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    15 views6 pages

    CFA High Light

    Uploaded by

    superannafoo

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    LEVEL |_ SCHWESER’S Qui Critical CONCEPTS FOR THE 2013 CFA° Exam ETHICAL AND PROFESSIONAL BD 1 ba cS ‘Approximation formula for nominal required sate: P(R)=SRER+1P+RP Means Avitoetc mean: sums oll observation vals in ‘ample/popaiaon, dived by #ofebservatons Geomanic men: used when eleslazing investment retorns over mukiple periods otro measuce compound growth rates (Geometric an run Variance and Standard Deviation Variance: sreage of sed deviation om mean Low pepsin variance = = L———— ample vaiane = i Sanden deviation: gute oo fain. edged Ren or BDL Coefficient of Variation Gaficiee of verison (CV expresses how much | dispersion ers relative 0 mean of discon: allows for dice comparison of dispersion across econ aes ts. CV is calalte by dividing | sandad deviation of dseibution by the mean or + Het cil pi tage clad made: cpoite ee poreng rel estat, Private egy and wrap Fpl manage te portion, CULTS bes Time Value of Money Bases + Barre wale (FV): amount wo which invectnent rows after one oF more compounding ptids. + Baar values BV = PV(L + VY Prot salu (PV): exert value oF some rare cath Bow PV = EVIL + IN Annas eves of equal cath flows that cceur at ‘evenly spaced tervals over ine. Ondinary anno cash Bow 2 end fire pend + roiy due eh Sow at benning of ime pte. Pepe annules with lint ve PV iy ® PMT ascoune x2). ‘Required Rave of Return ‘Components 1. Real sfc ate (RET. 2. Expected inflaion mate premium OP) 3. Rite premium. EIR) = (RFR, )O-HIEML RP) 1 | expected val ofthe dissin: Sharpe Ratio Sharpe ratio: measures exes return pe uit of ee ee Sharpe sto Foy sf fir rai, “Pe Fer both ato agaist. Expected Retun/StandandDevaion Expected reture: B(X)= SOx) E(X) = P(x) x, +P(Ra)g +o -tPOty) ey Prbubilcrie 00)= DPGa)fs E00) = Ploa)oo BOO)? + PCs ~EO) Hot Plaats EOP Sendad dation ke eee root france Cortltion and Corrance Coravon cosines divided byproduct of the ‘wo standard deviations. cov(R..R)) a(R )e(R) con, R))= Expected retarn,sarancof2-ack poe: B(R,) = wR) + gE) who? (Ra) ty) +a Bs) o(Ra)o(RaRa) Norma Dissibations ‘Nome dminton cmp decbed bys wen and ine eb factions ll wihin o Som wins 1650. 9594 within 21362, Sov el wile 2238 Computing Scores aad osetia fm somal disibun spre # of anda! dans fiven certo fom poplaon men. __ Shemon population mein Sand devon mul, Binomial Models Binomial dicribton same avaiable can ke ‘one of evo vals (success) of in the case of aseock, movements (upidewn)- A binomisl model ‘an describe change inthe ale of nae of pralio:iccan be used ro compte i expected ‘luc ore cect petiods Sampling Disibuxion Sampling dsvibuon probabil dssbuton of allpoatble sample satis computed fom ae of equalize samples randomly drawn from the came population, The sampling dsmibton of mean it the disuibuion of eimates of the mean. (Central Limit Theorem CCl limites when electing spe random amples of from papain with ‘ean and nite variance he sping disebtion of ample mean approncesnotmal probably dbucon with mean and vatance ‘qual t"/n athe simple sae becomes ge. ‘Standard Error Standard ear of te ramp mean the standard 0. + Troll rest Hi: = Overs Hy 20, ‘ype land Type It Eerors «Tipe Tener rection of mull bypobese when ie sacral tre 1+ pe Il ere: are orcs ll hypothesis when ‘isacely fle, ‘Types of Hypothesis Teste Use eta for es involving the poplin sean (location of mean, ffesncs in means, priced comparison). Use b-apur aie for es oF single population vsiance (Use Fanatic fo este compatng two population Technical Analysis ese pascns bea we shoulders, inverse HBS, doubletipl top or boro, (Coninuation patton: ciangles, eagles, pennsnss, fags Price bed idicaor moving averages, Boling bands, momentum esilaors (ate of change, RSI stochastic, MACD). Seuiment indicator: opiion pls, puesto, ‘VDC margin debt, shore interes Flo of funds nda TRIN, margin deb, ‘mutual find cath poston, new equi isuance, secondary ofetings. ECONOMICS Elasticity 960 gant demanded %A pice abso value> 1, demand i eli Earle ae {; demand i inlar. On simi line demand avy, orev cnncimined whee pie eli = 1. 36 quay demanded ‘6A income IE psi, the god ra noral god. IF nga, the god san infer good 22. guanciy demanded, 6d osc of eed good Ie posting elated good i abit. TFegatves lated god is complement. “Types of Auctions Ard price (Enis) Vighes i wins, pss Aone bid al bids kaown tall bidders, ‘Sealed bid: Highest id wins, pays aroun bids bids ser uknowa tothe bide. Sond pie aed bid (Vek: Highs id wins pays amount bid by second-igh bidder DDocending price (Dac Price dens wn ‘nea bold cach Bide ap pee id ‘Modijed Dua: Pee dclnes unt all units canbe sol ll bidder pay a bid price Revenues and Corte Teel revere pie geass summed acs nel tn price elniciy Income daz Cr price eiciy Ange oracle ans sl ‘angel onc «3 lees gon Te fed oc cn tha oe vay wth cuupatin the shore rn Tin wrt a cons ary wih ouput Tea esol aed cons» ol sal cos. ‘Avon tot « ol et! tp. “dng fds rl fad cn / op ‘dng erie al able cos comp ‘Marga t= occ Fea Brealeven and Shutdown Bre al eee» os pena stort ron PTR FC bac TR> TVG ‘Shor doen nhs rev TR TNC. Marker Sractares afc conpeston Many fs with 0 ping power ey low ot baer 9 ext omopeneta proce | Mente compen Many isso ig powe ow aries oer: irene Products large aden expe [ep Rw ms th ny hve cipicane pring power high bare t entry produc ey Ee agent or irene ‘Manta Sng bm with ican cing pone high Breet even dt Ceres with eae pce al maa crus, ef sax t they quant for which manga eee = arial con Gross Domenie Product, Real GDP v cnrumprion pending + nvexment + fevemment pending» net exports Sein Investment, Fc Balance, and Tend Balance Fal dg: ei (G~) = een ofsvingover omen nvenment (5) eden X= M) | Equation of Exchange MY oP hte M veal money sappy; V= seacy of money in sans, P= pe ee mY ered GDP | Business Cycle Phases Expation ps; concn ough Factors Afecing Aggregate Derma Consume! welt brine exertions consumer income epson pay ‘iltons money ad rd pole cage | ces gel economic rove Factors Afectng SR Aggregate Sopply Tnpon res abr poet experts or carp pres vc nd abi change te alc th ax LR aarp so Frcs Afecrng LR Aggregate apply Sis of abo ores human exp: opel of sul sores oekef pea capa eel of ‘cooly | Types of Unemployment ronal ive lag aching gid woes _ ih ob opening | Sout unenployed woe do nt have the | aller match nly cela. Gat conemy podcing alo ta capciny ding conection phe of buster ce. Pig Mattes ig panies SE i Sere equa fac mugen I iweot=5 ‘where MPC. marginal propensity o consume, Expansionary and Contractonary Policy “Manca pois expanionary when the policy sate ises than the neural intrest ae (eal tend me of economic grt» infstion target) and ‘contrctonary when the policy sate ie greater than ‘he neural interest ate ial poly is expansionary when a budget “deft increasing ov suplsi decreasing nd coniactionary when 2 budget defi is dectesing for rupli increasing. Balance of Payments Curren acount merchandise and services income reerpts unilateral ances Capt ecos: aptl wasters sales purchases of nonfat et Financial acount government-owned ses abroad; frign-owned ats inthe county. Regional Teading Agreements “Fue rade cree Rarooves bart to goods and services tae among member. Gaon ton: Member also adopt common rade polis with non snembers. ‘Common marker: Member ko remove bases co Labor and ceptal movemenss among members Econamic unio Mermbers ao esablsh common ‘nstiutont and economic policy Menctary unian: Membees ao adopt omnn0n cates, Real Exchange Rate domesticlforign) feccga CPL rnin ech (SSS No-Arbitrage Forward FX Rare Sonar (8) spor (a) xchange Rate Regimes ‘Forma dlevzation country adopsfrcign caren, Menciary unin: membec dog common cureasy. ‘ied pop 2198 margin eras Foreign carency or basket of currencies, Tage sone: Wider magia chan Bed og. Canelng peg Pegged exchange rate adjusted petodilly. CGtoing Bande With of margin incenes ove Managed lsing: Monetary auosvy ats 0 influence exchange ate but doesnot sca age. Independently fling: Exchange rate ie maker determined De eat oy domestic inrre are 1+ foreign ines te Tea Revenue Recognition “Two requirements: 1) completion of erings proces and (2) reasonable anurance of payment Revenue Recognition Methode + Recentge-of completion method. + Compleed contact method, * Innalment sles. + Case reavery method, ‘Unaraal or Infrequent Heras + Gainatlsss from cisposi ofa busines segment + Gaizflases fom sale of ae of invents in subsidiaries + Provions for environmental remediation + Inpuiemens, write-off, wate downs and rertucicng ore + Tueration expense stocisted with busineses ‘cently seq sae Fuca. peroemcs Hats nce. | Exaordinary Tens (US. GAAP ool) ‘Both usual and infu (6 ess rom | expropriation o se IPRS dos ot dow ‘sewrcnay teas | Discontinued Operations “Tobe aceoune for esa dconsinued operon, a ‘rinses, option invrng,Faneng ' | aevtes—mus be physily/opeatonally dsince fom rest of en. Incomellosies ate reported nec of | tae fter net income fom continuing operation ‘Compute Cash Flows From Operations (CFO) Dirt methods sare with a collections (ash ‘xuivalent of ale); cash inputs (cath equivalent of cos of good ol) ac operating expense cash Intec expense cath aes, | Indie meced: eat wid ne income, sabuscing ‘bck pins and adding back sss resulting fom ‘nancing or ivestmene cath Howe, adding bac all, | noncah charges, and adding and subuactng set | and lability accounts tae rel from operations. | Troe Cath Flow | Fre cath flow (ECE) measures cash avilable for sczzionary purposes. eis equal 0 operating cach ow less net capita expendieutes, Chica Ratios | Commonsie financial sateent ena | + Common ie dence be express al balance shee seaunts aa perentage of tral ste. + Common-sie income armen expres all Sncome sazemen items ara proce of tale + Common-siac cash ow statement express cack line item a a percentage of ol eas iowa (curfows) ora percentage of ne revene, Hovione commons financial natement anh ‘expres each in em clrve os vale Ina | common bse period. | Liguidiy aie “arene abies cosh.) mashable cure recibles ‘ren ain cash} markerable secures ‘utent labiies’ ih ml oe. recoables aly cash expendicares | Reciabls inventory payables turnover and day? sick tio = | ppl raooal of wich are wed in the cath | eomenion ele | sesecbhe moyen subse ‘erage reir osof good sold Invennory carver = ‘average inventory I che | payables mover rio = ——_Ptcases__ ‘wenge ade pyle 365, ay of es ousanding = 265 _ . 8 ecb amore days oFiaveruory on tand = —— 2S __ ‘Brena cme 365 umber of aye of pyle = —-—265_ re payables eamorer | etrcnvenin gel (Hatin) (tayo ee) _nunber of ae (ousaading)~| of puysber, (Pal ase, feds, as working capil urrver i ‘ora asecrunover = ——_evemie_ peo ed seiner = —_— EE Saag rtfaed ies vege working pial Gros, aperting, and net profi margin working capital rarnover= esr | hele, epering pote peng profi margin = SPEER ‘net profit margin: rel t | Rear om aes ream on wal epital ROTO]: renmon atts ——_EBIT (oul eapicd) ~ Sreage oe capil | eben eu rto and ttl debt rato roradebe ‘orl equity i total debt | ‘oul axes ' | Ane coverage and fied charge overage BIT i Incest coverage ES | EBIT+ lease payments | ‘interest lease payments) Grouch rate @: = RR x ROE I | debeso-cquity rato totaled ratio = Sed charge coverage =: igus ratio indicate company bi shorecem bites Operating perme rtr indicate how well ‘management operates the busines | DuPont Analyaie | | Traditional DuPont uation wri el) ses equ ‘You may soso it presented a= i raz onewiy =["a Poe asset lf spi, suoves mais | Batended DuPont equation Farber decomposes et | profc margin (nee p ROB= Cer) (eorr even 4 revenue_), (avg total ase) vg tora eee) *[ avg. equi) 1 Yu may alse presened a ‘ROE tx burden» incre burden « FEBIT magia x asset tinover x lveage ‘Marketable Secaty Classifications Hel frsraing ft valueon balance shee; | dividends, inert, relied and unrealized G/L | Auilble fale valucon balance hee | dividends. interest, relied G/L ecogniznd on income satementunceazed G/L other | comprehensive income { Heldcomasig, amore coon balance | shox interes, realzed GAL ecognizd on income | Taventory Accounting | In periods of sing prizes and sable o increasing jveneory quant LEFO neu in FIFO reali | Higher CoGs Lower COGS i | Lower gross profic —_ Hgher gree proc Lower inventory Higher inventory balances Dalnees | Basie and Diluted EPS ‘Basie EPS clealtion does not consider ffs of | any dluive seus in comporton of EPS: et income — peered dividends bic BPs = — Pet eos peered dividends —_ i sd ang no. of common ds. oarand _tc income sor comin shes | “wag comsen sare: pls poten i ‘common shares oortanding died BS | Therefore, ire EPS ie | Long-Lived Assets Ceptalining ve. Expensing Capttcng:lowes income airy and | increase neater pots Iacewe ait, eqly. pening oppo eet | Depreciation oet~residal value agceeeer=T Double delningblnce (costae depreciation wai) Oa erin) | ni of possi cost— savage vane wel ie in uate Revelation of Lng: Lived Avsets {IFRS reraaton gin ecogaie in net income only ote eet evens previo engi | impiment los arte sins copie in eqly zs erkatinsrplos. fr facmen propery, A uns and lous from ring to ae recogized a income) GS GAAP cera no periaed, Defered Taxes + Crested when cable ncome fn atti) = ‘pix income (on nancial cements) dco temporary diferences afr x blir ae coed wen txble {nen < pes income. Tet DTL a guy if ocexpecte! wo revee. + Dire ex ante ces hen table income > pret income, Most ognize nation louene foe kly shan ot hae DTA wll tote rl Long Tem Listes + Premio bond: coapon te > mart ae a * Dian ond coupon ate make re at ium, i + Tins een eal book alse athe begining | ofthe yar malpled by the maee eect | ' ourpur units incerest athe ime the one were aed. \ onhureoneapige FVANCAL FORTIN AND ARAL continued. Lewes Fania ratoontaiimpaefease scum helene peng pi 1 Higher: se inlies, CFO, debe. + Laer neincme (ey yar), CF, area! ‘i workng apt ter tover, ROA, ROE. + Sarl ca ow Pensions Dafa conribuion employer combtion ‘expensed in pid incur Difnadbueic ovecnded pla recopined st set nerd pan recogried a ily COI ‘Weighted Average Cost of Capital WAC oa Ct-B +g) +] (Cost of Preferred Stock =P ten Bt Cost of Equity Capita +6 ‘Cost of Equity Using CAPM bp = RER +8 (Ryu, “RER) Capital Budgeting HL ay Te ee IRR diecosn ae the makes NPV equal co use Pay Method Projess Be Dedeveed set bet for comparable company: ter ( Relevered project bet for subject Gems Bras fi 19 te Ba OF Measures of Leverage “eal leverage percent change in net ncome From a given percent change in aes. Operating vera excent change in EBIT from a given percent chang in les, “Feil leverage pce change in net income fom a given pteen change in ESIT. breakeven quant of sales = fied operating & financing cots prige—vatsble conser unit. petting breakeven quantity of es» xed opeiting oes Fce—varitbl cass per aie Dividends and Share Repurchases (Cath dividend and share repurchase have ame ‘econ shancoee weal ‘Share repurchase with borrowed funds wi increase BPS cor of debt earings yield, exings yl ‘Share repurchase wil inceae book vale pet share fsck pice < BVPS, deeene book value pe hase frock pice> BVPS. ‘Working Capital Management Primary snr of Edi ash blancs, showe- term fnding cash How tanagemen of eollections and payment. ‘Secondary sure of iid guiding asses, negotiating deb green, bankruptcy protecion, (Coseof uade cei (eee (Corporate Governance For harholer inter independent board, ‘trang code of eis, confidential voting ‘Harn shareholder ines mavagemencaligoed board, voting estictions heover defenses, PORTFOLIO MANAGEMENT Tnvestment Poicy Statement Invern objeto 4 Recurnabjstives, + Risktolerance Conran Liquidity needs. ishorzon. “Tax concern + Leg and segulatory for. + Unigue needs and preferences Combining Preferences with the Optimal Set of Portfolios “Matkowir ficient font isthe set of potlios hat have highs rue forgiven level fk. ko) Security Market Line (SML) Investor should only be compensated for isle relative o market. Ungatatic rite dversied aay nvestos ae compensated for pstmt risk ‘The equation ofthe SML i the CAPM, which is setumleyatematc i equilibrium lationship, total ik w yeni + ungytematic isk eR) Copa Ware Line Ci ti Nate toto ea car :£(R, RER + AE (Rau) RFR] Sec Nate Loe wae “pra Rao) “The SML and Bgoilibiam esiing misread ck: Conia he eck h B, ) and SML “Eimated cece rearns shuld pot on SML. + Are plot ove the line mdepried, | + Atetuinploc under thee oe =e) RFR oe 112 Ride Adjusted Retrns Shee nav and Mequred mesure aces are | pe ni of ol ik i Tener meses Joven ape measures | seen pron of yea risk ; Fm) slope =Teeyor measure for Poelio? SM | BCU uuCahy SASL “WellFanctioning Security Markets “+ Operational eftency (lowest posible suansctions cos). * Informational efcieny (prices rapidly adjust sew informatio). Margin Purchaser For magia eansetions + Leverage feo» Veragin percentage Levee reum = HR x leverage cor Margin Call Price (Computing Index Prices | : Baock peices | Price aighted Indes = i” Adjusted divisor | Value weighed dor i Seurent pie) shares) use yew pica) (base year dare) ‘Typos of Orders Execution intructians: how co trade eg matkee onder, lie odes. Validiyinserucsons: when to execute: €g, 0p. ‘orders, day orders fil-or-kil orders. | Clearing instructions: how co clear and sete; foc sll | orders, specify shore sale or tale of owned secasty. | Market tractus (Quite driven marke: investors trade with dealers Onder-driven markers buyers and sellers matched bynes. ‘Brokered markt: brokes fil counterparies. | Forms of EME | + Wha frm Curent stock prices fly reflect | ible recurity makes inf. Volume || jformation/pasc price do noc relate co Farure |, dteesion of ecuity prices, Investor camnat | achieve excess recuras using tech analyse | + Scni-seong form. Secutty prices ioranly adjust | tonew public information, Investor cannot achieve |, sun wing frdemencl ais | frm Sk esl fecal ae on from public and private source, ‘au pope make nich inion ior een ale to vegoe a he sane tine Bre wih nein ier cance igen ea "day Ce ge | Beige love grow igh ple, ge Jnvesmenc ned, high io re. | Grund: pid pro ling prices, inited | competion increasing profil | Shekow: doer growth intense competion, | tg pti eo catng wee ee mete Hew dt re cob bie pn, high Bris to ear Darin negative ont, eclning pies, consoldaden. ive Competitive Forces 1. Rhy among exiing eompetiors. 2. Threat new nea, 5. Thea of ube produc 4 Baruning power of buyers 5: Bargaining powe of opp ‘One Period Valuation Model Yee A Tr TK Bes to use expected didend Dn clelaten. Inte Period Dividend Discount Models Sipemorna got del fits) DDI: base vale ( Cac taonthip bao band As dference bermees and g wide, value of sxockfill, + Asdifesence nrows value of tock re ‘Smal changes in difference beeween and g cue large changes instock vale. (Crit aesmpriotof ininiepetod DDM: [11 Stock pay divkendss constant growth re CConsane growah at, gy neve hanger. i + mus be greats thang (or math wil aot wo). Earnings Maltplier Model i i em | + { & | Price Maltipes price pr share lading DE = | ‘nig PE eariSaciten | peice percha PS previous 126, op sae | pp mie prsbare_ | eek vale pe share crlling P/E = ree per share ‘ale per hare | i ie prstae \ bed ‘cash low per share |} ps~ CESS is / s(Bond Semtses Be een nde | th of eine and Ioan ied he | Ae dnge ec. iad Ne gieet dh ew Seen mesons ee Soa ay offpiingpal through secs of ogi ween + Skin onion, Poe forbond sees pein pic ps Ter aight ac oc | epee micalerprfantrrn | “party ni cwtsopion oe hetonds | Reston rene, | rnin: Nonna bonds pit rete teratoma Fore 1 ‘feet onipon bond. Bonds that ary thee | | peviiow canbe fecal barnowehinis | | Baiting Rae on | | Biscuits py vier ofits || ‘Cason procedure or seg coupon rae ft | i 1 || Seti ats a ere Cre nl ne eeeretoes ihe tena | en een all dee same), | tae for each cath lowe . noting eat ‘Periodic prineipal and interest | | ‘Smaller coupon bonds, Higher incre rate tile a) tale ame). + Hina ne rca igh pce vliiy | te overhan fms ce eon ' { | | | | Boating ae cecuctes have very low level of pice | volun elation co ineresrce changes, | + Ifcoupon at > equired matket yield = bond price > ps vale: premium bond + IF coupon ae < equted rater yield => bond | pace

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