| LOS Detail June 2009 (Old) |
LOS Detail June 2010 (New) |
| SS |
LOS |
LOS
Description |
Sub
LOS |
Sub
LOS Description |
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LOS |
LOS
Description |
Sub
LOS |
Sub
LOS Description |
| 1 |
1 |
Code
of Ethics and Standards of Professional Conduct |
a |
describe the
structure of the CFA Institute Professional Conduct Program and the
process for the enforcement of the Code and Standards; |
1 |
1 |
Code
of Ethics and Standards of Professional Conduct |
a |
describe the
structure of the CFA Institute Professional Conduct Program and the
process for the enforcement of the Code and Standards; |
| b |
state the six
components of the Code of Ethics and the seven Standards of
Professional Conduct; |
b |
state the six
components of the Code of Ethics and the seven Standards of
Professional Conduct; |
| c |
explain the
ethical responsibilities required by the Code and Standards, including
the multiple subsections of each Standard. |
c |
explain the
ethical responsibilities required by the Code and Standards, including
the multiple subsections of each Standard. |
| 2 |
Guidance for Standards I–VII |
a |
demonstrate
a thorough knowledge of the Code of Ethics and Standards of
Professional Conduct by applying the Code and Standards to situations
involving
issues of professional integrity; |
2 |
Guidance for Standards I–VII |
a |
demonstrate
a thorough knowledge of the Code of Ethics and Standards of
Professional Conduct by applying the Code and Standards to situations
involving
issues of professional integrity; |
| b |
distinguish
between conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards; |
b |
distinguish
between conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards; |
| c |
recommend practices
and procedures designed to prevent violations of the Code
of Ethics and Standards of Professional Conduct. |
c |
recommend practices
and procedures designed to prevent violations of the Code
of Ethics and Standards of Professional Conduct. |
| 3 |
Introduction
to the Global Investment Performance Standards
(GIPS®) |
a |
explain why
the GIPS standards were created, what parties the GIPS standards
apply to, and who is served by the standards; |
3 |
Introduction
to the Global Investment Performance Standards
(GIPS®) |
a |
explain why
the GIPS standards were created, what parties the GIPS standards
apply to, and who is served by the standards; |
| b |
explain the
construction and purpose of composites in performance reporting; |
b |
explain the
construction and purpose of composites in performance reporting; |
| c |
explain the
requirements for verification of compliance with GIPS standards. |
c |
explain the
requirements for verification of compliance with GIPS standards. |
| 4 |
Global
Investment Performance Standards (GIPS®) |
a |
describe the
key characteristics of the GIPS standards and the fundamentals of
compliance; |
4 |
Global
Investment Performance Standards (GIPS®) |
a |
describe the
key characteristics of the GIPS standards and the fundamentals of
compliance; |
| b |
describe the
scope of the GIPS standards with respect to an investment firm’s
definition and historical performance record; |
b |
describe the
scope of the GIPS standards with respect to an investment firm’s
definition and historical performance record; |
| c |
explain how
the GIPS standards are implemented in countries with existing
standards for performance reporting and describe the appropriate response
when the GIPS standards and local regulations conflict; |
c |
explain how
the GIPS standards are implemented in countries with existing
standards for performance reporting and describe the appropriate response
when the GIPS standards and local regulations conflict; |
| d |
characterize
the eight major sections of the GIPS standards. |
d |
characterize
the eight major sections of the GIPS standards. |
| 2 |
5 |
The
Time Value of Money |
a |
interpret interest
rates as required rate of return, discount rate, or opportunity
cost; |
2 |
5 |
The
Time Value of Money |
a |
interpret interest
rates as required rate of return, discount rate, or opportunity
cost; |
| b |
explain an
interest rate as the sum of a real risk-free rate, expected inflation,
and
premiums that compensate investors for distinct types of risk; |
b |
explain an
interest rate as the sum of a real risk-free rate, expected inflation,
and
premiums that compensate investors for distinct types of risk; |
| c |
calculate
and interpret the effective annual rate, given the stated annual interest
rate and the frequency of compounding; and solve time value of money
problems when compounding periods are other than
annual; |
c |
calculate
and interpret the effective annual rate, given the stated annual interest
rate and the frequency of compounding; |
| |
|
d |
solve
time value of money problems when compounding periods are other than
annual; |
| d |
calculate and
interpret the future value (FV) and present value (PV) of a single
sum of money, an ordinary annuity, an annuity due, a perpetuity (PV
only), and a
series of unequal cash flows; |
e |
calculate and
interpret the future value (FV) and present value (PV) of a single
sum of money, an ordinary annuity, an annuity due, a perpetuity (PV
only), and a
series of unequal cash flows; |
| e |
draw a time
line and solve time value of money applications (for example,
mortgages and savings for college tuition or retirement). |
f |
draw a time
line and solve time value of money applications (for example,
mortgages and savings for college tuition or retirement). |
| 6 |
Discounted
Cash Flow Applications |
a |
calculate and
interpret the net present value (NPV) and the internal rate of return
(IRR) of an investment, contrast the NPV rule to the IRR rule, and identify
problems associated with the IRR rule; |
6 |
Discounted
Cash Flow Applications |
a |
calculate and
interpret the net present value (NPV) and the internal rate of return
(IRR) of an investment, contrast the NPV rule to the IRR rule, and identify
problems associated with the IRR rule; |
| b |
define, calculate,
and interpret a holding period return (total return); |
b |
define, calculate,
and interpret a holding period return (total return); |
| c |
calculate,
interpret, and distinguish between the money-weighted and time weighted
rates of return of a portfolio and appraise the performance of
portfolios based on these measures; |
c |
calculate,
interpret, and distinguish between the money-weighted and time-weighted
rates of return of a portfolio and appraise the performance of portfolios
based on these measures; |
| d |
calculate
and interpret the bank discount yield, holding period yield, effective
annual yield, and money market yield for a U.S. Treasury bill; and convert
among holding period yields, money market yields, effective annual,
yields, and bond equivalent yields. |
d |
calculate
and interpret the bank discount yield, holding period yield, effective
annual yield, and money market yield for a U.S. Treasury bill; |
| |
|
e |
convert
among holding period yields, money market yields, effective annual
yields, and bond equivalent yields. |
| 7 |
Statistical
Concepts and Market Returns |
a |
differentiate
between descriptive statistics and inferential statistics, between a
population and a sample, and among the types of measurement scales; |
7 |
Statistical
Concepts and Market Returns |
a |
differentiate
between descriptive statistics and inferential statistics, between a
population and a sample, and among the types of measurement scales; |
| b |
explain a parameter,
a sample statistic, and a frequency distribution; |
b |
explain a parameter,
a sample statistic, and a frequency distribution; |
| c |
calculate
and interpret relative frequencies and cumulative relative frequencies,
given a frequency distribution; and describe the properties of a data
set presented as a histogram or a frequency
polygon; |
c |
calculate
and interpret relative frequencies and cumulative relative frequencies,
given a frequency distribution; |
| |
|
d |
describe
the properties of a data set presented as a histogram or a frequency
polygon; |
| d |
define, calculate,
and interpret measures of central tendency, including the
population mean, sample mean, arithmetic mean, weighted average or mean
(including a portfolio return viewed as a weighted mean), geometric
mean,
harmonic mean, median, and mode; |
e |
define, calculate,
and interpret measures of central tendency, including the
population mean, sample mean, arithmetic mean, weighted average or mean
(including a portfolio return viewed as a weighted mean), geometric
mean,
harmonic mean, median, and mode; |
| e |
describe, calculate,
and interpret quartiles, quintiles, deciles, and percentiles; |
f |
describe, calculate,
and interpret quartiles, quintiles, deciles, and percentiles; |
| f |
define, calculate,
and interpret 1) a range and a mean absolute deviation and
2) the variance and standard deviation of a population and of a sample; |
g |
define, calculate,
and interpret 1) a range and a mean absolute deviation and
2) the variance and standard deviation of a population and of a sample; |
| g |
calculate and
interpret the proportion of observations falling within a specified
number of standard deviations of the mean using Chebyshev’s inequality; |
h |
calculate and
interpret the proportion of observations falling within a specified
number of standard deviations of the mean using Chebyshev’s inequality; |
| h |
define, calculate,
and interpret the coefficient of variation and the Sharpe ratio; |
i |
define, calculate,
and interpret the coefficient of variation and the Sharpe ratio; |
| i |
define and
interpret skewness, explain the meaning of a positively or negatively
skewed return distribution, and describe the relative locations of the
mean,
median, and mode for a nonsymmetrical distribution; |
j |
define and
interpret skewness, explain the meaning of a positively or negatively
skewed return distribution, and describe the relative locations of the
mean,
median, and mode for a nonsymmetrical distribution; |
| j |
define and
interpret measures of sample skewness and kurtosis; |
k |
define and
interpret measures of sample skewness and kurtosis; |
| |
|
l |
discuss
the use of arithmetic mean or geometric mean when determining investment
returns. |
| 8 |
Probability
Concepts |
a |
define a random
variable, an outcome, an event, mutually exclusive events, and
exhaustive events; |
8 |
Probability
Concepts |
a |
define a random
variable, an outcome, an event, mutually exclusive events, and
exhaustive events; |
| b |
explain the
two defining properties of probability and distinguish among empirical,
subjective, and a priori probabilities; |
b |
explain the
two defining properties of probability and distinguish among empirical,
subjective, and a priori probabilities; |
| c |
state the probability
of an event in terms of odds for or against the event; |
c |
state the probability
of an event in terms of odds for or against the event; |
| d |
distinguish
between unconditional and conditional probabilities; |
d |
distinguish
between unconditional and conditional probabilities; |
| |
|
e |
define
and explain the multiplication, addition, and total probability rules; |
| e |
calculate and
interpret 1) the joint probability of two events, 2) the probability
that at least one of two events will occur, given the probability of
each and the
joint probability of the two events, and 3) a joint probability of any
number of
independent events; |
f |
calculate and
interpret 1) the joint probability of two events, 2) the probability
that at least one of two events will occur, given the probability of
each and the
joint probability of the two events, and 3) a joint probability of any
number of
independent events; |
| f |
distinguish
between dependent and independent events; |
g |
distinguish
between dependent and independent events; |
| g |
calculate and
interpret, using the total probability rule, an unconditional
probability; |
h |
calculate and
interpret, using the total probability rule, an unconditional
probability; |
| h |
explain the
use of conditional expectation in investment applications |
i |
explain the
use of conditional expectation in investment application |
| i |
diagram an
investment problem using a tree diagram; |
j |
diagram an
investment problem using a tree diagram; |
| j |
calculate and
interpret covariance and correlation; |
k |
calculate and
interpret covariance and correlation; |
| k |
calculate and
interpret the expected value, variance, and standard deviation of a
random variable and of returns on a portfolio; |
l |
calculate and
interpret the expected value, variance, and standard deviation of a
random variable and of returns on a portfolio; |
| l |
calculate and
interpret covariance given a joint probability function; |
m |
calculate and
interpret covariance given a joint probability function; |
| m |
calculate and
interpret an updated probability using Bayes’ formula; |
n |
calculate and
interpret an updated probability using Bayes’ formula; |
| n |
identify the
most appropriate method to solve a particular counting problem and solve
counting problems using the factorial, combination, and permutation
notations. |
o |
identify the
most appropriate method to solve a particular counting problem and solve
counting problems using the factorial, combination, and permutation
notations. |
| 3 |
9 |
Common
Probability Distributions |
a |
explain a probability
distribution and distinguish between discrete and continuous random
variables; |
3 |
9 |
Common
Probability Distributions |
a |
explain a probability
distribution and distinguish between discrete and continuous random
variables; |
| b |
describe the
set of possible outcomes of a specified discrete random variable; |
b |
describe the
set of possible outcomes of a specified discrete random variable; |
| c |
interpret
a probability function, a probability density function, and a cumulative
distribution function; and calculate and interpret probabilities for
a random variable, given its cumulative distribution function; |
c |
interpret
a probability function, a probability density function, and a cumulative
distribution function; |
| |
|
d |
calculate
and interpret probabilities for a random variable, given its cumulative
distribution function; |
| d |
define
a discrete uniform random variable and a binomial random variable; and
calculate and interpret probabilities given the discrete uniform and
the binomial distribution functions; and construct a binomial tree to
describe stock price movement; |
e |
define
a discrete uniform random variable and a binomial random variable; |
| |
|
f |
calculate
and interpret probabilities given the discrete uniform and the binomial
distribution functions; |
| |
|
g |
construct
a binomial tree to describe stock price movement; |
| e |
describe the
continuous uniform distribution and calculate and interpret probabilities,
given a continuous uniform probability distribution; |
h |
describe the
continuous uniform distribution and calculate and interpret probabilities,
given a continuous uniform probability distribution; |
| f |
explain the
key properties of the normal distribution, distinguish between a univariate
and a multivariate distribution, and explain the role of correlation
in the multivariate normal distribution; |
i |
explain the
key properties of the normal distribution, distinguish between a univariate
and a multivariate distribution, and explain the role of correlation
in the multivariate normal distribution; |
| g |
construct
and interpret a confidence interval for a normally distributed random
variable, and determine the probability that a normally distributed
random variable lies inside a given confidence interval; |
j |
determine
the probability that a normally distributed random variable lies inside
a
given confidence interval; |
| h |
define the
standard normal distribution, explain how to standardize a random variable,
and calculate and interpret probabilities using the standard normal
distribution; |
k |
define the
standard normal distribution, explain how to standardize a random variable,
and calculate and interpret probabilities using the standard normal
distribution; |
| i |
define shortfall
risk, calculate the safety-first ratio, and select an optimal portfolio
using Roy’s safety-first criterion; |
l |
define shortfall
risk, calculate the safety-first ratio, and select an optimal portfolio
using Roy’s safety-first criterion; |
| j |
explain the
relationship between normal and lognormal distributions and why the
lognormal distribution is used to model asset prices; |
m |
explain the
relationship between normal and lognormal distributions and why the
lognormal distribution is used to model asset prices; |
| k |
distinguish
between discretely and continuously compounded rates of return and calculate
and interpret a continuously compounded rate of return, given a specific
holding period return; |
n |
distinguish
between discretely and continuously compounded rates of return and calculate
and interpret a continuously compounded rate of return, given a specific
holding period return; |
| l |
explain Monte
Carlo simulation and historical simulation and describe their major
applications and limitations. |
o |
explain Monte
Carlo simulation and historical simulation and describe their major
applications and limitations. |
| 10 |
Sampling
and Estimation |
a |
define simple
random sampling, sampling error, and a sampling distribution, and interpret
sampling error; |
10 |
Sampling
and Estimation |
a |
define simple
random sampling, sampling error, and a sampling distribution, and interpret
sampling error; |
| b |
distinguish
between simple random and stratified random sampling; |
b |
distinguish
between simple random and stratified random sampling; |
| c |
distinguish
between time-series and cross-sectional data; |
c |
distinguish
between time-series and cross-sectional data; |
| d |
interpret the
central limit theorem and describe its importance; |
d |
interpret the
central limit theorem and describe its importance; |
| e |
calculate and
interpret the standard error of the sample mean; |
e |
calculate and
interpret the standard error of the sample mean; |
| f |
distinguish
between a point estimate and a confidence interval estimate of a population
parameter; |
f |
distinguish
between a point estimate and a confidence interval estimate of a population
parameter; |
| g |
identify and
describe the desirable properties of an estimator; |
g |
identify and
describe the desirable properties of an estimator; |
| h |
explain the
construction of confidence intervals; |
h |
explain the
construction of confidence intervals; |
| i |
describe the
properties of Student’s t-distribution and calculate and interpret
its degrees of freedom; |
i |
describe the
properties of Student’s t-distribution and calculate and interpret
its degrees of freedom; |
| j |
calculate and
interpret a confidence interval for a population mean, given a normal
distribution with 1) a known population variance, 2) an unknown population
variance, or 3) an unknown variance and a large sample size; |
j |
calculate and
interpret a confidence interval for a population mean, given a normal
distribution with 1) a known population variance, 2) an unknown population
variance, or 3) an unknown variance and a large sample size; |
| k |
discuss the
issues regarding selection of the appropriate sample size, data-mining
bias, sample selection bias, survivorship bias, look-ahead bias, and
time-period bias. |
k |
discuss the
issues regarding selection of the appropriate sample size, data-mining
bias, sample selection bias, survivorship bias, look-ahead bias, and
time-period bias. |
| 11 |
Hypothesis
Testing |
a |
define a hypothesis,
describe the steps of hypothesis testing, interpret and discuss the
choice of the null hypothesis and alternative hypothesis, and distinguish
between one-tailed and two-tailed tests of hypotheses; |
11 |
Hypothesis
Testing |
a |
define a hypothesis,
describe the steps of hypothesis testing, interpret and discuss the
choice of the null hypothesis and alternative hypothesis, and distinguish
between one-tailed and two-tailed tests of hypotheses; |
| b |
define and
interpret a test statistic, a Type I and a Type II error, and a significance
level, and explain how significance levels are used in hypothesis testing; |
b |
define and
interpret a test statistic, a Type I and a Type II error, and a significance
level, and explain how significance levels are used in hypothesis testing; |
| c |
define and
interpret a decision rule and the power of a test, and explain the relation
between confidence intervals and hypothesis tests; |
c |
define and
interpret a decision rule and the power of a test, and explain the relation
between confidence intervals and hypothesis tests; |
| d |
distinguish
between a statistical result and an economically meaningful result; |
d |
distinguish
between a statistical result and an economically meaningful result; |
| |
|
e |
explain
and interpret the p-value as it relates to hypothesis testing; |
| e |
identify
the appropriate test statistic and interpret the results for a hypothesis
test concerning 1) the population mean of a normally distributed population
with a) known or b) unknown variance 2) the equality of a population
means of two normally distributed population, based on independent random
samples with a) equal or b) unequal assumed variance and 3) the mean
difference of two normally distributed populations (paired comparisons
test) |
f |
identify
the appropriate test statistic and interpret the results for a hypothesis
test concerning the population mean of both large and small samples
when the population is normally or approximately distributed and the
variance is 1) known or 2) unknown; |
| |
|
g |
identify
the appropriate test statistic and interpret the results for a hypothesis
test
concerning the equality of the population means of two at least approximately
normally distributed populations, based on independent random samples
with
1) equal or 2) unequal assumed variances; |
| |
|
h |
identify
the appropriate test statistic and interpret the results for a hypothesis
test
concerning the mean difference of two normally distributed populations
(paired
comparisons test); |
| f |
identify the
appropriate test statistic and interpret the results for a hypothesis
test
concerning 1) the variance of a normally distributed population, and
2) the
equality of the variances of two normally distributed populations, based
on two
independent random samples; |
i |
identify the
appropriate test statistic and interpret the results for a hypothesis
test
concerning 1) the variance of a normally distributed population, and
2) the
equality of the variances of two normally distributed populations, based
on two
independent random samples; |
| g |
distinguish
between parametric and nonparametric tests and describe the
situations in which the use of nonparametric tests may be appropriate. |
j |
distinguish
between parametric and nonparametric tests and describe the
situations in which the use of nonparametric tests may be appropriate. |
| 12 |
Technical
Analysis |
a |
explain the
underlying assumptions of technical analysis; |
12 |
Technical
Analysis |
a |
explain the
underlying assumptions of technical analysis; |
| b |
discuss the
advantages of and challenges to technical analysis; |
b |
discuss the
advantages of and challenges to technical analysis; |
| c |
list and describe
examples of each major category of technical trading rules and
indicators. |
c |
list and describe
examples of each major category of technical trading rules and
indicators. |
| 4 |
13 |
Elasticity |
a |
calculate and
interpret the elasticities of demand (price elasticity, cross elasticity,
and income elasticity) and the elasticity of supply and discuss the
factors that
influence each measure; |
4 |
13 |
Elasticity |
a |
calculate and
interpret the elasticities of demand (price elasticity, cross elasticity,
and income elasticity) and the elasticity of supply and discuss the
factors that
influence each measure; |
| b |
calculate elasticities
on a straight-line demand curve, differentiate among elastic,
inelastic, and unit elastic demand, and describe the relation between
price
elasticity of demand and total revenue. |
b |
calculate elasticities
on a straight-line demand curve, differentiate among elastic,
inelastic, and unit elastic demand, and describe the relation between
price
elasticity of demand and total revenue. |
| 14 |
Efficiency
and Equity |
a |
explain the
various means of markets to allocate resources, describe marginal
benefit and marginal cost, and demonstrate why the efficient quantity
occurs
when marginal benefit equals marginal cost; |
14 |
Efficiency
and Equity |
a |
explain the
various means of markets to allocate resources, describe marginal
benefit and marginal cost, and demonstrate why the efficient quantity
occurs
when marginal benefit equals marginal cost; |
| b |
distinguish
between the price and the value of a product and explain the
demand curve and consumer surplus; |
b |
distinguish
between the price and the value of a product and explain the
demand curve and consumer surplus; |
| c |
distinguish
between the cost and the price of a product and explain the supply
curve and producer surplus; |
c |
distinguish
between the cost and the price of a product and explain the supply
curve and producer surplus; |
| d |
discuss the
relationship between consumer surplus, producer surplus, and
equilibrium; |
d |
discuss the
relationship between consumer surplus, producer surplus, and
equilibrium; |
| e |
explain 1)
how efficient markets ensure optimal resource utilization and 2) the
obstacles to efficiency and the resulting underproduction or overproduction,
including the concept of deadweight loss; |
e |
explain 1)
how efficient markets ensure optimal resource utilization and 2) the
obstacles to efficiency and the resulting underproduction or overproduction,
including the concept of deadweight loss; |
| f |
explain the
two groups of ideas about the fairness principle (utilitarianism and
the symmetry principle) and discuss the relation between fairness and
efficiency. |
f |
explain the
two groups of ideas about the fairness principle (utilitarianism and
the symmetry principle) and discuss the relation between fairness and
efficiency. |
| 15 |
Markets
in Action |
a |
explain market
equilibrium, distinguish between long-term and short-term effects of
outside shocks, and describe the effects of rent ceilings on the existence
of black markets in the housing sector and on the market’s efficiency; |
15 |
Markets
in Action |
a |
explain market
equilibrium, distinguish between long-term and short-term effects of
outside shocks, and describe the effects of rent ceilings on the existence
of black markets in the housing sector and on the market’s efficiency; |
| b |
describe labor
market equilibrium and explain the effects and inefficiencies of a minimum
wage above the equilibrium wage; |
b |
describe labor
market equilibrium and explain the effects and inefficiencies of a minimum
wage above the equilibrium wage; |
| c |
explain the
impact of taxes on supply, demand, and market equilibrium, and describe
tax incidence and its relation to demand and supply elasticity; |
c |
explain the
impact of taxes on supply, demand, and market equilibrium, and describe
tax incidence and its relation to demand and supply elasticity; |
| d |
discuss the
impact of subsidies, quotas, and markets for illegal goods on demand,
supply, and market equilibrium. |
d |
discuss the
impact of subsidies, quotas, and markets for illegal goods on demand,
supply, and market equilibrium. |
| 16 |
Organizing
Production |
a |
explain the
types of opportunity cost and their relation to economic profit, and
calculate economic profit; |
16 |
Organizing
Production |
a |
explain the
types of opportunity cost and their relation to economic profit, and
calculate economic profit; |
| b |
discuss a company’s
constraints and their impact on achievability of maximum profit; |
b |
discuss a company’s
constraints and their impact on achievability of maximum profit; |
| c |
differentiate
between technological efficiency and economic efficiency and calculate
economic efficiency of various companies under different scenarios; |
c |
differentiate
between technological efficiency and economic efficiency and calculate
economic efficiency of various companies under different scenarios; |
| d |
explain command
systems and incentive systems to organize production, the principal-agent
problem, and measures a firm uses to reduce the principal-agent problem; |
d |
explain command
systems and incentive systems to organize production, the principal-agent
problem, and measures a firm uses to reduce the principal-agent problem; |
| e |
describe the
different types of business organization and the advantages and disadvantages
of each; |
e |
describe the
different types of business organization and the advantages and disadvantages
of each; |
| f |
characterize
the four market types. |
|
|
| g |
calculate and
interpret the four-firm concentration ratio and the Herfindahl- Hirschman
Index and discuss the limitations of concentration measures; |
f |
calculate and
interpret the four-firm concentration ratio and the Herfindahl- Hirschman
Index and discuss the limitations of concentration measures; |
| h |
explain why
companies are often more efficient than markets in coordinating economic
activity. |
g |
explain why
companies are often more efficient than markets in coordinating economic
activity. |
| 17 |
Output
and Costs |
a |
differentiate
between short-run and long-run decision time frames; |
17 |
Output
and Costs |
a |
differentiate
between short-run and long-run decision time frames; |
| b |
describe and
explain the relations among total product of labor, marginal product
of labor, and average product of labor, and describe increasing and
decreasing marginal returns; |
b |
describe and
explain the relations among total product of labor, marginal product
of labor, and average product of labor, and describe increasing and
decreasing marginal returns; |
| c |
distinguish
among total cost (including both fixed cost and variable cost), marginal
cost, and average cost, and explain the relations among the various
cost curves; |
c |
distinguish
among total cost (including both fixed cost and variable cost), marginal
cost, and average cost, and explain the relations among the various
cost curves; |
| d |
explain the
company’s production function, its properties of diminishing returns
and diminishing marginal product of capital, the relation between short-run
and long-run costs, and how economies and diseconomies of scale affect
long-run costs. |
d |
explain the
company’s production function, its properties of diminishing returns
and diminishing marginal product of capital, the relation between short-run
and long-run costs, and how economies and diseconomies of scale affect
long-run costs. |
| 5 |
18 |
Perfect
Competition |
a |
describe the
characteristics of perfect competition, explain why companies in a perfectly
competitive market are price takers, and differentiate between market
and company demand curves; |
5 |
18 |
Perfect
Competition |
a |
describe the
characteristics of perfect competition, explain why companies in a perfectly
competitive market are price takers, and differentiate between market
and company demand curves; |
| b |
determine the
profit maximizing (loss minimizing) output for a perfectly competitive
company and explain marginal cost, marginal revenue, and economic profit
and loss; |
b |
determine the
profit maximizing (loss minimizing) output for a perfectly competitive
company and explain marginal cost, marginal revenue, and economic profit
and loss; |
| c |
describe a
perfectly competitive company’s short-run supply curve and explain
the impact of changes in demand, entry and exit of companies, and changes
in plant size on the long-run equilibrium; |
c |
describe a
perfectly competitive company’s short-run supply curve and explain
the impact of changes in demand, entry and exit of companies, and changes
in plant size on the long-run equilibrium; |
| d |
discuss how
a permanent change in demand or changes in technology affect price,
output, and economic profit. |
d |
discuss how
a permanent change in demand or changes in technology affect price,
output, and economic profit. |
| 19 |
Monopoly |
a |
describe the
characteristics of a monopoly, including factors that allow a monopoly
to arise and monopoly price-setting strategies; |
19 |
Monopoly |
a |
describe the
characteristics of a monopoly, including factors that allow a monopoly
to arise and monopoly price-setting strategies; |
| b |
explain the
relation between price, marginal revenue, and elasticity for a monopoly
and determine a monopoly’s profit-maximizing price and quantity; |
b |
explain the
relation between price, marginal revenue, and elasticity for a monopoly
and determine a monopoly’s profit-maximizing price and quantity; |
| c |
explain price
discrimination and why perfect price discrimination is efficient; |
c |
explain price
discrimination and why perfect price discrimination is efficient; |
| d |
explain how
consumer and producer surplus are redistributed in a monopoly, including
the occurrence of deadweight loss and rent seeking; |
d |
explain how
consumer and producer surplus are redistributed in a monopoly, including
the occurrence of deadweight loss and rent seeking; |
| e |
explain the
potential gains from monopoly and the regulation of a natural monopoly. |
e |
explain the
potential gains from monopoly and the regulation of a natural monopoly. |
| 20 |
Monopolistic
Competition and Oligopoly |
a |
describe the
characteristics of monopolistic competition and an oligopoly; |
20 |
Monopolistic
Competition and Oligopoly |
a |
describe the
characteristics of monopolistic competition and an oligopoly; |
| b |
determine the
profit-maximizing (loss-minimizing) output under monopolistic competition
and an oligopoly explain why long-run economic profit under monopolistic
competition is zero, and determine if monopolistic competition is efficient; |
b |
determine the
profit-maximizing (loss-minimizing) output under monopolistic competition,
explain why long-run economic profit under monopolistic competition
is zero, and determine if monopolistic competition is efficient; |
| c |
explain the
importance of innovation, product development, advertising, and branding
under monopolistic competition; |
c |
explain the
importance of innovation, product development, advertising, and branding
under monopolistic competition; |
| d |
explain
the kinked demand curve model and the dominant firm model and describe
oligopoly games including the prisoners dilemma. |
d |
explain
the kinked demand curve model and the dominant firm model and determine
the profit-maximizing (loss-minimizing) output under each model; |
| e |
describe
oligopoly games including the Prisoners’ Dilemma. |
| 21 |
Markets
for Factors of Production |
a |
explain why
demand for the factors of production is called derived demand, differentiate
between marginal revenue and marginal revenue product (MRP), and describe
how the MRP determines the demand for labor and the wage rate; |
21 |
Markets
for Factors of Production |
a |
explain why
demand for the factors of production is called derived demand, differentiate
between marginal revenue and marginal revenue product (MRP), and describe
how the MRP determines the demand for labor and the wage rate; |
| b |
describe the
factors that cause changes in the demand for labor and the factors that
determine the elasticity of the demand for labor; |
b |
describe the
factors that cause changes in the demand for labor and the factors that
determine the elasticity of the demand for labor; |
| c |
describe the
factors determining the supply of labor, including the substitution
and income effects, and discuss the factors related to changes in the
supply of labor, including capital accumulation; |
c |
describe the
factors determining the supply of labor, including the substitution
and income effects, and discuss the factors related to changes in the
supply of labor, including capital accumulation; |
| d |
describe the
effects on wages of labor unions and of a monopsony and explain the
possible consequences for a market that offers an efficient wage; |
d |
describe the
effects on wages of labor unions and of a monopsony and explain the
possible consequences for a market that offers an efficient wage; |
| e |
differentiate
between physical capital and financial capital and explain the relation
between the demand for physical capital and the demand for financial
capital; |
e |
differentiate
between physical capital and financial capital and explain the relation
between the demand for physical capital and the demand for financial
capital; |
| f |
explain the
factors that influence the demand and supply of capital; |
f |
explain the
factors that influence the demand and supply of capital; |
| g |
differentiate
between renewable and nonrenewable natural resources and describe the
supply curve for each; |
g |
differentiate
between renewable and nonrenewable natural resources and describe the
supply curve for each; |
| h |
differentiate
between economic rent and opportunity costs. |
h |
differentiate
between economic rent and opportunity costs. |
| 22 |
Monitoring
Jobs and the Price Level |
a |
define an unemployed
person and interpret the main labor market indicators; |
22 |
Monitoring
Jobs and the Price Level |
a |
define an unemployed
person and interpret the main labor market indicators; |
| b |
define aggregate
hours and real wage rates and explain their relation to gross domestic
product (GDP); |
b |
define aggregate
hours and real wage rates and explain their relation to gross domestic
product (GDP); |
| c |
explain the
types of unemployment, full employment, the natural rate of unemployment,
and the relation between unemployment and real GDP; |
c |
explain the
types of unemployment, full employment, the natural rate of unemployment,
and the relation between unemployment and real GDP; |
| d |
explain and
calculate the consumer price index (CPI) and the inflation rate, describe
the relation between the CPI and the inflation rate, and explain the
main sources of CPI bias. |
d |
explain and
calculate the consumer price index (CPI) and the inflation rate, describe
the relation between the CPI and the inflation rate, and explain the
main sources of CPI bias. |
| 23 |
Aggregate
Supply and Aggregate Demand |
a |
explain the
factors that influence real GDP and long-run and short-run aggregate
supply, explain movement along the long-run and short-run aggregate
supply curves (LAS and SAS), and discuss the reasons for changes in
potential GDP and aggregate supply; |
23 |
Aggregate
Supply and Aggregate Demand |
a |
explain the
factors that influence real GDP and long-run and short-run aggregate
supply, explain movement along the long-run and short-run aggregate
supply curves (LAS and SAS), and discuss the reasons for changes in
potential GDP and aggregate supply; |
| b |
explain the
components of and the factors that affect real GDP demand, describe
the aggregate demand curve and why it slopes downward, and explain the
factors that can change aggregate demand; |
b |
explain the
components of and the factors that affect real GDP demand, describe
the aggregate demand curve and why it slopes downward, and explain the
factors that can change aggregate demand; |
| c |
differentiate
between short-run and long-run macroeconomic equilibrium and explain
how economic growth, inflation, and changes in aggregate demand and
supply influence the macroeconomic equilibrium; |
c |
differentiate
between short-run and long-run macroeconomic equilibrium and explain
how economic growth, inflation, and changes in aggregate demand and
supply influence the macroeconomic equilibrium; |
| d |
compare and
contrast the classical, Keynesian, and monetarist schools of macroeconomics. |
d |
compare and
contrast the classical, Keynesian, and monetarist schools of macroeconomics. |
| 6 |
24 |
Money,
the Price Level, and Inflation |
a |
explain the
functions of money; |
6 |
24 |
Money,
the Price Level, and Inflation |
a |
explain the
functions of money; |
| b |
describe the
components of the M1 and M2 measures of money and discuss why checks
and credit cards are not counted as money; |
b |
describe the
components of the M1 and M2 measures of money and discuss why checks
and credit cards are not counted as money; |
| c |
describe the
economic functions of and differentiate among the various depository
institutions and explain the impact of financial regulation, deregulation,
and innovation; |
c |
describe the
economic functions of and differentiate among the various depository
institutions and explain the impact of financial regulation, deregulation,
and innovation; |
| d |
explain the
goals of the U.S. Federal Reserve (Fed) in conducting monetary policy
and how the Fed uses its policy tools to control the quantity of money,
and describe the assets and liabilities on the Fed’s balance sheet; |
d |
explain the
goals of the U.S. Federal Reserve (Fed) in conducting monetary policy
and how the Fed uses its policy tools to control the quantity of money,
and describe the assets and liabilities on the Fed’s balance sheet; |
| e |
discuss the
creation of money, including the role played by excess reserves, and
calculate the amount of loans a bank can generate, given new deposits; |
e |
discuss the
creation of money, including the role played by excess reserves, and
calculate the amount of loans a bank can generate, given new deposits; |
| f |
describe the
monetary base and explain the relation among the monetary base, the
money multiplier, and the quantity of money; |
f |
describe the
monetary base and explain the relation among the monetary base, the
money multiplier, and the quantity of money; |
| g |
explain the
factors that influence the demand for money and describe the demand
for money curve, including the effects of changes in real GDP and financial
innovation; |
g |
explain the
factors that influence the demand for money and describe the demand
for money curve, including the effects of changes in real GDP and financial
innovation; |
| h |
explain interest
rate determination and the short-run and long-run effects of money on
real GDP; |
h |
explain interest
rate determination and the short-run and long-run effects of money on
real GDP; |
| i |
discuss the
quantity theory of money and its relation to aggregate supply and aggregate
demand. |
i |
discuss the
quantity theory of money and its relation to aggregate supply and aggregate
demand. |
| 25 |
Inflation,
Unemployment, and Business Cycles |
a |
differentiate
between inflation and the price level; |
25 |
Inflation,
Unemployment, and Business Cycles |
a |
differentiate
between inflation and the price level; |
| b |
describe and
distinguish among the factors resulting in demand-pull and cost-push
inflation and describe the evolution of demand-pull and cost-push inflationary
processes; |
b |
describe and
distinguish among the factors resulting in demand-pull and cost-push
inflation and describe the evolution of demand-pull and cost-push inflationary
processes; |
| c |
distinguish
between anticipated and unanticipated inflation and explain the costs
of anticipated inflation; |
c |
explain
the costs of anticipated inflation; |
| d |
explain
the impact of inflation on unemployment and describe the short-run and
long-run Phillips curve, including the effect of changes in the natural
rate of unemployment; |
d |
explain
the relation among inflation, nominal interest rates, and the demand
and supply of money; |
| e |
explain
the relation among inflation, nominal interest rates, and the demand
and supply of money; |
e |
explain
the impact of inflation on unemployment and describe the short-run and
long-run Phillips curve, including the effect of changes in the natural
rate of unemployment; |
| f |
explain how
economic growth, inflation, and unemployment affect the business cycle; |
f |
explain how
economic growth, inflation, and unemployment affect the business cycle; |
| g |
describe mainstream
business cycle theory and real business cycle (RBC) theory and distinguish
between them, including the role of productivity changes. |
g |
describe mainstream
business cycle theory and real business cycle (RBC) theory and distinguish
between them, including the role of productivity changes. |
| 26 |
Fiscal
Policy |
a |
explain supply
side effects on employment, potential GDP, and aggregate supply, including
the income tax and taxes on expenditure, and describe the Laffer curve
and its relation to supply side economics; |
26 |
Fiscal
Policy |
a |
explain supply
side effects on employment, potential GDP, and aggregate supply, including
the income tax and taxes on expenditure, and describe the Laffer curve
and its relation to supply side economics; |
| b |
discuss the
sources of investment finance and the influence of fiscal policy on
capital markets, including the crowding-out effect; |
b |
discuss the
sources of investment finance and the influence of fiscal policy on
capital markets, including the crowding-out effect; |
| c |
discuss the
generational effects of fiscal policy, including generational accounting
and generational imbalance; |
c |
discuss the
generational effects of fiscal policy, including generational accounting
and generational imbalance; |
| d |
discuss the
use of fiscal policy to stabilize the economy, including the effects
of the government expenditure multiplier, the tax multiplier, and the
balanced budget multiplier; |
d |
discuss the
use of fiscal policy to stabilize the economy, including the effects
of the government expenditure multiplier, the tax multiplier, and the
balanced budget multiplier; |
| e |
explain the
limitations of discretionary fiscal policy and differentiate between
discretionary fiscal policy and automatic stabilizers. |
e |
explain the
limitations of discretionary fiscal policy and differentiate between
discretionary fiscal policy and automatic stabilizers. |
| 27 |
Monetary
Policy |
a |
discuss the
goals of U.S. monetary policy and the Fed’s means for achieving the
goals, including how the Fed operationalizes those goals; |
27 |
Monetary
Policy |
a |
discuss the
goals of U.S. monetary policy and the Fed’s means for achieving the
goals, including how the Fed operationalizes those goals; |
| b |
describe how
the Fed conducts monetary policy and explain the Fed’s decision-making
strategy, including an instrument rule, a targeting rule, open-market
operations, and the market for reserves; |
b |
describe how
the Fed conducts monetary policy and explain the Fed’s decision-making
strategy, including an instrument rule, a targeting rule, open-market
operations, and the market for reserves; |
| c |
discuss monetary
policy’s transmission mechanism (chain of events) betweenv changing
the federal funds rate and achieving the ultimate monetary policy goal
when fighting either inflation or recession, and explain loose links
and time lags in the adjustment process; |
c |
discuss monetary
policy’s transmission mechanism (chain of events) between changing
the federal funds rate and achieving the ultimate monetary policy goal
when fighting either inflation or recession, and explain loose links
and time lags in the adjustment process; |
| d |
describe alternative
monetary policy strategies and explain why they have been rejected by
the Fed. |
d |
describe alternative
monetary policy strategies and explain why they have been rejected by
the Fed. |
| 28 |
An
Overview of Central Banks |
a |
identify the
functions of a central bank; |
28 |
An
Overview of Central Banks |
a |
identify the
functions of a central bank; |
| b |
discuss monetary
policy and the tools utilized by central banks to carry out monetary
policy. |
b |
discuss monetary
policy and the tools utilized by central banks to carry out monetary
policy. |
| 7 |
29 |
Financial
Statement Analysis: An Introduction |
a |
discuss the
roles of financial reporting and financial statement analysis; |
7 |
29 |
Financial
Statement Analysis: An Introduction |
a |
discuss the
roles of financial reporting and financial statement analysis; |
| b |
discuss the
role of key financial statements (income statement, balance sheet, statement
of cash flows, and statement of changes in owners’ equity) in evaluating
a company’s performance and financial position; |
b |
discuss the
role of key financial statements (income statement, balance sheet, statement
of cash flows, and statement of changes in owners’ equity) in evaluating
a company’s performance and financial position; |
| c |
discuss the
importance of financial statement notes and supplementary information,
including disclosures of accounting methods, estimates, and assumptions,
and management’s discussion and analysis; |
c |
discuss the
importance of financial statement notes and supplementary information,
including disclosures of accounting methods, estimates, and assumptions,
and management’s discussion and analysis; |
| d |
discuss the
objective of audits of financial statements, the types of audit reports,
and the importance of effective internal controls; |
d |
discuss the
objective of audits of financial statements, the types of audit reports,
and the importance of effective internal controls; |
| e |
identify and
explain information sources other than annual financial statements and
supplementary information that analysts use in financial statement analysis; |
e |
identify and
explain information sources other than annual financial statements and
supplementary information that analysts use in financial statement analysis; |
| f |
describe the
steps in the financial statement analysis framework. |
f |
describe the
steps in the financial statement analysis framework. |
| 30 |
Financial
Reporting Mechanics |
a |
identify
the groups (operating, investing and financing activities) into which
business activities are categorized for financial reporting purposes
and classify any business activity into the appropriate group. |
30 |
Financial
Reporting Mechanics |
|
|
| b |
explain the
relationship of financial statement elements and accounts, and classify
accounts into the financial statement elements; |
a |
explain the
relationship of financial statement elements and accounts, and classify
accounts into the financial statement elements; |
| c |
explain the
accounting equation in its basic and expanded forms; |
b |
explain the
accounting equation in its basic and expanded forms; |
| d |
explain the
process of recording business transactions using an accounting system
based on the accounting equations; |
c |
explain the
process of recording business transactions using an accounting system
based on the accounting equations; |
| e |
explain the
need for accruals and other adjustments in preparing financial statements; |
d |
explain the
need for accruals and other adjustments in preparing financial statements; |
| f |
prepare
financial statement given account balances or other elements in the
relevant accounting equation and explain the relationships among the
income statement, balance sheet, statement of cash flows, and statement
of owners’ equity; |
e |
explain
the relationships among the income statement, balance sheet, statement
of cash flows, and statement of owners’ equity; |
| g |
describe the
flow of information in an accounting system; |
f |
describe the
flow of information in an accounting system; |
| h |
explain the
use of the results of the accounting process in security analysis. |
g |
explain the
use of the results of the accounting process in security analysis. |
| 31 |
Financial
Reporting Standards |
a |
explain the
objective of financial statements and the importance of reporting standards
in security analysis and valuation; |
31 |
Financial
Reporting Standards |
a |
explain the
objective of financial statements and the importance of reporting standards
in security analysis and valuation; |
| b |
explain the
role of standard-setting bodies, such as the International Accounting
Standards Board and the U.S. Financial Accounting Standards Board, and
regulatory authorities such as the International Organization of Securities
Commissions, the U.K. Financial Services Authority, and the U.S. Securities
and Exchange Commission in establishing and enforcing financial reporting
standards; |
b |
explain the
role of standard-setting bodies, such as the International Accounting
Standards Board and the U.S. Financial Accounting Standards Board, and
regulatory authorities such as the International Organization of Securities
Commissions, the U.K. Financial Services Authority, and the U.S. Securities
and Exchange Commission in establishing and enforcing financial reporting
standards; |
| c |
discuss the
ongoing barriers to developing one universally accepted set of financial
reporting standards; |
c |
discuss the
ongoing barriers to developing one universally accepted set of financial
reporting standards; |
| d |
describe
the International Financial Reporting Standards (IFRS) framework, including
the objective of financial statements, their qualitative characteristics
required reporting elements and the constraints and assumptions in preparing
financial statements; |
d |
describe
the International Financial Reporting Standards (IFRS) framework, including
the qualitative characteristics of financial statements, the required
reporting elements, and the constraints and assumptions in preparing
financial statements; |
| e |
explain the
general requirements for financial statements; |
e |
explain the
general requirements for financial statements; |
| f |
compare and
contrast key concepts of financial reporting standards under IFRS and
alternative reporting systems, and discuss the implications for financial
analysis of differing financial reporting systems; |
f |
compare and
contrast key concepts of financial reporting standards under IFRS and
alternative reporting systems, and discuss the implications for financial
analysis of differing financial reporting systems; |
| g |
identify the
characteristics of a coherent financial reporting framework and barriers
to creating a coherent financial reporting network; |
g |
identify the
characteristics of a coherent financial reporting framework and barriers
to creating a coherent financial reporting network; |
| h |
discuss the
importance of monitoring developments in financial reporting standards
and of evaluating company disclosures of significant accounting policies. |
h |
discuss the
importance of monitoring developments in financial reporting standards
and of evaluating company disclosures of significant accounting policies. |
| 8 |
32 |
Understanding
the Income Statement |
a |
describe the
components of the income statement, and construct an income statement
using the alternative presentation formats of that statement; |
8 |
32 |
Understanding
the Income Statement |
a |
describe the
components of the income statement, and construct an income statement
using the alternative presentation formats of that statement; |
| b |
explain the
general principles of revenue recognition and accrual accounting,
demonstrate specific revenue recognition applications (including accounting
for
long-term contracts, installment sales, barter transactions, and gross
and net
reporting of revenue), and discuss the implications of revenue recognition
principles for financial analysis; |
b |
explain the
general principles of revenue recognition and accrual accounting,
demonstrate specific revenue recognition applications (including accounting
for
long-term contracts, installment sales, barter transactions, and gross
and net
reporting of revenue), and discuss the implications of revenue recognition
principles for financial analysis; |
| c |
discuss the
general principles of expense recognition, such as the matching
principle, specific expense recognition applications (including depreciation
of
long-term assets and inventory methods), and the implications of expense
recognition principles for financial analysis; |
c |
discuss the
general principles of expense recognition, such as the matching
principle, specific expense recognition applications (including depreciation
of
long-term assets and inventory methods), and the implications of expense
recognition principles for financial analysis; |
| d |
determine
which method of deprecation, accounting for inventory or amortizing
intangible is appropriate based on facts that might influence the decision |
|
|
| e |
demonstrate
the appropriate method of depreciating long-term assets, accounting
for inventory, or amortizing intangibles, based on facts that might
influence the decision; |
d |
demonstrate
the appropriate method of depreciating long-term assets,
accounting for inventory, or amortizing intangibles, based on facts
that might
influence the decision; |
| f |
distinguish
between the operating and nonoperating components of the income
statement; |
e |
distinguish
between the operating and nonoperating components of the income
statement; |
| g |
discuss the
financial reporting treatment and analysis of nonrecurring items
(including discontinued operations, extraordinary items, and unusual
or
infrequent items) and changes in accounting standards; |
f |
discuss the
financial reporting treatment and analysis of nonrecurring items
(including discontinued operations, extraordinary items, and unusual
or
infrequent items) and changes in accounting standards; |
| h |
describe the
components of earnings per share and calculate a company’s
earnings per share (both basic and diluted earnings per share) for both
a simple
and complex capital structure; |
g |
describe the
components of earnings per share and calculate a company’s
earnings per share (both basic and diluted earnings per share) for both
a simple
and complex capital structure; |
| i |
differentiate
between dilutive and antidilutive securities, and discuss the
implications of each for the earnings per share calculation; |
h |
differentiate
between dilutive and antidilutive securities, and discuss the
implications of each for the earnings per share calculation; |
| j |
evaluate
a company’s financial performance using common size income statements
and financial ratios based on the income statement |
|
|
| k |
state
the accounting classification for items that are excluded from the income
statement but affect owners’ equity, and list the major types of items
receiving
that treatment. |
i |
describe
and calculate comprehensive income; |
| l |
describe
and calculate comprehensive income; |
j |
state
the accounting classification for items that are excluded from the income
statement but affect owners’ equity, and list the major types of items
receiving
that treatment. |
| 33 |
Understanding
the Balance Sheet |
a |
illustrate
and interpret the components of the balance sheet and discuss the uses
of the balance sheet in financial analysis; |
33 |
Understanding
the Balance Sheet |
a |
illustrate
and interpret the components of the balance sheet and discuss the uses
of the balance sheet in financial analysis; |
| b |
describe the
various formats of balance sheet presentation; |
b |
describe the
various formats of balance sheet presentation; |
| c |
explain how
assets and liabilities arise from the accrual process; |
c |
explain how
assets and liabilities arise from the accrual process; |
| d |
compare and
contrast current and noncurrent assets and liabilities; |
d |
compare and
contrast current and noncurrent assets and liabilities; |
| e |
explain the
measurement bases (e.g., historical cost and fair value) of assets and
liabilities, including current assets, current liabilities, tangible
assets, and
intangible assets; |
e |
explain the
measurement bases (e.g., historical cost and fair value) of assets and
liabilities, including current assets, current liabilities, tangible
assets, and
intangible assets; |
| f |
discuss
off-balance sheet disclosures |
|
|
| g |
demonstrate
the appropriate classifications and related accounting treatments
for marketable and nonmarketable financial instruments held as assets
or owed
by the company as liabilities; |
f |
demonstrate
the appropriate classifications and related accounting treatments
for marketable and nonmarketable financial instruments held as assets
or owed
by the company as liabilities; |
| h |
list and explain
the components of owners’ equity; |
g |
list and explain
the components of owners’ equity; |
| i |
interpret
balance sheets, common size balance sheet, the statements of changes
in equity, and commonly used balance sheet ratios |
h |
interpret
balance sheets and statements of changes in equity. |
| 34 |
Understanding
the Cash Flow Statement |
a |
compare and
contrast cash flows from operating, investing, and financing
activities and classify cash flow items as relating to one of these
three categories,
given a description of the items; |
34 |
Understanding
the Cash Flow Statement |
a |
compare and
contrast cash flows from operating, investing, and financing
activities and classify cash flow items as relating to one of these
three categories,
given a description of the items; |
| b |
describe how
noncash investing and financing activities are reported; |
b |
describe how
noncash investing and financing activities are reported; |
| c |
compare and
contrast the key differences in cash flow statements prepared
under international financial reporting standards and U.S. generally
accepted
accounting principles; |
c |
compare and
contrast the key differences in cash flow statements prepared
under international financial reporting standards and U.S. generally
accepted
accounting principles; |
| d |
demonstrate
the difference between the direct and indirect methods of
presenting cash from operating activities and explain the arguments
in favor of
each; |
d |
demonstrate
the difference between the direct and indirect methods of
presenting cash from operating activities and explain the arguments
in favor of
each; |
| e |
demonstrate
how cash flow statement is link to the income statement and balance
sheet |
|
|
| f |
demonstrate
the steps in the preparation of direct and indirect cash flow
statements, including how cash flows can be computed using income statement
and balance sheet data; |
e |
demonstrate
the steps in the preparation of direct and indirect cash flow
statements, including how cash flows can be computed using income statement
and balance sheet data; |
| g |
describe the
process of converting a cash flow statement from the indirect to the
direct method of presentation; |
f |
describe the
process of converting a cash flow statement from the indirect to the
direct method of presentation; |
| h |
analyze and
interpret a cash flow statement using both total currency amounts
and common-size cash flow statements; |
g |
analyze and
interpret a cash flow statement using both total currency amounts
and common-size cash flow statements; |
| i |
explain and
calculate free cash flow to the firm, free cash flow to equity, and
other cash flow ratios. |
h |
explain and
calculate free cash flow to the firm, free cash flow to equity, and
other cash flow ratios. |
| |
|
|
|
|
35 |
Financial
Analysis Techniques |
a |
evaluate
and compare companies using ratio analysis, common-size financial
statements, and charts in financial analysis; |
| |
|
|
b |
describe
the limitations of ratio analysis; |
| |
|
|
c |
describe
the various techniques of common-size analysis and interpret the results
of such analysis; |
| |
|
|
d |
calculate,
classify, and interpret activity, liquidity, solvency, profitability,
and
valuation ratios; |
| |
|
|
e |
demonstrate
how ratios are related and how to evaluate a company using a
combination of different ratios; |
| |
|
|
f |
demonstrate
the application of and interpret changes in the component parts of
the DuPont analysis (the decomposition of return on equity); |
| |
|
|
g |
calculate
and interpret the ratios used in equity analysis, credit analysis, and
segment analysis; |
| |
|
|
h |
describe
how ratio analysis and other techniques can be used to model and
forecast earnings. |
| 9 |
35 |
Inventories |
a |
explain IFRS
and U.S. GAAP rules for determining inventory cost, including which
costs are capitalized and methods of allocating costs between cost of
goods sold
and inventory; |
9 |
36 |
Inventories |
a |
explain IFRS
and U.S. GAAP rules for determining inventory cost, including which
costs are capitalized and methods of allocating costs between cost of
goods sold
and inventory; |
| b |
discuss how
inventories are reported on the financial statements and how the
lower of cost or net realizable value is used and applied; |
b |
discuss how
inventories are reported on the financial statements and how the
lower of cost or net realizable value is used and applied; |
| c |
compute ending
inventory balances and cost of goods sold using the FIFO,
weighted average cost, and LIFO methods to account for product inventory
and
explain the relationship among and the usefulness of inventory and cost
of
goods sold data provided by the FIFO, weighted average cost, and LIFO
methods
when prices are 1) stable, 2) decreasing, or 3) increasing; |
c |
compute ending
inventory balances and cost of goods sold using the FIFO,
weighted average cost, and LIFO methods to account for product inventory
and
explain the relationship among and the usefulness of inventory and cost
of
goods sold data provided by the FIFO, weighted average cost, and LIFO
methods
when prices are 1) stable, 2) decreasing, or 3) increasing; |
| d |
discuss
ratios useful for evaluating inventory management; |
d |
discuss
and calculate ratios useful for evaluating inventory management; |
| e |
analyze
the financial statements of companies using different inventory
accounting methods by comparing and describing the effect of the different
methods on cost of goods sold, inventory balances, and other financial
statement items; and compute and describe the effects of the choice
of inventory method on
profitability, liquidity, activity, and solvency ratios; |
e |
analyze
the financial statements of companies using different inventory
accounting methods by comparing and describing the effect of the different
methods on cost of goods sold, inventory balances, and other financial
statement items; |
| |
|
f |
compute
and describe the effects of the choice of inventory method on
profitability, liquidity, activity, and solvency ratios; |
| f |
calculate adjustments
to reported financial statements related to inventory
assumptions to aid in comparing and evaluating companies; |
g |
calculate adjustments
to reported financial statements related to inventory
assumptions to aid in comparing and evaluating companies; |
| g |
discuss the
reasons that a LIFO reserve might rise or decline during a given period
and discuss the implications for financial analysis. |
h |
discuss the
reasons that a LIFO reserve might rise or decline during a given period
and discuss the implications for financial analysis. |
| 36 |
Long-Lived
Assets |
a |
explain the
accounting standards related to the capitalization of expenditures as
part of long-lived assets, including interest costs; |
37 |
Long-Lived
Assets |
a |
explain the
accounting standards related to the capitalization of expenditures as
part of long-lived assets, including interest costs; |
| b |
compute and
describe the effects of capitalizing versus expensing on net income,
shareholders’ equity, cash flow from operations, and financial ratios,
including
the effect on the interest coverage ratio of capitalizing interest costs; |
b |
compute and
describe the effects of capitalizing versus expensing on net income,
shareholders’ equity, cash flow from operations, and financial ratios,
including
the effect on the interest coverage ratio of capitalizing interest costs; |
| c |
explain the
circumstances in which software development costs and research and
development costs are capitalized; |
c |
explain the
circumstances in which software development costs and research and
development costs are capitalized; |
| d |
identify the
different depreciation methods for long-lived tangible assets, and
discuss how the choice of method, useful lives, and salvage values affect
a
company’s financial statements, ratios, and taxes; |
d |
identify the
different depreciation methods for long-lived tangible assets, and
discuss how the choice of method, useful lives, and salvage values affect
a
company’s financial statements, ratios, and taxes; |
| e |
discuss the
use of fixed asset disclosures to compare companies’ average age of
depreciable assets and calculate, using such disclosures, the average
age and
average depreciable life of fixed assets; |
e |
discuss the
use of fixed asset disclosures to compare companies’ average age of
depreciable assets and calculate, using such disclosures, the average
age and
average depreciable life of fixed assets; |
| f |
describe amortization
of intangible assets with finite useful lives and the
estimates that affect the amortization calculations; |
f |
describe amortization
of intangible assets with finite useful lives and the
estimates that affect the amortization calculations; |
| g |
discuss the
liability for closure, removal, and environmental effects of long-lived
operating assets, and discuss the financial statement impact and ratio
effects of
that liability; |
g |
discuss the
liability for closure, removal, and environmental effects of long-lived
operating assets, and discuss the financial statement impact and ratio
effects of
that liability; |
| h |
discuss the
impact of sales or exchanges of long-lived assets on financial
statements; |
h |
discuss the
impact of sales or exchanges of long-lived assets on financial
statements; |
| i |
define impairment
of long-lived tangible and intangible assets and explain what
effect such impairment has on a company’s financial statements and
ratios; |
i |
define impairment
of long-lived tangible and intangible assets and explain what
effect such impairment has on a company’s financial statements and
ratios; |
| j |
calculate and
describe both the initial and long-lived effects of asset revaluations
on financial ratios. |
j |
calculate and
describe both the initial and long-lived effects of asset revaluations
on financial ratios. |
| 37 |
Income
Taxes |
a |
explain the
differences between accounting profit and taxable income, and
define key terms, including deferred tax assets, deferred tax liabilities,
valuation
allowance, taxes payable, and income tax expense; |
38 |
Income
Taxes |
a |
explain the
differences between accounting profit and taxable income, and
define key terms, including deferred tax assets, deferred tax liabilities,
valuation
allowance, taxes payable, and income tax expense; |
| b |
explain how
deferred tax liabilities and assets are created and the factors that
determine how a company’s deferred tax liabilities and assets should
be treated
for the purposes of financial analysis; |
b |
explain how
deferred tax liabilities and assets are created and the factors that
determine how a company’s deferred tax liabilities and assets should
be treated
for the purposes of financial analysis; |
| c |
determine the
tax base of a company’s assets and liabilities; |
c |
determine the
tax base of a company’s assets and liabilities; |
| d |
calculate income
tax expense, income taxes payable, deferred tax assets, and
deferred tax liabilities, and calculate and interpret the adjustment
to the financial
statements related to a change in the income tax rate; |
d |
calculate income
tax expense, income taxes payable, deferred tax assets, and
deferred tax liabilities, and calculate and interpret the adjustment
to the financial
statements related to a change in the income tax rate; |
| e |
evaluate the
impact of tax rate changes on a company’s financial statements and
ratios; |
e |
evaluate the
impact of tax rate changes on a company’s financial statements and
ratios; |
| f |
distinguish
between temporary and permanent items in pre-tax financial income
and taxable income; |
f |
distinguish
between temporary and permanent items in pre-tax financial income
and taxable income; |
| g |
discuss
the valuation allowance for deferred tax assets—when it is required
and
what impact it has on financial statements; and how it might affect
an analyst view of a company |
g |
discuss
the valuation allowance for deferred tax assets—when it is required
and
what impact it has on financial statements; |
| h |
compare
and contrast a company’s deferred tax items; and effective tax rate
reconciliation between reporting periods |
h |
compare
and contrast a company’s deferred tax items; |
| i |
analyze disclosures
relating to deferred tax items and the effective tax rate
reconciliation, and discuss how information included in these disclosures
affects
a company’s financial statements and financial ratios; |
i |
analyze disclosures
relating to deferred tax items and the effective tax rate
reconciliation, and discuss how information included in these disclosures
affects
a company’s financial statements and financial ratios; |
| j |
identify the
key provisions of and differences between income tax accounting
under IFRS and U.S. GAAP. |
j |
identify the
key provisions of and differences between income tax accounting
under IFRS and U.S. GAAP. |
| 38 |
Long-Term
Liabilities and Leases |
a |
compute the
effects of debt issuance and amortization of bond discounts and
premiums on financial statements and ratios; |
39 |
Long-Term
Liabilities and Leases |
a |
compute the
effects of debt issuance and amortization of bond discounts and
premiums on financial statements and ratios; |
| b |
explain the
role of debt covenants in protecting creditors by restricting a
company’s ability to invest, pay dividends, or make other operating
and strategic
decisions; |
b |
explain the
role of debt covenants in protecting creditors by restricting a
company’s ability to invest, pay dividends, or make other operating
and strategic
decisions; |
| c |
describe the
presentation of, and disclosures relating to, financing liabilities; |
c |
describe the
presentation of, and disclosures relating to, financing liabilities; |
| d |
determine the
effects of changing interest rates on the market value of debt and
on financial statements and ratios; |
d |
determine the
effects of changing interest rates on the market value of debt and
on financial statements and ratios; |
| e |
describe two
types of debt with equity features (convertible debt and debt with
warrants) and calculate the effect of issuance of such instruments on
a
company’s debt ratios; |
e |
describe two
types of debt with equity features (convertible debt and debt with
warrants) and calculate the effect of issuance of such instruments on
a
company’s debt ratios; |
| f |
discuss the
motivations for leasing assets instead of purchasing them and the
incentives for reporting the leases as operating leases rather than
finance leases; |
f |
discuss the
motivations for leasing assets instead of purchasing them and the
incentives for reporting the leases as operating leases rather than
finance leases; |
| g |
determine the
effects of finance and operating leases on the financial statements
and ratios of the lessees and lessors; |
g |
determine the
effects of finance and operating leases on the financial statements
and ratios of the lessees and lessors; |
| h |
distinguish
between a sales-type lease and a direct financing lease, and
determine the effects on the financial statements and ratios of the
lessors; |
h |
distinguish
between a sales-type lease and a direct financing lease, and
determine the effects on the financial statements and ratios of the
lessors; |
| i |
describe the
types and economic consequences of off-balance sheet financing
and determine how take-or-pay contracts, throughput arrangements, and
the
sale of receivables affect financial statements and selected financial
ratios. |
i |
describe the
types and economic consequences of off-balance sheet financing
and determine how take-or-pay contracts, throughput arrangements, and
the
sale of receivables affect financial statements and selected financial
ratios. |
| 10 |
39 |
Financial
Analysis Techniques |
a |
evaluate
and compare companies using ratio analysis, common-size financial
statements, and charts in financial analysis; |
|
|
|
|
|
| b |
describe
the limitations of ratio analysis; |
|
|
|
|
|
| c |
calculate,
classify, and interpret activity, liquidity, solvency, profitability,
and
valuation ratios; |
|
|
|
|
|
| d |
demonstrate
how ratios are related and how to evaluate a company using a
combination of different ratios; |
|
|
|
|
|
| e |
demonstrate
the application of and interpret changes in the component parts of
the DuPont analysis (the decomposition of return on equity); |
|
|
|
|
|
| f |
calculate
and interpret the ratios used in equity analysis, credit analysis, and
segment analysis; |
|
|
|
|
|
| g |
describe
how ratio analysis and other techniques can be used to model and
forecast earnings. |
|
|
|
|
|
| 40 |
Financial
Reporting Quality: Red Flags and Accounting
Warning Signs |
a |
describe incentives
that might induce a company’s management to overreport or underreport
earnings; |
10 |
40 |
Financial
Reporting Quality: Red Flags and Accounting
Warning Signs |
a |
describe incentives
that might induce a company’s management to overreport or
underreport earnings; |
| b |
describe activities
that will result in a low quality of earnings; |
b |
describe activities
that will result in a low quality of earnings; |
| c |
describe the
“fraud triangle”; |
c |
describe the
“fraud triangle”; |
| d |
describe
the risk factors related to incentives and pressures that may lead to
fraudulent accounting |
d |
describe
the risk factors that may lead to fraudulent accounting related to 1)
incentives and pressures, 2) opportunities, and 3) attitudes and rationalizations; |
| e |
describe
the risk factors related to opportunities that may lead to fraudulent
accounting |
|
|
| f |
describe
the risk factors related to attitudes and rationalizations that may
lead to fraudulent accounting |
|
|
| g |
describe common
accounting warning signs and methods for detecting each; |
e |
describe common
accounting warning signs and methods for detecting each; |
| h |
describe the
accounting warning signs related to the Enron accounting scandal; |
f |
describe the
accounting warning signs related to the Enron accounting scandal; |
| i |
describe the
accounting warning signs related to the Sunbeam accounting
scandal. |
g |
describe the
accounting warning signs related to the Sunbeam accounting
scandal. |
| 41 |
Accounting
Shenanigans on the Cash Flow Statement |
- |
stretching
out payables, financing of payables, securitization of receivables,
and using stock buybacks to offset dilution of earnings. |
41 |
Accounting
Shenanigans on the Cash Flow Statement |
- |
stretching
out payables, financing of payables, securitization of receivables,
and using stock buybacks to offset dilution of earnings. |
| 42 |
Financial
Statement Analysis: Applications |
a |
evaluate a
company’s past financial performance and explain how a company’s
strategy is reflected in past financial performance; |
42 |
Financial
Statement Analysis: Applications |
a |
evaluate a
company’s past financial performance and explain how a company’s
strategy is reflected in past financial performance; |
| b |
prepare a basic
projection of a company’s future net income and cash flow; |
b |
prepare a basic
projection of a company’s future net income and cash flow; |
| c |
describe the
role of financial statement analysis in assessing the credit quality
of
a potential debt investment; |
c |
describe the
role of financial statement analysis in assessing the credit quality
of
a potential debt investment; |
| d |
discuss the
use of financial statement analysis in screening for potential equity
investments; |
d |
discuss the
use of financial statement analysis in screening for potential equity
investments; |
| e |
determine and
justify appropriate analyst adjustments to a company’s financial
statements to facilitate comparison with another company. |
e |
determine and
justify appropriate analyst adjustments to a company’s financial
statements to facilitate comparison with another company. |
| 43 |
International
Standards Convergence |
a |
identify and
explain the major international accounting standards for each asset
and liability category on the balance sheet and the key differences
from U.S.
generally accepted accounting principles (GAAP); |
43 |
International
Standards Convergence |
a |
identify and
explain the major international accounting standards for each asset
and liability category on the balance sheet and the key differences
from U.S.
generally accepted accounting principles (GAAP); |
| b |
identify and
explain the major international accounting standards for major
revenue and expense categories on the income statement and the key
differences from U.S. GAAP; |
b |
identify and
explain the major international accounting standards for major
revenue and expense categories on the income statement and the key
differences from U.S. GAAP; |
| c |
identify and
explain the major differences between international and U.S. GAAP
accounting standards concerning the treatment of interest and dividends
on the
statement of cash flows; |
c |
identify and
explain the major differences between international and U.S. GAAP
accounting standards concerning the treatment of interest and dividends
on the
statement of cash flows; |
| d |
interpret the
effect of differences between international and U.S. GAAP
accounting standards on the balance sheet, income statement, and the
statement of changes in equity for some commonly used financial ratios. |
d |
interpret the
effect of differences between international and U.S. GAAP
accounting standards on the balance sheet, income statement, and the
statement of changes in equity for some commonly used financial ratios. |
| 11 |
44 |
Capital
Budgeting |
a |
explain the
capital budgeting process, including the typical steps of the process,
and distinguish among the various categories of capital projects; |
11 |
44 |
Capital
Budgeting |
a |
explain the
capital budgeting process, including the typical steps of the process,
and distinguish among the various categories of capital projects; |
| b |
discuss
the basic principles of capital budgeting, including the choice of the
proper cash flows; and determining the proper discount rate |
b |
discuss
the basic principles of capital budgeting, including the choice of the
proper cash flows; |
| c |
explain how
the following project interactions affect the evaluation of a capital
project: 1) independent versus mutually exclusive projects, 2) project
sequencing,
and 3) unlimited funds versus capital rationing; |
c |
explain how
the following project interactions affect the evaluation of a capital
project: 1) independent versus mutually exclusive projects, 2) project
sequencing,
and 3) unlimited funds versus capital rationing; |
| d |
calculate
and interpret the results using each of the following methods to
evaluate a single capital project: net present value (NPV), internal
rate of return
(IRR), payback period, discounted payback period, average accounting
rate of return and profitability index (PI) |
d |
calculate
and interpret the results using each of the following methods to
evaluate a single capital project: net present value (NPV), internal
rate of return
(IRR), payback period, discounted payback period, and profitability
index (PI); |
| e |
explain
the NPV profile, compare and contrast the NPV and IRR methods when
evaluating independent and mutually exclusive projects, and describe
the
problem that can arise when using an IRR. |
e |
explain
the NPV profile, compare and contrast the NPV and IRR methods when
evaluating independent and mutually exclusive projects, and describe
the
problems associated with each of the evaluation methods; |
| f |
describe and
account for the relative popularity of the various capital budgeting
methods and explain the relation between NPV and company value and stock
price. |
f |
describe and
account for the relative popularity of the various capital budgeting
methods and explain the relation between NPV and company value and stock
price. |
| 45 |
Cost
of Capital |
a |
calculate and
interpret the weighted average cost of capital (WACC) of a
company; |
45 |
Cost
of Capital |
a |
calculate and
interpret the weighted average cost of capital (WACC) of a
company; |
| b |
describe how
taxes affect the cost of capital from different capital sources; |
b |
describe how
taxes affect the cost of capital from different capital sources; |
| c |
describe alternative
methods of calculating the weights used in the WACC,
including the use of the company’s target capital structure; |
c |
describe alternative
methods of calculating the weights used in the WACC,
including the use of the company’s target capital structure; |
| d |
explain how
the marginal cost of capital and the investment opportunity
schedule are used to determine the optimal capital budget; |
d |
explain how
the marginal cost of capital and the investment opportunity
schedule are used to determine the optimal capital budget; |
| e |
explain the
marginal cost of capital’s role in determining the net present value
of
a project; |
e |
explain the
marginal cost of capital’s role in determining the net present value
of
a project; |
| f |
calculate and
interpret the cost of fixed rate debt capital using the yield-to maturity
approach and the debt-rating approach; |
f |
calculate and
interpret the cost of fixed rate debt capital using the yield-to maturity
approach and the debt-rating approach; |
| g |
calculate and
interpret the cost of noncallable, nonconvertible preferred stock; |
g |
calculate and
interpret the cost of noncallable, nonconvertible preferred stock; |
| h |
calculate and
interpret the cost of equity capital using the capital asset pricing
model approach, the dividend discount model approach, and the bond-yield-plus
risk-premium approach; |
h |
calculate and
interpret the cost of equity capital using the capital asset pricing
model approach, the dividend discount model approach, and the bond-yield-plus
risk-premium approach; |
| i |
calculate and
interpret the beta and cost of capital for a project; |
i |
calculate and
interpret the beta and cost of capital for a project; |
| j |
explain the
country equity risk premium in the estimation of the cost of equity
for a company located in a developing market; |
j |
explain the
country equity risk premium in the estimation of the cost of equity
for a company located in a developing market; |
| k |
describe the
marginal cost of capital schedule, explain why it may be upward sloping
with respect to additional capital, and calculate and interpret its
breakpoints; |
k |
describe the
marginal cost of capital schedule, explain why it may be upward sloping
with respect to additional capital, and calculate and interpret its
breakpoints; |
| l |
explain and
demonstrate the correct treatment of flotation costs. |
l |
explain and
demonstrate the correct treatment of flotation costs. |
| 46 |
Working
Capital Management |
|
|
46 |
Working
Capital Management |
a |
describe
primary and secondary sources of liquidity and factors that influence
a
company’s liquidity position; |
| a |
calculate
and interpret liquidity measures using selected financial ratios for
a company and compare it with peer companies |
b |
compare
a company’s liquidity measures with those of peer companies; |
| b |
evaluate overall
working capital effectiveness of a company, using the operating
and cash conversion cycles, and compare its effectiveness with other
peer
companies; |
c |
evaluate overall
working capital effectiveness of a company, using the operating
and cash conversion cycles, and compare its effectiveness with other
peer
companies; |
| c |
classify
the components of a cash forecast and prepare a cash forecast, given
estimates of revenue, expenses and other items. |
|
|
| d |
identify and
evaluate the necessary tools to use in managing a company’s net
daily cash position; |
d |
identify and
evaluate the necessary tools to use in managing a company’s net
daily cash position; |
| e |
compute and
interpret comparable yields on various securities, compare portfolio
returns against a standard benchmark, and evaluate a company’s short-term
investment policy guidelines; |
e |
compute and
interpret comparable yields on various securities, compare portfolio
returns against a standard benchmark, and evaluate a company’s short-term
investment policy guidelines; |
| f |
assess the
performance of a company’s accounts receivable, inventory
management, and accounts payable functions against historical figures
and
comparable peer company values; |
f |
assess the
performance of a company’s accounts receivable, inventory
management, and accounts payable functions against historical figures
and
comparable peer company values; |
| g |
evaluate the
choices of short-term funding available to a company and
recommend a financing method. |
g |
evaluate the
choices of short-term funding available to a company and
recommend a financing method. |
| 47 |
Financial
Statement Analysis |
a |
calculate,
interpret, and discuses the DuPont expression and extended DuPont expression
for a company's return on equity and demonstrate its use in corporate
analysis. |
47 |
Financial
Statement Analysis |
|
|
| b |
demonstrate
the use of pro forma income and balance sheet statements. |
- |
The candidate
should be able to demonstrate the use of pro forma income and balance
sheet statements. |
| 48 |
The
Corporate Governance of Listed Companies: A Manual
for Investors |
a |
define and
describe corporate governance; |
48 |
The
Corporate Governance of Listed Companies: A Manual
for Investors |
a |
define and
describe corporate governance; |
| b |
discuss and
critique characteristics and practices related to board and committee
independence, experience, compensation, external consultants, and frequency
of
elections, and determine whether they are supportive of shareowner protection; |
b |
discuss and
critique characteristics and practices related to board and committee
independence, experience, compensation, external consultants, and frequency
of
elections, and determine whether they are supportive of shareowner protection; |
| c |
describe board
independence and explain the importance of independent board
members in corporate governance; |
c |
describe board
independence and explain the importance of independent board
members in corporate governance; |
| d |
identify factors
that indicate a board and its members possess the experience
required to govern the company for the benefit of its shareowners; |
d |
identify factors
that indicate a board and its members possess the experience
required to govern the company for the benefit of its shareowners; |
| e |
explain the
provisions that should be included in a strong corporate code of
ethics and the implications of a weak code of ethics with regard to
related-party
transactions and personal use of company assets; |
e |
explain the
provisions that should be included in a strong corporate code of
ethics and the implications of a weak code of ethics with regard to
related-party
transactions and personal use of company assets; |
| f |
state the key
areas of responsibility for which board committees are typically
created and explain the criteria for assessing whether each committee
is able to
adequately represent shareowner interests; |
f |
state the key
areas of responsibility for which board committees are typically
created and explain the criteria for assessing whether each committee
is able to
adequately represent shareowner interests; |
| g |
evaluate, from
a shareowner’s perspective, company policies related to voting
rules, shareowner sponsored proposals, common stock classes, and takeover
defenses. |
g |
evaluate, from
a shareowner’s perspective, company policies related to voting
rules, shareowner sponsored proposals, common stock classes, and takeover
defenses. |
| 12 |
49 |
The
Asset Allocation Decision |
a |
describe the
steps in the portfolio management process and explain the reasons
for a policy statement; |
12 |
49 |
The
Asset Allocation Decision |
a |
describe the
steps in the portfolio management process and explain the reasons
for a policy statement; |
| b |
explain why
investment objectives should be expressed in terms of risk and return
and list the factors that may affect an investor’s risk tolerance; |
b |
explain why
investment objectives should be expressed in terms of risk and return
and list the factors that may affect an investor’s risk tolerance; |
| c |
describe the
return objectives of capital preservation, capital appreciation, current
income, and total return; |
c |
describe the
return objectives of capital preservation, capital appreciation, current
income, and total return; |
| d |
describe the
investment constraints of liquidity, time horizon, tax concerns, legal
and regulatory factors, and unique needs and preferences; |
d |
describe the
investment constraints of liquidity, time horizon, tax concerns, legal
and regulatory factors, and unique needs and preferences; |
| e |
describe the
importance of asset allocation, in terms of the percentage of a
portfolio’s return that can be explained by the target asset allocation,
and explain
how political and economic factors result in differing asset allocations
by
investors in various countries. |
e |
describe the
importance of asset allocation, in terms of the percentage of a
portfolio’s return that can be explained by the target asset allocation,
and explain
how political and economic factors result in differing asset allocations
by
investors in various countries. |
| 50 |
An
Introduction to Portfolio Management |
a |
define risk
aversion and discuss evidence that suggests that individuals are
generally risk averse; |
50 |
An
Introduction to Portfolio Management |
a |
define risk
aversion and discuss evidence that suggests that individuals are
generally risk averse; |
| b |
list the assumptions
about investor behavior underlying the Markowitz model; |
b |
list the assumptions
about investor behavior underlying the Markowitz model; |
| c |
compute and
interpret the expected return, variance, and standard deviation for
an
individual investment and the expected return and standard deviation
for a portfolio; |
c |
compute and
interpret the expected return, variance, and standard deviation for
an
individual investment and the expected return and standard deviation
for a portfolio; |
| d |
compute and
interpret the covariance of rates of return and show how it is
related to the correlation coefficient; |
d |
compute and
interpret the covariance of rates of return and show how it is
related to the correlation coefficient; |
| e |
list
the components of the portfolio standard deviation formula; and explain
the relevant importance of these component when adding
an investment to a portfolio. |
e |
list
the components of the portfolio standard deviation formula; |
| f |
describe the
efficient frontier and explain the implications for incremental returns
as an investor assumes more risk; |
f |
describe the
efficient frontier and explain the implications for incremental returns
as an investor assumes more risk; |
| g |
explain the
concept of an optimal portfolio and show how each investor may
have a different optimal portfolio. |
g |
explain the
concept of an optimal portfolio and show how each investor may
have a different optimal portfolio. |
| 51 |
An
Introduction to Asset Pricing Models |
a |
explain the
capital market theory, including its underlying assumptions, and
explain the effect on expected returns, the standard deviation of returns,
and
possible risk–return combinations when a risk-free asset is combined
with a
portfolio of risky assets; |
51 |
An
Introduction to Asset Pricing Models |
a |
explain the
capital market theory, including its underlying assumptions, and
explain the effect on expected returns, the standard deviation of returns,
and
possible risk–return combinations when a risk-free asset is combined
with a
portfolio of risky assets; |
| b |
identify the
market portfolio and describe the role of the market portfolio in the
formation of the capital market line (CML); |
b |
identify the
market portfolio and describe the role of the market portfolio in the
formation of the capital market line (CML); |
| c |
define systematic
and unsystematic risk and explain why an investor should not
expect to receive additional return for assuming unsystematic risk; |
c |
define systematic
and unsystematic risk and explain why an investor should not
expect to receive additional return for assuming unsystematic risk; |
| d |
explain the
capital asset pricing model, including the security market line (SML)
and beta and describe the effects of relaxing its underlying assumptions; |
d |
explain the
capital asset pricing model, including the security market line (SML)
and beta and describe the effects of relaxing its underlying assumptions; |
| e |
calculate,
using the SML, the expected return on a security and evaluate whether
the security is overvalued, undervalued, or properly valued. |
e |
calculate,
using the SML, the expected return on a security and evaluate whether
the security is overvalued, undervalued, or properly valued. |
| 13 |
52 |
Organization
and Functioning of Securities Markets |
a |
describe the
characteristics of a well-functioning securities market; |
13 |
52 |
Organization
and Functioning of Securities Markets |
a |
describe the
characteristics of a well-functioning securities market; |
| b |
distinguish
between primary and secondary capital markets and explain how
secondary markets support primary markets; |
b |
distinguish
between primary and secondary capital markets and explain how
secondary markets support primary markets; |
| c |
distinguish
between call and continuous markets; |
c |
distinguish
between call and continuous markets; |
| d |
compare and
contrast the structural differences among national stock exchanges,
regional stock exchanges, and the over-the-counter (OTC) markets; |
d |
compare and
contrast the structural differences among national stock exchanges,
regional stock exchanges, and the over-the-counter (OTC) markets; |
| e |
compare and
contrast major characteristics of various exchange markets,
including exchange membership, types of orders, and market makers; |
e |
compare and
contrast major characteristics of various exchange markets,
including exchange membership, types of orders, and market makers; |
| f |
describe the
process of selling a stock short and discuss an investor’s likely
motivation for selling short; |
f |
describe the
process of selling a stock short and discuss an investor’s likely
motivation for selling short; |
| g |
describe the
process of buying a stock on margin, compute the rate of return on
a margin transaction, define maintenance margin, and determine the stock
price
at which the investor would receive a margin call. |
g |
describe the
process of buying a stock on margin, compute the rate of return on
a margin transaction, define maintenance margin, and determine the stock
price
at which the investor would receive a margin call. |
| 53 |
Security-Market
Indexes |
a |
compare and
contrast the characteristics of, and discuss the source and direction
of bias exhibited by, each of the three predominant weighting schemes
used in
constructing stock market indices and compute a price-weighted, a value
weighted,
and an unweighted index series for three stocks; |
53 |
Security-Market
Indexes |
a |
compare and
contrast the characteristics of, and discuss the source and direction
of bias exhibited by, each of the three predominant weighting schemes
used in
constructing stock market indices and compute a price-weighted, a value
weighted,
and an unweighted index series for three stocks; |
| b |
compare and
contrast major structural features of domestic and global stock
indices, bond indices, and composite stock-bond indices; |
b |
compare and
contrast major structural features of domestic and global stock
indices, bond indices, and composite stock-bond indices; |
| c |
state how low
correlations between global markets support global investment. |
c |
state how low
correlations between global markets support global investment. |
| 54 |
Efficient
Capital Markets |
a |
define an efficient
capital market and describe and contrast the three forms of
the efficient market hypothesis (EMH); |
54 |
Efficient
Capital Markets |
a |
define an efficient
capital market and describe and contrast the three forms of
the efficient market hypothesis (EMH); |
| b |
describe the
tests used to examine each of the three forms of the EMH, identify
various market anomalies and explain their implications for the EMH,
and explain
the overall conclusions about each form of the EMH; |
b |
describe the
tests used to examine each of the three forms of the EMH, identify
various market anomalies and explain their implications for the EMH,
and explain
the overall conclusions about each form of the EMH; |
| c |
explain the
implications of stock market efficiency for technical analysis,
fundamental analysis, the portfolio management process, the role of
the
portfolio manager, and the rationale for investing in index funds; |
c |
explain the
implications of stock market efficiency for technical analysis,
fundamental analysis, the portfolio management process, the role of
the
portfolio manager, and the rationale for investing in index funds; |
| d |
define behavioral
finance and describe prospect theory, over-confidence bias,
confirmation bias, and escalation bias. |
d |
define behavioral
finance and describe prospect theory, over-confidence bias,
confirmation bias, and escalation bias. |
| 55 |
Market
Efficiency and Anomalies |
a |
explain the
three limitations to achieving fully efficient markets; |
55 |
Market
Efficiency and Anomalies |
a |
explain the
three limitations to achieving fully efficient markets; |
| b |
describe four
problems that may prevent arbitrageurs from correcting anomalies; |
b |
describe four
problems that may prevent arbitrageurs from correcting anomalies; |
| c |
explain why
an apparent anomaly may be justified and describe the common
biases that distort testing for mispricings; |
c |
explain why
an apparent anomaly may be justified and describe the common
biases that distort testing for mispricings; |
| d |
explain why
a mispricing may persist and why valid anomalies may not be
profitable. |
d |
explain why
a mispricing may persist and why valid anomalies may not be
profitable. |
| 14 |
56 |
An
Introduction to Security Valuation |
a |
explain the
top-down approach, and its underlying logic, to the security valuation
process; |
14 |
56 |
An
Introduction to Security Valuation |
a |
explain the
top-down approach, and its underlying logic, to the security valuation
process; |
| b |
state the various
forms of investment returns; |
b |
state the various
forms of investment returns; |
| c |
calculate and
interpret the value of both a preferred stock and a common stock
using the dividend discount model (DDM); |
c |
calculate and
interpret the value of both a preferred stock and a common stock
using the dividend discount model (DDM); |
| d |
show how to
use the DDM to develop an earnings multiplier model and explain
the factors in the DDM that affect a stock’s price-to-earnings (P/E)
ratio; |
d |
show how to
use the DDM to develop an earnings multiplier model and explain
the factors in the DDM that affect a stock’s price-to-earnings (P/E)
ratio; |
| e |
explain
the components of an investor’s required rate of return (i.e., the
real risk free
rate, the expected rate of inflation, and a risk premium) and discuss
the risk
factors to be assessed in determining an equity risk premium for use
in
estimating the required return for foreign securities; |
e |
explain
the components of an investor’s required rate of return (i.e., the
real risk free
rate, the expected rate of inflation, and a risk premium) and discuss
the risk
factors to be assessed in determining an equity risk premium for use
in
estimating the required return for the investment in each country; |
| f |
estimate the
dividend growth rate, given the components of the required rate of
return incorporating the earnings retention rate and current stock price; |
f |
estimate the
dividend growth rate, given the components of the required rate of
return incorporating the earnings retention rate and current stock price; |
| g |
describe a
process for developing estimated inputs to be used in the DDM,
including the required rate of return and expected growth rate of dividends. |
g |
describe a
process for developing estimated inputs to be used in the DDM,
including the required rate of return and expected growth rate of dividends. |
| 57 |
Industry Analysis |
- |
The candidate
should be able to describe how structural economic changes
(e.g., demographics, technology, politics, and regulation) may affect
industries. |
57 |
Industry Analysis |
- |
The candidate
should be able to describe how structural economic changes
(e.g., demographics, technology, politics, and regulation) may affect
industries. |
| 58 |
Company
Analysis and Stock Valuation |
a |
differentiate
between 1) a growth company and a growth stock, 2) a defensive
company and a defensive stock, 3) a cyclical company and a cyclical
stock, 4) a
speculative company and a speculative stock, and 5) a value stock and
a
growth stock; |
58 |
Company
Analysis and Stock Valuation |
a |
differentiate
between 1) a growth company and a growth stock, 2) a defensive
company and a defensive stock, 3) a cyclical company and a cyclical
stock, 4) a
speculative company and a speculative stock, and 5) a value stock and
a
growth stock; |
| b |
describe and
estimate the expected earnings per share (EPS) and earnings
multiplier for a company and use the multiple to make an investment
decision
regarding the company. |
b |
describe and
estimate the expected earnings per share (EPS) and earnings
multiplier for a company and use the multiple to make an investment
decision
regarding the company. |
| 59 |
Introduction
to Price Multiples |
a |
discuss the
rationales for, and the possible drawbacks to, the use of price-to earnings
ratio (P/E), price-to-book value (P/BV), price-to-sales ratio (P/S),
and
price-to-cash flow (P/CF) in equity valuation; |
59 |
Introduction
to Price Multiples |
a |
discuss the
rationales for, and the possible drawbacks to, the use of price-to earnings
ratio (P/E), price-to-book value (P/BV), price-to-sales ratio (P/S),
and
price-to-cash flow (P/CF) in equity valuation; |
| b |
calculate and
interpret P/E, P/BV, P/S, and P/CF. |
b |
calculate and
interpret P/E, P/BV, P/S, and P/CF. |
| 15 |
60 |
Features
of Debt Securities |
a |
explain the
purposes of a bond’s indenture and describe affirmative and negative
covenants; |
15 |
60 |
Features
of Debt Securities |
a |
explain the
purposes of a bond’s indenture and describe affirmative and negative
covenants; |
| b |
describe the
basic features of a bond, the various coupon rate structures, and the
structure of floating-rate securities; |
b |
describe the
basic features of a bond, the various coupon rate structures, and the
structure of floating-rate securities; |
| c |
define accrued
interest, full price, and clean price; |
c |
define accrued
interest, full price, and clean price; |
| d |
explain the
provisions for redemption and retirement of bonds; |
d |
explain the
provisions for redemption and retirement of bonds; |
| e |
identify the
common options embedded in a bond issue, explain the importance
of embedded options, and state whether such options benefit the issuer
or the
bondholder; |
e |
identify the
common options embedded in a bond issue, explain the importance
of embedded options, and state whether such options benefit the issuer
or the
bondholder; |
| f |
describe methods
used by institutional investors in the bond market to finance
the purchase of a security (i.e., margin buying and repurchase agreements). |
f |
describe methods
used by institutional investors in the bond market to finance
the purchase of a security (i.e., margin buying and repurchase agreements). |
| 61 |
Risks
Associated with Investing in Bonds |
a |
explain the
risks associated with investing in bonds; |
61 |
Risks
Associated with Investing in Bonds |
a |
explain the
risks associated with investing in bonds; |
| b |
identify the
relations among a bond’s coupon rate, the yield required by the
market, and the bond’s price relative to par value (i.e., discount,
premium, or
equal to par); |
b |
identify the
relations among a bond’s coupon rate, the yield required by the
market, and the bond’s price relative to par value (i.e., discount,
premium, or
equal to par); |
| c |
explain how
features of a bond (e.g., maturity, coupon, and embedded options)
and the level of a bond’s yield affect the bond’s interest rate
risk; |
c |
explain how
features of a bond (e.g., maturity, coupon, and embedded options)
and the level of a bond’s yield affect the bond’s interest rate
risk; |
| d |
identify the
relationship among the price of a callable bond, the price of an
option-free bond, and the price of the embedded call option; |
d |
identify the
relationship among the price of a callable bond, the price of an
option-free bond, and the price of the embedded call option; |
| e |
explain the
interest rate risk of a floating-rate security and why such a security’s
price may differ from par value; |
e |
explain the
interest rate risk of a floating-rate security and why such a security’s
price may differ from par value; |
| f |
compute and
interpret the duration and dollar duration of a bond; |
f |
compute and
interpret the duration and dollar duration of a bond; |
| g |
describe yield-curve
risk and explain why duration does not account for yield curve
risk for a portfolio of bonds; |
g |
describe yield-curve
risk and explain why duration does not account for yield curve
risk for a portfolio of bonds; |
| h |
explain the
disadvantages of a callable or prepayable security to an investor; |
h |
explain the
disadvantages of a callable or prepayable security to an investor; |
| i |
identify the
factors that affect the reinvestment risk of a security and explain
why
prepayable amortizing securities expose investors to greater reinvestment
risk
than nonamortizing securities; |
i |
identify the
factors that affect the reinvestment risk of a security and explain
why
prepayable amortizing securities expose investors to greater reinvestment
risk
than nonamortizing securities; |
| j |
describe the
various forms of credit risk and describe the meaning and role of
credit ratings; |
j |
describe the
various forms of credit risk and describe the meaning and role of
credit ratings; |
| k |
explain liquidity
risk and why it might be important to investors even if they
expect to hold a security to the maturity date; |
k |
explain liquidity
risk and why it might be important to investors even if they
expect to hold a security to the maturity date; |
| l |
describe the
exchange rate risk an investor faces when a bond makes payments
in a foreign currency; |
l |
describe the
exchange rate risk an investor faces when a bond makes payments
in a foreign currency; |
| m |
explain inflation
risk; |
m |
explain inflation
risk; |
| n |
explain how
yield volatility affects the price of a bond with an embedded option
and how changes in volatility affect the value of a callable bond and
a putable
bond; |
n |
explain how
yield volatility affects the price of a bond with an embedded option
and how changes in volatility affect the value of a callable bond and
a putable
bond; |
| o |
describe the
various forms of event risk. |
o |
describe the
various forms of event risk. |
| 62 |
Overview
of Bond Sectors and Instruments |
a |
describe the
features, credit risk characteristics, and distribution methods for
government securities; |
62 |
Overview
of Bond Sectors and Instruments |
a |
describe the
features, credit risk characteristics, and distribution methods for
government securities; |
| b |
describe the
types of securities issued by the U.S. Department of the Treasury
(e.g. bills, notes, bonds, and inflation protection securities), and
differentiate
between on-the-run and off-the-run Treasury securities; |
b |
describe the
types of securities issued by the U.S. Department of the Treasury
(e.g. bills, notes, bonds, and inflation protection securities), and
differentiate
between on-the-run and off-the-run Treasury securities; |
| c |
describe how
stripped Treasury securities are created and distinguish between
coupon strips and principal strips; |
c |
describe how
stripped Treasury securities are created and distinguish between
coupon strips and principal strips; |
| d |
describe the
types and characteristics of securities issued by U.S. federal
agencies; |
d |
describe the
types and characteristics of securities issued by U.S. federal
agencies; |
| e |
describe the
types and characteristics of mortgage-backed securities and explain
the cash flow, prepayments, and prepayment risk for each type; |
e |
describe the
types and characteristics of mortgage-backed securities and explain
the cash flow, prepayments, and prepayment risk for each type; |
| f |
state the motivation
for creating a collateralized mortgage obligation; |
f |
state the motivation
for creating a collateralized mortgage obligation; |
| g |
describe the
types of securities issued by municipalities in the United States and
distinguish between tax-backed debt and revenue bonds |
g |
describe the
types of securities issued by municipalities in the United States and
distinguish between tax-backed debt and revenue bonds |
| h |
describe the
characteristics and motivation for the various types of debt issued
by
corporations (including corporate bonds, medium-term notes, structured
notes,
commercial paper, negotiable CDs, and bankers acceptances); |
h |
describe the
characteristics and motivation for the various types of debt issued
by
corporations (including corporate bonds, medium-term notes, structured
notes,
commercial paper, negotiable CDs, and bankers acceptances); |
| i |
define an asset-backed
security, describe the role of a special purpose vehicle in
an asset-backed security’s transaction, state the motivation for a
corporation to
issue an asset-backed security, and describe the types of external credit
enhancements for asset-backed securities; |
i |
define an asset-backed
security, describe the role of a special purpose vehicle in
an asset-backed security’s transaction, state the motivation for a
corporation to
issue an asset-backed security, and describe the types of external credit
enhancements for asset-backed securities; |
| j |
describe collateralized
debt obligations; |
j |
describe collateralized
debt obligations; |
| k |
describe the
mechanisms available for placing bonds in the primary market and
differentiate the primary and secondary markets in bonds. |
k |
describe the
mechanisms available for placing bonds in the primary market and
differentiate the primary and secondary markets in bonds. |
| 63 |
Understanding
Yield Spreads |
a |
identify the
interest rate policy tools available to a central bank (e.g., the U.S.
Federal Reserve); |
63 |
Understanding
Yield Spreads |
a |
identify the
interest rate policy tools available to a central bank (e.g., the U.S.
Federal Reserve); |
| b |
describe a
yield curve and the various shapes of the yield curve; |
b |
describe a
yield curve and the various shapes of the yield curve; |
| c |
explain the
basic theories of the term structure of interest rates and describe
the
implications of each theory for the shape of the yield curve; |
c |
explain the
basic theories of the term structure of interest rates and describe
the
implications of each theory for the shape of the yield curve; |
| d |
define a spot
rate; |
d |
define a spot
rate; |
| e |
compute, compare,
and contrast the various yield spread measures; |
e |
compute, compare,
and contrast the various yield spread measures; |
| f |
describe a
credit spread and discuss the suggested relation between credit
spreads and the well-being of the economy; |
f |
describe a
credit spread and discuss the suggested relation between credit
spreads and the well-being of the economy; |
| g |
identify how
embedded options affect yield spreads; |
g |
identify how
embedded options affect yield spreads; |
| h |
explain how
the liquidity or issue-size of a bond affects its yield spread relative
to
risk-free securities and relative to other securities; |
h |
explain how
the liquidity or issue-size of a bond affects its yield spread relative
to
risk-free securities and relative to other securities; |
| i |
compute the
after-tax yield of a taxable security and the tax-equivalent yield of
a
tax-exempt security; |
i |
compute the
after-tax yield of a taxable security and the tax-equivalent yield of
a
tax-exempt security; |
| j |
define LIBOR
and explain its importance to funded investors who borrow short
term. |
j |
define LIBOR
and explain its importance to funded investors who borrow short
term. |
| 16 |
64 |
Introduction
to the Valuation of Debt Securities |
a |
explain the
steps in the bond valuation process; |
16 |
64 |
Introduction
to the Valuation of Debt Securities |
a |
explain the
steps in the bond valuation process; |
| b |
identify the
types of bonds for which estimating the expected cash flows is
difficult and explain the problems encountered when estimating the cash
flows
for these bonds; |
b |
identify the
types of bonds for which estimating the expected cash flows is
difficult and explain the problems encountered when estimating the cash
flows
for these bonds; |
| c |
compute the
value of a bond and the change in value that is attributable to a
change in the discount rate; |
c |
compute the
value of a bond and the change in value that is attributable to a
change in the discount rate; |
| d |
explain how
the price of a bond changes as the bond approaches its maturity
date and compute the change in value that is attributable to the passage
of time; |
d |
explain how
the price of a bond changes as the bond approaches its maturity
date and compute the change in value that is attributable to the passage
of time; |
| e |
compute the
value of a zero-coupon bond; |
e |
compute the
value of a zero-coupon bond; |
| f |
explain the
arbitrage-free valuation approach and the market process that forces
the price of a bond toward its arbitrage-free value and explain how
a dealer can
generate an arbitrage profit if a bond is mispriced. |
f |
explain the
arbitrage-free valuation approach and the market process that forces
the price of a bond toward its arbitrage-free value and explain how
a dealer can
generate an arbitrage profit if a bond is mispriced. |
| 65 |
Yield
Measures, Spot Rates, and Forward Rates |
a |
explain the
sources of return from investing in a bond; |
65 |
Yield
Measures, Spot Rates, and Forward Rates |
a |
explain the
sources of return from investing in a bond; |
| b |
compute and
interpret the traditional yield measures for fixed-rate bonds and
explain their limitations and assumptions; |
b |
compute and
interpret the traditional yield measures for fixed-rate bonds and
explain their limitations and assumptions; |
| c |
explain the
importance of reinvestment income in generating the yield computed
at the time of purchase, calculate the amount of income required to
generate
that yield, and discuss the factors that affect reinvestment risk; |
c |
explain the
importance of reinvestment income in generating the yield computed
at the time of purchase, calculate the amount of income required to
generate
that yield, and discuss the factors that affect reinvestment risk; |
| d |
compute and
interpret the bond equivalent yield of an annual-pay bond and the
annual-pay yield of a semiannual-pay bond; |
d |
compute and
interpret the bond equivalent yield of an annual-pay bond and the
annual-pay yield of a semiannual-pay bond; |
| e |
describe the
methodology for computing the theoretical Treasury spot rate curve
and compute the value of a bond using spot rates; |
e |
describe the
methodology for computing the theoretical Treasury spot rate curve
and compute the value of a bond using spot rates; |
| f |
differentiate
between the nominal spread, the zero-volatility spread, and the
option-adjusted spread; |
f |
differentiate
between the nominal spread, the zero-volatility spread, and the
option-adjusted spread; |
| g |
describe how
the option-adjusted spread accounts for the option cost in a bond
with an embedded option; |
g |
describe how
the option-adjusted spread accounts for the option cost in a bond
with an embedded option; |
| h |
explain a forward
rate and compute spot rates from forward rates, forward rates
from spot rates, and the value of a bond using forward rates. |
h |
explain a forward
rate and compute spot rates from forward rates, forward rates
from spot rates, and the value of a bond using forward rates. |
| 66 |
Introduction
to the Measurement of Interest Rate Risk |
a |
distinguish
between the full valuation approach (the scenario analysis approach)
and the duration/convexity approach for measuring interest rate risk
and explain
the advantage of using the full valuation approach; |
66 |
Introduction
to the Measurement of Interest Rate Risk |
a |
distinguish
between the full valuation approach (the scenario analysis approach)
and the duration/convexity approach for measuring interest rate risk
and explain
the advantage of using the full valuation approach; |
| b |
demonstrate
the price volatility characteristics for option-free, callable,
prepayable, and putable bonds when interest rates change; |
b |
demonstrate
the price volatility characteristics for option-free, callable,
prepayable, and putable bonds when interest rates change; |
| c |
describe positive
convexity, negative convexity, and their relation to bond price
and yield; |
c |
describe positive
convexity, negative convexity, and their relation to bond price
and yield; |
| d |
compute and
interpret the effective duration of a bond, given information about
how the bond’s price will increase and decrease for given changes
in interest
rates, and compute the approximate percentage price change for a bond,
given
the bond’s effective duration and a specified change in yield; |
d |
compute and
interpret the effective duration of a bond, given information about
how the bond’s price will increase and decrease for given changes
in interest
rates, and compute the approximate percentage price change for a bond,
given
the bond’s effective duration and a specified change in yield; |
| e |
distinguish
among the alternative definitions of duration and explain why
effective duration is the most appropriate measure of interest rate
risk for bonds
with embedded options; |
e |
distinguish
among the alternative definitions of duration and explain why
effective duration is the most appropriate measure of interest rate
risk for bonds
with embedded options; |
| f |
compute the
duration of a portfolio, given the duration of the bonds comprising
the portfolio, and explain the limitations of portfolio duration; |
f |
compute the
duration of a portfolio, given the duration of the bonds comprising
the portfolio, and explain the limitations of portfolio duration; |
| g |
describe the
convexity measure of a bond and estimate a bond’s percentage
price change, given the bond’s duration and convexity and a specified
change in
interest rates; |
g |
describe the
convexity measure of a bond and estimate a bond’s percentage
price change, given the bond’s duration and convexity and a specified
change in
interest rates; |
| h |
differentiate
between modified convexity and effective convexity; |
h |
differentiate
between modified convexity and effective convexity; |
| i |
compute the
price value of a basis point (PVBP), and explain its relationship to
duration. |
i |
compute the
price value of a basis point (PVBP), and explain its relationship to
duration. |
| 17 |
67 |
Derivative
Markets and Instruments |
a |
define a derivative
and differentiate between exchange-traded and over-the counter
derivatives; |
17 |
67 |
Derivative
Markets and Instruments |
a |
define a derivative
and differentiate between exchange-traded and over-the counter
derivatives; |
| b |
define
a forward commitment and a contingent claim; and describe the basic
characteristics of forward contracts, futures contracts,
options (calls and puts), and swaps; |
b |
define
a forward commitment and a contingent claim; |
| |
|
c |
differentiate
the basic characteristics of forward contracts, futures contracts,
options (calls and puts), and swaps; |
| c |
discuss the
purposes and criticisms of derivative markets; |
d |
discuss the
purposes and criticisms of derivative markets; |
| d |
explain arbitrage
and the role it plays in determining prices and promoting
market efficiency. |
e |
explain arbitrage
and the role it plays in determining prices and promoting
market efficiency. |
| 68 |
Forward
Markets and Contracts |
a |
explain delivery/settlement
and default risk for both long and short positions in a
forward contract; |
68 |
Forward
Markets and Contracts |
a |
explain delivery/settlement
and default risk for both long and short positions in a
forward contract; |
| b |
describe the
procedures for settling a forward contract at expiration and discuss
how termination alternatives prior to expiration can affect credit risk; |
b |
describe the
procedures for settling a forward contract at expiration and discuss
how termination alternatives prior to expiration can affect credit risk; |
| c |
differentiate
between a dealer and an end user of a forward contract; |
c |
differentiate
between a dealer and an end user of a forward contract; |
| d |
describe the
characteristics of equity forward contracts and forward contracts on
zero-coupon and coupon bonds; |
d |
describe the
characteristics of equity forward contracts and forward contracts on
zero-coupon and coupon bonds; |
| e |
describe the
characteristics of the Eurodollar time deposit market and define LIBOR
and Euribor; |
e |
describe the
characteristics of the Eurodollar time deposit market and define
LIBOR and Euribor; |
| f |
describe
the characteristics of forward rate agreements (FRAs); |
f |
describe
the characteristics and calculate the gain/loss of forward rate
agreements (FRAs); |
| g |
calculate and
interpret the payoff of an FRA, and explain each of the component
terms; |
g |
calculate and
interpret the payoff of an FRA, and explain each of the component
terms; |
| h |
describe the
characteristics of currency forward contracts. |
h |
describe the
characteristics of currency forward contracts. |
| 69 |
Futures
Markets and Contracts |
a |
describe
the characteristics of futures contracts; and distinguish between futures
contracts and forward contracts; |
69 |
Futures
Markets and Contracts |
a |
describe
the characteristics of futures contracts; |
| |
|
b |
distinguish
between futures contracts and forward contracts; |
| b |
differentiate
between margin in the securities markets and margin in the futures
markets, and explain the role of initial margin, maintenance margin,
variation
margin, and settlement in futures trading; |
c |
differentiate
between margin in the securities markets and margin in the futures
markets, and explain the role of initial margin, maintenance margin,
variation
margin, and settlement in futures trading; |
| c |
describe price
limits and the process of marking to market and compute and
interpret the margin balance, given the previous day’s balance and
the change in
the futures price; |
d |
describe price
limits and the process of marking to market and compute and
interpret the margin balance, given the previous day’s balance and
the change in
the futures price; |
| d |
describe
how a futures contract can be terminated at or prior to expiration;
by a closeout (i.e. offset),
a delivery, an equivalent cash settlement, or an exchange for physicals. |
e |
describe
how a futures contract can be terminated at or prior to expiration; |
| e |
describe the
characteristics of the following types of futures contracts: Eurodollar,
Treasury bond, stock index, and currency. |
f |
describe the
characteristics of the following types of futures contracts: Eurodollar,
Treasury bond, stock index, and currency. |
| 70 |
Option
Markets and Contracts |
a |
define
European option, American option, and moneyness and differentiate between
exchange-traded options and over-the-counter options; |
70 |
Option
Markets and Contracts |
a |
define
European option, American option, and the concept of moneyness of an
option; |
| |
|
b |
differentiate
between exchange-traded options and over-the-counter options; |
| b |
identify the
types of options in terms of the underlying instruments; |
c |
identify the
types of options in terms of the underlying instruments; |
| c |
compare and
contrast interest rate options with forward rate agreements (FRAs); |
d |
compare and
contrast interest rate options with forward rate agreements (FRAs); |
| d |
define interest
rate caps, floors, and collars; |
e |
define interest
rate caps, floors, and collars; |
| e |
compute and
interpret option payoffs, and explain how interest rate option
payoffs differ from the payoffs of other types of options; |
f |
compute and
interpret option payoffs, and explain how interest rate option
payoffs differ from the payoffs of other types of options; |
| f |
define intrinsic
value and time value and explain their relationship; |
g |
define intrinsic
value and time value and explain their relationship; |
| g |
determine the
minimum and maximum values of European options and
American options; |
h |
determine the
minimum and maximum values of European options and
American options; |
| h |
calculate and
interpret the lowest prices of European and American calls and
puts based on the rules for minimum values and lower bounds; |
i |
calculate and
interpret the lowest prices of European and American calls and
puts based on the rules for minimum values and lower bounds; |
| i |
explain how
option prices are affected by the exercise price and the time to
expiration; |
j |
explain how
option prices are affected by the exercise price and the time to
expiration; |
| j |
explain put–call
parity for European options, and relate put–call parity to
arbitrage and the construction of synthetic options; |
k |
explain put–call
parity for European options, and relate put–call parity to
arbitrage and the construction of synthetic options; |
| k |
contrast American
options with European options in terms of the lower bounds
on option prices and the possibility of early exercise; |
l |
contrast American
options with European options in terms of the lower bounds
on option prices and the possibility of early exercise; |
| l |
explain how
cash flows on the underlying asset affect put–call parity and the
lower bounds of option prices; |
m |
explain how
cash flows on the underlying asset affect put–call parity and the
lower bounds of option prices; |
| m |
indicate the
directional effect of an interest rate change or volatility change on
an option’s price. |
n |
indicate the
directional effect of an interest rate change or volatility change on
an option’s price. |
| 71 |
Swap
Markets and Contracts |
a |
describe the
characteristics of swap contracts and explain how swaps are
terminated; |
71 |
Swap
Markets and Contracts |
a |
describe the
characteristics of swap contracts and explain how swaps are
terminated; |
| b |
define
and give examples of currency swaps, plain vanilla interest rate swaps,
and equity swaps; and calculate and interpret the payments on
each. |
b |
define,
calculate, and interpret the payment of currency swaps, plain vanilla
interest rate swaps, and equity swaps. |
| 72 |
Risk
Management Applications of Option Strategies |
a |
determine the
value at expiration, profit, maximum profit, maximum loss, breakeven
underlying price at expiration, and general shape of the graph of the
strategies of buying and selling calls and puts, and indicate the market
outlook of investors using these strategies; |
72 |
Risk
Management Applications of Option Strategies |
a |
determine the
value at expiration, profit, maximum profit, maximum loss, breakeven
underlying price at expiration, and general shape of the graph of the
strategies of buying and selling calls and puts, and indicate the market
outlook of investors using these strategies; |
| b |
determine the
value at expiration, profit, maximum profit, maximum loss, breakeven
underlying price at expiration, and general shape of the graph of a
covered call strategy and a protective put strategy, and explain the
risk management application of each strategy. |
b |
determine the
value at expiration, profit, maximum profit, maximum loss, breakeven
underlying price at expiration, and general shape of the graph of a
covered call strategy and a protective put strategy, and explain the
risk management application of each strategy. |
| 18 |
73 |
Alternative
Investments |
a |
differentiate
between an open-end and a closed-end fund, and explain how net asset
value of a fund is calculated and the nature of fees charged by investment
companies; |
18 |
73 |
Alternative
Investments |
a |
differentiate
between an open-end and a closed-end fund, and explain how net asset
value of a fund is calculated and the nature of fees charged by investment
companies; |
| b |
distinguish
among style, sector, index, global, and stable value strategies in equity
investment and among exchange traded funds (ETFs), traditional mutual
funds, and closed-end funds; |
b |
distinguish
among style, sector, index, global, and stable value strategies in equity
investment and among exchange traded funds (ETFs), traditional mutual
funds, and closed-end funds; |
| c |
explain the
advantages and risks of ETFs; |
c |
explain the
advantages and risks of ETFs; |
| d |
describe the
forms of real estate investment and explain their characteristics as
an investable asset class; |
d |
describe the
forms of real estate investment and explain their characteristics as
an investable asset class; |
| e |
describe the
various approaches to the valuation of real estate; |
e |
describe the
various approaches to the valuation of real estate; |
| f |
calculate the
net operating income (NOI) from a real estate investment, the value
of a property using the sales comparison and income approaches, and
the after-tax cash flows, net present value, and yield of a real estate
investment; |
f |
calculate the
net operating income (NOI) from a real estate investment, the value
of a property using the sales comparison and income approaches, and
the after-tax cash flows, net present value, and yield of a real estate
investment; |
| g |
explain the
stages in venture capital investing, venture capital investment characteristics
and challenges to venture capital valuation and performance measurement; |
g |
explain the
stages in venture capital investing, venture capital investment characteristics
and challenges to venture capital valuation and performance measurement; |
| h |
calculate the
net present value (NPV) of a venture capital project, given the project’s
possible payoff and conditional failure probabilities; |
h |
calculate the
net present value (NPV) of a venture capital project, given the project’s
possible payoff and conditional failure probabilities; |
| i |
discuss
the descriptive accuracy of the term "hedge fund" define hedge
fund in terms of objectives, legal structure, and fee structure, and
describe the various classifications of hedge funds; |
i |
define
hedge fund in terms of objectives, legal structure, and fee structure,
and
describe the various classifications of hedge funds; |
| j |
explain the
benefits and drawbacks to fund of funds investing; |
j |
explain the
benefits and drawbacks to fund of funds investing; |
| k |
discuss the
leverage and unique risks of hedge funds; |
k |
discuss the
leverage and unique risks of hedge funds; |
| l |
discuss the
performance of hedge funds, the biases present in hedge fund performance
measurement, and explain the effect of survivorship bias on the reported
return and risk measures for a hedge fund database; |
l |
discuss the
performance of hedge funds, the biases present in hedge fund performance
measurement, and explain the effect of survivorship bias on the reported
return and risk measures for a hedge fund database; |
| m |
explain how
the legal environment affects the valuation of closely held companies; |
m |
explain how
the legal environment affects the valuation of closely held companies; |
| n |
describe alternative
valuation methods for closely held companies and distinguish
among the bases for the discounts and premiums for these companies; |
n |
describe alternative
valuation methods for closely held companies and distinguish
among the bases for the discounts and premiums for these companies; |
| o |
discuss distressed
securities investing and compare venture capital investing with
distressed securities investing; |
o |
discuss distressed
securities investing and compare venture capital investing with
distressed securities investing; |
| p |
discuss the
role of commodities as a vehicle for investing in production and
consumption; |
p |
discuss the
role of commodities as a vehicle for investing in production and
consumption; |
| q |
explain the
motivation for investing in commodities, commodities derivatives,
and commodity-linked securities; |
q |
explain the
motivation for investing in commodities, commodities derivatives,
and commodity-linked securities; |
| r |
discuss the
sources of return on a collateralized commodity futures position. |
r |
discuss the
sources of return on a collateralized commodity futures position. |
| 74 |
Investing
in Commodities |
a |
explain the
relationship between spot prices and expected future prices in terms
of contango and backwardation; |
74 |
Investing
in Commodities |
a |
explain the
relationship between spot prices and expected future prices in terms
of contango and backwardation; |
| b |
describe the
sources of return and risk for a commodity investment and the
effect on a portfolio of adding an allocation to commodities; |
b |
describe the
sources of return and risk for a commodity investment and the
effect on a portfolio of adding an allocation to commodities; |
| c |
explain why
a commodity index strategy is generally considered an active
investment. |
c |
explain why
a commodity index strategy is generally considered an active
investment. |
