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BOOK 1 – ETHICAL AND PROFESSIONAL STANDARDS,
QUANTITATIVE METHODS, AND ECONOMICS
Readings and Learning Outcome Statements
Study Session 1 – Ethical and Professional Standards
Study Session 2 – Ethical and Professional Standards: Application
Self-Test: Ethical and Professional Standards
Study Session 3 – Quantitative Methods for Valuation
Self-Test: Quantitative Methods for Valuation
Study Session 4 – Economics for Valuation
Self-Test: Economics for Valuation
Formulas
Appendices
WELCOME TO THE 2017 LEVEL II
SCHWESERNOTES™
Thank you for trusting Kaplan Schweser to help you reach your goals. We are pleased
that you have chosen us to assist you in preparing for the Level II CFA Exam. In this
introduction, I want to explain the resources included with these SchweserNotes,
suggest how you can best use Schweser materials to prepare for the exam, and direct
you toward other educational resources you will find helpful as you study for the
exam.
Besides the SchweserNotes themselves, there are many educational resources
available at Schweser.com. Log in using the individual username and password that
you received when you purchased your SchweserNotes.
SchweserNotes™
These notes consist of five volumes that include complete coverage of all 17 Study
Sessions and all 465 Learning Outcome Statements (LOS). Examples, Concept Checkers
(multiple-choice questions), and Challenge Problems are provided along the way, to
help you master the material and check your progress. At the end of each major topic
area, you can take a self-test for that topic area. Self-test questions are created to be
exam-like in format and difficulty, to help you evaluate how well your study of each
topic has prepared you for the actual exam.
Practice Questions
Studies have shown that to retain what you learn, it is essential that you quiz yourself
often. For this purpose we offer SchweserPro™ QBank, which contains thousands of
Level II practice questions and explanations. Questions are available for each LOS,
topic, and Study Session. Build your own quizzes by specifying the topics and the
number of questions. SchweserPro QBank is an important learning aid for achieving
the depth of proficiency needed at Level II. It should not, however, be considered a
replacement for rehearsing with “exam-type” questions as found in our Practice
Exams, Volumes 1 & 2 and our Schweser Mock Exam.
Practice Exams
Schweser offers six full 6-hour practice exams: Schweser Practice Exams Volume 1 and
Volume 2 each contain three complete 120-question tests. These are important tools
for gaining the speed and skills you will need to pass the exam. Each book provides
answers with full explanations for self-grading and evaluation. By entering your
answers at Schweser.com, you can use our Performance Tracker to find out how you
are performing compared to other Schweser Level II candidates.
Schweser Candidate Resource Library
We have created a number of online reference videos, which are available to all
purchasers of Schweser Premium Instruction and PremiumPlus packages. Schweser
Candidate Resource Library videos range from 20 to 60 minutes in length and cover
such topics as: “Introduction to Item Sets,” “Hypothesis Testing,” “Foreign Exchange
Basics,” “Ratio Analysis,” and “Forward Contracts.”
Online Schweser Study Calendar
Select the date when you will start and what days of the week you can study, and the
online Schweser Study Calendar will create a study plan just for you, breaking each
study session into daily and weekly tasks to keep you on track and help you monitor
your progress through the curriculum.
How to Succeed
The Level II CFA exam is a formidable challenge (52 topic reviews and 465 Learning
Outcome Statements), so you must devote considerable time and effort to be properly
prepared. There is no shortcut! You must learn the material, know the terminology and
techniques, understand the concepts, and be able to answer 120 questions quickly and
mostly correctly. Fifteen hours per week for 25 weeks is a good estimate of the study
time required on average, but different candidates will need more or less time,
depending on their individual backgrounds and experience.
There is no way around it; CFA Institute will test you in a way that will reveal how well
you know the Level II curriculum. You should begin early and stick to your study plan.
Read the SchweserNotes and complete the Concept Checkers and Challenge Problems
for each topic review. Prepare for and attend a live class, an online class, or a study
group each week. Take quizzes often using SchweserPro Qbank and go back to review
previous topics regularly. At the end of each topic area, take the online Self-test to
check your progress. You should try to finish reading the curriculum at least four weeks
before the Level II exam so that you have sufficient time for Practice Exams and for
further review of those topics that you have not yet mastered.
I would like to thank Kent Westlund, CFA Content Specialist, for his contributions to
the 2018 Level II SchweserNotes for the CFA Exam.
Best regards,
Bijesh Tolia
Dr. Bijesh Tolia, CFA, CA
VP of CFA Education and Level II Manager
Kaplan Schweser
READINGS AND LEARNING OUTCOME STATEMENTS
READINGS
The following material is a review of the Ethical and Professional Standards,
Quantitative Methods, and Economics principles designed to address the learning
outcome statements set forth by CFA Institute.
STUDY SESSION 1
Reading Assignments
Ethical and Professional Standards, CFA Program Curriculum, Volume 1, Level II (CFA
Institute, 2017)
1. Code of Ethics and Standards of Professional Conduct (page 1)
2. Guidance for Standards I–VII (page 1)
3. CFA Institute Research Objectivity Standards (page 80)
STUDY SESSION 2
Reading Assignments
Ethical and Professional Standards, CFA Program Curriculum, Volume 1, Level II
(CFA Institute, 2017)
4. The Glenarm Company (page 90)
5. Preston Partners (page 92)
6. Super Selection (page 95)
7. Trade Allocation: Fair Dealing and Disclosure (page 98)
8. Changing Investment Objectives (page 100)
STUDY SESSION 3
Reading Assignments
Quantitative Methods for Valuation, CFA Program Curriculum, Volume 1, Level II (CFA
Institute, 2017)
9. Correlation and Regression (page 111)
10. Multiple Regression and Issues in Regression Analysis (page 146)
11. Time-Series Analysis (page 194)
12. Excerpt from “Probabilistic Approaches: Scenario Analysis, Decision Trees,
and Simulations” (page 231)
STUDY SESSION 4
Reading Assignments
Economics for Valuation, CFA Program Curriculum, Volume 1, Level II (CFA Institute,
2017)
13. Currency Exchange Rates: Understanding Equilibrium Value (page 246)
14. Economic Growth and the Investment Decision (page 284)
15. Economics of Regulation (page 305)
STUDY SESSION 1
The topical coverage corresponds with the following CFA Institute assigned
reading:
1. CFA Institute Code of Ethics and Standards of Professional Conduct
The candidate should be able to:
a. describe the six components of the Code of Ethics and the seven Standards
of Professional Conduct. (page 1)
b. explain the ethical responsibilities required of CFA Institute members and
candidates in the CFA Program by the Code and Standards. (page 2)
The topical coverage corresponds with the following CFA Institute assigned
reading:
2. Guidance for Standards I–VII
The candidate should be able to:
a. demonstrate a thorough knowledge of the Code of Ethics and Standards of
Professional Conduct by applying the Code and Standards to specific
situations. (page 5)
b. recommend practices and procedures designed to prevent violations of the
Code of Ethics and Standards of Professional Conduct. (page 5)
The topical coverage corresponds with the following CFA Institute assigned
reading:
3. CFA Institute Research Objectivity Standards
The candidate should be able to:
a. explain the objectives of the Research Objectivity Standards. (page 80)
b. evaluate company policies and practices related to research objectivity,
and distinguish between changes required and changes recommended for
compliance with the Research Objectivity Standards. (page 81)
STUDY SESSION 2
The topical coverage corresponds with the following CFA Institute assigned
reading:
4. The Glenarm Company
The candidate should be able to:
a. evaluate the practices and policies presented. (page 90)
b. explain the appropriate action to take in response to conduct that violates
the CFA Institute Code of Ethics and Standards of Professional Conduct.
(page 90)
The topical coverage corresponds with the following CFA Institute assigned
reading:
5. Preston Partners
The candidate should be able to:
a. evaluate the practices and policies presented. (page 92)
b. explain the appropriate action to take in response to conduct that violates
the CFA Institute Code of Ethics and Standards of Professional Conduct
(page 92)
The topical coverage corresponds with the following CFA Institute assigned
reading:
6. Super Selection
The candidate should be able to:
a. evaluate the practices and policies presented. (page 95)
b. explain the appropriate action to take in response to conduct that violates
the CFA Institute Code of Ethics and Standards of Professional Conduct.
(page 95)
Another random document with
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mélodieusement aux rivages d’une autre Grèce, et cet Etna fabuleux
et antique, aux flancs duquel vivent encore, après dix-huit cents ans,
la mythologie d’Ovide et les récits de Virgile. Aussi Bellini était-il une
des natures les plus poétiques qu’il fût possible de rencontrer; son
talent même, qu’il faut apprécier avec le sentiment, et non juger avec
la science, n’est qu’un chant éternel, doux et mélancolique comme
un souvenir; un écho pareil à celui qui dort dans les bois et les
montagnes, et qui murmure à peine tant que ne le vient pas éveiller
le cri des passions et de la douleur. Bellini était donc l’homme qu’il
me fallait. Il avait quitté la Sicile jeune encore, de sorte qu’il lui était
resté de son île natale cette mémoire grandissante que conserve
religieusement, transporté loin des lieux où il a été élevé, le souvenir
poétique de l’enfant. Syracuse, Agrigente, Palerme, se déroulèrent
ainsi sous mes yeux: magnifique panorama, inconnu alors pour moi,
et éclairé par les lueurs de son imagination; puis enfin, passant des
détails topographiques aux mœurs du pays, sur lesquelles je ne me
lassais pas de l’interroger:—Tenez, me dit-il, n’oubliez pas de faire
une chose lorsque vous irez de Palerme à Messine soit par mer, soit
par terre. Arrêtez-vous au petit village de Bauso, près de la pointe du
cap Blanc; en face de l’auberge, vous trouverez une rue qui va en
montant, et qui est terminée à droite par un petit château en forme
de citadelle; aux murs de ce château il y a deux cages, l’une vide,
l’autre dans laquelle blanchit depuis vingt ans une tête de mort.
Demandez au premier passant venu l’histoire de l’homme à qui a
appartenu cette tête, et vous aurez un de ces récits complets qui
déroulent toute une société, depuis la montagne jusqu’à la ville,
depuis le paysan jusqu’au grand seigneur.
—Mais, répondis-je à Bellini, ne pourriez-vous pas vous-même
nous raconter cette histoire? A la manière dont vous en parlez, on
voit que vous en avez gardé un profond souvenir.
—Je ne demanderais pas mieux, me dit-il, car Pascal Bruno, qui
en est le héros, est mort l’année même de ma naissance, et j’ai été
bercé tout enfant avec cette tradition populaire, encore vivante
aujourd’hui, j’en suis sûr: mais comment ferai-je, avec mon mauvais
français, pour me tirer d’un pareil récit?
—N’est-ce que cela? répondis-je, nous entendons tous l’italien;
parlez-nous la langue de Dante, elle en vaut bien une autre.
—Eh bien! soit, reprit Bellini en me tendant, la main, mais à une
condition.
—Laquelle?
—C’est qu’à votre retour, quand vous aurez vu les localités,
quand vous vous serez retrempé au milieu de cette population
sauvage et de cette nature pittoresque, vous me ferez un opéra de
Pascal Bruno.
—Pardieu! c’est chose dite, m’écriai-je en lui tendant la main.
Et Bellini raconta l’histoire qu’on va lire.
Six mois après je partis pour l’Italie, je visitai la Calabre, j’abordai
en Sicile, et ce que je voyais toujours comme le point désiré, comme
le but de mon voyage, au milieu de tous les grands souvenirs, c’était
cette tradition populaire que j’avais entendue de la bouche du
musicien-poète, et que je venais chercher de huit cent lieues; enfin
j’arrivai à Bauso, je vis l’auberge, je montai dans la rue, j’aperçus les
deux cages de fer, dont l’une était vide et l’autre pleine.
Puis je revins à Paris après un an d’absence; alors, me
souvenant de l’engagement pris et de la promesse à accomplir, je
cherchai Bellini.
Je trouvai une tombe.
I.