| LOS Detail June 2010 (Old) |
LOS Detail June 2011 (New) |
| SS |
LOS |
LOS
Description |
Sub
LOS |
Sub
LOS Description |
SS |
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 sub-sections 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. |
| 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 nine 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; |
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 |
solve time
value of money problems when compounding periods are other than
annual; |
| 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 |
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; |
| f |
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; |
| - |
- |
b |
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); |
c |
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; |
d |
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; |
e |
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. |
f |
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 |
define
a parameter, a sample statistic, and a frequency distribution; |
| c |
calculate and
interpret relative frequencies and cumulative relative frequencies,
given a frequency distribution; |
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 |
describe the
properties of a data set presented as a histogram or a frequency
polygon; |
| 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 |
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; |
| f |
describe, calculate,
and interpret quartiles, quintiles, deciles, and percentiles; |
f |
describe,
calculate, and interpret quartiles, quintiles, deciles, and percentiles; |
| 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 |
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; |
| h |
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; |
| i |
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; |
| 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 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; |
| k |
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. |
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 |
define and
explain the multiplication, addition, and total probability rules; |
| 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
independet 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; |
| g |
distinguish
between dependent and independent events; |
g |
distinguish
between dependent and independent events; |
| h |
calculate and
interpret, using the total probability rule, an unconditional
probability; |
h |
calculate
and interpret, using the total probability rule, an unconditional
probability; |
| i |
explain the
use of conditional expectation in investment application |
i |
explain the
use of conditional expectation in investment applications; |
| j |
diagram an
investment problem using a tree diagram; |
j |
diagram an
investment problem using a tree diagram; |
| k |
calculate and
interpret covariance and correlation; |
k |
calculate
and interpret covariance and correlation; |
| 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 the expected value, variance, and standard deviation of
a
random variable and of returns on a portfolio; |
| m |
calculate and
interpret covariance given a joint probability function; |
m |
calculate
and interpret covariance given a joint probability function; |
| n |
calculate and
interpret an updated probability using Bayes’ formula; |
n |
calculate
and interpret an updated probability using Bayes’ formula; |
| o |
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; |
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 |
calculate
and interpret probabilities for a random variable, given its cumulative
distribution function; |
| e |
define a discrete
uniform random variable and a binomial random variable; |
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; |
f |
calculate
and interpret probabilities given the discrete uniform and the binomial
distribution functions; |
| g |
construct a
binomial tree to describe stock price movement; |
g |
construct
a binomial tree to describe stock price movement; |
| - |
- |
h |
define,
calculate, and interpret tracking error; |
| h |
describe the
continuous uniform distribution and calculate and interpret
probabilities, given a continuous uniform probability distribution; |
i |
describe the
continuous uniform distribution and calculate and interpret
probabilities, given a continuous uniform probability 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; |
j |
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; |
| j |
determine
the probability that a normally distributed random variable lies inside
a
given confidence interval; |
k |
determine
the probability that a normally distributed random variable lies inside
a
given interval; |
| k |
define the
standard normal distribution, explain how to standardize a random
variable, and calculate and interpret probabilities using the standard
normal
distribution; |
l |
define the
standard normal distribution, explain how to standardize a random
variable, and calculate and interpret probabilities using the standard
normal
distribution; |
| l |
define shortfall
risk, calculate the safety-first ratio, and select an optimal portfolio
using Roy’s safety-first criterion; |
m |
define shortfall
risk, calculate the safety-first ratio, and select an optimal portfolio
using Roy’s safety-first criterion; |
| m |
explain the
relationship between normal and lognormal distributions and why
the lognormal distribution is used to model asset prices; |
n |
explain the
relationship between normal and lognormal distributions and why
the lognormal distribution is used to model asset prices; |
| 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; |
o |
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; |
| o |
explain Monte
Carlo simulation and historical simulation and describe their major
applications and limitations. |
p |
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 (unbiased, efficient,
consistent); |
| 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 |
explain and
interpret the p-value as it relates to hypothesis testing; |
| 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; |
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 |
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); |
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); |
| 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; |
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; |
| j |
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 principles of technical analysis, its applications, and its underlying
assumptions; |
| b |
discuss
the advantages of and challenges to technical analysis; |
b |
discuss
the construction and interpretation of different types of technical
analysis
charts; |
| c |
list
and describe examples of each major category of technical trading rules
and
indicators. |
c |
demonstrate
the uses of trend, support, and resistance lines, and change in
polarity; |
| - |
- |
d |
identify
and interpret common chart patterns; |
| - |
- |
e |
discuss
common technical analysis indicators: price-based, momentum oscillators,
sentiment, and flow of funds; |
| - |
- |
f |
explain
the use of cycles by technical analysts; |
| - |
- |
g |
discuss
the key tenets of Elliott Wave Theory and the importance of Fibonacci
numbers; |
| - |
- |
h |
describe
intermarket analysis as it relates to technical analysis and asset
allocation. |
| 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 firm’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 firms 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 |
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; |
| g |
explain
why companies are often more efficient than markets in coordinating
economic activity. |
g |
explain
why firms 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 firm’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 firms in a
perfectly competitive market are price takers, and differentiate between
market
and firm 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 firm, 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 firm’s short-run supply curve and explain
the
impact of changes in demand, entry and exit of firms, 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, 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 |
compare
and contrast monopolistic competition and perfect competition; |
| c |
explain
the importance of innovation, product development, advertising, and
branding under monopolistic competition; |
d |
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
determine the profit-maximizing (loss-minimizing) output under each
model; |
e |
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. |
f |
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 demanded,
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 |
U.S.
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 |
explain the
costs of anticipated inflation; |
c |
explain the
costs of anticipated inflation; |
| d |
explain the
relation among inflation, nominal interest rates, and the demand and
supply of money; |
d |
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; |
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
Polic |
a |
discuss
the goals of U.S. monetary policy and the Federal Reserve’s (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) 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 |
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 |
explain the
relationship of financial statement elements and accounts, and
classify accounts into the financial statement elements; |
30 |
Financial
Reporting Mechanics |
a |
explain the
relationship of financial statement elements and accounts, and
classify accounts into the financial statement elements; |
| b |
explain the
accounting equation in its basic and expanded forms; |
b |
explain the
accounting equation in its basic and expanded forms; |
| c |
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; |
| d |
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; |
| e |
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; |
| f |
describe the
flow of information in an accounting system; |
f |
describe the
flow of information in an accounting system; |
| g |
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 qualitative characteristics of financial statements, the 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 |
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; |
| e |
distinguish
between the operating and nonoperating components of the income
statement; |
e |
distinguish
between the operating and nonoperating components of the income
statement; |
| 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; |
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; |
| 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; |
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; |
| h |
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; |
| i |
describe and
calculate comprehensive income; |
i |
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. |
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 |
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; |
| g |
list and explain
the components of owners’ equity; |
g |
list and explain
the components of owners’ equity; |
| h |
interpret balance
sheets and statements of changes in equity. |
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
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; |
| f |
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; |
| g |
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; |
| h |
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; |
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; |
b |
describe the
limitations of ratio analysis; |
| c |
describe the
various techniques of common-size analysis and interpret the results
of such 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; |
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; |
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); |
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; |
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. |
h |
describe how
ratio analysis and other techniques can be used to model and
forecast earnings. |
| 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; |
9 |
36 |
Inventories |
a |
distinguish
between costs included in inventories and costs recognized as
expenses in the period in which they are incurred; |
| 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 |
describe
different inventory valuation methods (cost formulas); |
| 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 th |
c |
calculate
cost of sales and ending inventory using different inventory valuation
methods and explain the impact of the inventory valuation method choice
on
gross profit; |
| d |
discuss
and calculate ratios useful for evaluating inventory management; |
d |
calculate,
compare, and contrast cost of sales, gross profit, and ending inventory
using perpetual and periodic inventory systems; |
| 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; |
e |
compare
and contrast cost of sales, ending inventory, and gross profit using
different inventory valuation methods; |
| f |
compute
and describe the effects of the choice of inventory method on
profitability, liquidity, activity, and solvency ratios; |
f |
discuss
the measurement of inventory at the lower of cost and net realisable
value; |
| g |
calculate
adjustments to reported financial statements related to inventory
assumptions to aid in comparing and evaluating companies; |
g |
describe
the financial statement presentation of and disclosures relating to
inventories; |
| h |
discuss
the reasons that a LIFO reserve might rise or decline during a given
period
and discuss the implications for financial analysis. |
h |
calculate
and interpret ratios used to evaluate inventory management. |
| 37 |
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 |
distinguish
between costs that are capitalised and costs that are expensed in the
period in which they are incurred; |
| 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 |
distinguish
between intangible assets with finite and indefinite useful lives; |
| c |
explain
the circumstances in which software development costs and research and
development costs are capitalized; |
c |
discuss
the different depreciation methods for property, plant, and equipment,
and the effect of the choice of depreciation method on the financial
statements,
and the assumptions concerning useful life, and residual value on depreciation
expense; |
| 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 |
calculate
depreciation expense given the necessary information; |
| 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 different amortisation methods for intangible assets with finite
lives,
the effect of the choice of amortisation method, and the assumptions
concerning useful life and residual value on amortisation expense; |
| f |
describe
amortization of intangible assets with finite useful lives and the
estimates that affect the amortization calculations; |
f |
calculate
amortisation expense given the necessary information; |
| 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 revaluation model; |
| h |
discuss
the impact of sales or exchanges of long-lived assets on financial
statements; |
h |
discuss
the impairment of property, plant, and equipment, and intangible assets; |
| 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 |
discuss
the derecognition of property, plant, and equipment, and intangible
assets; |
| j |
calculate
and describe both the initial and long-lived effects of asset revaluations
on financial ratios. |
j |
discuss
the financial statement presentation of and disclosures relating to
property, plant, and equipment, and intangible assets. |
| 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; |
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; |
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; |
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. |
| 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; |
39 |
Non-current
(Long-term) Liabilities |
a |
determine
the initial recognition and measurement and subsequent
measurement of bonds; |
| 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 |
discuss
the effective interest method and calculate interest expense, amortisation
of bond discounts/premiums, and interest payments; |
| c |
describe
the presentation of, and disclosures relating to, financing liabilities; |
c |
discuss
the derecognition of debt; |
| d |
determine
the effects of changing interest rates on the market value of debt and
on financial statements and ratios; |
d |
explain
the role of debt covenants in protecting creditors; |
| 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 |
discuss
the financial statement presentation of and disclosures relating to
debt; |
| 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; |
| g |
determine
the effects of finance and operating leases on the financial statements
and ratios of the lessees and lessors; |
g |
distinguish
between a finance lease and an operating lease from the perspectives
of the lessor and the lessee; |
| 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 |
determine
the initial recognition and measurement and subsequent
measurement of finance leases; |
| 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 |
compare
and contrast the disclosures relating to finance and operating leases; |
| - |
- |
j |
describe
defined contribution and defined benefit pension plans; |
| - |
- |
k |
compare
and contrast the presentation and disclosure of defined contribution
and defined benefit pension plans; |
| - |
- |
l |
calculate
and interpret leverage and coverage ratios. |
| 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; |
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 that may lead to fraudulent accounting related to
1) incentives and pressures, 2) opportunities, and 3) attitudes and
rationalizations; |
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 common
accounting warning signs and methods for detecting each; |
e |
describe common
accounting warning signs and methods for detecting each. |
| f |
describe
the accounting warning signs related to the Enron 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; |
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, 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
problems associated with each of the evaluation methods; |
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 |
Measures
of Leverage |
a |
define
and explain leverage, business risk, sales risk, operating risk, and
financial
risk, and classify a risk, given a description; |
| b |
calculate
and interpret the degree of operating leverage, the degree of financial
leverage, and the degree of total leverage; |
| c |
describe
the effect of financial leverage on a company’s net income and return
on equity; |
| d |
calculate
the breakeven quantity of sales and determine the company’s net
income at various sales levels; |
| e |
calculate
and interpret the operating breakeven quantity of sales. |
| 47 |
Dividends
and Share Repurchases: Basics |
a |
explain
regular cash dividends, extra dividends, stock dividends, stock splits,
and
reverse stock splits, including their expected effect on a shareholder’s
wealth and
a company’s financial ratios; |
| b |
describe
dividend payment chronology, including declaration, holder-of-record,
ex-dividend, and payment dates, and indicate when a dividend is reflected
in the
share price; |
| c |
compare
and contrast share repurchase methods; |
| d |
calculate
and compare the effects of a share repurchase on earnings per share
when 1) the repurchase is financed with the company’s excess cash
and 2) the
company uses funded debt to finance the repurchase; |
| e |
calculate
and describe the effect of a share repurchase on book value per share; |
| f |
explain
why a cash dividend and a share repurchase of the same amount are
equivalent in terms of the effect on shareholders’ wealth, all else
being equal. |
| 46 |
Working
Capital Management |
a |
describe primary
and secondary sources of liquidity and factors that influence a
company’s liquidity position; |
48 |
Working
Capital Management |
a |
describe primary
and secondary sources of liquidity and factors that influence a
company’s liquidity position; |
| b |
compare a company’s
liquidity measures with those of peer companies; |
b |
compare a
company’s liquidity measures with those of 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 |
evaluate overall
working capital effectiveness of a company, using the operating
and cash conversion cycles, and compare its effectiveness with other
peer
companies; |
| 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 |
- |
demonstrate
the use of pro forma income and balance sheet statements. |
49 |
Financial Statement
Analysis |
- |
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; |
50 |
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 |
|
| 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; |
| 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 vari |
| 50 |
An
Introduction to Portfolio Management |
a |
define
risk aversion and discuss evidence that suggests that individuals are
generally risk averse; |
51 |
Portfolio
Management: An Overview |
a |
explain
the importance of the portfolio perspective; |
| b |
list
the assumptions about investor behavior underlying the Markowitz model; |
b |
discuss
the types of investment management clients and the distinctive
characteristics and needs of each; |
| 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 |
describe
the steps in the portfolio management process; |
| d |
compute
and interpret the covariance of rates of return and show how it is
related to the correlation coefficient; |
d |
describe,
compare, and contrast mutual funds and other forms of pooled
investments. |
| 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; |
- |
- |
| 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 asse |
52 |
Portfolio
Risk and Return: Part I |
a |
calculate
and interpret major return measures and describe their applicability; |
| b |
identify
the market portfolio and describe the role of the market portfolio in
the
formation of the capital market line (CML); |
b |
describe
the characteristics of the major asset classes that investors would
consider in forming portfolios according to mean–variance portfolio
theory; |
| c |
define
systematic and unsystematic risk and explain why an investor should
not
expect to receive additional return for assuming unsystematic risk; |
c |
calculate
and interpret the mean, variance, and covariance (or correlation) of
asset returns based on historical data; |
| 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
risk aversion and its implications for portfolio selection; |
| e |
calculate,
using the SML, the expected return on a security and evaluate whether
the security is overvalued, undervalued, or properly valued. |
e |
calculate
and interpret portfolio standard deviation; |
| - |
- |
f |
describe
the effect on a portfolio’s risk of investing in assets that are less
than perfectly correlated; |
| - |
- |
g |
describe
and interpret the minimum-variance and efficient frontiers of risky
assets and the global minimum-variance portfolio; |
| - |
- |
h |
discuss
the selection of an optimal portfolio, given an investor’s utility
(or risk aversion) and the capital allocation line. |
| |
53 |
Portfolio
Risk and Return: Part II |
a |
discuss
the implications of combining a risk-free asset with a portfolio of
risky assets; |
| b |
explain
and interpret the capital allocation line (CAL) and the capital market
line (CML); |
| c |
explain
systematic and nonsystematic risk, and why an investor should not expect
to receive additional return for bearing nonsystematic risk; |
| d |
explain
return generating models (including the market model) and their uses; |
| e |
calculate
and interpret beta; |
| f |
explain
the capital asset pricing model (CAPM), including the requiredassumptions,
and the security market line (SML); |
| g |
calculate
and interpret the expected return of an asset using the CAPM; |
| h |
illustrate
applications of the CAPM and the SML. |
| 54 |
Basics
of Portfolio Planning and Construction |
a |
explain
the reasons for a written investment policy statement (IPS); |
| b |
list
and explain the major components of an IPS; |
| c |
discuss
risk and return objectives, including their preparation; |
| d |
distinguish
between the willingness and the ability (capacity) to take risk inanalyzing
an investor’s financial risk tolerance; |
| e |
describe
the investment constraints of liquidity, time horizon, tax concerns,
legal and regulatory factors, and unique circumstances and their implications
for the choice of portfolio assets; |
| f |
explain
the definition and specification of asset classes in relation to asset
allocation; |
| g |
discuss
the principles of portfolio construction and the role of asset allocation
in relation to the IPS. |
| 13 |
52 |
Organization
and Functioning of Securities Markets |
a |
describe
the characteristics of a well-functioning securities market; |
13 |
55 |
Market
Organization and Structure |
a |
explain
and illustrate the main functions of the financial system; |
| b |
distinguish
between primary and secondary capital markets and explain how
secondary markets support primary markets; |
b |
describe
classifications of assets and markets; |
| c |
distinguish
between call and continuous markets; |
c |
describe
the major types of securities, currencies, contracts, commodities, and
real assets that trade in organized markets, including their distinguishing
characteristics and major subtypes; |
| d |
compare
and contrast the structural differences among national stock exchanges,
regional stock exchanges, and the over-the-counter (OTC) markets; |
d |
describe
the types of financial intermediaries and the services that they provide; |
| e |
compare
and contrast major characteristics of various exchange markets,
including exchange membership, types of orders, and market makers; |
e |
compare
and contrast the positions an investor can take in an asset; |
| f |
describe
the process of selling a stock short and discuss an investor’s likely
motivation for selling short; |
f |
calculate
and interpret the leverage ratio, the rate of return on a margin transaction,
and the security 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. |
g |
compare
and contrast execution, validity, and clearing instructions; |
| - |
- |
h |
compare
and contrast market orders with limit orders; |
| - |
- |
i |
describe
the primary and secondary markets and explain how secondary markets
support primary markets; |
| - |
- |
j |
describe
how securities, contracts, and currencies are traded in quote-driven
markets, order-driven markets and brokered markets; |
| - |
- |
k |
describe
the characteristics of a well-functioning financial system; |
| - |
- |
l |
describe
the objectives of market regulation. |
| 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 unweig |
56 |
Security
Market Indices |
a |
describe
a security market index; |
| b |
compare
and contrast major structural features of domestic and global stock
indices, bond indices, and composite stock-bond indices; |
b |
calculate
and interpret the value, price return, and total return of an index; |
| c |
state
how low correlations between global markets support global investment. |
c |
discuss
the choices and issues in index construction and management; |
| - |
- |
d |
compare
and contrast the different weighting methods used in index construction; |
| - |
- |
e |
calculate
and interpret the value and return of an index on the basis of its weighting
method; |
| - |
- |
f |
discuss
rebalancing and reconstitution; |
| - |
- |
g |
discuss
uses of security market indices; |
| - |
- |
h |
discuss
types of equity indices; |
| - |
- |
i |
discuss
types of fixed-income indices; |
| - |
- |
j |
discuss
indices representing alternative investments; |
| - |
- |
k |
compare
and contrast the types of security market indices. |
| 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; |
- |
- |
| 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. |
- |
- |
| 55 |
Market
Efficiency and Anomalies |
a |
explain
the three limitations to achieving fully efficient markets; |
57 |
Market
Efficiency |
a |
discuss
market efficiency and related concepts, including their importance to
investment practitioners; |
| b |
describe
four problems that may prevent arbitrageurs from correcting anomalies; |
b |
explain
the factors affecting a market’s efficiency; |
| c |
explain
why an apparent anomaly may be justified and describe the common
biases that distort testing for mispricings; |
c |
distinguish
between market value and intrinsic value; |
| d |
explain
why a mispricing may persist and why valid anomalies may not be
profitable. |
d |
compare
and contrast the weak-form, semi-strong form, and strong-form market
efficiency; |
| - |
- |
e |
explain
the implications of each form of market efficiency for fundamental analysis,
technical analysis, and the choice between active and passive portfolio
management; |
| - |
- |
f |
discuss
identified market pricing anomalies and explain possible inconsistencies
with market efficiency; |
| - |
- |
g |
compare
and contrast the behavioral finance view of investor behavior to that
of traditional finance in regards to market efficiency. |
| 14 |
56 |
An
Introduction to Security Valuation |
a |
explain
the top-down approach, and its underlying logic, to the security valuation
process; |
14 |
58 |
Overview
of Equity Securities |
a |
discuss
the importance and relative performance of equity securities in global
financial markets; |
| b |
state
the various forms of investment returns; |
b |
discuss
the characteristics of various types of equity securities; |
| c |
calculate
and interpret the value of both a preferred stock and a common stock
using the dividend discount model (DDM); |
c |
distinguish
between public and private equity securities; |
| 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 |
discuss
the differences in voting rights and other ownership characteristics
among various equity classes; |
| 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 |
e |
discuss
the methods for investing in non-domestic equity securities; |
| 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 |
compare
and contrast the risk and return characteristics of various types of
equity securities; |
| 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 |
explain
the role of equity securities in the financing of a company’s assets
and creating company value; |
| - |
- |
h |
distinguish
between the market value and book value of equity securities; |
| - |
- |
i |
compare
and contrast a company’s cost of equity, its (accounting) return on
equity, and investors’ required rates of return. equity, and investors’
required rates of return. |
| 57 |
Industry
Analysis |
- |
describe
how structural economic changes
(e.g., demographics, technology, politics, and regulation) may affect
industries. |
59 |
Introduction
to Industry and Company Analysis |
a |
explain
the uses of industry analysis and the relation of industry analysis
to company analysis; |
| - |
- |
b |
compare
and contrast the methods by which companies can be grouped, current
industry classification systems, and classify a company, given a description
of its activities and the classification system; |
| - |
- |
c |
explain
the factors that affect the sensitivity of a company to the business
cycle and the uses and limitations of industry and company descriptors
such as “growth,” “defensive,” and “cyclical”; |
| - |
- |
d |
explain
the relation of “peer group,” as used in equity valuation, to a
company’s industry classification; |
| - |
- |
e |
discuss
the elements that need to be covered in a thorough industry analysis; |
| - |
- |
f |
illustrate
demographic, governmental, social, and technological influences on industry
growth, profitability, and risk; |
| - |
- |
g |
describe
product and industry life cycle models, classify an industry as to life
cycle phase (e.g., embryonic, growth, shakeout, maturity, or decline)
based on a description of it, and discuss the limitations of the life-cycle
concept in forecasting industry performance; |
| - |
- |
h |
explain
the effects of industry concentration, ease of entry, and capacity on
return on invested capital and pricing power; |
| - |
- |
i |
discuss
the principles of strategic analysis of an industry; |
| - |
- |
j |
compare
and contrast the characteristics of representative industries from the
various economic sectors; |
| - |
- |
k |
describe
the elements that should be covered in a thorough company analysis. |
| 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; |
60 |
Equity
Valuation: Concepts and Basic Tools |
a |
evaluate
whether a security, given its current market price and a value estimate,
is overvalued, fairly valued, or undervalued by the market; |
| 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
major categories of equity valuation models; |
| - |
- |
c |
explain
the rationale for using present-value of cash flow models to value equity
and describe the dividend discount and free-cash-flow-to-equity models; |
| - |
- |
d |
calculate
the intrinsic value of a non-callable, non-convertible preferred stock; |
| - |
- |
e |
calculate
and interpret the intrinsic value of an equity security based on the
Gordon (constant) growth dividend discount model or a two-stage dividend
discount model, as appropriate; |
| - |
- |
f |
identify
companies for which the constant growth or a multistage dividend discount
model is appropriate; |
| - |
- |
g |
explain
the rationale for using price multiples to value equity and distinguish
between multiples based on comparables versus multiples based on fundamentals; |
| - |
- |
h |
calculate
and interpret the following multiples: price to earnings, price to an
estimate of operating cash flow, price to sales, and price to book value; |
| - |
- |
i |
explain
the use of enterprise value multiples in equity valuation and demonstrate
the use of enterprise value multiples to estimate equity value; |
| - |
- |
j |
explain
asset-based valuation models and demonstrate the use of asset-based
models to calculate equity value; |
| - |
- |
k |
explain
the advantages and disadvantages of each category of valuation model.
2011 Level |
| 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. |
|
|
| 15 |
60 |
Features
of Debt Securities |
a |
explain the
purposes of a bond’s indenture and describe affirmative and negative
covenants; |
15 |
61 |
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; |
62 |
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 |
calculate
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 and the origins of sovereign risk. |
| 62 |
Overview
of Bond Sectors and Instruments |
a |
describe the
features, credit risk characteristics, and distribution methods for
government securities; |
63 |
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); |
64 |
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 |
calculate,
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 |
calculate
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 |
65 |
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 |
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 |
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 |
calculate
and interpret the bond equivalent yield of an annual-pay bond and the
annual-pay yield of a semiannual-pay bond; |
| e |
compute
the value of a zero-coupon bond; |
e |
describe
the methodology for computing the theoretical Treasury spot rate curve
and calculate the value of a bond using spot rates; |
| 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 |
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; |
| - |
- |
h |
explain
a forward rate and calculate spot rates from forward rates, forward
rates from spot rates, and the value of a bond using forward rates. |
| 65 |
Yield
Measures, Spot Rates, and Forward Rates |
a |
explain the
sources of return from investing in a bond; |
66 |
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 |
calculate
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 |
calculate
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 calculate 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 calculate 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; |
67 |
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 |
d |
calculate
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; |
| - |
- |
e |
calculate
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; |
f |
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; |
g |
calculate
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; |
h |
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; |
i |
differentiate
between modified convexity and effective convexity; |
| i |
compute
the price value of a basis point (PVBP), and explain its relationship
to
duration. |
j |
calculate
the price value of a basis point (PVBP), and explain its relationship
to duration; |
| - |
- |
k |
discuss
the impact of yield volatility on the interest rate risk of a bond. |
| 17 |
67 |
Derivative
Markets and Instruments |
a |
define a derivative
and differentiate between exchange-traded and over-the counter
derivatives; |
17 |
68 |
Derivative
Markets and Instruments |
a |
define a derivative
and differentiate between exchange-traded and over-thecounter derivatives; |
| b |
define a forward
commitment and a contingent claim; |
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 |
differentiate
among the basic characteristics of forward contracts, futures contracts,
options (calls and puts), and swaps; |
| d |
discuss the
purposes and criticisms of derivative markets; |
d |
discuss the
purposes and criticisms of derivative markets; |
| e |
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; |
69 |
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 and calculate the gain/loss 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; |
70 |
Futures
Markets and Contracts |
a |
describe the
characteristics of futures contracts; |
| b |
distinguish
between futures contracts and forward contracts; |
b |
distinguish
between futures contracts and forward contracts; |
| 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 |
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; |
| 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
price limits and the process of marking to market, and calculate and
interpret the margin balance, given the previous day’s balance and
the change in the futures price; |
| e |
describe how
a futures contract can be terminated at or prior to expiration; |
e |
describe how
a futures contract can be terminated at or prior to expiration; |
| f |
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: Treasury
bill, Eurodollar, Treasury bond, stock index, and currency. |
| 70 |
Option
Markets and Contracts |
a |
define
European option, American option, and the concept of moneyness of an
option; |
71 |
Option
Markets and Contracts |
a |
describe
call and put options; |
| - |
- |
b |
distinguish
between European and American options; |
| - |
- |
c |
define
the concept of moneyness of an option; |
| b |
differentiate
between exchange-traded options and over-the-counter options; |
d |
differentiate
between exchange-traded options and over-the-counter options; |
| c |
identify the
types of options in terms of the underlying instruments; |
e |
identify the
types of options in terms of the underlying instruments; |
| d |
compare and
contrast interest rate options with forward rate agreements (FRAs); |
f |
compare and
contrast interest rate options with forward rate agreements (FRAs); |
| e |
define interest
rate caps, floors, and collars; |
g |
define interest
rate caps, floors, and collars; |
| f |
compute
and interpret option payoffs, and explain how interest rate option
payoffs differ from the payoffs of other types of options; |
h |
calculate
and interpret option payoffs, and explain how interest rate options
differ from other types of options; |
| g |
define intrinsic
value and time value and explain their relationship; |
i |
define intrinsic
value and time value, and explain their relationship; |
| h |
determine the
minimum and maximum values of European options and
American options; |
j |
determine
the minimum and maximum values of European options and American options; |
| i |
calculate and
interpret the lowest prices of European and American calls and
puts based on the rules for minimum values and lower bounds; |
k |
calculate
and interpret the lowest prices of European and American calls and puts
based on the rules for minimum values and lower bounds; |
| j |
explain how
option prices are affected by the exercise price and the time to
expiration; |
l |
explain how
option prices are affected by the exercise price and the time to expiration; |
| k |
explain put–call
parity for European options, and relate put–call parity to
arbitrage and the construction of synthetic options; |
m |
explain put–call
parity for European options, and relate put–call parity to arbitrage
and the construction of synthetic options; |
| l |
contrast American
options with European options in terms of the lower bounds
on option prices and the possibility of early exercise; |
n |
contrast American
options with European options in terms of the lower bounds on option
prices and the possibility of early exercise; |
| m |
explain how
cash flows on the underlying asset affect put–call parity and the
lower bounds of option prices; |
o |
explain how
cash flows on the underlying asset affect put–call parity and the
lower bounds of option prices; |
| n |
indicate the
directional effect of an interest rate change or volatility change on
an option’s price. |
p |
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; |
72 |
Swap
Markets and Contracts |
a |
describe the
characteristics of swap contracts and explain how swaps are terminated; |
| b |
define, calculate,
and interpret the payment of currency swaps, plain vanilla
interest rate swaps, and equity swaps. |
b |
define, calculate,
and interpret the payments 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; |
73 |
Risk
Management Applications of Option Strategies |
a |
determine
the value at expiration, the 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 |
74 |
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 aftertax 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 |
define
hedge fund in terms of objectives, legal structure, and fee structure,
and
describe the various classifications of hedge funds; |
i |
discuss
the objectives, legal structure, and fee structures typical of hedge
funds, 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; |
75 |
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. |
