CFA Level 3 Review, Behavioral Finance

Behavioral finance is always a tough topic for candidates because the material can be a little confusing and the sheer volume can be overwhelming. The topic really doesn’t have to take a lot of time though and can be some easy points.

Behavioral Finance and the CFA Essays

Behavioral finance is typically tested in the morning essay section of the exam and has been worth an average of 14 points over the last three years. While you need every point you can get, that is just 3.8% of your total exam score. You want to approach the section with the idea of getting the concepts and basic definitions without taking valuable study time from higher point topic areas.

The material is extremely definitional and lends itself really well to flash cards. If you can get the basic definitions of the concepts and vocabulary then you should be able to get the vast majority of the points on the exam. Take a look at the prior years’ exams to get an idea of how the behavioral questions are asked.

Make sure you understand the basic difference whenever a contrast is offered, i.e. the difference between traditional finance and behavioral finance.

The cognitive and emotional biases have shown up on the essays frequently so make sure you have a good understanding of these.

Understand the five belief perseverance biases, consequences and detection:

Conservatism –failure to incorporate new info after a view is established
Confirmation – selectively seeking information that confirms a prior view
Representativeness – tendency to make decisions based on stereotypes or patterns
Illusion of control – belief of ability to influence uncontrollable events
Hindsight – overestimate “ex-post” the accuracy of forecasts

Understand the four processing error biases, consequences and detection:

Anchoring and adjustment – similar to conservatism but is usually tested as an under reaction to new information rather than avoidance of new info or no reaction at all
Mental Accounting – often tested as investors dividing total assets into ‘buckets’ based on categories (i.e. leisure, necessities, emergency)
Framing – tendency to respond differently depending on the situation
Availability – tendency to overestimate the possibility of an outcome based on ease of which the outcome comes to mind (know the four sources of availability bias)

Types of emotional biases:

Loss aversion – includes house money effect and myopic loss aversion, tendency to treat investments differently depending on whether it is a loss or a gain
Overconfidence – tendency to overestimate own ability or knowledge
Self control – preference for present consumption (certainty) versus future (uncertainty)
Status quo – avoidance of change
Endowment bias – emotional attachment to an asset or investment
Regret aversion – avoidance of decision due to fear of regret

The difference between a lot of these biases seem relatively minor and semantic but they often appear in the exam. Besides the basic definition and consequence, understand the slight difference between similar biases so you can distinguish them in a question. This is really where practice on some of the past essays comes in handy, to see how the Institute frames questions.

The material is extensive but you really do not need to memorize every detail. The Finquiz Study Guide has 32 pages of notes on Behavioral Finance for Study Session 3 and can better help to explain the topic. Again, my advice for the topic area is to get the basic idea and concepts and then move on to higher point topics. Even if you only get 60% of the points by just taking a quick look at the section, you’ve only missed 1.5% of the total exam.

I haven’t heard much from Level I or II candidates on which topics they want covered on the blog. Let me know if any particular study session or LOS is giving you problems and we will try to hit it in one of the blog postings.

‘til next time, happy studyin’
Joseph Hogue, CFA


2013 Level 3 Essay Question #1 Review

Passing the Level III CFA exam is all about the essay questions. You know what to expect on the afternoon vignette section and the curriculum is more or less consistently difficult in both the morning and afternoon sessions. The only unknown variable is three hours of application and writing.

Do not underestimate the physical challenge of the morning essays. Who really writes things out by pencil or pen anymore? You need to condition the muscles in your hand to be able to write non-stop.

Fortunately, the CFA Institute is uncharacteristically generous to level III candidates and supplies copies of the actual essay questions and the guideline answers for the last three years’ exams. The single best advice I can offer to level III candidates is download and practice those exams. Work through each exam at least twice.

The exams are available on the Institute’s website here.

We’ve covered a general review of the Private Wealth Management topic area last year and not much has changed in the curriculum. Click here for a review of the topic and how to approach it. You absolutely must know how to work through the two types of return questions and apply the constraints of the IPS. Remember TUTLL!

2013 Level III Exam, Question #1 Individual Wealth Management

Between the first two questions last year, the individual wealth management topic accounted for nearly 10% of your entire exam score (35 points of 360). Besides the technical importance, starting off the day by doing well on the first couple of questions will give you a huge confidence boost and sets you up for success.

Hit this section hard and master it!

Last year’s first question covers the Voorts and their needs in retirement. Some candidates like to read the questions first then the vignette. I always liked reading through the vignette first and underlining important information. Try it both ways in practice to see which you prefer for the exam.

A)    This is a single-period return calculation (as opposed to the other type of question you might see, a multi-period return calculation. Be ready for both). Notice almost every questions says, “Show your calculations.” You can get partial credit if you show your calculations even if your final answer is wrong. Don’t forget!

The guideline answer is a pretty standard format. List out the living expenses with an inflation adjustment and reduce it by any guaranteed income like pension payments. Taxes and inflation are two of the biggest hurdles in these. Make sure you note where you need to incorporate taxes and inflation into the given data.

After you know how much is needed from portfolio assets, you need to list out all investable assets to find the portfolio size. After that it is a fairly easy calculation of cash needs divided by the portfolio value. Note, this will give you a real return requirement (without inflation) so you need to adjust upwards.

B)   Part B is fairly easy. Understand which factors go into ability and which factors affect willingness to assume risk. Remembering this, you can quickly scan the vignette for specific details when you see either word. Notice the guideline answers lists five possible answers but the question ask for only two. Do not waste your time listing every possible answer! The grader will only check the first two.

Typically portfolio size to needed cash is a strong factor in ability. Even if higher risk led to a decrease in portfolio value, they could still probably meet their needs. Age is also a common topic with younger people having the ability to return to work.

C)   The liquidity requirement is basically done in the return calculation above but I guarantee a lot of candidates forgot to include the cash reserve. Liquidity is not necessarily only the money you plan to spend but what you need set aside.

D)   This ‘choose the most appropriate portfolio’ is fairly common and easy points. A few pieces of information are key: goal return, preference for risk and the risk-adjusted return.

Given the goal return of 3.5% means a return of 8.57% on a nominal pre-tax basis ((3.5% +2.5%/(1- 0.7)). Only portfolios X and Z meet this preference.

The Voorts do not want the portfolio to decline by 10%. Only Portfolio Y and Z meet this requirement.

Only portfolio Z meets both reasons.

With a little preparation, that is 20 easy points, nearly 6% of the entire exam in the bag. Be ready for these essay questions and they will be no problem.

We reviewed multiple essay questions from previous years on the blog last year. Click here for the review of Question #1 in the 2011 exam and scroll through for other essay questions.

‘til next time, happy studyin’
Joseph Hogue, CFA


5 Things I Wish I Knew about the CFA Level III Exam

We’ve already covered the top five things you should know about the CFA Level I and Level II Exams, along with the exams in general. After the Level II exam, I enjoyed the final exam of the series though it presents its own challenges. If you approach it wisely, following these five points, the Level III exam can be just as enjoyable when you take it.

  • It’s all about the Essays

The essay portion of the exam terrifies many candidates and for good reason. Not only are you asked to come up with your own answers, much more difficult that picking it out of three options, but the essays present a physical challenge as well. When is the last time you spent almost three hours straight writing by hand? The post-exam party is filled with more than a few horror stories about muscle cramps and aching hands. You must physically prepare yourself by doing consecutive essay problems and writing for hours or you will not make it through the morning section.

Most of the topic areas are fair game for essay questions. The first two questions will always be on individual and institutional wealth management so being ready for those two topics can give you a huge confidence boost for the rest of the test. Corporate Finance, Financial Reporting, Quantitative Methods and Alternative Investments are the least likely to show up as essay questions but will be in the afternoon section. I covered the essay section in more detail in a prior post linked here.

  • The only exam with prior year’s available

Ok, this one is about the essays as well but I thought it merited its own bullet. The Institute releases the essay section, along with guideline answers, for the last three years. This is huge and I don’t think most candidates take advantage of it. Working through these essay questions not only helps you study the material and practice writing for an extended period, it also helps you write more efficiently and get a feel for the types of information for which the Institute is scoring.

We worked through several essay questions last year from prior years, click here and scroll through last year’s study plan. While only the last three years’ exams are available, you should be able to get prior years’ essays from members of your local society. Ask around to see if anyone has the pdf copies. It is well worth the effort to have a couple more sets of practice essays, especially in the all-important wealth management topic area. Make sure you check for LOS changes between the test year and the current year for material that has been dropped or changed.

  • Don’t get overconfident

You’ve made it through two of the hardest exams of your academic life and notice that the pass rate for the CFA Level III exam is above that of the other two. Sounds like it is time to sit back and ease through to your charter, right?

You have put in too much work to get lazy now. While the pass rate on the Level III exam, 49% in 2013, is higher than that of the other exams it is still incredibly difficult. Think about it, every CFA Level III candidate has had the perseverance and has put in the effort to pass the other two exams but less than half will make it through the exam this year.

Put in just as much time and work for this final exam as you did for the other two levels. Not only will you be rewarded with a passing score, but mastering the essay section will give you the ability to talk through these topics in your job.

  • Harder to ‘game’ the topic areas

You could clearly see in the other two exams which topic areas were most important and where you should focus your studying. The topic weights don’t help much on the CFA Level III exam. Ethics and the asset classes are weighted but the investment tool topic areas are wrapped up in portfolio management. This uncertainty throws some candidates for a loop and leads to inefficient use of study time.

Fortunately, by studying the prior essay sections, you can get a good idea of topic area importance. Look through the prior three years’ morning sections and you will see that the two portfolio management topics are always considered (with each historically above 10% of total exam points).

Again, studying these previous morning sections can give you nearly everything you need.

  • Do not wait until you pass the exam to start thinking about the charter

You will not immediately be granted the charter after passing the Level III exam. You first need to fill out an application for membership and acquire two sponsors that will answer questions on your experience. One of these will need to be your current supervisor, the other needs to be a charterholder from the local society. Now is the time to start talking to society members and establishing a sponsor. In my own experience, it is frustrating when a candidate comes out of nowhere and asks for a sponsor when you have never talked or really know what they do.

You will also need to complete the requirement for 48 months of professional experience. This is the sticking point for a lot of candidates and many have to wait years until they can use the designation. There is not much you can do if you are taking the exam this year and do not have the necessary experience. Review the work experience guidelines established by the Institute, linked here. If your current responsibilities do not qualify, you need to start looking at your options. Consider talking to your supervisor to add some responsibilities to your role that might help qualify.

As a level III candidate, you are almost there and the anticipation building up to the exam can be unbearable. Take a step back and realize that you still have one hurdle to jump. Study just as hard for the final exam as you did for the other two, maybe harder, and go into that first Saturday of June with the confidence to pass.

‘til next time, happy studyin’
Joseph Hogue, CFA


Changes to the 2014 Level 3 CFA Curriculum

The changes to the 2014 Level 3 curriculum from last year’s edition are the most extensive I have ever seen. Eight readings have been dropped, two readings have been replaced and one reading has been added. In all, the number of readings has dropped from 43 to 35 in the 2014 curriculum.

The de-emphasis on emerging markets and international assets is clear with most of the material dropped or fit into other readings with a generalized spin. This follows the general theme in the markets as international and emerging markets have fallen out of favor against a more generalized approach.

Most of the LOS changes are the more minor wording-type changes that really do not change what you need to study or understand. I have tried to catch the more important LOS changes below but most of the changes will come from the new or replaced readings.

As we’ve talked about in other posts, it’s up for debate whether new material is tested more heavily or not on the exam. I doubt that the Institute would try to trip up repeat testers that haven’t focused on new material but it’s intuitive that they would want to test the new material to see how candidates adopt it. Regardless, it’s important to understand the new directions the Institute is taking and to plan your studying accordingly.

Changes 2013 – 2014
Reading 13, “Low-Basis Stock” is replaced by “Concentrated Single Asset Positions.” While the two topics will have some similarities, i.e. low-basis stock is often a concentrated position for management, the LOS have changed and repeat candidates may want to spend some extra time here.

Study Session 5, Reading 17 – “Allocating Shareholder Capital to Pension Plans” has been dropped

LOS 18-b has been greatly simplified from a specific mandate to a more simplified, “discuss challenges in developing capital market forecasts.”

Last year’s Reading 20 in SS7, “Dreaming with the BRICs” has been dropped from the curriculum.

SS8, Reading 19 Asset Allocation has four new LOS (k through n). Three of these address portfolio effects from nondomestic assets, replacing a little of the lost emphasis from the dropped readings.

Last year’s Reading 22 in SS8, “The Case for International Diversification” has also been dropped.

Last year’s Reading 26 in SS10, “Hedging Mortgage Securities to Capture Relative Value” has been dropped

Last year’s Reading 30 in SS12, “Emerging Markets Finance” has been dropped

Readings 32 and 33 from SS13, “Swaps” and “Commodity Forwards and Futures” have been dropped to the massive cheers of candidates everywhere. Good material but extremely tough and why was there so much detail on derivatives anyway?

Reading 35 in SS14, “Currency Risk Management” has been replaced with Reading 28, “Currency Management: An Introduction.” It looks like the material is a little more basic though many of the LOS look the same. You’ll probably recognize most of the material if you took last year’s exam but don’t neglect the reading because there is quite a bit of new stuff here.

Study Session 16 is now called, “Trading, Monitoring, and Rebalancing” from last year’s, “Execution of Portfolio Decisions; Monitoring and Rebalancing” though the readings have remained the same and the LOS changes are relatively minor wording-changes.

Reading 42 from SS17, “Global Performance Evaluation” has been dropped

We’ll cover the changes to the level 2 exam in two weeks. Let me know if you have any questions or need something covered.

‘til next time, enjoy your break!
Joseph Hogue, CFA


CFA Level 3 Emergency Preparation

What if you were dramatically unprepared for the CFA Level 3 exam and needed to focus on the most important information for the upcoming test. What would you study over the next nine days?

Whatever the reason, many candidates find themselves unprepared at this point whether it be real for a lack of studying or imagined from simple anxiety. While I wouldn’t think it’s possible to do all your studying in just the next week and a half, there are some sections you can focus on to get the most points and have a chance at passing the exam.

The topic weights for the CFA Level 3 exam doesn’t really help like it may for the other two exams. We see that each of the asset classes are worth between 5% and 15%, with the exception of fixed income which is weighted a little more heavily. Beyond these four topics, we’re only told that the rest of the exam, between 45% and 55%, is wrapped up into portfolio management.

We do know that the exam is divided into an essay section in the morning and a item-set section in the afternoon. Since the afternoon item-set section isn’t really any different than that seen in the CFA Level 2 exam, the best use of your time might be to focus on the morning essay section.

There are a couple of reasons for this. First, there is a lot that goes into the morning section that just knowing the material. You need to be able to write for upward of three hours without getting tired and knowing the format of the exam helps a lot. Some questions can be answered directly under the problem while others are answered in a special template box.

Another reason to focus on the morning section for your last minute studying is that your performance on the essays can really help set the tone for your mood in the afternoon. Don’t underestimate the confidence boost from getting max points on the essays, in particular the first couple of portfolio management essay questions.

Fortunately, practicing the morning section is made easier by the Institute. You’ll find the last three years’ worth of essay questions along with guideline answers on the CFA Institute website. Using these helps to get a sense of what you might see on this year’s exam as well as how to approach it. Studying the last few years can also give you a sense of the topics that most frequently show up on the morning section, discussed in a previous post here.

If I had just one week to study for the Level 3 exam, I would focus first on the individual and institutional management questions in the last three years’ exams. These will be the first questions you get in the morning.

Remember, there are two primary types of return questions you will get for individual portfolio management, a single-period return calculation or a required return (multi-period) calculation. We’ve worked both of these in previous posts here on the blog. You also need to know the five portfolio constraints for the IPS and how they relate to the risk tolerance and return objectives.

We’ve reviewed each study session and several of the previous years’ essay questions in our 21-week study program, so you might want to start there as a quick review. If you do decide to just focus on the prior essay questions, you may want to review some material from the topics that do not typically appear in the morning section like: Financial Reporting & Analysis, Corporate Finance, and Quantitative Methods.

‘til next time, happy studyin’
Joseph Hogue, CFA


CFA Level 3 Essay #9 2012

The material on derivatives is worth between 5% and 15% of your overall score and last year (2012) was the first time in four years that it appeared in the morning section. This might have thrown some candidates if they were not expecting an essay question, so I thought I would go over one of the questions in this week’s post.

The essay questions, along with the guideline answers, are available on the Institute’s website for your practice.

Together, questions #8 and #9 were worth 25 points or about 7% of the overall exam. Problem #8 covered the use of equity futures in changing a portfolio’s beta, using equity and bond futures to adjust portfolio allocation, and pre-investing with futures. Problem #9 covered options with delta hedging and some conceptual material on how gamma changes closer to expiration. These are formula intensive sections but the calculations really are not that hard once you work through them.

The first thing you should notice when starting #9 is that the three parts (A,B,C) are worth 12 points. Unless you have saved some time elsewhere in the morning, you should try to get through these in no more than 10-15 minutes. Don’t spend 30 minutes on a question that is only worth 12 points! Use your time wisely.

You may want to underline or highlight key figures as you’re reading to make it easier to pick out data when you come to questions. Here things that jump out to me are 2,000 shares of equity, x-price of 1,300 Euros, premium of E19.09, etc.

  1. A put is a right to sell while a call is a right to buy, so being on the other side of the transaction (the writer of the option) would be the obligation to do the reverse (i.e. put is obligation to buy while call is obligation to sell). Knowing your ultimate exposure, you can figure out how to hedge it through an equity position. In this case you need to create an offsetting short position so you take the number of shares times the option delta times the current price.
  2. You need more in-depth knowledge of how options price here with the convex relationship between price and the underlying. You’ve seen this concept with mortgage-backed securities in the fixed income topic area so it shouldn’t be totally new. Remember, delta is the change in option price relative to stock price while gamma is the change in delta relative to the underlying. Long options (calls) have positive gamma (change in price is less for a decrease in underlying than the change for an increase in the underlying) while short options (puts) have negative gamma (change in option price will be greater for a decrease in underlying equity relative to the change from an increase in the underlying).
  3. The toughest part here is continuous compounding and the fact that you need to do six calculations for just five points. Don’t stare at the problem too long if you do not know it. Just get something down and move on to make sure you get the easy points in the exam. You will get partial credit if you hit on some of the points for which the graders are looking, so write something down!
    1. First, start with the trader’s net cash position which is the number of shares long times the price, minus the premium collected for the options sold.
    2. Even if you can’t remember how to do the continuous compounding, do the equation anyway and move on to the next steps. You can still get credit for doing the remaining calculations even if the result is off because of a prior mistake (and here the difference between continuous compounding is only $0.05).
    3. From here it’s just a matter of subtracting the short call position from the long equity position and finding the relative return.

 Of the 12 total points, you could have gotten 6 or 7 easily by just knowing the conceptual material and working through the equations quickly. The remaining points would have been a little harder and may have taken more time than they were worth if you really didn’t know the material. This is a great example of making sure you get the easy points and not spending too much time where it’s not going to pay off.

If you know that you don’t know something or it’s going to take a while to figure it out, move on and come back to it if you have time.

Two more weeks to the exam. Make sure you are ready for the first two questions (individual and institutional portfolio management) and get a few mock exams done.

‘til next time, happy studyin’
Joseph Hogue, CFA


CFA Level 3 Review GIPS

The last study session you’ll ever need in the CFA curriculum is the reading on the Global Investment Performance Standards (GIPS) for study session 18.

The basic concept behind GIPS is:

  • GIPS applies to firms, not individuals. An analyst cannot be “GIPS compliant”
  • The goal is fair representation and disclosure across investment opportunities for the public
  • It fosters the notion of “self regulation” within the industry
  • Each section includes “requirements” and “recommendations” for compliance. I would focus on the requirements if time is limited.
  • All actual, fee-paying, discretionary portfolios must be included in at least one composite
  • No non-discretionary portfolios, but non-fee paying portfolios may be included
  • Must calculate time-weighted total portfolio returns with external cash flows using daily weighting
  • Only actual assets, no model portfolios or simulations

The material on disclosures is easily testable along with some of the differences between the real estate and private equity sections.

Firms must disclose:

  • If they have met all requirements using the appropriate compliance statement (verbatim!)
  • Definition of the firm and description of composites (with creation date) and benchmarks
  • If they are presenting gross of fees and any fees deducted
  • If presenting net of fees, if model or actual management fees are deducted
  • Currency used in presentation
  • Measure of internal dispersion
  • Fee schedule
  • Use and extent of leverage, derivatives and short positions
  • Date, description and reason for redefinition of firm or composites
  • Minimum asset levels for composites
  • Treatment of withholding taxes, dividends, interest and capital gains
  • Bundled fees and the types of bundled fees
  • Sub-advisors and the period in which they were used
  • Any portfolios that were not valued at month end or last business day
  • Use of subjective unobservable valuation inputs
  • If no benchmark is used and why
  • Custom benchmarks used; description, date of creation, components, weights and rebalancing process
  • Whether the performance of a past firm or affiliation is linked (only appropriate if substantially all decision makers came over to new firm, the process remains substantially the same, and the firm has documentation of the performance history).

The guidelines on presentation and reporting are also important:

  • Total benchmark return for each period must be presented
  • Composite assets at the end of each year
  • Total firm assets or % of firm assets in each composite
  • Returns of less than one year cannot be annualized
  • % of composite in non-fee paying portfolios
  • % of composite in bundled fee portfolios
  • Five years of GIPS compliant performance or since inception if 5-years not available
  • Firms must add one year each year until at least ten years of data is reported

Be able to calculate the income return and capital return for real estate funds

Remember the valuation hierarchy for GIPS if the asset’s actual market value is not available

  • prices of similar assets in active markets
  • prices of similar assets in inactive markets
  • observable market inputs other than prices such as dividends, cash flows for pricing models
  • subjective or unobservable inputs like discount rates and projections  

Wow, we’ve made it through the entire curriculum. Hopefully, you have been able to keep up and have been doing well on practice problems and using other resources. You’re not done just yet. There’s still three weeks left to the exam and they can be the most important three weeks of your preparation. We’ll cover what to expect on test day in Friday’s post and other tips and strategies in subsequent posts all the way up to test day.

‘til next time, happy studyin’
Joseph Hogue, CFA


Which topics usually show up on the CFA Level 3 Essay Section?

While I’m generally not one to recommend ‘gaming’ the CFA exams, knowing which topic areas and material has a better chance at showing up on the essay section of the Level 3 exam can help out big time. The afternoon section is worth just as many points and you still need to master all of the curriculum, but the morning section can make or break your day.

First, a disappointing experience in the morning can devastate your confidence and ruin your concentration during the afternoon. You need to go into the exam feeling like you’re going to pass and carry that optimism all the way through. Secondly, there are questions that are more suitable and do show up in the essays. Preparing for these through practicing old exams will put you way ahead anyone on test day.

Your first question on the exam will always be an individual portfolio management question. The individual management question is usually around 12% of the exam (44 points) and will either be a multi-period return or a single-period return. Within the question you’ll often see questions on taxes, investor behavior and estate planning but the core is built around the return objective, risk tolerance and the five constraints. We’ve covered a few of these in the past, linked here and here for review.

An institutional portfolio management question usually follows directly but last year it didn’t come until #6, but you will always see one. It is usually around 36 points (10% of the total exam) but ranges from 24 to 49 points. There’s really no way of knowing which institution type will show up but make sure you know the basic comparisons between them all for the IPS components. We’ve done a couple of past questions, linked here.

Practicing several (at least) old individual and institutional questions from past exams will make your day on that first Saturday of June. Imagine starting the exam being totally confident and easily completing the first two questions and knowing you’ve just aced about 20% of the exam!

Economics has been in the morning section in each of the last four years and has been worth an average of 11% of your morning score. Biases and sources of error in data is a popular topic along with one of the economic measurement tools  (tobin’s q, fed model, cobb douglas, h-model, yardeni ). We ran through the 2011 Economics question here.

Risk management is often in the morning section, though it skipped last year. The question is usually about 10% of your morning score and often has a question about hedging with options, forwards, futures or swaps.

Asset allocation is another that usually shows up but was skipped last year. Some will say that this makes it more likely to show up in an essay this year but there’s no real proof of it (though I would agree from what I’ve seen in the past tests). The question is around 15 points (about 8% of your morning score) and will often be a selection of an appropriate portfolio or calculation of corner portfolios. The basic concepts, differences and advantages/disadvantages of the portfolio techniques is also something that has come up in the past (Black-Litterman, Mean Variance Opt., resampled efficient frontier, Monte Carlo). Linked here is the 2011 Asset Allocation Question.

Performance evaluation and the material on monitoring/rebalancing are also frequent essay questions. Each has had a question in three of the last four years with an average of about 15-17 points. Make sure you can do a micro- and macro-attribution for performance evaluation as well as breaking total return down into its components. The buy/hold, constant mix, and cppi methods of rebalancing often show up as questions so make sure you spend some time there as well.

The material on fixed income and equity investments also frequently find themselves into an essay question though no specific formulas or processes jump out as regulars. Even if you receive a question in the morning section, the topics are a fairly large percent of your total score so you may get a question in the afternoon as well.

The material in corporate finance, financial reporting & analysis, and quantitative methods don’t usually show up in the morning section. The material in alternative investments shows up only rarely, with a question on swaps and futures in 2009 (question #8).

We cover study session 18 next week and will spend the last few weeks reviewing and talking about test day. Let me know if you have any questions,

‘til next week, happy studyin’
Joseph Hogue, CFA