Comparison

Posted on December 6, 2011 by admin

	Curriculum Based Notes (FinQuiz)	LOS Based Study Guides (Others)
Structural Flow	Curriculum Based Notes follow the structure and flow of CFAI books which result in better organization of ideas, equip students to match with the topics of CFAI books and helps in better understanding of complete topics	The flow is not CFAI books based and more focus is stressed on explaining LOS individually in spite of making the whole picture clear
Material Organization	The material is already organized with key areas highlighted and stressed. Different colored boxes with highlighted key concepts enable students to visualize and retain them easily. This helps in improving their skills, retaining the material well and making them solve questions correctly – thus increasing efficiency	The material is presented in simple paragraphs with relatively less points specifically stressed. One needs to manually organize and highlight important areas which is more time consuming and often reduces efficiency
Value Addition	Curriculum Based Notes add value to reading CFAI books as they effectively summarize the CFAI text. Reading CFAI books can be much more value adding after going through Curriculum Based Notes.	LOS Based Study guides do not act as a summary to CFAI text thus cannot be value adding.
Correspondence with CFAI Text	In case the reader is unable to understand any specific area through Curriculum Based Notes he can correspond that area with CFAI Text Reading. He does not have to go with the whole text to reach to that point. Curriculum Notes can be used to match the specific area in CFAI Text Books. It increases efficiency tremendously.	LOS Based study guides do not follow the structure of CFAI Text that is why one cannot trace back any specific area within the CFAI Books. It does not allow the reader to effectively reach to that exact topic. To do so one may have to read the background of that topic in detail which could be time consuming
Complete Information	Curriculum Based Notes are complete and comprehensive. They contain all information necessary for the understanding of the topic. There is nothing which has been omitted. According to curriculum guidelines, irrespective of the chances of being tested, the material is covered in Curriculum Based Notes	There are several things which may not be explained well in such study guides. Their focus is more on the examinable content as compared to the material which may not be examinable but required for in-depth understanding of the topics

Implicit and Explicit Incentives for Managers – Compliments or Substitutes? – simplified

Posted on November 11, 2011 by admin

Explicit and implicit incentives are substitutes:

Alpha Inc. is embarking on a major expansion in a new market. Management is fully aware that if expansion is not handled well, the whole corporation as well as their own jobs will be in jeopardy. This is an example of presence of strong implicit incentive. Will it help if management is provided with explicit incentives? Not really, as they will put their best any way to save their jobs. Thus strong implicit incentive has substituted explicit incentive. (Substitution effect)

Will this apply in every situation and in every corporation?

No. In some situations, explicit and implicit incentives can be very close substitutes, not substitutes or even be complements.

Three examples of interesting situations:

Gordon, a very confident CEO, is heading a very successful software business. Shareholders want to achieve 10% growth in earnings every year and he is confident that the business will be able to grow at a rate higher than even 15% for next few years if things stay the same. His employment contract mentions that he will be fired if business growth is negative in any consecutive two years. Gordon has never worried about his job security based on his estimates of business over next few years. He enjoys his private jet and golf. Is there a strong implicit incentive to work hard? No. The corporation should offer strong explicit incentive to Gordon, for example, stock options for every additional 1% growth in sales. This will clearly improve Gordon’s focus on achieving higher growth in sales as he is confident in his skills.
Joe is CEO of The Plumber Inc. He always wanted to get to a position where he can work without boss. He is really happy to be CEO and wants to stay there as long as possible. He hates taking risk and likes to fish and hike. He hardly cares for getting additional bonus for his performance as this involves taking risk. However, he can be motivated to work hard by presence of implicit incentive (e.g. threat of take over, removal from job if business underperforms certain benchmarks).
Tiger is the head of Mom China Inc. The corporation is in financial distress. It has already considered Chapter 11 bankruptcy and is heavily dependent on continued support of the creditors. Tiger can receive huge bonus if the corporation achieves certain growth milestones. His contract also mentions that he will be fired if the firm goes in bankruptcy or is taken over. Explicit and incentive incentives are both low. There are hardly any chances of growth. Furthermore, there is low probability of not being fired. Tiger will not have incentive to improve situation as he is convinced that it is inevitable that he will loose his job. Explicit and implicit incentives are compliments in this case.

Conclusion: Explicit and Implicit incentives can be substitutes in some cases and compliments in other.

Level II Examination Tips

Posted on November 5, 2011 by admin

The Level 2 exam is infamous for being the most difficult of all three CFA exams. Nonetheless, a well-thought out study schedule, proper understanding of concepts, rigorous practice of sample questions, and dedication and commitment can greatly increase the probability of passing the exam. Here are a few tips to follow before and during the exam:

Preparation

Start early, at least six months before the exam. Broadly review each study session to determine your familiarity with the topics. This will also help you in assessing the workload and formulating a convenient study schedule.
It is mandatory to dedicate at least 2-3 hours a day to studying in an undisturbed and study-conducive environment.
Always remember to practice questions after completing an LOS.
Remember to review the material as you progress. Test yourself with a comprehensive practice exam atleast once a month.
Try to finish covering all the material at least 1-1.5 months before the exam. Use this last month or so to revise the entire course at least two to three times. The key is to study effectively, manage your time, and retain the material you have learned over the past six months.
Attempt at least two full length mock exams 2-3 weeks before the exam. This will not only allow you to become used to writing two three-hour exams in one day, but will also assist you in managing time during the actual exam.

The Exam Day

Ensure that you understand the examination rules. Pack all items needed a few days before the exam. These would include sharpened pencils, a calculator, ID card/passport etc. Do not take any unnecessary items with you in the examination room as they will be a cause of inconvenience. It would be a good idea to check out the site where you will be taking the exam well in advance.
Make sure you have slept properly and are well rested the night before the exam. Revise all important formulas and ‘relationships’ (e.g. the relationship between callable bonds and interest rates) a day before the exam.
Have something light and energizing to eat for breakfast. Avoid taking too many liquids since you would not have time to take breaks during the exam.
During the mid-break, take a light snack. Try to relax but remember to remain focused. Avoid lengthy and dubious discussions with fellow candidates about the questions you attempted as it will be a futile exercise and may result in stress and panic. Just remember, you are still not over with the exam.

Attempting Questions

Manage your time. You will be required to attempt ten item set questions during each session (morning and evening).
Attempt the exam with utmost concentration. Invest in a pair of earplugs if you are easily distracted.
Start the exam with areas that you are proficient in. Always complete an area before moving on to the next. Do not push back a question as you will not have enough time to revisit it later. Do not recheck your answers even if you have the time.
When reading an item set, it is sometimes easier to solve each sub-part separately. If you have practiced well, you would know when one set of information has ended and the other has begun. Box all important information given in the vignette:

Look for key descriptive words, for instance, ‘leverage’, ‘guaranteed’, ‘riskless’ ‘open-ended, closed-ended’, ‘callable, putable’, words describing a time period like ‘short-term, intermediate term or long-term etc. Reading the vignette carefully will ensure that you do not overlook such details.
Sometimes an important concept/theory would be described in words; you may want to box and write its name next to it. If you have prepared well, your knowledge of the concept/theory will automatically flow in next.
Circle all numeric values and write a superscript stating what the values indicate. This will make it easier for you to form an equation and understand the context of the question. It will also help in identifying the ‘unknown’ values, and how they might be derived.

Once you have used a collection of information to answer a sub-part, it is highly unlikely that the same information would be used for another sub-part. This means that you may cast aside the information already utilized.
Sometimes the data might not perfectly fit a formula you have learned. In such rare situations, improvise, e.g. use D₀ instead of D₁ if no growth rate is mentioned or use the T-bill rate if no T-note rate is mentioned.
If you are unable to comprehend a question, try to make an intelligent guess as there is no penalty for guessing. It is unlikely that you will be completely clueless. The answer options can give you a hint as to whether you are thinking on the right track. This goes for both numerical as well as conceptual questions.
For statement questions, read the question regarding the statement before reading the statement itself, so that you know exactly what to look for. Generally you will have to determine:
- The accuracy of the statement.
- The reason for the inaccuracy of a statement.
- A concept described in the statement (the question could directly address the concept or indirectly address it by inquiring about related concepts)
- An unknown variable that could be calculated using the information in the statement.
- Statement questions can be in a conversational format. While attempting such questions, remember to accurately identify the information that is being presented and address it accordingly.

Practice

The key to knowing how to attempt the Level 2 exam is to practice exam-like questions extensively. This will not only serve as a guide to attempt the examination but will also help in channelizing your approach towards studying the curriculum. The questions will tell you ‘how to study’.
Although practicing questions can help, remember not to overdo it. Solving questions without proper preparation will do no good. It is imperative that you understand an LOS completely and thoroughly before attempting the related practice questions. By doing so, you will be better equipped to analyze your performance and know your strengths and weaknesses. As you practice further, you will start learning the different ways in which a specific concept can be tested.

Time Management

Time management is critical to your success. It is important to manage your time during the exam preparation as well while writing the actual exam.
While preparing, spend more time on the areas that carry more weightage, or those that require more practice.

Level III Examination Tips

Posted on November 5, 2011 by admin

On the Level III exam, a candidate has two sessions, one comprising of 10 item-set questions (afternoon session) and the other comprising of 9-15 essay questions (morning session). The afternoon session is quite similar to the Level 2 exam and therefore, should be handled in the same manner as the level II questions. However, the format of the morning session is unique to this level. The morning session constitutes 9-15 essay questions, with each composed of 1-5 sub-parts. Following are some tips for preparing and attempting the Level 3 examination.

Preparation

Most candidates believe that the Level III exam is easy and much less demanding than the Level II exam. They, therefore, take their preparations slow and easy. This is a grave misconception! Start early and spend at least 10-12 hours a week studying the curriculum notes.
In item sets, a student is provided with three options, one of which is correct. However, in essay questions, the student has to come up with the exact correct answer himself. Hence, it is imperative that you know, and are able to retain and recall, every important concept, formula and relationship.
Analyze and identify the areas having a higher probability of being tested as essay questions. Examples of such areas would include behavioral finance, individual IPS, institutional IPS, fixed income and equity.
Portfolio management is an area that carries the largest weight. Make sure you know this area inside out and can attempt questions presented from every angle and perspective.

While reading the material to prepare for such questions, use the following tips:

After understanding a concept, try to memorize all important points related to it. A helpful way of doing this would be to box the important details while reading. You can also number the points by underlining them and writing superscripts 1, 2, 3 and so on for every topic. This way it will be easier to learn and retain the points.
Reviewing the material as you progress is especially essential for essay questions. Have a proper review plan in place and follow it religiously.
Know how one topic relates with the other. Flowcharts and similar graphical depictions can help in understanding relationships and are effective means of retention.

Practice

A great deal of practice will not only help familiarize you with the format of such questions, but will also illustrate how to approach them.
Remember to review each practice test carefully after attempting it and determine what information was required and how it is graded. Analyze your mistakes and weaknesses. You would notice that, sometimes, you missed out on writing needed information even though you knew it and instead, wrote something that was not required. As you practice further, you will get better at attempting such questions.
The only way to avoid leaving points during the final exam is to do practice essay questions under a time constraint over and over and over again. There is no substitute for intense essay practice.

Attempting the exam

When attempting essay questions read the question first and then read the case. Try to keep in mind what is needed when you are going through the vignette.
Apply your time management skills for this exam. Go through the exam once and answer the questions that come easy to you first. This will prevent you from failing to answer all the questions.
Answer questions by focusing on key words in the vignette. If you don’t know the complete solution, answer with what you know since CFA Institute grants partial marks.
Don’t miss easy points by assuming that they must be something the examiner would know. Remember, every point is important.
Answer each sub-part using clear, precise and relevant statements. Remember, your answers are your only communication with the examiner—try to tell him/her that you know what you are talking about. Be as relevant as possible; writing unnecessary details will leave a bad impression on the examiner and will be a waste of your precious time.
An appropriate format of attempting essay questions is to use bullet points.
Space your words and sentences so that they are easy to read.
Do not write lengthy answers; try to be as concise and accurate as possible and explain the answer in just a few lines or so. Knowing how answers are graded will illustrate how objective you have to be when answering; writing long, unnecessary stories will give you no extra points.
When answering numerical questions, start by writing the data and the formula. Show your calculations and write the final answer prominently. Remember, there are marks for each important step of the calculation.
No matter how poorly you have done in the morning session, don’t lose hope. The afternoon session carries equal weightage and is as critical to passing the exam as is the morning session. Try to relax during the mid-break and focus on the item sets in the afternoon. For many candidates, the afternoon session scores have been central to passing the exam.

Note: Please review Level 2 examination tips also.