPM and the APT models. fundamental factor models. given the estimated macroeconomic factor model for each stock.66.k calculate the expected return on a portfolio of two stocks. . and determine whethe 18. including its underlying assumptions and its relation to the multifactor models.66. 18. 18. and the information ratio. tracking risk. 18. and explain factor portfolio and tracking portfolio.j discuss and compare macroeconomic factor models. calculate the expected return on an asset given an asset’s factor sensitivities and the factor risk premiums.l discuss the arbitrage pricing theory (APT). 18. 18. and statistical factor models. and explain why an investor can possibly earn a substantial premium for exposure to dimensions of risk unrelated to market movements.i discuss reasons for and problems related to instability in the minimum‐variance frontier.m explain the sources of active risk.66.66.66.
d justify the extension of the domestic CAPM to an international context (the extended CAPM). 18. 126.96.36.199.a discuss the efficiency of the market portfolio in the CAPM and the relation between the expected return and beta of an asset when restrictions on borrowing at the risk‐free rate and on short selling exist.c discuss the assumptions of the domestic capital asset pricing model (CAPM). 18. 18.b discuss the factors that favor international market integration.68.67. .a explain international market integration and segmentation and the impediments to international capital mobility.b discuss the practical consequences that follow when restrictions on borrowing at the risk‐free rate and on short selling exist. and discuss the assumptions needed to make the extension.67. 18. 18.
and calculate the expected return on a stock using the model. 18.68.f calculate the expected 1) exchange rate and 2) domestic‐ currency holding period return on a foreign bond (security).h calculate a foreign currency risk premium.e determine whether the real exchange rate has changed in a period. 18.g calculate the end‐of‐period real exchange rate and the domestic‐currency ex‐post return on a foreign bond (security). 18. 18. . 18.68.i state the risk pricing relation and the formula for the international capital asset pricing model (ICAPM). and explain a foreign currency risk premium in terms of interest rate differentials and forward rates.j explain the effect of market segmentation on the ICAPM.68. 188.8.131.52.
and explain the impact of both real and nominal exchange rate changes on the valuation of the company. 18.l discuss the likely exchange rate exposure of a company based on a description of the company’s activities.68.k define currency exposure. 18. and explain exposures in terms of correlations.b discuss the steps and the approach of the Treynor‐Black model for security selection. 18.a justify active portfolio management when security markets are nearly efficient. 184.108.40.206. 18.69.m discuss the currency exposures of national economies. 18. equity markets.69. .n contrast the traditional trade approach ( j‐curve) and the money demand approach to modeling the relation between real exchange rate changes and domestic economic activity. and bond markets.
and explain the elements of an investment policy statement.e explain how capital market expectations and the investment policy statement help influence the strategic asset allocation decision.70.69. and discuss how an investor’s investment time horizon may influence the investor’s strategic asset allocation.c describe how an analyst’s accuracy in forecasting alphas can be measured and how estimates of forecasting can be incorporated into the Treynor‐Black approach. 18. 18.70.d discuss the role of the investment policy statement in the portfolio management process.a explain the importance of the portfolio perspective.70. 18. and explain and distinguish among the types of investment objectives and constraints.70. 18. 18. . 18.b describe the steps of the portfolio management process and the components of those steps.70.c define investment objectives and constraints.
determine the time horizon for a particular investor. 18. 18. .70.g justify ethical conduct as a requirement for managing investment portfolios. and evaluate the effects of this time horizon on portfolio choice.f contrast the types of investment time horizons.70.
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