| LOS Detail (Old) |
LOS Detail (New) |
| SS |
LOS |
Sub LOS |
Sub LOS Description |
SS |
LOS |
Sub LOS |
Sub LOS Description |
|
| 1 |
1 |
A |
State the six components of the Code of Ethics and the seven Standards of Professional Conduct. (page 11) |
1 |
1 |
A. |
State the six components of the Code of Ethics and the seven Standards of Professional Conduct; |
|
|
B |
Explain the ethical responsibilities required by the Code and Standards. (page II) |
|
|
B. |
Explain the ethical responsibilities required by the Code and Standards. |
|
2 |
A. |
Demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to spcciRc situations. (page 16) |
|
2 |
A. |
Demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situations; |
|
|
B. |
Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct. {page 16) |
|
|
B. |
Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct. |
|
3 |
A. |
Define "soft dollar" arrangements and stare the general principles oFthe Soft Dollar Standards. (page 101) |
|
3 |
A. |
Define soft-dollar arrangements and state the general principles of the Soft Dollar Standards; |
|
|
B. |
Critique company soft dollar practices and policies. (page 102) |
|
|
B. |
Critique company soft-dollar practices and policies; |
|
|
C. |
Determine whether a product or service qualifies as "permissible research" that can be purchased with client brokerage. (page 105) |
|
|
C. |
Determine whether a product or service qualifies as �permissible research� that can be purchased with client brokerage. |
|
4 |
A. |
Explain the objectives oFthe Research Objectivity Standards. (page 111) |
|
4 |
A. |
Explain the objectives of the Research Objectivity Standards; |
|
|
B. |
Critique company policies and practices related to research objectivity and distinguish between changes required and changes recommended for compliance with the Research Objectivity Standards. (page 112) |
|
|
B. |
Critique company policies and practices related to research objectivity and distinguish between changes required and changes recommended for compliance with the Research Objectivity Standards. |
|
| 2 |
5 |
- |
- |
2 |
5 |
A. |
Critique the practices and policies presented; |
|
|
- |
- |
|
|
B. |
Explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct. |
|
6 |
- |
- |
|
6 |
A. |
Critique the practices and policies presented; |
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|
- |
- |
|
|
B. |
Explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct. |
|
7 |
A |
Critique the practices and policies presented. (pages 121, 123, 126) |
|
7 |
A. |
Critique the practices and policies presented; |
|
|
B |
Explain the appropriate action to rake in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct. (pages 121, 123, 126) |
|
|
B. |
Explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct. |
|
8 |
A. |
Critique trade allocation practices and determine whether there is compliance with the CFA Institute Standards of Professional Conduct addressing fair dealing and client loyalty. (page 129) |
|
8 |
A. |
Critique trade allocation practices and determine whether there is compliance with the CFA Institute Standards of Professional Conduct addressing fair dealing and client loyalty; |
|
|
B. |
Discuss appropriate actions to take in response to trade allocation practices that do not adequately respect client interests. (page 130) |
|
|
B. |
Discuss appropriate actions to take in response to trade allocation practices that do not adequately respect client interests. |
|
9 |
A. |
Critique the disclosure of investment objectives and basic policies and determine whether they comply with the CFA Institute Standards of Professional Conduct. (page 131) |
|
9 |
A. |
Critique the disclosure of investment objectives and basic policies and determine whether they comply with the CFA Institute Standards of Professional Conduct; |
|
|
B. |
Discuss appropriate actions needed to ensure adequate disclosure of the investment process. (page 132) |
|
|
B. |
Discuss appropriate actions needed to ensure adequate disclosure of the investment process. |
|
10 |
A. |
Explain the basic principles of the new Prudent Investor Rule. (page 133) |
|
10 |
A. |
Explain the basic principles of the new Prudent Investor Rule; |
|
|
B. |
Explain the general fiduciary standards to which a trustee must adhere. (page 134) |
|
|
B. |
Explain the general fiduciary standards to which a trustee must adhere; |
|
|
C. |
Differentiate between the old Prudent Man Rule and the new Prudent Investor Rule. (page 135) |
|
|
C. |
Differentiate between the old Prudent Man Rule and the new Prudent Investor Rule; |
|
|
D. |
Explain the key factors that a trustee should consider when investing and managing trust assets. (page 135) |
|
|
D. |
Explain the key factors that a trustee should consider when investing and managing trust assets. |
|
| 3 |
11 |
A. |
Calculate and interpret a sample covariance and a sample correlation coefficient, and interpret a scatter plot. (page 140) |
3 |
11 |
A. |
Calculate and interpret a sample covariance and a sample correlation coefficient and interpret a scatter plot; |
|
|
B. |
Explain the limitations to correlation analysis, including outliers and spurious correlation. (page 145) |
|
|
B. |
Explain the limitations to correlation analysis, including outliers and spurious correlation; |
|
|
C. |
Formulate a test oFthe hypothesis that the population correlation coefficient equals zero, and determine whether the hypothesis is rejected ar a given level of significance. (page 145) |
|
|
C. |
Formulate a test of the hypothesis that the population correlation coefficient equals zero and determine whether the hypothesis is rejected at a given level of significance; |
|
|
D. |
Differentiate between the dependent and independent variables in a linear regression. (page 147) |
|
|
D. |
Differentiate between the dependent and independent variables in a linear regression; |
|
|
E. |
Explain the assumptions underlying linear regression and interpret the regression coefficients. (page 148) |
|
|
E. |
Explain the assumptions underlying linear regression and interpret the regression coefficients; |
|
|
F. |
Calculate and interpret the standard error of estimate, the coefficient of determination, and a confidence interval for a regression coefficient. (page 152) |
|
|
F. |
Calculate and interpret the standard error of estimate, the coefficient of determination, and a confidence interval for a regression coefficient; |
|
|
G. |
Formulate a null and alternative hypothesis about a population value of a regression coefficient, select the appropriate test statistic, and determine whether the null hypothesis is rejected at a given level of significance. (page 154) |
|
|
G. |
Formulate a null and alternative hypothesis about a population value of a regression coefficient, select the appropriate test statistic, and determine whether the null hypothesis is rejected at a given level of significance; |
|
|
H. |
Calculate a predicted value for the dependent variable, given an estimated regression model and a value For the independent variable, and calculate and interpret a confidence interval for the predicted value of a dependent variable. (page I55) |
|
|
H. |
Calculate a predicted value for the dependent variable, given an estimated regression model and a value for the independent variable and calculate and interpret a confidence interval for the predicted value of a dependent variable; |
|
|
I. |
Describe the use of analysis of variance (ANOVA) in regression analysis, interpret ANOVA results, and calculate and interpret an F-statistic. (page 157) |
|
|
I. |
Describe the use of analysis of variance (ANOVA) in regression analysis, interpret ANOVA results, and calculate and interpret an F-statistic; |
|
|
J. |
Discuss the limitations of regression analysis (page 162) |
|
|
J. |
Discuss the limitations of regression analysis. |
|
12 |
A. |
Formulate a multiple regression equation to describe the relation between a dependent variable and several independent variables, determine the statistical significance of each independent variable, and interpret the estimated coefficients and their p-val |
|
12 |
A. |
Formulate a multiple regression equation to describe the relation between a dependent variable and several independent variables, determine the statistical significance of each independent variable, and interpret the estimated coefficients and their p-val |
|
|
B. |
Formulate a null and an alternative hypothesis about the population value of a regression coefficient, calculate the value of the test statistic, determine whether to reject the null hypothesis at a given level of significance, using a one-tailed or two-t |
|
|
B. |
Formulate a null and an alternative hypothesis about the population value of a regression coefficient, calculate the value of the test statistic, determine whether to reject the null hypothesis at a given level of significance by using a one-tailed or two |
|
|
C. |
Calculate and interpret 1) a confidence interval For the population value of a regression coefficient and 2) a predicted value for the dependent variable, given an estimated regression model and assumed values for the independent variables. (page 182) |
|
|
C. |
Calculate and interpret 1) a confidence interval for the population value of a
regression coefficient and 2) a predicted value for the dependent variable, given
an estimated regression model and assumed values for the independent
variables; |
|
|
D. |
Explain the assumptions ofa multiple regression model. (page 184) |
|
|
D. |
Explain the assumptions of a multiple regression model; |
|
|
E. |
Calculate and interpret the F-statistic, and discuss how it is used in regression analysis, define, distinguish between, and interpret the R2 and adjusted R2 in multiple regression, and infer how well a regression model explains the dependent variable by |
|
|
E. |
Calculate and interpret the F-statistic and discuss how it is used in regression
analysis; define, distinguish between, and interpret the R2 and adjusted R2 in
multiple regression; and infer how well a regression model explains the
dependent variable by a |
|
|
F. |
Formulate a multiple regression equation using dummy variables to represent qualitative factors, and interpret the coefficients and regression results. (page 193) |
|
|
F. |
Formulate a multiple regression equation by using dummy variables to represent
qualitative factors and interpret the coefficients and regression results; |
|
|
G. |
Discuss the types of heteroskedasticiry and the effects of heteroskedasticity and serial correlation on statistical inference. (page 196) |
|
|
G. |
Discuss the types of heteroskedasticity and the effects of heteroskedasticity and
serial correlation on statistical inference; |
|
|
H. |
Describe multicoliineariry and discuss its causes and effects in regression analysis. (page 203) |
|
|
H. |
Describe multicollinearity and discuss its causes and effects in regression analysis; |
|
|
I. |
Discuss the effects of model misspecification on the results of a regression analysis, and explain how to avoid the common forms of misspecification. (page 205) |
|
|
I. |
Discuss the effects of model misspecification on the results of a regression
analysis and explain how to avoid the common forms of misspecification; |
|
|
J. |
Discuss models with qualitative dependent variables. (page 209) |
|
|
J. |
Discuss models with qualitative dependent variables; |
|
|
K. |
interpret the economic meaning oFthe results of multiple regression analysis, and critique a regression model and its results. (page 210) |
|
|
K. |
Interpret the economic meaning of the results of multiple regression analysis and
critique a regression model and its results. |
|
13 |
A. |
Calculate and evaluate the predicted trend value for a rime series, modeled as either a linear trend or a log-Iinear trend, given the estimated trend coefficients. (page 222) |
|
13 |
A. |
Calculate and evaluate the predicted trend value for a time series, modeled as
either a linear trend or a log-linear trend, given the estimated trend coefficients; |
|
|
B. |
Discuss the factors that determine whether a linear or a log-linear trend should be used with a particular time series, and evaluate the limitations of trend models. (page 228) |
|
|
B. |
Discuss the factors that determine whether a linear or a log-linear trend should be
used with a particular time series and evaluate the limitations of trend models; |
|
|
C. |
Explain the requirement for a rime series to be covariance stationary, and discuss the significance of a series not being stationary. (page 237) |
|
|
C. |
Explain the requirement for a time series to be covariance stationary and discuss
the significance of a series not being stationary; |
|
|
D. |
Discuss the structure of an autoregressive model of order p, calculate one- andtwo-period-ahead forecasts given the estimated coefficients, and explain how autocorrelacions of the residuals can be used to rest whether the autoregressive model fits the tim |
|
|
D. |
Discuss the structure of an autoregressive (AR) model of order p, calculate oneand
two-period-ahead forecasts given the estimated coefficients, and explain
how autocorrelations of the residuals can be used to test whether the
autoregressive model fits the |
|
|
E. |
Explain mean reversion, and calculate a mean-reverting level. (page 238) |
|
|
E. |
Explain mean reversion and calculate a mean-reverting level; |
|
|
F. |
Contrast in-sample forecasts and out-of-sample forecasts, and compare the forecasting accuracy of different time-series models based on the root mean squared error criterion. (page 236) |
|
|
F. |
Contrast in-sample and out-of-sample forecasts and compare the forecasting
accuracy of different time-series models based on the root mean squared error
criterion; |
|
|
G. |
Discuss the instability of coefficients of time-series models. (page 236) |
|
|
G. |
Discuss the instability of coefficients of time-series models; |
|
|
H. |
Describe the characteristics of random walk processes, and contrast them to covariance stationary processes. (page 239) |
|
|
H. |
Describe the characteristics of random walk processes and contrast them to
covariance stationary processes; |
|
|
I. |
Discuss the implications of unit roots for time-series analysis, explain when unit roots are likely to occur and how to test for them, and demonstrate how a time series with a unit root can be transformed so that it can be analyzed with an autoregressive |
|
|
I. |
Discuss the implications of unit roots for time-series analysis, explain when unit
roots are likely to occur and how to test for them, and demonstrate how a time
series with a unit root can be transformed so it can be analyzed with an AR model; |
|
|
J. |
Discuss the steps of the unit root test for nonscationarity, and explain the relation of the test to autoregressive time series models. (page 241) |
|
|
J. |
Discuss the steps of the unit root test for nonstationarity and explain the relation
of the test to autoregressive time-series models; |
|
|
K. |
Discuss how to test and correct for seasonality in a time-series model, and calculate and interpret a Forecasted value using an AR model with a seasonal lag. (page 232) |
|
|
K. |
Discuss how to test and correct for seasonality in a time-series model and
calculate and interpret a forecasted value using an AR model with a seasonal lag; |
|
|
L. |
Explain autoregressive conditional hereroskedasticiry (ARCH), and discuss how ARCH models can be applied to predict the variance of a time series. (page 247) |
|
|
L. |
Explain autoregressive conditional heteroskedasticity (ARCH) and discuss how
ARCH models can be applied to predict the variance of a time series; |
|
|
M. |
Explain how time-series variables should be analyzed for nonstarionarity and/or cointegration before use in a linear regression. (page 245) |
|
|
M. |
Explain how time-series variables should be analyzed for nonstationarity and/or
cointegration before use in a linear regression; |
|
|
N. |
Select and justify the choice of a particular time-series model from a group of models. (page 248) |
|
|
N. |
Select and justify the choice of a particular time-series model from a group of
models. |
|
| 4 |
14 |
A. |
Calculate how many years it would rake For real GDP to double in an advanced economy growing at a real rate of 2% as compared ro an emerging market economy growing at 7%. (page 10) |
4 |
14 |
- |
- |
|
|
B. |
Define the sources of economic growth. (page 11) |
|
|
A. |
Define the sources of economic growth and discuss the preconditions for
economic growth; |
|
|
C. |
Discuss the preconditions for economic growth. (page 12) |
|
|
- |
- |
|
|
D. |
Discuss how the one-third rule can be used to explain the contributions of labor and technological change to growth in labor productivity. (page 12) |
|
|
B. |
Discuss how the one-third rule can be used to explain the contributions of labor
and technological change to growth in labor productivity; |
|
|
E. |
Discuss the ways in which faster economic growth can be achieved by increasing the growth of physical capital, technological advance, and investment in human capital. (page 15) |
|
|
C. |
Discuss how faster economic growth can be achieved by increasing the growth
of physical capital, technological advances, and investment in human capital; |
|
|
F. |
Compare and contrast classical growth theory, neo-classical growth theory, and the new growth theory. (page 16) |
|
|
D. |
Compare and contrast classical growth theory, neoclassical growth theory, and
new growth theory. |
|
15 |
A. |
Discuss the objectives of regulation and the concepts of cost-of-service regulation and rate-of-return regulation. (page 30) |
|
15 |
A. |
Explain the rationale for government regulation in the form of 1) economic
regulation of natural monopolies and 2) social regulation of nonmonopolistic
industries; |
|
|
B. |
Discuss the benefits of social regulation. (page 30) |
|
|
B. |
Discuss the potential benefits and possible negative side effects of social
regulation; |
|
|
C. |
Analyze negative side effects of regulation. (page 31) |
|
|
- |
- |
|
|
D. |
Distinguish between the different types of regulators' behavior. (page 31) |
|
|
C. |
Differentiate between the capture hypothesis and the share-the-gains, share-thepains
theory of regulator behavior. |
|
|
E. |
Discuss the cost of regulation and the effects of deregulation. (page 32) |
|
|
|
|
|
16 |
A. |
Explain comparative advantage and how countries can gain from international trade. (page 38) |
|
16 |
A. |
Explain comparative advantage and how countries can gain from international
trade; |
|
|
B. |
Compare and contrast tariffs, non-tariff barriers, quotas, and voluntary export restraints. (page 41) |
|
|
B. |
Compare and contrast tariffs, nontariff barriers, quotas, and voluntary export
restraints; |
|
|
C. |
Critique the arguments for trade restrictions. (page 43) |
|
|
C. |
Critique the arguments for trade restrictions. |
|
17 |
A. |
Define the exchange rare and distinguish between the nominal exchange rate and the real exchange rate. (page 49) |
|
17 |
A. |
Define an exchange rate and differentiate between the nominal exchange rate
and the real exchange rate; |
|
|
B. |
Explain the factors that influence supply and demand in the foreign exchange marker. (page 50) |
|
|
B. |
Explain the factors that influence supply and demand in the foreign exchange
market; |
|
|
C. |
Discuss how the supply and demand For a currency changes the exchange race. (page 52) |
|
|
C. |
Discuss how the supply and demand for a currency changes the exchange rate; |
|
|
D. |
Distinguish between interest rare parity and purchasing power parity. (page 53) |
|
|
D. |
Differentiate between interest rate parity and purchasing power parity; |
|
|
E. |
Describe the balance of payments accounts. (page 54) |
|
|
E. |
Describe the balance of payments accounts; |
|
|
F |
Describe possible exchange rare policies: flexible exchange rates, fixed exchange rates, and crawling pegs. (page 55) |
|
|
F. |
Describe the following exchange rate policies: flexible exchange rates, fixed
exchange rates, and crawling pegs. |
|
18 |
A. |
Define direct and indirecr methods of foreign exchange quotations and convert direct (indirect) foreign exchange quotations into indirect (direct) Foreign exchange quotations. (page 61) |
|
18 |
A. |
Define direct and indirect methods of foreign exchange quotations and convert
direct (indirect) foreign exchange quotations into indirect (direct) foreign
exchange quotations; |
|
|
B. |
Calculate and interpret the spread on a foreign currency quorarinn and explain how spreads on foreign currency quorations can differ as a result of market condirions, hank/deafer positions, and trading volume. (page 63) |
|
|
B. |
Calculate and interpret the spread on a foreign currency quotation and explain
how spreads on foreign currency quotations can differ as a result of market
conditions, bank/dealer positions, and trading volume; |
|
|
C. |
Calculate and interpret currency cross rates, given two spot exchange quotations involving three currencies. (page 64) |
|
|
C. |
Calculate and interpret currency cross rates, given two spot exchange quotations
involving three currencies; |
|
|
D. |
Calculate rhe profit on a Triangular arbitrage opportunity, given the bid-ask quorarions for the currencies of three countries involved in rhe arbitrage. (page 67) |
|
|
D. |
Calculate the profit on a triangular arbitrage opportunity, given the bid�ask
quotations for the currencies of three countries involved in the arbitrage; |
|
|
E. |
Distinguish between the spot and forward markers for foreign exchange. (page 68) |
|
|
E. |
Distinguish between the spot and forward markets for foreign exchange; |
|
|
F |
Calculate and interpret the spread on a forward Foreign currency quotation and explain how spreads on forward foreign currency quotations can differ as a result of market conditions, bank/dealer positions, trading volume, and maturiryl length of contracr. |
|
|
F. |
Calculate and interpret the spread on a forward foreign currency quotation and
explain how spreads on forward foreign currency quotations can differ as a result
of market conditions, bank/dealer positions, trading volume, and maturity/length
of contract; |
|
|
G. |
Calculate and interpret a forward discount or premium and express it as an annualized rate. (page 69) |
|
|
G. |
Calculate and interpret a forward discount or premium and express it as an
annualized rate; |
|
|
H. |
Explain interest rare parity and illustrate covered interest arbitrage. (page 71) |
|
|
H. |
Explain interest rate parity and illustrate covered interest arbitrage; |
|
|
I. |
Distinguish between spot and forward transactions, and calculate the annualized forward premium/discount for a given currency and infer whether the currency is "strong" or "weak." (page 69) |
|
|
I. |
Distinguish between spot and forward transactions, calculate the annualized
forward premium/discount for a given currency, and infer whether the currency
is �strong� or �weak.� |
|
19 |
A. |
Explain how exchange races are determined in a flexible (or floating) exchange race system. (page 82) |
|
19 |
A. |
Explain how exchange rates are determined in a flexible (or floating) exchange
rate system; |
|
|
B. |
Explain the role of each component of the balance of payments accounts. (page 82) |
|
|
B. |
Explain the role of each component of the balance of payments accounts; |
|
|
C. |
Explain how current account deficits or surpluses and financial account deficits or surpluses affect an economy. (page 83) |
|
|
C. |
Explain how current account deficits or surpluses and financial account deficits or
surpluses affect an economy; |
|
|
D. |
Describe the factors that cause a nation's currency to appreciate or depreciate. (page 84) |
|
|
D. |
Describe the factors that cause a nation�s currency to appreciate or depreciate; |
|
|
E. |
Explain how monetary and fiscal policies affect the exchange rate and balance of payments components. (page 85) |
|
|
E. |
Explain how monetary and fiscal policies affect the exchange rate and balance of
payments components; |
|
|
F. |
Describe a fixed exchange rate and a pegged exchange rate system. (page 86) |
|
|
F. |
Describe a fixed exchange rate and a pegged exchange rate system; |
|
|
G. |
Define and discuss absolute purchasing power parity and telativc purchasing power parity. (page 87) |
|
|
G. |
Define and discuss absolute purchasing power parity and relative purchasing
power parity; |
|
|
H. |
Calculate the end-of-period exchange rate implied by purchasing power parity, given the beginning-of-period exchange rate and the inflation rates. (page 87) |
|
|
H. |
Calculate the end-of-period exchange rate implied by purchasing power parity,
given the beginning-of-period exchange rate and the inflation rates; |
|
|
I. |
Define and discuss the international Fisher relation. (page 89) |
|
|
I. |
Define and discuss the international Fisher relation; |
|
|
J. |
Calculate the real interest rate, given interest rates and inflation rates and the assumption that the international Fisher relation holds. (page 89) |
|
|
J. |
Calculate the real interest rate, given interest rates and inflation rates and the
assumption that the international Fisher relation holds; |
|
|
K. |
Calculate the international Fisher relation, and its linear approximation, between interest rates and expected inflation rates. (page 89) |
|
|
K. |
Calculate the international Fisher relation, and its linear approximation, between
interest rates and expected inflation rates; |
|
|
L. |
Define and discuss the theory of uncovered interest rate parity and explain the theory's relationship to other exchange rate parity theories. (page 92) |
|
|
L. |
Define and discuss the theory of uncovered interest rate parity and explain the
theory�s relation to other exchange rate parity theories; |
|
|
M. |
Calculate the expected change in the exchange rate, given interest rates and the assumption that uncovered interest rate parity holds. (page 92) |
|
|
M. |
Calculate the expected change in the exchange rate, given interest rates and the
assumption that uncovered interest rate parity holds; |
|
|
N. |
Discuss the foreign exchange expectation relation between the forward exchange rate and the expected exchange rate. (page 93) |
|
|
N. |
Discuss the foreign exchange expectation relation between the forward exchange
rate and the expected exchange rate. |
|
20 |
A. |
Distinguish between the different measures of economic activity and their components. (page 105) |
|
20 |
A. |
Distinguish between the different measures of economic activity and their
components; |
|
|
B. |
Distinguish between GDP at market prices and GDP at factor cost, and explain the adjustments made. (page 107) |
|
|
B. |
Differentiate between GDP at market prices and GDP at factor cost and explain
the adjustments made; |
|
|
C. |
Discuss the difference between current and constant prices, and the GDP deflator. (page 107) |
|
|
C. |
Differentiate between current and constant prices and describe the GDP deflator. |
|
| 5 |
21 |
A. |
Explain the categorization of intercorporate investments into minority passive, minority active, joint ventures, and controlling interest. (page 114) |
5 |
21 |
A. |
Describe the classification, measurement, and disclosure under the International
Financial Reporting Standards (IFRS) for 1) investments in financial assets,
2) investments in associates, 3) joint ventures, 4) business combinations, and
5) special purpose and variable interest entities (SPEs, VIEs); |
|
|
B. |
Describe the reporting under IFRS and U.S. GAAP of the four categories of intercorporate investments including the use of different accounting methods: equity, proportionate consolidation and consolidation; and including the treatment of goodwill. (page 1 |
|
|
B. |
Distinguish between IFRS and U.S. GAAP in the classification, measurement, and
disclosure of investments in financial assets, investments in associates, joint
ventures, business combinations, and special purpose and variable interest
entities; |
|
|
C. |
Contrast the purchase method, the pooling of interest method, and the acquisition method, used in business combinations, and evaluate the impact of each method on reported financial results. (page 128) |
|
|
C. |
Analyze the effects on financial ratios of the different methods used to account
for intercorporate investments. |
|
|
D. |
Explain the implications on performance ratios of the different accounting methods used for intercorporate investments. (page 135) |
|
- |
- |
- |
|
|
E. |
Identify the accounting issues associated with special purpose entities (SPEs) or variable interest entities. (page 136) |
|
- |
- |
- |
|
22 |
A. |
Describe the form of, characteristics of, and rationale For establishing VIES. (page 152) |
|
- |
- |
- |
|
|
B. |
Describe the conditions under which a VIE must be consolidated. (page l53) |
|
- |
- |
- |
|
| 6 |
23 |
A. |
Explain the types of post-retirement benefit plans and the implications for financial reports. (page 159) |
6 |
22 |
A. |
Discuss the types of post-employment benefit plans and the implications for
financial reports; |
|
|
B. |
Explain the measures of a defined-benefit pension plan's liabilities, including the projected benefit obligation, accumulated benefir obligation, and vested benefit obligation. (page 160) |
|
|
B. |
Explain the measures of a defined benefit pension plan�s liability (i.e., defined
benefit obligation and projected benefit obligation); |
|
|
C. |
Describe the components of a company's defined-benefit pension expense and explain the impact of plan assumptions on that pension expense. (page 164) |
|
|
C. |
Describe the components of a company�s defined benefit pension expense; |
|
|
- |
- |
|
|
D. |
Explain the impact of a defined benefit plan�s assumptions on the defined
benefit obligation and periodic expense; |
|
|
D. |
Explain the impact on financial statements of international financial reporting standards (IFRS) and U.S. generally accepted accounting principles (U.S. GAAP) for pension and other post-retirement benefits that permit some items to be reported in the foot |
|
|
E. |
Explain the impact on financial statements of International Financial Reporting
Standards (IFRS) and U.S. Generally Accepted Accounting Principles (U.S. GAAP)
for pension and other post-employment benefits that permit items to be
reported in the footnotes rather than in the financial statements; |
|
|
E. |
Evaluate pension plan Footnote disclosures including cash flow related information. (page 174) |
|
|
F. |
Evaluate pension plan footnote disclosures including cash flow related
information; |
|
|
F. |
Evaluate the underlying economic liability (or asset) of a company based upon pension and other post-retirement benefit disclosures. (page 174) |
|
|
G. |
Evaluate the underlying economic liability (or asset) of a company�s pension and
other post-employment benefits; |
|
|
G. |
Calculate the underlying economic pension and other post-retirement expense (income) based on disclosures. (page 171) |
|
|
H. |
Calculate the underlying economic pension expense (income) and other postemployment
expense (income) based on disclosures; |
|
|
H. |
Discuss the main issues involved in accounting for share-based compensation. (page 175) |
|
|
I. |
Discuss the issues involved in accounting for share-based compensation; |
|
|
I. |
Explain the impact on financial statements of accounting For stock grants and stock options, and the importance of companies' assumptions in valuing these grants and options. (page 175) |
|
|
J. |
Explain the impact on financial statements of accounting for stock grants and
stock options, and the importance of companies� assumptions in valuing these
grants and options. |
|
24 |
A. |
Distinguish local currency, functional currency, and the presentation currency (page L86) |
|
23 |
A. |
Distinguish among presentation currency, functional currency, and local currency; |
|
|
B. |
Analyze the impact of changes in exchange races on the translated sales of the subsidiary and parent company. (page 186) |
|
|
B. |
Analyze the impact of changes in exchange rates on the translated sales of the
subsidiary and parent company; |
|
|
C. |
Compare and contrast the current rate method and the temporal method, analyze and evaluate the effects of each on the parent company's balance sheet and income statement, and disringuish which method is appropriate in various scenarios. (page 188) |
|
|
C. |
Compare and contrast the current rate method and the temporal method,
analyze and evaluate the effects of each on the parent company�s balance sheet
and income statement, and determine which method is appropriate in various
scenarios; |
|
|
D. |
Calculate the translation effects, evaluate the translation of a subsidiary's balance sheer and income statement into the parent company's currency, use the current rate method and the temporal method ro analyze how the translation of a subsidiary's finan |
|
|
D. |
Calculate the translation effects, evaluate the translation of a subsidiary�s balance
sheet and income statement into the parent company�s currency, and analyze
the differential effect of the current rate method and the temporal method on
the subsidiary�s financial ratios; |
|
|
- |
- |
|
|
E. |
Analyze how using the temporal method versus the current rate method will
affect the parent company�s financial ratios; |
|
|
E. |
Illustrate and analyze alternative accounting methods For subsidiaries operating in hyperinflationary economies. (page 205) |
|
|
F. |
Illustrate and analyze alternative accounting methods for subsidiaries operating
in hyperinflationary economies. |
|
| 7 |
25 |
A. |
Distinguish among the various definitions of earnings (e.g., EBITDA, operating earnings, net income, etc.). (page 221) |
7 |
24 |
A. |
Distinguish among the various definitions of earnings (e.g., EBITDA, operating
earnings, net income, etc.); |
|
|
B. |
Illustrate how trends in cash flow from operations can be more reliable than earnings trends. (page 222) |
|
|
B. |
illustrate how trends in cash flow from operations can be more reliable than
trends in earnings; |
|
|
C. |
Provide a simplified description of the accounting treatment for derivatives being used: � to hedge exposure to changes in the value of assets and liabilities. (page 222) � to hedge exposure to variable cash flow. (page 222) � to hedge a foreign currency |
|
|
C. |
Provide a simplified description of the accounting treatment for derivatives being
used to hedge:
exposure to changes in the value of assets and liabilities,
exposure to variable cash flow, and
a foreign currency exposure of an instrument in a foreign corporation. |
|
26 |
A. |
Contrast accrual accounting and cash accounting and explain why accounting discretion exists in an accrual accounting system. (page 229) |
|
25 |
A. |
Contrast cash-basis and accrual-basis accounting and explain why accounting
discretion exists in an accrual accounting system; |
|
|
B. |
Describe the relationship between the level of accruals and the persistence of earnings, and the relative multiples which the cash and accrual components of earnings should rationally receive in valuation. (page 231) |
|
|
B. |
Describe the relation between the level of accruals and the persistence of
earnings and the relative multiples that the cash and accrual components of
earnings should rationally receive in valuation; |
|
|
C. |
List and explain the opportunities and motivations for management to intervene in the external financial reporting process, and the mechanisms that discipline such intervention. (page 233) |
|
|
C. |
Discuss the opportunities and motivations for management to intervene in the
external financial reporting process and the mechanisms that discipline such
intervention; |
|
|
D. |
Discuss earnings quality, explain simple measures of earnings quality, and compare and contrast the earnings quality of peer companies. (page 234) |
|
|
D. |
Discuss earnings quality and the measures of earnings quality, and compare and
contrast the earnings quality of peer companies; |
|
|
E. |
Explain mean reversion in earnings and the expected relations between the speed of mean reversion and the accruals component of earnings. (page 239) |
|
|
E. |
Explain mean reversion in earnings and how the accruals component of earnings
affects the speed of mean reversion; |
|
|
F. |
Identify and explain problems in financial reporting related to revenue recognition, expense recognition, the reporting of assets and liabilities, and the cash flow statement. (page 239) |
|
|
F. |
Discuss problems with the quality of financial reporting, including revenue
recognition, expense recognition, balance sheet issues, and cash flow statement
issues, and interpret warning signs of these potential problems. |
|
|
G. |
Explain and interpret warning signs of potential problems in each of the major areas of financial reporting (i.e., revenue, expenses, assets, liabilities, and cash flow) and warning signs of overall vulnerability to financial reporting problems. (page 244 |
|
|
- |
- |
|
27 |
A. |
Analyze and evaluate the balance sheet for assets and liabilities that are not recorded, and for assets and liabilities for which the amounts shown on the balance sheet differ from their current values. (page 258) |
|
26 |
A. |
Demonstrate the use of a framework for the analysis of financial statements,
given a particular problem, question, or purpose (e.g., valuing equity based on
comparables, critiquing a credit rating, obtaining a comprehensive picture of
financial leverage, evaluating the perspectives given in management�s discussion
of financial results);
|
|
|
B. |
Analyze and evaluate the balance sheet for the current value of assets and liabilities. (page 260) |
|
|
B. |
Identify financial reporting choices and biases that affect the quality and
comparability of companies� financial statements and illustrate how such biases
affect financial decisions; |
|
|
C. |
Compute a company's normal operating earnings and comprehensive income. (page 265) |
|
|
C. |
Adjustments to improve quality and comparability with similar companies,
including adjustments for differences in accounting rules, methods, and
assumptions; |
|
|
D. |
Analyze and interpret; � the effect on reported financial results and ratios of a company's choices of accounting methods and assumptions. (page 270) � the effect on reported financial results and ratios of changes in accounting methods and assumptions. ( |
|
|
D. |
Predict the impact on financial statements and ratios, given a change in
accounting rules, methods, or assumptions; |
|
- |
- |
- |
|
|
E. |
Analyze and interpret the effects of balance sheet modifications, earnings
normalization, and cash-flow-statement-related modifications on a company�s
financial statements, financial ratios, and overall financial condition. |
|
| 8 |
28 |
A. |
Compute the yearly cash flows of an expansion capital project and of a replacement capital project, and evaluate how the choice of depreciation method affects those cash flows. (page 14) |
8 |
27 |
A. |
Compute the yearly cash flows of an expansion capital project and a replacement
capital project and evaluate how the choice of depreciation method affects those
cash flows; |
|
|
B. |
Discuss the effects of inflation on capital budgeting analysis. (page 21) |
|
|
B. |
Discuss the effects of inflation on capital budgeting analysis; |
|
|
C. |
Evaluate and select the optimal capita! project in situations of (1) mutually exclusive projects with unequal lives, using either the least common multiple of lives approach or the equivalent annual annuity approach, and (2) capital rationing. (page 22) |
|
|
C. |
Evaluate and select the optimal capital project in situations of 1) mutually
exclusive projects with unequal lives, using either the least common multiple of
lives approach or the equivalent annual annuity approach, and 2) capital
rationing; |
|
|
D. |
Explain how sensitivity analysis, scenario analysis, and Monte Carlo simulation can be used to assess the stand-alone risk of a capital project. (page 27) |
|
|
D. |
Explain how sensitivity analysis, scenario analysis, and Monte Carlo simulation
can be used to assess the stand-alone risk of a capital project; |
|
|
E. |
Discuss the procedure for determining the discount rate to be used in valuing a capital project, and calculate a project's required rate of return using the CAPM. (page 30) |
|
|
E. |
Discuss the procedure for determining the discount rate to be used in valuing a
capital project and calculate a project�s required rate of return using the capital
asset pricing model (CAPM); |
|
|
F. |
Discuss the types of real options, and evaluate a capital project using real options. (page 31) |
|
|
F. |
Discuss the types of real options and evaluate a capital project using real options; |
|
|
G. |
Discuss common capital budgeting pitfalls. (page 34) |
|
|
G. |
Discuss common capital budgeting pitfalls; |
|
|
H. |
Calculate and interpret accounting income and economic income in the context of capital budgeting. (page 35) |
|
|
H. |
Calculate and interpret accounting income and economic income in the context
of capital budgeting; |
|
|
I. |
Differentiate among, and evaluate a capital project using, the following valuation models: economic profit (EP), residual income, and claims valuation. (page 39) |
|
|
I. |
Differentiate among and evaluate a capital project using the following valuation
models: economic profit, residual income, and claims valuation. |
|
29 |
A. |
Define and explain leverage, business risk, sales risk, operating risk, and financial risk, and classify a risk, given a description. (page 59) |
|
28 |
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 toral leverage. (page 60) |
|
|
B. |
Calculate and interpret the degree of operating leverage, the degree of financial
leverage, and the degree of total leverage; |
|
|
C. |
Characterize the operating leverage, financial leverage, and total leverage of a company given a description of it. (page 63) |
|
|
- |
- |
|
|
D. |
Calculate the breakeven quantity of sales and determine the company's net income at various sales levels. (page 64) |
|
|
C. |
Calculate the breakeven quantity of sales and determine the company�s net
income at various sales levels; |
|
|
E. |
Describe the effect of financial leverage on a company's net income and return on equity. (page 66) |
|
|
D. |
Describe the effect of financial leverage on a company�s net income and return
on equity; |
|
|
F. |
Compare and contrast the risks of creditors and owners. (page 68) |
|
|
E. |
Compare and contrast the risks of creditors and owners; |
|
|
G. |
Describe the objective of the capita] structure decision. (page 68) |
|
|
- |
- |
|
|
H. |
Discuss the Modigliani and Miller (MM) propositions concerning capital structure irrelevance and describe the relation between the cost of equity and financial leverage. (page 69) |
|
|
F. |
Discuss the Modigliani�Miller propositions concerning capital structure, including
the impact of leverage, taxes, financial distress, agency costs, and asymmetric
information on a company�s cost of equity, cost of capital, and optimal capital
structure; |
|
|
I. |
Discuss the effect of taxes on the MM propositions, the cost of capital, and the value of a company. (page 71) |
|
|
- |
- |
|
|
J. |
Identify and explain the costs of financial distress, the agency costs and net agency costs of equity, the costs of asymmetric information, and their relation to a company's optimal capital structure. (page 73) |
|
|
- |
- |
|
|
K. |
Explain and diagram the static trade-off theory of the optimal capital structure. (page 7's) |
|
|
- |
- |
|
|
L. |
Compare the implications of the MM propositions, the pecking order theory of capital structure, and the static trade-off theory of capital structure. (page 76) |
|
|
- |
- |
|
|
M. |
Explain the target capital structure and wily actual capital structure may Huctuare around the target. (page 77) |
|
|
G. |
Explain the target capital structure and why actual capital structure may fluctuate
around the target; |
|
|
N. |
Review the role of debt ratings in capital structure policy. (page 77) |
|
|
H. |
Review the role of debt ratings in capital structure policy; |
|
|
O. |
Explain the factors an analyst should consider in evaluating the impact of capital structure policy on valuation. (page 78) |
|
|
I. |
Explain the factors an analyst should consider in evaluating the impact of capital
structure policy on valuation; |
|
|
P. |
Discuss international differences in financial leverage and the implications for investment analysis. (page 79) |
|
|
J. |
Discuss international differences in financial leverage and the implications for
investment analysis. |
|
30 |
A. |
Review cash dividends, stock dividends, stocks splits, and reverse stock splits and calculate and discuss their impact on a shareholder's wealth. (page 92) |
|
29 |
A. |
Discuss cash dividends, stock dividends, stocks splits, and reverse stock splits and
evaluate their impact on a shareholder�s wealth; |
|
|
B. |
Compare the impact on shareholder wealth of a share repurchase and a cash dividend of equal amount. (page 95) |
|
|
B. |
Compare the impact on shareholder wealth of a share repurchase with a cash
dividend of equal amount; |
|
|
C. |
Calculate the earnings per share effect of a share repurchase when the repurchase is made with borrowed funds and The company's after-tax cost of debt is greater (less) than its earnings yield. (page 97) |
|
|
C. |
Calculate the earnings per share effect of a share repurchase when the
repurchase is made with borrowed funds and the company�s after-tax cost of
debt is greater (less) than its earnings yield; |
|
|
D. |
calculate the book value effect of a share repurchase when the market value of a share is greater (less) than book value per share. (page 98) |
|
|
D. |
Calculate the book value effect of a share repurchase when the market value of a
share is greater (less) than book value per share; |
|
|
E. |
Compare and contrast share repurchase methods. (page 99) |
|
|
E. |
Compare and contrast share repurchase methods; |
|
|
F. |
Review dividend payment chronology including declaration, holder-of-record, exdividend, and payment dates and indicate when the share price will most likely reflect the dividend. (page 95) |
|
|
F. |
Review dividend payment chronology including declaration, holder-of-record, exdividend,
and payment dates and indicate when a dividend is reflected in the
share price; |
|
|
G. |
Summarize the factors affecting dividend payout policy. (page 100) |
|
|
G. |
Summarize the factors affecting dividend payout policy; |
|
|
H. |
Calculate the effective tax rate on a dollar of corporate earnings distributed as a dividend using the double-taxation, split rate, and tax imputation systems. (page 101) |
|
|
H. |
Calculate the effective tax rate on a dollar of corporate earnings distributed as a
dividend using the double-taxation, split rate, and tax imputation systems; |
|
|
I, |
Discuss the types of information that dividend initiations, increases, decreases, and omissions may convey, and cross-country differences in the signaling content of dividends. (page 103) |
|
|
I. |
Discuss the types of information that dividend initiations, increases, decreases,
and omissions may convey and cross-country differences in the signaling content
of dividends; |
|
|
J. |
Compare and contrast the following dividend policies: residual dividend, longer term residual dividend, dividend stability, and target payout ratio. (page 104) |
|
|
J. |
Compare and contrast the following dividend policies: residual dividend, longerterm
residual dividend, dividend stability, and target payout ratio; |
|
|
K. |
Calculate a company's expected dividend using the variables in the target payout approach. (page 10G) |
|
|
K. |
Calculate a company�s expected dividend using the variables in the target payout
approach; |
|
|
L. |
Discuss the rationales for share repurchases and explain the signals that share repurchases may generate. (page 107) |
|
|
L. |
Discuss the rationales for share repurchases and explain the signals that share
repurchases may generate; |
|
|
M. |
Differentiate among the schools of thought on dividends (dividend irrelevance, dividend preference, and tax aversion), and discuss Their implications for shareholder value and the price-to-earnings ratio. (page 108) |
|
|
M. |
Differentiate among the schools of thought on dividends (dividend irrelevance,
dividend preference, and tax aversion) and discuss their implications for
shareholder value and the price-to-earnings ratio; |
|
|
N. |
Demonstrate how the initiation of a regular dividend payout might affect the price-to-earnings multiple_ (page 109) |
|
|
N. |
Demonstrate how the initiation of a regular dividend payout might affect the
price-to-earnings multiple. |
|
| 9 |
31 |
A. |
Explain corporate governance, discuss the objectives and the core attributes of an effective corporate governance system, and evaluate whether a company's corporate governance has those attributes. (page 122) |
9 |
30 |
A. |
Explain corporate governance, discuss the objectives and the core attributes of
an effective corporate governance system, and evaluate whether a company�s
corporate governance has those attributes; |
|
|
B. |
Compare and contrast the major business forms and describe the conflicts of interest associated with each. (page 123) |
|
|
B. |
Compare and contrast the major business forms and describe the conflicts of
interest associated with each; |
|
|
C. |
Discuss the conflicts that arise in agency relationships, including manager shareholder conflicts and director-shareholder conflicts. (page 124) |
|
|
C. |
Discuss the conflicts that arise in agency relationships, including
manager�shareholder conflicts and director�shareholder conflicts; |
|
|
D. |
Describe the responsibilities of the board of directors, and explain the qualifications and core competencies that an investment analyst should look for in the board of directors. (page 126) |
|
|
D. |
Describe the responsibilities of the board of directors and explain the
qualifications and core competencies that an investment analyst should look for
in the board of directors; |
|
|
E. |
Illustrate effective corporate governance practice as it relates to the board of directors, and evaluate the strengths and weaknesses of a company's corporate governance practice. (page 126) |
|
|
E. |
Illustrate effective corporate governance practice as it relates to the board of
directors and evaluate the strengths and weaknesses of a company�s corporate
governance practice; |
|
|
F. |
Describe the elements of a company's statement of corporate governance policies that investment analysts should assess. (page 129) |
|
|
F. |
Describe the elements of a company�s statement of corporate governance
policies that investment analysts should assess; |
|
|
G. |
Discuss the valuation implications of corporate governance. (page 129) |
|
|
G. |
Discuss the valuation implications of corporate governance. |
|
32 |
A. |
Categorize merger and acquisition (M&A) activities based on forms of integration and types of mergers. (page 139) |
|
31 |
A. |
Categorize merger and acquisition (M&A) activities based on forms of integration
and types of mergers; |
|
|
B. |
Explain the common motivations behind M8CA activity. (page 140) |
|
|
B. |
Explain the common motivations behind M&A activity; |
|
|
C. |
Illustrate how earnings per share (EPS) bootstrapping works and calculate a company's post-merger EPS. (page 143) |
|
|
C. |
Illustrate how earnings per share (EPS) bootstrapping works and calculate a
company�s postmerger EPS; |
|
|
D. |
Discuss the relation between merger motivations and types of mergers based on industry lifecycles. (page 145) |
|
|
D. |
Discuss the relation between merger motivations and types of mergers based on
industry life cycles; |
|
|
E. |
Contrast merger transaction characteristics by form of acquisition, method of payment, and attitude of target management. (page 147) |
|
|
E. |
Contrast merger transaction characteristics by form of acquisition, method of
payment, and attitude of target management; |
|
|
F. |
Distinguish and describe pre-offer and post-offer takeover defense mechanisms. (page 150) |
|
|
F. |
Distinguish and describe pre-offer and post-offer takeover defense mechanisms; |
|
|
G. |
Summarize U.S. antitrust legislation. (page 153) |
|
|
G. |
Summarize U.S. antitrust legislation; |
|
|
H. |
Calculate the Herfendahl-Hirschman Index (RHI) and evaluate the likelihood of an antitrust challenge for a given business combination. (page 154) |
|
|
H. |
Calculate the Herfindahl�Hirschman Index and evaluate the likelihood of an
antitrust challenge for a given business combination; |
|
|
I. |
Compare and contrast the three major methods for valuing a target company including the advantages and disadvantages of each. (page 168) |
|
|
I. |
Compare and contrast the three major methods for valuing a target company,
including the advantages and disadvantages of each; |
|
|
J. |
Calculate free cash flows for a target company and estimate the company's intrinsic value based upon discounted cash flow analysis. (page 156) |
|
|
J. |
Calculate free cash flows for a target company and estimate the company�s
intrinsic value based on discounted cash flow analysis; |
|
|
K. |
Estimate the intrinsic value of a company using comparable company analysis. (page 161) |
|
|
K. |
Estimate the intrinsic value of a company using comparable company analysis
and comparable transaction analysis; |
|
|
L. |
Estimate the intrinsic value of a company using comparable transaction analysis. (page 166) |
|
|
- |
- |
|
|
M. |
Evaluate a merger bid, calculate the estimated post-merger value of an acquirer, and calculate the gains accrued to the target shareholders versus the acquirer shareholders. (page 170) |
|
|
L. |
Evaluate a merger bid, calculate the estimated post-merger value of an acquirer,
and calculate the gains accrued to the target shareholders versus the acquirer
shareholders; |
|
|
N. |
Explain the effects of price and payment method on the distribution of risks and benefits in a merger transaction, (page 174) |
|
|
M. |
Explain the effects of price and payment method on the distribution of risks and
benefits in a merger transaction; |
|
|
O. |
Describe the empirical evidence related to the distribution of benefits in a merger. (page 174) |
|
|
N. |
Describe the empirical evidence related to the distribution of benefits in a
merger; |
|
|
P. |
Define, compare, and contrast divestitures, equity carve-ours, spin-offs, split-offs, and liquidation. (page 175) |
|
|
O. |
Compare and contrast divestitures, equity carve-outs, spin-offs, split-offs, and
liquidation; |
|
|
Q. |
Discuss the major reasons For divestitures. (page 176) |
|
|
P. |
Discuss the major reasons for divestitures. |
|
| 10 |
33 |
- |
Valuation by Graham and Dodd and John Burr Williams are reflected in modern techniques of equity valuation. (page 13) |
10 |
32 |
- |
Valuation by Graham and Dodd and John Burr Williams are reflected in modern techniques of equity valuation. (page 13) |
|
34 |
A. |
Define valuation and discuss the uses of valuation models. (page 15) |
|
33 |
A. |
Define valuation and intrinsic value, and explain possible sources of perceived
mispricing; |
|
|
B. |
Contrast quantitative and qualitative Factors in valuation. (page 16) |
|
|
B. |
Explain the going-concern assumption, contrast a going concern value to a
liquidation value, and identify the definition of value most relevant to public
company valuation; |
|
|
C. |
Discuss the importance of quality oFinputs in valuation. (page 16) |
|
|
C. |
Discuss the uses of equity valuation; |
|
|
D. |
Discuss the importance of the interpretation of footnotes to accounting statements and other disclosures. (page 17) |
|
|
D. |
Explain the elements of industry and competitive analysis and the importance of
evaluating the quality of financial statement information; |
|
|
E. |
Calculate alpha. (page 18) |
|
|
E. |
Contrast absolute and relative valuation models, and describe examples of each
type of model; |
|
|
F. |
Contrast the going-concern and non-going-concern assumptions in valuation. (page 19) |
|
|
F. |
Illustrate the broad criteria for choosing an appropriate approach for valuing a
given company. |
|
|
G. |
Contrast absolute valuation models to relative valuation models. (page 19) |
|
|
- |
- |
|
|
H. |
Discuss the role of ownership perspective in valuation. (page 20) |
|
|
- |
- |
|
35 |
A. |
Explain the origins of different national market organizations. (page 28) |
|
34 |
A. |
Explain the origins of different national market organizations; |
|
|
B. |
Differentiate between an order-driven market and a price-driven market, and explain the risks and advantages of each. (page 29) |
|
|
B. |
Differentiate between an order-driven market and a price-driven market and
explain the risks and advantages of each; |
|
|
C. |
Calculate the impact of different national taxes on the return clan international investment. (page 31) |
|
|
C. |
Calculate the impact of different national taxes on the return of an international
investment; |
|
|
D. |
Discuss the various components ofexecution costs (Le., commissions and fees, marker impact, and opportuniry cost) and explain ways to reduce execution costs, and discuss the advantages and disadvantages of each. (page 32) |
|
|
D. |
Discuss the various components of execution costs (i.e., commissions and fees,
market impact, and opportunity cost) and approaches to reducing these costs; |
|
|
E. |
Describe an American Depositary Receipr (ADR), and differentiate among the various forms of ADRs in terms of trading and information supplied by the listed company. (page 35) |
|
|
E. |
Describe an American Depositary Receipt (ADR) and differentiate among the
various forms of ADRs in terms of trading and information supplied by the listed
company; |
|
|
F. |
Explain why firms choose to be listed abroad and calculate the cost trade-off between buying shares listed abroad and buying ADRs. (page 35) |
|
|
F. |
Explain why companies choose to be listed abroad and calculate the cost tradeoff
between buying shares listed abroad and buying ADRs; |
|
|
G. |
State the determinants of the value of a closed-end country fund. (page 37) |
|
|
G. |
State the determinants of the value of a closed-end country fund; |
|
|
H. |
Discuss the advantages of exchange-traded funds (ETFs) and explain the pricing of international ETFs in relation to their net asset value (NAV). (page 37) |
|
|
H. |
Discuss the advantages of exchange-traded funds (ETFs) and explain the pricing
of international ETFs in relation to their net asset value (NAV); |
|
|
I. |
Discuss the advantages and disadvantages of the various alternatives to direct international investi |
|
|
I. |
Discuss the advantages and disadvantages of the various alternatives to direct
international investing. |
|
36 |
A. |
Distinguish among the following return concepts: holding period return, realized return and expected return, required return, discount rate, the return from convergence of price to intrinsic value (given that price does not equal value), and internal rare |
|
35 |
A. |
Distinguish among the following return concepts: holding period return, realized
return and expected return, required return, discount rate, the return from
convergence of price to intrinsic value (given that price does not equal value),
and internal rate of return; |
|
|
B. |
Explain the equity risk premium and its use in required return determination, and demonstrate the use of historical and forward-looking estimation approaches. (page 50) |
|
|
B. |
Explain the equity risk premium and its use in required return determination, and
demonstrate the use of historical and forward-looking estimation approaches; |
|
|
C. |
Discuss the strengths and weaknesses of the major methods of estimating the equity risk premium. (page 50) |
|
|
C. |
Discuss the strengths and weaknesses of methods used to estimate the equity
risk premium;
|
|
|
D. |
Explain and demonstrate the use of the capital asset pricing model (CAPM), Fama-French model (UM), the Pastor-Stambaugh model (PSM), macroeconomic multifacror models, and the build-up method (including band yield plus risk premium method) for estimating t |
|
|
D. |
Demonstrate the use of the capital asset pricing model (CAPM), the Fama�French
model (FFM), the Pastor�Stambaugh model (PSM), macroeconomic multifactor
models, and the build-up method (including bond yield plus risk premium
method) for estimating the required return on an equity investment; |
|
|
E. |
Discuss beta estimation fnr public companies, thinly traded public companies, and nonpublic companies. (page 60) |
|
|
E. |
Discuss beta estimation for public companies, thinly traded public companies,
and nonpublic companies; |
|
|
F. |
Analyze the strengths and weaknesses of the major methods of estimating the required return on an equity investment. (page 62) |
|
|
F. |
Analyze the strengths and weaknesses of methods used to estimate the required
return on an equity investment; |
|
|
G. |
Discuss international considerations in required return estimation. (page 63) |
|
|
G. |
Discuss international considerations in required return estimation; |
|
|
H. |
Explain and calculate the weighted average cost of capital for a company. (page 63) |
|
|
H. |
Explain and calculate the weighted average cost of capital for a company; |
|
|
I. |
Explain the appropriateness of using a particular rate of return as a discount rate, given a description of the cash Row to be discounted and other relevant facts. (page 64) |
|
|
I. |
Evaluate the appropriateness of using a particular rate of return as a discount
rate, given a description of the cash flow to be discounted and other relevant
facts. |
|
| 11 |
37 |
A. |
Discuss the most important issues, such as the information problem, that arise when investing internationally. (page 73) |
11 |
36 |
A. |
Discuss common issues that arise when investing internationally (e.g., differences
in accounting standards); |
|
|
B. |
Demonstrate the various steps involved in global industry analysis, including country analysis. (page 74) |
|
|
- |
- |
|
|
C. |
Distinguish between country analysis and industry analysis and compare and evaluate key concepts of industry analysis such as demand analysis, industry life cycle analysis, and competition structure analysis as well as risk elements inherent in industry a |
|
|
B. |
Distinguish between country analysis and industry analysis and compare and
evaluate key concepts of industry analysis, such as demand analysis, industry life
cycle analysis, and competition structure analysis, as well as risk elements
inherent in industry analysis;
|
|
|
D. |
Demonstrate how to conduct a global industry analysis by analyzing the return potential and risk characteristics of a prospective investment in a global context. (page 77) |
|
|
- |
- |
|
|
E. |
Evaluate two common approaches of equity analysis (ratio analysis and discounted cash flow models including the Franchise value mode]) and demonstrate how to find attractively priced stocks by using either of these merhods_ (page 8 ] ) |
|
|
C. |
Evaluate the common approaches of equity analysis (ratio analysis and
discounted cash flow models, including the franchise value model) and identify
mispriced stocks using either method; |
|
|
F. |
Analyze the effects of inflation on asset valuation. (page 85) |
|
|
D. |
Analyze the effects of inflation on asset valuation; |
|
|
G. |
Discuss multifacror models as applied in a global context. (page 86) |
|
|
E. |
Discuss multifactor models in a global context. |
|
38 |
A. |
Distinguish among the Five competitive forces that drive indusrry profirability in the medium and long run. (page 98) |
|
37 |
A. |
Distinguish among the five competitive forces that drive industry profitability in
the medium and long run; |
|
|
B. |
Illustrate how the competitive forces drive industry profitability. (page 99) |
|
|
B. |
Illustrate how the competitive forces drive industry profitability; |
|
|
C. |
Describe why industry growth rate, technology and innovation, government, and complementary products and services are fleeting factors rather than Forces shaping industry structure (page 101) |
|
|
C. |
Describe why industry growth rate, technology and innovation, government, and
complementary products and services are fleeting factors rather than forces
shaping industry structure; |
|
|
D. |
Indicate why eliminating rivals is a risky strategy. (page 102) |
|
|
D. |
Indicate why eliminating rivals is a risky strategy; |
|
|
E. |
Show how positioning a company, exploiting industry change, and the ability to shape industry structure are creative strategies for achieving a competitive advantage. (page 102) |
|
|
E. |
Show how positioning a company, exploiting industry change, and the ability to
shape industry structure are creative strategies for achieving a competitive
advantage. |
|
39 |
A. |
Discuss the key components that should be included in an industry analysis model. (page 116) |
|
38 |
A. |
Discuss the key components that should be included in an industry analysis
model; |
|
|
B. |
Illustrate the life cycle of a typical industry. {page 116) |
|
|
B. |
Illustrate the life cycle of a typical industry; |
|
|
C. |
Analyze the effects of business cycles on industry classification (i.e., growth, defensive, cyclical). (page 118) |
|
|
C. |
Analyze the effects of business cycles on industry classification (i.e., growth,
defensive, cyclical); |
|
|
D. |
Analyze the impact of external factors (e.g., technology, government, foreign influences, demography, and social changes) on industries. (page 119) |
|
|
D. |
Analyze the impact of external factors (e.g., technology, government, foreign
influences, demography, and social changes) on industries; |
|
|
E. |
Illustrate the inputs and methods used in preparing an industry demand-and supply analysis. (page 120) |
|
|
E. |
Illustrate the inputs and methods used in preparing industry demand and supply
analyses; |
|
|
F. |
Explain factors that affect industry pricing practices. (page 121) |
|
|
F. |
Explain factors that affect industry pricing practices. |
|
40 |
A. |
Describe how inflation affects the estimation of cash Flows for a company domiciled in an emerging market. (page 129) |
|
39 |
A. |
Describe how inflation affects the estimation of cash flows for a company
domiciled in an emerging market; |
|
|
B. |
Calculate nominal and real-term financial projections in order w prepare a discounted cash flow valuation of an emerging market company. (page 130) |
|
|
B. |
Calculate nominal and real-term financial projections to prepare a discounted
cash flow valuation of an emerging market company; |
|
|
C. |
Discuss the arguments for adjusting cash flows, rather than adjusting the discount rate, to account for emerging marker risks (e.g., inflation, macroeconomic volatility, capital control, and political risk) in a scenario analysis. (page 137) |
|
|
C. |
Discuss the arguments for adjusting cash flows, rather than adjusting the
discount rate, to account for emerging market risks (e.g., inflation,
macroeconomic volatility, capital control, and political risk) in a scenario analysis; |
|
|
D. |
Estimate the cost of capital for emerging market companies, and calculate and interpret a country risk premium, (page 139) |
|
|
D. |
Estimate the cost of capital for emerging market companies and calculate and
interpret a country risk premium. |
|
41 |
A. |
Compare and contrast dividends, free cash flow, and residual income as measures of cash flow in discounted cash flow valuation, and identify the investment situations for which each measure is suitable. (page 149) |
|
40 |
A. |
Compare and contrast dividends, free cash flow, and residual income as
measures of cash flow in discounted cash flow valuation, and identify the
investment situations for which each measure is suitable; |
|
|
B. |
Determine whether a dividend discount model (DDM) is appropriate for valuing a stock. (page 150) |
|
|
B. |
Determine whether a dividend discount model (DDM) is appropriate for valuing a
stock; |
|
|
C. |
Calculate the value of a common stock using the DDM for one-, two-, and multiple-period holding periods. (page 152) |
|
|
C. |
Calculate the value of a common stock using the DDM for one-, two-, and
multiple-period holding periods; |
|
|
D. |
Calculate the value of a common stock using the Gordon growth model and explain the model's underlying assumptions. (page 155) |
|
|
D. |
Calculate the value of a common stock using the Gordon growth model and
explain the model�s underlying assumptions; |
|
|
E. |
Calculate the implied growth rate of dividends using the Gordon growth model and current stock price. (page 156) |
|
|
E. |
Calculate the implied growth rate of dividends using the Gordon growth model
and current stock price; |
|
|
F. |
Calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price-ro-earnings (NE) related to PVGO, given no-growth earnings per share, earnings per share, the required rare of return, and the market price of |
|
|
F. |
Calculate and interpret the present value of growth opportunities (PVGO) and the
component of the leading price-to-earnings ratio (P/E) related to PVGO, given
no-growth earnings per share, earnings per share, the required rate of return,
and the market price of the stock (or value of the stock); |
|
|
G. |
Calculate the justified leading and trailing PlEs based on fundamentals using the Gordon growth model. (page 157) |
|
|
G. |
Calculate the justified leading and trailing P/Es based on fundamentals using the
Gordon growth model; |
|
|
H. |
Calculate the value of noncallable fixed-rare perpetual preferred stock given the stock's annual dividend and the discount rate. (page 160) |
|
|
H. |
Calculate the value of noncallable fixed-rate perpetual preferred stock given the
stock�s annual dividend and the discount rate; |
|
|
I. |
Explain the strengths and limitations of the Gordon growth model and justify the selection of the Gordon growth model to value a company's common shares, given the characteristics of the company being valued. (page 161) |
|
|
I. |
Explain the strengths and limitations of the Gordon growth model and justify the
selection of the Gordon growth model to value a company�s common shares,
given the characteristics of the company being valued; |
|
|
J. |
Explain the assumptions and justify the selection of the rwo-stage DDM, the H-model, the three-stage DDM, or spreadsheet modeling to value a company's common shares, given the characteristics of the company being valued. (page 162) |
|
|
J. |
Explain the assumptions and justify the selection of the two-stage DDM, the Hmodel,
the three-stage DDM, or spreadsheet modeling to value a company�s
common shares, given the characteristics of the company being valued; |
|
|
K. |
Explain the growth phase, transitional phase, and maruriry phase of a business. (page 166) |
|
|
K. |
Explain the growth phase, transitional phase, and maturity phase of a business; |
|
|
I. |
Explain terminal value and discuss alternative approaches to determining the terminal value in a discounted dividend model. (page 167) |
|
|
L. |
Explain terminal value and discuss alternative approaches to determining the
terminal value in a discounted dividend model; |
|
|
M. |
Calculate the value of common shares using the two-stage DDM, the H-model, and the three-stage DDM. (page 168) |
|
|
M. |
Calculate the value of common shares using the two-stage DDM, the H-model,
and the three-stage DDM; |
|
|
N. |
Explain how to estimate a required return based on any DDM, and calculate that return using the Gordon growth model and the H-model. (page 174) |
|
|
N. |
Explain how to estimate a required return based on any DDM, and calculate that
return using the Gordon growth model and the H-model; |
|
|
O. |
Define, calculate, and interpret the sustainable growth rate of a company, explain the calculation's underlying assumptions, and demonstrate the use of the DuPont analysis of return on equity in conjunction with the sustainable growth rare expression. (pa |
|
|
O. |
Define, calculate, and interpret the sustainable growth rate of a company,
explain the calculation�s underlying assumptions, and demonstrate the use of the
DuPont analysis of return on equity in conjunction with the sustainable growth
rate expression; |
|
|
P. |
Illustrate the use of spreadsheet modeling to forecast dividends and valuc common shares (page 179) |
|
|
P. |
Illustrate the use of spreadsheet modeling to forecast dividends and value
common shares. |
|
| 12 |
42 |
A. |
Define and interpret free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). (page 197) |
12 |
41 |
A. |
Interpret free cash flow to the firm (FCFF) and free cash flow to equity (FCFE); |
|
|
B. |
Describe, compare, and contrast the FCFF and FCFE approaches to valuation. (page 199) |
|
|
B. |
Compare and contrast the FCFF and FCFE approaches to valuation;
|
|
|
C. |
Contrast the ownership perspective implicit in the FCFE approach to the ownership perspective implicit in the dividend discount approach. (page 200) |
|
|
C. |
Contrast the ownership perspective implicit in the FCFE approach to the
ownership perspective implicit in the dividend discount approach; |
|
|
D. |
Discuss the appropriate adjustments w net income, earnings before interest and taxes (EDIT), earnings before interest, Taxes, depreciation, and amortization (EBITDA), and cash flow from operations (CFO) ro calculate FCFF and FCFE. (page 200) |
|
|
D. |
Discuss the appropriate adjustments to net income, earnings before interest and
taxes (EBIT), earnings before interest, taxes, depreciation, and amortization
(EBITDA), and cash flow from operations (CFO) to calculate FCFF and FCFE; |
|
|
E. |
Calculate FCFF and FCFE given a company's financial statements, prepared according to U.S. generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). (page 207) |
|
|
E. |
Calculate FCFF and FCFE when given a company�s financial statements prepared
according to International Financial Reporting Standards (IFRS) or U.S. generally
accepted accounting principles (GAAP); |
|
|
F. |
Discuss approaches for forecasting FCFF and FCFE. (page 211) |
|
|
F. |
Discuss approaches for forecasting FCFF and FCFE; |
|
|
G. |
Contrast the recognition of value in the FCFE model with the recognition of value in dividend discount models. (page 200) |
|
|
G. |
Contrast the recognition of value in the FCFE model to the recognition of value in
dividend discount models; |
|
|
H. |
Explain how dividends, share repurchases, share issues, and changes in leverage may affect FCFF and FCFE. (page 211) |
|
|
H. |
Explain how dividends, share repurchases, share issues, and changes in leverage
may affect FCFF and FCFE; |
|
|
I. |
Critique the use of net income and EB[TDA as proxies for cash flow in valuation. (page 212) |
|
|
I. |
Critique the use of net income and EBITDA as proxies for cash flow in valuation; |
|
|
J. |
Discuss the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models (including assumptions) and explain the company characteristics that would justify the use of each model. (page 212) |
|
|
J. |
Discuss the single-stage (stable-growth), two-stage, and three-stage FCFF and
FCFE models (including assumptions) and explain the company characteristics
that justify the use of each model; |
|
|
K. |
Calculate the value of a company using the stable-growth, two-stage, and three-stage FCFF and FCFE models. (page 216) |
|
|
K. |
Calculate the value of a company using the stable-growth, two-stage, and threestage
FCFF and FCFE models; |
|
|
L. |
Explain how sensitivity analysis can be used in FCFF and FCFE valuations. (page 223) |
|
|
L. |
Explain how sensitivity analysis can be used in FCFF and FCFE valuations; |
|
|
M. |
Discuss approaches for calculating the terminal value in a multistage valuation model. (page 224) |
|
|
M. |
Discuss approaches for calculating the terminal value in a multistage valuation
model; |
|
|
N. |
Describe the characteristics of companies for which the FCFF model is preferred to the FCFE model. (page 199) |
|
|
N. |
Describe the characteristics of companies for which the FCFF model is preferred
to the FCFE model. |
|
43 |
- |
- |
|
42 |
A. |
Distinguish among types of valuation indicators; |
|
|
A. |
Distinguish between the method of comparables and the method based on forecasted fundamentals as approaches to rising price multiples in valuation, and discuss the economic rationales for each approach. (page 242) |
|
|
B. |
Distinguish between the method of comparables and the method based on
forecasted fundamentals as approaches to using price multiples in valuation, and
discuss the economic rationales for each; |
|
|
B. |
Define a justified price multiple. (page 242) |
|
|
C. |
Describe a justified price multiple and discuss rationales for each price multiple
and dividend yield in valuation; |
|
|
- |
- |
|
|
D. |
Discuss the drawbacks to the use of each price multiple and dividend yield; |
|
|
C. |
Discuss rationales for using each price multiple and dividend yield in valuation, discuss possible drawbacks co the use of each price multiple and dividend yield, and calculate each price multiple and dividend yield. (page 244) |
|
|
E. |
Calculate and interpret each price multiple and dividend yield; |
|
|
D. |
Calculate underlying earnings given earnings per share (EPS) and nonrecurring items in the income statement and discuss the methods of normalizing EPS, and calculate normalized EPS by each method. (page 253) |
|
|
F. |
Describe, calculate, and interpret underlying earnings, given earnings per share
(EPS) and nonrecurring items in the income statement; |
|
|
- |
- |
|
|
G. |
Discuss normalized EPS and the methods of normalizing EPS and calculate
normalized EPS by each method; |
|
|
E. |
Explain and justify the use of earnings yield (ElP). (page 255) |
|
|
H. |
Explain and justify the use of earnings yield (i.e., EPS divided by share price); |
|
|
F. |
Discuss the fundamental factors that influence each price multiple and dividend yield. (page 255) |
|
|
I. |
Discuss the fundamental factors that influence each price multiple and dividend
yield; |
|
|
G. |
Calculate the justified price-to-earnings ratio (PIE), price-to-book ratio (P/B), and price-to-sales ratio (PIS) For a stock, based on forecasted fundamentals. (page 255) |
|
|
J. |
Calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book
ratio, and price-to-sales ratio for a common stock, based on forecasted
fundamentals; |
|
|
H. |
Calculate a predicted PIE, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology. (page 260) |
|
|
K. |
Calculate and interpret a predicted P/E, given a cross-sectional regression on
fundamentals, and explain limitations to the cross-sectional regression
methodology; |
|
|
I. |
Define the benchmark value of a multiple. (page 261) |
|
|
L. |
Explain the benchmark value of a multiple; |
|
|
J. |
Evaluate a stock by the method of comparablcs using each of the price multiples and explain the importance of fundamentals in using the method of comparables. (page 262) |
|
|
M. |
Evaluate a stock using the method of comparables; |
|
|
- |
- |
|
|
N. |
Discuss the importance of fundamentals in the method of comparables; |
|
|
K. |
Calculate the PIE-to-growth ratio (PEG), and explain its use in relative valuation. (page 265) |
|
|
O. |
Calculate and interpret the P/E-to-growth (PEG) ratio and explain its use in
relative valuation; |
|
|
I. |
Calculate and explain the use of price multiples in determining terminal value in a multi-stage discounted cask flow (DCF) model. (page 266) |
|
|
P. |
Calculate and explain the use of price multiples to determine terminal value in a
multistage discounted cash flow model; |
|
|
M. |
Discuss alternative definitions of cash flow used in price multiples, and explain the limitations of each definition. (page 249) |
|
|
Q. |
Discuss alternative definitions of cash flow used in price and enterprise value
multiples (including enterprise value to earnings before interest, taxes,
depreciation, and amortization EV/EBITDA), and explain the limitations of each; |
|
|
- |
- |
|
|
R. |
Calculate and interpret enterprise value multiples and discuss the rationales for,
and drawbacks to, the use of EV/EBITDA; |
|
|
N. |
Discuss the sources of differences in cross-border valuation comparisons. (page 267) |
|
|
S. |
Discuss the sources of differences in cross-border valuation comparisons; |
|
|
O. |
Describe the main Types of momentum indicators and their use in valuation. (page 267) |
|
|
T. |
Describe the main types of momentum indicators and their use in valuation; |
|
|
- |
- |
|
|
U. |
Discuss the use of the arithmetic mean, the harmonic mean, the weighted
harmonic mean, and the median to describe the central tendency of a group of
multiples; |
|
|
- |
- |
|
|
V. |
Explain the use of stock screens in investment management. |
|
44 |
A. |
Explain why an analyst would use a ten-year moving average as a benchmark in the valuation process. (page 287) |
|
- |
- |
- |
|
|
B. |
Determine the importance ofcorrelation analysis when using a multi-matrix valuation approach. (page 287) |
|
- |
- |
- |
|
|
C. |
Illustrate why the PEG valuation technique must he used with cart. (page 287) |
|
- |
- |
- |
|
|
D. |
Indicate the impact of discount rate sensitivity in valuation models. (page 288) |
|
- |
- |
- |
|
45 |
A. |
Calculate and interpret residual income and related measures (e.g., economic value added and marker value added). (page 292) |
|
43 |
A. |
Calculate and interpret residual income and related measures (e.g., economic
value added and market value added); |
|
|
B. |
Discuss the uses of residual income models (page 295) |
|
|
B. |
Discuss the use of residual income models; |
|
|
C. |
Calculate future values of residual income given current book value, earnings growth estimates, and an assumed dividend payout ratio, calculate the intrinsic value of a share of common stock using the residual income model, and contrast the recognition of |
|
|
C. |
Calculate future values of residual income given current book value, earnings
growth estimates, and an assumed dividend payout ratio; |
|
|
D. |
Discuss the Fundamental determinants or drivers of residual income. (page 299) |
|
|
D. |
Discuss the fundamental determinants of residual income; |
|
|
E. |
Explain the relationship between residual income valuation and the justified price-to-book ratio based on forecasted fundamentals. (page 301) |
|
|
E. |
Explain the relation between residual income valuation and the justified price-tobook
ratio based on forecasted fundamentals; |
|
|
F |
Calculate and interpret the intrinsic value of a share of common stock using a single-stage (constant-growth) residual income model. (page 300) |
|
|
F. |
Calculate and interpret the intrinsic value of a common stock using a single-stage
(constant-growth) residual income model; |
|
|
G. |
Calculate an implied growth rate in residual income given the market prLce-robook ratio and an estimate of the required rare of return on equity. (page 304) |
|
|
G. |
Calculate an implied growth rate in residual income, given the market price-tobook
ratio and an estimate of the required rate of return on equity;\ |
|
|
H. |
Explain continuing residual income, list the common assumptions regarding continuing residual income, and justify an estimate of continuing residual income at the forecast horizon given company and industry prospects. (page 304) |
|
|
H. |
Explain continuing residual income and the common assumptions regarding
continuing residual income; |
|
|
- |
- |
|
|
I. |
Justify an estimate of continuing residual income at the forecast horizon, given
company and industry prospects; |
|
|
I. |
Calculate and interpret the intrinsic value of a share of common stock using a multistage residual income model, given the required rare of return, forecasted earnings per share over a finite horizon, and forecasted continuing residual earnings. (page 306 |
|
|
J. |
Calculate and interpret the intrinsic value of a common stock using a multistage
residual income model, given the required rate of return, forecasted earnings per
share over a finite horizon, and forecasted continuing residual earnings; |
|
|
J. |
Explain the relationship of the residual income model to the dividend discount and free cash flow to equity models. (page 301) |
|
|
K. |
Compare the residual income model to the dividend discount and free cash flow
to equity models; |
|
|
- |
- |
|
|
L. |
Contrast the recognition of value in the residual income model to value
recognition in other present value models; |
|
|
K. |
Discuss the strengths and weaknesses of the residual income model. (page 298) |
|
|
M. |
Discuss the strengths and weaknesses of the residual income model; |
|
|
L. |
Justify the selection of the residual income model for equity valuation, given characteristics of the company being valued. (page 298) |
|
|
N. |
Justify the selection of the residual income model for equity valuation, given the
characteristics of the company being valued; |
|
|
M. |
Discuss the major accounting issues in applying residual income models. {page 301) |
|
|
O. |
Discuss accounting issues in applying residual income models (e.g., clean surplus
violations, variations from fair value, intangible asset effects on book value, and
nonrecurring items) and the appropriate analyst response to each issue. |
|
- |
- |
- |
|
44 |
A. |
Compare and contrast public and private company valuation; |
|
- |
- |
- |
|
|
B. |
Explain the reasons for valuing the total capital and/or equity capital of private
companies; |
|
- |
- |
- |
|
|
C. |
Explain the role of definitions (standards) of value, explain the different
definitions of value, and illustrate how different definitions can lead to different
estimates of value; |
|
- |
- |
- |
|
|
D. |
Discuss the three major approaches to private company valuation; |
|
- |
- |
- |
|
|
E. |
Demonstrate the adjustments required to estimate the normalized earnings
and/or cash flow for a private company, from the perspective of either a strategic
or nonstrategic (financial) buyer, and explain cash flow estimation issues; |
|
- |
- |
- |
|
|
F. |
Demonstrate the methods under the income approach to private company
valuation, including the free cash flow method, capitalized cash flow method,
and excess earnings method; |
|
- |
- |
- |
|
|
G. |
Explain the specific elements of discount rate estimation that are relevant in
valuing the total capital or equity capital of a private company; |
|
- |
- |
- |
|
|
H. |
Compare and contrast models used to estimate the required rate of return to
private company equity (e.g., the CAPM, the expanded CAPM, and the build-up
method), and discuss the issues related to using each; |
|
- |
- |
- |
|
|
I. |
Demonstrate the market approaches to private company valuation (i.e., the
guideline public company method, the guideline transactions method, and the
prior transaction method), and discuss the advantages and disadvantages of
each; |
|
- |
- |
- |
|
|
J. |
Demonstrate the asset-based approach to private company valuation; |
|
- |
- |
- |
|
|
K. |
Demonstrate the use of discounts and premiums in private company valuation; |
|
- |
- |
- |
|
|
L. |
Explain the role of valuation standards in the valuation of private companies. |
|
| 13 |
46 |
A. |
Illustrate, for a particular type of real property investment: its main value determinants, investment characteristics, principal risks, and its most likely investor. (page 328) |
13 |
45 |
A. |
Illustrate, for each type of real property investment, the main value determinants,
investment characteristics, principal risks, and most likely investors; |
|
|
B. |
Evaluate a real estate investment using net present value (N PV) and internal race of return (1RR) analysis from the perspective of an equity investor. (page 337) |
|
|
B. |
Evaluate a real estate investment using net present value (NPV) and internal rate
of return (IRR) from the perspective of an equity investor; |
|
|
C. |
Calculate the after-tax cash flow and the after-tax equity reversion from real estate properties. (page 333) |
|
|
C. |
Calculate the after-tax cash flow and the after-tax equity reversion from real
estate properties; |
|
|
D. |
Explain the potential problems in using 1AR as a measurement tool in real estate investments. (page 339) |
|
|
D. |
Explain the potential problems associated with using IRR as a measurement tool
in real estate investments. |
|
47 |
A. |
Explain the relationship between a real estate capitalization rate and discount rate. (page 346) |
|
46 |
A. |
Explain the relation between a real estate capitalization rate and a discount rate; |
|
|
B. |
Determine the capitalization rate by the market-extraction method, band-ofinvestment method, and built-up method and justify the use oFeach technique in capitalization rate determination. (page 347) |
|
|
B. |
Determine the capitalization rate by the market-extraction method, band-ofinvestment
method, and built-up method, and justify each method�s use in
capitalization rate determination; |
|
|
C. |
Estimate the marker value of a real estate investment using the direct income capitalization approach and the gross income multiplier technique. (page 350) |
|
|
C. |
Estimate the market value of a real estate investment using the direct income
capitalization approach and the gross income multiplier technique; |
|
|
D. |
Contrast the limitations of the direct capitalization approach to those of the gross income multiplier technique. (page 351) |
|
|
D. |
Contrast the limitations of the direct capitalization approach to those of the gross
income multiplier technique. |
|
48 |
A. |
Explain the possible sources of value creation in private equity. (page 360) |
|
47 |
A. |
Explain the sources of value creation in private equity; |
|
|
B. |
Explain how private equity firms align their interests with those of the managers of portfolio companies (page 361) |
|
|
B. |
Explain how private equity firms align their interests with those of the managers
of portfolio companies; |
|
|
C. |
Contrast and describe the valuation characteristics and issues in venture capita! vs. buyout. (page 362) |
|
|
C. |
Distinguish between the characteristics of buyout and venture capital
investments; |
|
|
- |
- |
|
|
D. |
Discuss the valuation issues in buyout and venture capital transactions; |
|
|
D. |
Interpret the components of performance from a leveraged buyout. (page 366) |
|
|
- |
- |
|
|
E. |
Explain the role of exit routes in private equity and how it affects value. (page 370) |
|
|
E. |
Explain alternative exit routes in private equity and their impact on value; |
|
|
F. |
Explain the risks and costs of investing in private equity. (page 371) |
|
|
F. |
Explain private equity fund structures, terms, valuation, and due diligence in the
context of an analysis of private equity fund returns; |
|
|
G. |
Explain private equity fund structures. terms, valuation. and due diligence in the context oFan analysis of private equity fund returns. (page 373) |
|
|
G. |
Explain the risks and costs of investing in private equity; |
|
|
H. |
Interpret and compare financial performance of private equity funds from the perspective of an investor. (page 378) |
|
|
H. |
Interpret and compare financial performance of private equity funds from the
perspective of an investor; |
|
|
I. |
Describe and explain the categories of risks and costs in private equity investing. (page 371) |
|
|
- |
- |
|
|
J. |
Calculate management fees, carried interest, net asset value, distributed to paid in (DPI), residual value to paid in (RVPI), and total value to paid in (1 Vl'I) or a private equity fund. (page 381) |
|
|
I. |
Calculate management fees, carried interest, net asset value, distributed to paid
in (DPI), residual value to paid in (RVPI), and total value to paid in (TVPI) of a
private equity fund; |
|
|
|
|
|
|
|
A Note on the Valuation of Venture Capital Deals:(Reading Appendix 47A) |
|
|
K. |
Calculate pre-money valuation, post-money valuation, ownership Fraction, and price per share applying the venture capital method with single and multiple financing rounds. (page 383) |
|
|
J. |
Calculate pre-money valuation, post-money valuation, ownership fraction, and
price per share applying the venture capital method 1) with single and multiple
financing rounds and 2) in terms of IRR;
|
|
|
L. |
Calculate pre-money valuation, post-money valuation, ownership fraction, and price per share applying the venture capital method in terms of IRR. (page 391) |
|
|
- |
- |
|
|
M. |
Explain and apply methods to account for risk in venture capital. (page 394) |
|
|
K. |
Demonstrate alternative methods to account for risk in venture capital; |
|
|
|
|
|
|
|
Technical Notes on LBO Valuation�(A) and (B): (Reading Appendix 47B) |
|
|
N. |
Calculate and explain free cash flow forecasts in a leveraged buyout (LBO) |
|
|
L. |
Calculate and interpret free cash flow forecasts in a leveraged buyout (LBO)
transaction; |
|
|
O. |
Explain the role of cash sweep in an LBO transaction. (page 397) |
|
|
M. |
Explain the role of cash sweep in an LBO transaction; |
|
|
P. |
Explain how private equity firms manage their exit routes in LBO companies. (page 399) |
|
|
N. |
Explain how private equity firms manage their exit routes in LBO companies; |
|
|
Q. |
Explain and calculate the value of the equity investment in an LBO company under the target IRR and equity cash Row methods of valuation. (page 402) |
|
|
O. |
Explain and calculate the value of the equity investment in an LBO company
under the target IRR and equity cash flow methods of valuation. |
|
49 |
A. |
Explain why some commodity futures such as gold have limited "contango," while others such as oil often have natural "backwardation" and indicate why these conditions might be less prevalent in the future. (page 431) |
|
48 |
A. |
Explain why some commodity futures such as gold have limited �contango,�
whereas others such as oil often have natural �backwardation,� and indicate
why these conditions might be less prevalent in the future; |
|
|
B. |
Discuss how "roll yield" in a commodity future position can be positive (negative). (page 433) |
|
|
B. |
Discuss how �roll yield� in a commodity futures position can be positive
(negative); |
|
|
C. |
Distinguish between both sides of the argument that commodity futures are not an asset class. (page 434) |
|
|
C. |
Discuss the argument that commodity futures are not an asset class; |
|
|
D. |
Demonstrate how the geometric return of an actively managed commodity basket can be positive while the underlying average commodity has a geometric return of close to zero. (page 435) |
|
|
D. |
Demonstrate how the geometric return of an actively managed commodity
basket can be positive, whereas the underlying average commodity has a
geometric return near zero; |
|
|
E. |
Discuss why investing in commodities offers diversificar'san opportunities during periods of economic fluctuation in the short run and inflation in the long run. (page 436) |
|
|
E. |
Discuss why investing in commodities offers diversification opportunities during
periods of economic fluctuation in the short run and inflation in the long run. |
|
50 |
A. |
Discuss how the characteristics of hedge funds affect traditional methods of performance measurements. (page 443) |
|
49 |
A. |
Discuss how the characteristics of hedge funds affect traditional methods of
performance measurements; |
|
|
B. |
Compare and contrast the use of marker indexes, hedge fund indexes, and positive risk-free rates as means to evaluating hedge fund performance. (page 444) |
|
|
B. |
Compare and contrast the use of market indices, hedge fund indices, and positive
risk-free rates to evaluate hedge fund performance. |
|
51 |
A. |
Discuss common types of investment risks for hedge funds. (page 453) |
|
50 |
A. |
Discuss common types of investment risks for hedge funds; |
|
|
B. |
Evaluate the use of maximum drawdown and value-at-risk as tools for measuring risks of hedge funds. (page 456) |
|
|
B. |
Evaluate maximum drawdown and value-at-risk for measuring risks of hedge
funds. |
|
| 14 |
52 |
A. |
Distinguish among default risk, credit spread risk, and downgrade risk. (page 10) |
14 |
51 |
A. |
Distinguish among default risk, credit spread risk, and downgrade risk; |
|
|
B. |
Identify, explain, and analyze the key components of credit analysis, including both the borrower and the instrument. (page 1 1 ) |
|
|
B. |
Explain and analyze the key components of credit analysis; |
|
|
C. |
Calculate, critique, and interpret the key financial ratios used by credit analysts.(page 14) |
|
|
C. |
Calculate and interpret the key financial ratios used by credit analysts; |
|
|
D. |
Evaluate the credit quality of an issuer of a corporate bond, given such data as key financial ratios for the issuer and the industry. (page 14) |
|
|
D. |
Evaluate the credit quality of an issuer of a corporate bond, given such data as
key financial ratios for the issuer and the industry; |
|
|
E. |
Analyze why and how cash flow from operations is used to assess the ability of an issuer to service its debt obligations and ro assess the financial flexibility of a company. (page 18) |
|
|
E. |
Analyze why and how cash flow from operations is used to assess the ability of
an issuer to service its debt obligations and to assess the financial flexibility of a
company; |
|
|
F. |
Identify, explain, and interpret the typical elements of the corporate structure and debt structure of a high-yield issuer and the impact of these elements on the risk position of the lender. (page 19) |
|
|
F. |
Explain and interpret the typical elements of the corporate structure and debt
structure of a high-yield issuer and the effect of these elements on the risk
position of the lender; |
|
|
G. |
Discuss the factors considered by rating agencies in raring asset-backed securities. (page 21) |
|
|
G. |
Discuss the factors considered by rating agencies in rating asset-backed
securities; |
|
|
H. |
Explain how the creditworthiness of municipal bonds is assessed, and contrast the analysis of tax-backed debt with the analysis of revenue obligations. (page 22) |
|
|
H. |
Explain how the credit worthiness of municipal bonds is assessed and contrast
the analysis of tax-backed debt with the analysis of revenue obligations; |
|
|
I, |
Discuss the key considerations used by Standard & Poor's in assigning sovereign ratings and describe why two ratings are assigned to each national government. (page 23) |
|
|
I. |
Discuss the key considerations used by Standard & Poor�s in assigning sovereign
ratings and describe why two ratings are assigned to each national government; |
|
|
J. |
Contrast the credit analysis required for corporate bonds ro that required for 1) asset-backed securities, 2) municipal securities, and 3) sovereign debt. (page 25) |
|
|
J. |
Contrast the credit analysis required for corporate bonds to that required for
1) asset-backed securities, 2) municipal securities, and 3) sovereign debt. |
|
53 |
A. |
Distinguish between the concept of liquidity as "appetite for risk" as contrasted with the more tradition a.l view that liquidity is the creation of the central bank. (page 39) |
|
52 |
A. |
Contrast the concept of liquidity as �appetite for risk� with the more traditional
view that liquidity is created by the central bank; |
|
|
B. |
Illustrate how the default rare on a 2128 adjustable rate subprime mortgagechanges as debt creation journeys from conservative hedging activities, to more speculative activities, and finally to a Ponzi scheme phase. (page 41) |
|
|
B. |
Describe how Minsky�s �financial instability hypothesis� predicts a mortgage
market crisis as debt creation journeys from conservative hedging activities to
more speculative activities, and finally to a Ponzi scheme phase; |
|
|
C. |
Explain how a subprime mortgage borrower is granted a free at-the-money call option on the value of their property, (page 42) |
|
|
C. |
Explain how subprime mortgage borrowers are granted a free at-the-money call
option on the value of their property. |
|
54 |
A. |
Illustrate and explain parallel and nonparallel shifts in the yield curve, a yield curve twist, and a change in the curvature of the yield curve (i.e., a butterfly shift). (page 49) |
|
53 |
A. |
Illustrate and explain parallel and nonparallel shifts in the yield curve, a yield
curve twist, and a change in the curvature of the yield curve (i.e., a butterfly
shift); |
|
|
B. |
Describe the factors that have been observed to drive U.S. Treasury security returns, and evaluate the importance of each factor (page 50) |
|
|
B. |
Describe the factors that drive U.S. Treasury security returns and evaluate the
importance of each factor; |
|
|
C. |
Explain the various universes of Treasury securities that are used to construct the theoretical spot rate curve, and evaluate their advantages and disadvantages. (page 52) |
|
|
C. |
Explain the various universes of Treasury securities that are used to construct the
theoretical spot rate curve and evaluate their advantages and disadvantages; |
|
|
D. |
Explain the swap rate curve (I..IBOR curve) and discuss the reasons that market participants have increasingly used the swap rate curve as a benchmark rather than a government bond yield curve. (page 54) |
|
|
D. |
Explain the swap rate curve (LIBOR curve) and discuss why market participants
have used the swap rate curve rather than a government bond yield curve as a
benchmark; |
|
|
E. |
Illustrate the various theories of the term structure of interest rates (i.e., pure expectations, liquidity, and preferred habitat) and the implications of each theory Fat the shape of the yield curve. (page 55) |
|
|
E. |
Illustrate the theories of the term structure of interest rates (i.e., pure
expectations, liquidity, and preferred habitat) and the implications of each for the
shape of the yield curve; |
|
|
F |
Compute and interpret the yield curve risk of a security or a portfolio, using key rate duration. (page 60) |
|
|
F. |
Compute and interpret the yield curve risk of a security or a portfolio by using key
rate duration; |
|
|
G. |
Compute and interpret yield volatility. (page 61) |
|
|
G. |
Compute and interpret yield volatility, distinguish between historical yield volatility
and implied yield volatility, and explain how yield volatility is forecasted. |
|
|
H. |
Distinguish between historical yield volatility and implied yield volatility. (page 63) |
|
|
- |
- |
|
|
I. |
Explain how yield volatility is forecasted. (page 64) |
|
|
- |
- |
|
55 |
A. |
Evaluate, using relative value analysis, whether a security is undervalued or overvalued. (page 85) |
|
54 |
A. |
Evaluate, using relative value analysis, whether a security is undervalued or
overvalued; |
|
|
B. |
Evaluate the importance of the benchmark interest rates in interpreting spread measures. (page 80) |
|
|
B. |
Evaluate the importance of benchmark interest rates in interpreting spread
measures; |
|
|
C. |
Illustrate the backward induction valuation methodology within the binomial interest rare tree framework. (page 80) |
|
|
C. |
Illustrate the backward induction valuation methodology within the binomial
interest rate tree framework; |
|
|
D. |
Compute the value of a callable bond from an interest rate tree. (page 81) |
|
|
D. |
Compute the value of a callable bond from an interest rate tree; |
|
|
E. |
Illustrate the relationship among the values of a callable (putable) bond, the corresponding option-free bond, and the embedded option. (page 82) |
|
|
E. |
Illustrate the relations among the values of a callable (putable) bond, the
corresponding option-free bond, and the embedded option; |
|
|
F. |
Explain the effect of volatility on the arbitrage-free value of an option. (page 83) |
|
|
F. |
Explain the effect of volatility on the arbitrage-free value of an option; |
|
|
G. |
Interpret an option-adjusted spread with respect to a nominal spread and to benchmark interest rates. (page 85) |
|
|
G. |
Interpret an option-adjusted spread with respect to a nominal spread and to
benchmark interest rates; |
|
|
H. |
Illustrate how effective duration and effecrive convexity are calculated using the binomial model. (page 88) |
|
|
H. |
Illustrate how effective duration and effective convexity are calculated using the
binomial model; |
|
|
I. |
Calculate the value of a putable bond, using an interest rate tree. (page 89) |
|
|
I. |
Calculate the value of a putable bond by using an interest rate tree; |
|
|
J. |
Describe and evaluate a convertible bond and its various component values. (page 9 l ) |
|
|
J. |
Describe and evaluate a convertible bond and its various component values; |
|
|
K. |
Compare and contrast the risk-return characteristics of a convertible bond to the risk-return characteristics of ownership of' the underlying common stock. (page 96) |
|
|
K. |
Compare and contrast the risk-return characteristics of a convertible bond with
the risk-return characteristics of ownership of the underlying common stock. |
|
| 15 |
56 |
A. |
Describe a mortgage loan and illustrate the cash flow characteristics of a fixed-rate, level payment, fully amortized mortgage loan. (page 110) |
15 |
55 |
A. |
Describe a mortgage loan and illustrate the cash flow characteristics of a fixedrate,
level payment, and fully amortized mortgage loan; |
|
|
B. |
Illustrate the investment characteristics, payment characteristics, and risks of mortgage passthrough securities. (page 1 12) |
|
|
B. |
Illustrate the investment characteristics, payment characteristics, and risks of
mortgage passthrough securities; |
|
|
C. |
Calculate the prepayment amount for a month, given the single monthly mortality rate. (page 116) |
|
|
C. |
Calculate the prepayment amount for a month, given the single monthly
mortality rate; |
|
|
D. |
Compare and contrast the conditional prepayment rate (CPR) to the Public Securities Association (PSA) prepayment benchmark. (page 114) |
|
|
D. |
Compare and contrast the conditional prepayment rate (CPR) with the Public
Securities Association (PSA) prepayment benchmark; |
|
|
E. |
Explain why the average life of a mortgage-backed security is a more relevant measure than the security's maturity. (page 118) |
|
|
E. |
Explain why the average life of a mortgage-backed security is more relevant than
the security�s maturity; |
|
|
F. |
Explain the factors that affect prepayments and the types of prepayment risks. (page 117) |
|
|
F. |
Explain the factors that affect prepayments and the types of prepayment risks; |
|
|
G. |
Illustrate how a collateralized mortgage obligation (CMO) is created and how it provides a better marching "f assets and liabilities for institutional investors. (page 119) |
|
|
G. |
Illustrate how a collateralized mortgage obligation (CMO) is created and how it
provides a better matching of assets and liabilities for institutional investors; |
|
|
H. |
Distinguish among the sequential pay tranche, the accrual tranche, the planned amortization class tranche, and the support tranche in a CMO. (page 119) |
|
|
H. |
Distinguish among the sequential pay tranche, the accrual tranche, the planned
amortization class tranche, and the support tranche in a CMO; |
|
|
I. |
Evaluate the risk characteristics and the relative performance of each type of CMO tranche, given changes in the interest rate environment. (page 126) |
|
|
I. |
Evaluate the risk characteristics and the relative performance of each type of
CMO tranche, given changes in the interest rate environment; |
|
|
J. |
Explain the investment characteristics of stripped mortgage-backed securities. (page 127) |
|
|
J. |
Explain the investment characteristics of stripped mortgage-backed securities; |
|
|
K. |
Compare and contrast agency and nonagency mortgage-backed securities. (page 128) |
|
|
K. |
Compare and contrast agency and nonagency mortgage-backed securities; |
|
|
L. |
Distinguish credit risk analysis of commercial mortgage-backed securities from credit risk analysis of residential nonagency mortgage-backed securities.(page 130) |
|
|
L. |
Distinguish credit risk analysis of commercial mortgage-backed securities (CMBS)
from credit risk analysis of residential nonagency mortgage-backed securities; |
|
|
M. |
Describe the basic structure of a CMBS, and illustrate the ways in which a CMBS investor may realize call protection at the loan level and by means of the CMBS structure. (page 13 I ) |
|
|
M. |
Describe the basic structure of a CMBS, and illustrate the ways in which a CMBS
investor may realize call protection at the loan level and by means of the CMBS
structure. |
|
57 |
A. |
Compare and contrast the U.S. mortgage-backed market with the European mortgage-backed marker. (page 141) |
|
|
- |
- |
|
|
B. |
Describe the challenges that have slowed the growth of the European mortgage-backed marker. (page 142) |
|
|
- |
- |
|
58 |
A. |
Illustrate the basic structural features of and parries co a securitization transaction. (page 146) |
|
56 |
A. |
Illustrate the basic structural features of and parties to a securitization
transaction; |
|
|
B. |
Explain and contrast prepayment tranching and credit rranching. (page 147) |
|
|
B. |
Explain and contrast prepayment tranching and credit tranching; |
|
|
C, |
Distinguish between the payment structure and collateral structure oFa securitization backed by amortizing assets and non-amortizing assets. (page 148) |
|
|
C. |
Distinguish between the payment structure and collateral structure of a
securitization backed by amortizing assets and non-amortizing assets; |
|
|
D. |
Disringuish among the various types of external and internal credit enhancements. (page 149) |
|
|
D. |
Distinguish among the various types of external and internal credit
enhancements; |
|
|
E. |
Describe rhe cash flow and prepayment characteristics for securities backed by home equiry loans, manufactured housing loans, automobile loans, student loans, SBA loans, and credit card receivables. (page 152) |
|
|
E. |
Describe the cash flow and prepayment characteristics for securities backed by
home equity loans, manufactured housing loans, automobile loans, student
loans, SBA loans, and credit card receivables; |
|
|
F. |
Describe a collateralized debt obligarion (CDC) and the different types (cash and synthetic). (page 157) |
|
|
F. |
Describe collateralized debt obligations (CDOs), including cash and synthetic
CDOs; |
|
|
G. |
Distinguish among the primary motivations for creating a collateralized debt obligation (arbitrage and balance sheer transactions). (page 160) |
|
|
G. |
Distinguish among the primary motivations for creating a collateralized debt
obligation (arbitrage and balance sheet transactions). |
|
59 |
A. |
Illustrate the computation, use, and limitations of the cash flow yield, nominal spread, and zero-volatility spread for a mortgage-backed security and an asset-backed security. (page 171) |
|
57 |
A. |
Illustrate the computation, use, and limitations of the cash flow yield, nominal
spread, and zero-volatility spread for a mortgage-backed security and an assetbacked
security; |
|
|
B. |
Describe [he Monte Carlo simularion model for valuing a mortgage-backed security. (page 173) |
|
|
B. |
Describe the Monte Carlo simulation model for valuing a mortgage-backed
security; |
|
|
C. |
Describe path dependency in passrhrough securities and the implications for valuation models. (page 174) |
|
|
C. |
Describe path dependency in passthrough securities and the implications for
valuation models; |
|
|
D. |
Illustrate how [he option-adjusted spread is compured using the Monte Carlo simulation model and how this spread measure is interpreted. (page 174) |
|
|
D. |
Illustrate how the option-adjusted spread is computed using the Monte Carlo
simulation model and how this spread measure is interpreted; |
|
|
E. |
Evaluate a mortgage-backed security using option-adjusted spread analysis. (page 1.77) |
|
|
E. |
Evaluate a mortgage-backed security using option-adjusted spread analysis;
|
|
|
F. |
Discuss why rhe effective durations reported by various dealers and vendors may differ. (page I78) |
|
|
F. |
Discuss why effective durations reported by various dealers and vendors may
differ; |
|
|
G. |
Analyze the inrerest rare risk of a security given the security's effective duration and effective convexity. (page 179) |
|
|
G. |
Analyze the interest rate risk of a security given the security�s effective duration
and effective convexity; |
|
|
H. |
Explain other measures of duration used by practitioners in the mortgage-hacked marker (e.g., cash Anw duration, coupon curve duration, and empirical duration), and describe the limitations of these duration measures. (page 181) |
|
|
H. |
Explain other measures of duration used by practitioners in the mortgage-backed
market (e.g., cash flow duration, coupon curve duration, and empirical duration),
and describe the limitations of these duration measures; |
|
|
I. |
Determine whether the nomi |
|
|
I. |
Determine whether the nominal spread, zero-volatility spread, or option-adjusted
spread should be used to evaluate a specific fixed income security. |
|
| 16 |
60 |
A. |
Explain how the value of a forward contract is determined at initiation, during the life of the contract, and at expiration. (page 201) |
16 |
58 |
A. |
Explain how the value of a forward contract is determined at initiation, during
the life of the contract, and at expiration; |
|
|
B. |
Calculate and interpret the price and the value of an equity forward contract, assuming dividends are paid either discretely or continuously (page 203) |
|
|
B. |
Calculate and interpret the price and the value of an equity forward contract,
assuming dividends are paid either discretely or continuously; |
|
|
C. |
Calculate and interpret the price and the value of 1) a Forward contract on a fixed income security, 2) a forward rare agreemenr (FRA), and 3) a Forward contract on a currency. (page 207) |
|
|
C. |
Calculate and interpret the price and the value of 1) a forward contract on a
fixed-income security, 2) a forward rate agreement (FRA), and 3) a forward
contract on a currency; |
|
|
D. |
Evaluate credit risk in a forward contract, and explain how marker value is a measure of the credit risk to a parry in a forward contract. (page 216) |
|
|
D. |
Evaluate credit risk in a forward contract and explain how market value is a
measure of the credit risk to a party in a forward contract.
|
|
61 |
A. |
Explain why the Futures price must converge to the spot price at expiration. (page 224) |
|
59 |
A. |
Explain why the futures price must converge to the spot price at expiration; |
|
|
B. |
Determine the value of a futures contract. (page 225) |
|
|
B. |
Determine the value of a futures contract; |
|
|
C. |
Explain how forward and futures prices differ. (page 226) |
|
|
C. |
Explain how forward and futures prices differ; |
|
|
D. |
Identify the different types of monetary and non-monetary benefits and costs associated with holding the underlying asset, and explain how they affect the futures price. (page 230) |
|
|
D. |
Describe the monetary and nonmonetary benefits and costs associated with
holding the underlying asset, and explain how they affect the futures price; |
|
|
E. |
Describe backwardation and contango. (page 231) |
|
|
E. |
Describe backwardation and contango; |
|
|
F. |
Discuss whether futures prices equal expected spot prices. (page 231) |
|
|
F. |
Discuss whether futures prices equal expected spot prices; |
|
|
G. |
Describe the difficulties in pricing Eurodollar futures and creating a pure arbitrage opporruniry. (page 234) |
|
|
G. |
Describe the difficulties in pricing Eurodollar futures and creating a pure arbitrage
opportunity; |
|
|
H. |
Calculate and interpret the price of Treasury bond futures, stock index futures, and currency futures. (page 235) |
|
|
H. |
Calculate and interpret the price of Treasury bond futures, stock index futures,
and currency futures. |
|
| 17 |
62 |
A. |
Calculate and interpret the prices of a synthetic call option, synthetic put option, synthetic bond, and synthetic underlying stock, and infer why an investor would want to create such instruments. (page 246) |
17 |
60 |
A. |
Calculate and interpret the prices of a synthetic call option, synthetic put option,
synthetic bond, and synthetic underlying stock, and infer why an investor would
want to create such instruments; |
|
|
B. |
Calculate and interpret prices of interest rate options and options on assets using one- and two-period binomial models. (page 249) |
|
|
B. |
Calculate and interpret prices of interest rate options and options on assets using
one- and two-period binomial models; |
|
|
C. |
Explain the assumptions underlying the Black-Scholes-Merton model and their limitations. (page 265) |
|
|
C. |
Explain the assumptions underlying the Black�Scholes�Merton model and their
limitations; |
|
|
D. |
Explain how an option price, as represented by the Black-Scholes-Merton model, is affected by each of the input values (the option Greeks). (page 266) |
|
|
D. |
Explain how an option price, as represented by the Black�Scholes�Merton model,
is affected by each of the input values (the option Greeks); |
|
|
E. |
Explain the delta of an option, and demonstrate how it is used in dynamic hedging. (page 269) |
|
|
E. |
Explain the delta of an option and demonstrate how it is used in dynamic
hedging; |
|
|
F. |
Explain the gamma effect on an option's price and delta and how gamma can affect a delta hedge. (page 274) |
|
|
F. |
Explain the gamma effect on an option�s price and delta and how gamma can
affect a delta hedge; |
|
|
G. |
Discuss the effect of the underlying asset's cash flows on the price of an option. (page 274) |
|
|
G. |
Discuss the effect of the underlying asset�s cash flows on the price of an option; |
|
|
H. |
Demonstrate the methods for estimating the future volatility of the underlying asset (i.e., the historical volatility and the implied volatility methods). (page 275) |
|
|
H. |
Demonstrate the methods for estimating the future volatility of the underlying
asset (i.e., the historical volatility and the implied volatility methods); |
|
|
I. |
Illustrate how put-call parity for options on forwards (or futures) is established. (page 276) |
|
|
I. |
Illustrate how put-call parity for options on forwards (or futures) is established; |
|
|
J. |
Compare and contrast American options on Forwards and Futures to European options on forwards and futures, and identify the appropriate pricing model for European options. (page 278) |
|
|
J. |
Compare and contrast American options on forwards and futures with European
options on forwards and futures, and identify the appropriate pricing model for
European options. |
|
63 |
A. |
Distinguish between the pricing and valuation of swaps. (page 288) |
|
61 |
A. |
Distinguish between the pricing and valuation of swaps; |
|
|
B. |
Explain the equivalence of the following swaps to combinations of other instruments: interest rare swaps to a series of off market forward rate agreements (FBAs) and a plain vanilla swap to a combination of an interest rate call and interest rate put. (pa |
|
|
B. |
Explain the equivalence of the following swaps to combinations of other
instruments: interest rate swaps to a series of off-market forward rate
agreements (FRAs) and a plain vanilla swap to a combination of an interest rate
call and interest rate put; |
|
|
C. |
Calculate and interpret the fixed rate on a plain vanilla interest rate swap and the market value of the swap during its life. (page 290) |
|
|
C. |
Calculate and interpret the fixed rate on a plain vanilla interest rate swap and the
market value of the swap during its life; |
|
|
D. |
Calculate and interpret the fixed race, if applicable, and the foreign notional principal for a given domestic notional principal on a currency swap, and determine the market values of each of the different types of currency swaps during their lives. (pag |
|
|
D. |
Calculate and interpret the fixed rate, if applicable, and the foreign notional
principal for a given domestic notional principal on a currency swap, and
determine the market values of each of the different types of currency swaps
during their lives; |
|
|
E. |
Calculate and interpret the fixed rare, if applicable, on an equity swap and the market values of the different types of equity swaps during their lives. (page 301) E explain and interpret the characteristics and uses of swaptions, including the differenc |
|
|
E. |
Calculate and interpret the fixed rate, if applicable, on an equity swap and the
market values of the different types of equity swaps during their lives; |
|
|
G. |
Identify and calculate the possible payoffs and cash flows of an interest rate swaption. (page 303) |
|
|
F. |
Explain and interpret the characteristics and uses of swaptions, including the
difference between payer and receiver swaptions; |
|
|
H. |
Calculate and interpret the value of an interest rate swaption on the expiration day. (page 304) |
|
|
G. |
Identify and calculate the possible payoffs and cash flows of an interest rate
swaption; |
|
|
I. |
Evaluate swap credit risk for each parry and over the life of the swap, distinguishbetween current credit risk and potential credit risk, and illustrate how swap credit risk is reduced by both netting and marking to market. (page 305) |
|
|
H. |
Calculate and interpret the value of an interest rate swaption on the expiration
day; |
|
|
J. |
Define swap spread and relate it ro credit risk. (page 306) |
|
|
I. |
Evaluate swap credit risk for each party and during the life of the swap,
distinguish between current credit risk and potential credit risk, and illustrate
how swap credit risk is reduced by both netting and marking to market; |
|
|
|
|
|
|
J. |
Define swap spread and relate it to credit risk. |
|
64 |
A. |
Demonstrate how both a cap and a floor are packages of options on interest rates, and options on fixed income instruments. (page 316) |
|
62 |
A. |
Demonstrate how both a cap and a floor are packages of options on interest
rates and options on fixed-income instruments; |
|
|
B. |
Compute the payoff for a cap and a floor, and explain how a collar is created. (page 318) |
|
|
B. |
Compute the payoff for a cap and a floor and explain how a collar is created. |
|
65 |
A. |
Describe the characteristics of a credit default swap, and compare and contrast acredit default swap to a corporate bond. (page 324) |
|
63 |
A. |
Describe the characteristics of a credit default swap, and compare and contrast a
credit default swap with a corporate bond; |
|
|
B. |
Explain the advantages of using credit derivatives over other credit instruments. (page 326) |
|
|
B. |
Explain the advantages of using credit derivatives over other credit instruments; |
|
|
C. |
Explain the use of credit derivatives by the various market participants. (page 326) |
|
|
C. |
Explain the use of credit derivatives by the various market participants; |
|
|
D. |
Discuss credit derivatives strategies and how they are used. (page 327) |
|
|
D. |
Discuss credit derivatives trading strategies and how they are used by hedge
funds and other managers. |
|
| 18 |
66 |
A. |
Discuss mean-variance analysis and its assumptions; and calculate the expected return and the standard deviation of return for a portfolio of two or three assets. (page 196) |
18 |
64 |
A. |
Discuss mean�variance analysis and its assumptions, and calculate the expected
return and the standard deviation of return for a portfolio of two or three assets; |
|
|
B. |
Explain the minimum variance and the efficient frontiers; and discuss the steps ro .solve For the minimum-variance frontier. (page 201) |
|
|
B. |
Explain the minimum-variance and efficient frontiers, and discuss the steps to
solve for the minimum-variance frontier; |
|
|
C. |
Discuss diversification benefits, and explain how 1) the correlation in a rwoasset portfolio and 2) the number of assets in a multi-asset portfolio affect the diversification benefits, (page 205) |
|
|
C. |
Discuss diversification benefits, and explain how the correlation in a two-asset
portfolio and the number of assets in a multi-asset portfolio affect the
diversification benefits; |
|
|
D. |
Calculate the variance of an equally-weighted portfolio of n stocks; explain the capital allocation and the capital market lines (CAL and CML), explain the relation between them, and calculate the values of one of the variables given the values of the rem |
|
|
D. |
Calculate the variance of an equally weighted portfolio of n stocks, explain the
capital allocation and the capital market lines (CAL and CML) and the relation
between them, and calculate the values of one of the variables given the values
of the remainin |
|
|
E. |
Explain the capital asset pricing model (CAPM), including its underlying assumptions and the resulting conclusions. (page 218) |
|
|
E. |
Explain the capital asset pricing model (CAPM), including its underlying
assumptions and the resulting conclusions; |
|
|
F. |
Discuss the security market line (SML), the beta coefficient, the marker risk premium and the Sharpe ratio, and calculate the values of one of these variables given the values of the remaining variables. (page 219) |
|
|
F. |
Discuss the security market line (SML), the beta coefficient, the market risk
premium, and the Sharpe ratio, and calculate the value of one of these variables
given the values of the remaining variables; |
|
|
G. |
Explain the marker model, and state and interpret the market model's predictions with respect to asset returns, variances, and eovariances. (page 226) |
|
|
G. |
Explain the market model, and state and interpret the market model�s predictions
with respect to asset returns, variances, and covariances; |
|
|
H. |
Calculate an adjusted beta, and discuss the use of adjusted and historical betas as predictors of future betas. (page 228) |
|
|
H. |
Calculate an adjusted beta, and discuss the use of adjusted and historical betas as
predictors of future betas; |
|
|
I. |
Discuss reasons for and problems related to instability in the minimum-variance frontier. (page 230) |
|
|
I. |
Discuss reasons for and problems related to instability in the minimum-variance
frontier; |
|
|
J. |
Discuss and compare macroeconomic factor models, fundamental factor models, and statistical factor models. (page 231) |
|
|
J. |
Discuss and compare macroeconomic factor models, fundamental factor models,
and statistical factor models; |
|
|
K. |
Calculate the expected return on a portfolio of two stocks, given the estimated macroeconomic factor model for each stock. (page 236) |
|
|
K. |
Calculate the expected return on a portfolio of two stocks, given the estimated
macroeconomic factor model for each stock; |
|
|
L. |
Discuss the arbitrage pricing theory (APT), including its underlying assumptions and its relation to The multifactor models, calculate the expected return on an asset given an asset's factor sensitivities and the factor risk premiums, and determine whethe |
|
|
L. |
Discuss the arbitrage pricing theory (APT), including its underlying assumptions
and its relation to the multifactor models, calculate the expected return on an
asset given an asset�s factor sensitivities and the factor risk premiums, and
determine whethe |
|
|
M. |
Explain the sources of active risk, and define and interpret tracking error, tracking risk, and the information ratio, and explain factor portfolio and tracking portfolio. (page 240) |
|
|
M. |
Explain the sources of active risk, define and interpret tracking error, tracking
risk, and the information ratio, and explain factor portfolio and tracking
portfolio; |
|
|
N. |
Compare and contrast the conclusions and the underlying assumptions of the CAPM and the APT models, and explain why an investor can possibly earn a substantial premium for exposure to dimensions of risk unrelated to marker movements. (page 244) |
|
|
N. |
Compare and contrast the conclusions and the underlying assumptions of the
CAPM and the APT models, and explain why an investor can possibly earn a
substantial premium for exposure to dimensions of risk unrelated to market
movements. |
|
67 |
A. |
Discuss the efficiency of the market portfolio in the CAPM and the relationship between the expected return and hera of an asset when there are restrictions on borrowing at the risk-free rate and on short selling. (page 262) |
|
65 |
A. |
Discuss the efficiency of the market portfolio in the CAPM and the relation
between the expected return and beta of an asset when restrictions on
borrowing at the risk-free rate and on short selling exist; |
|
|
B. |
Discuss the practical consequences that follow when there are restrictions on borrowing at the risk-free rate and on short selling. (page 263) |
|
|
B. |
Discuss the practical consequences that follow when restrictions on borrowing at
the risk-free rate and on short selling exist. |
|
68 |
A. |
Explain international marker integration and segmentation and the impediments to international capital mobility. (page 267) |
|
66 |
A. |
Explain international market integration and segmentation and the impediments
to international capital mobility; |
|
|
B. |
Discuss the factors that favor international market integration. (page 268) |
|
|
B. |
Discuss the factors that favor international market integration; |
|
|
C. |
Stare the assumptions of the domestic capital asset pricing model (CAPM). (page 269) |
|
|
C. |
State the assumptions of the domestic capital asset pricing model (CAPM); |
|
|
D. |
Justify the extension of the domestic capital asset pricing model ro an international context (the extended CAPM) and describe the assumptions needed to make the extension. (page 269) |
|
|
D. |
Justify the extension of the domestic CAPM to an international context (the
extended CAPM) and describe the assumptions needed to make the extension; |
|
|
E. |
Determine whether the real exchange rare has changed in a period, given the beginning-of-period (nominal) exchange rare, the inflation rates in the period, and the end-of-period (nominal) exchange rare. (page 272) |
|
|
E. |
Determine whether the real exchange rate has changed in a period, given the
beginning-of-period (nominal) exchange rate, the inflation rates in the period,
and the end-of-period (nominal) exchange rate; |
|
|
F. |
Calculate the expected 1) exchange rate and 2) domestic-currency holding period return on a foreign bond (security), given expected, predictable inflation raves, the beginning-of-period nominal exchange rare, and the constant real exchange rare. (page 274 |
|
|
F. |
Calculate the expected 1) exchange rate and 2) domestic-currency holding period
return on a foreign bond (security), given expected, predictable inflation rates,
the beginning-of-period nominal exchange rate, and the constant real exchange
rate; |
|
|
G. |
Calculate the end-of-period real exchange rare and the domestic-currency expost return on a foreign bond (security), given the end-of-period exchange rate, the beginning-of-period real exchange rate, and the inflation rates during the period. (page 274) |
|
|
G. |
Calculate the end-of-period real exchange rate and the domestic-currency ex-post
return on a foreign bond (security), given the end-of-period exchange rate, the
beginning-of-period real exchange rate, and the inflation rates during the period; |
|
|
H. |
Calculate a foreign currency risk premium, and explain a foreign currency risk premium in terms of interest rate differentials and Forward razes. (page 275) |
|
|
H. |
Calculate a foreign currency risk premium and explain a foreign currency risk
premium in terms of interest rate differentials and forward rates; |
|
|
I. |
State the risk pricing relation and the formula for the international capital asset pricing model (ICAPM). (page 277) |
|
|
I. |
State the risk pricing relation and the formula for the international capital asset
pricing model (ICAPM); |
|
|
J. |
Calculate the expected rerurn on a stock, given its world market beta and currency exposure as well as the appropriate risk-free rates and risk premiums.(page 280) |
|
|
J. |
Calculate the expected return on a stock, given its world market beta and
currency exposure as well as the appropriate risk-free rates and risk premiums; |
|
|
K. |
Explain the effect of marker segmentation on the ICAPM. (page 280) |
|
|
K. |
Explain the effect of market segmentation on the ICAPM; |
|
|
I. |
Define currency exposure and explain exposures in terms of correlations. (page 281) |
|
|
L. |
Define currency exposure and explain exposures in terms of correlations; |
|
|
M. |
Discuss the likely exchange rare exposure of a company based on a description of the company's activities, and explain the impact of both real and nominal exchange rare changes on (he valuation of the company. (page 283) |
|
|
M. |
Discuss the likely exchange rate exposure of a company based on a description of
the company�s activities, and explain the impact of both real and nominal
exchange rate changes on the valuation of the company; |
|
|
N. |
Discuss the currency exposures of national economies, equity markers, and bond markets. (page 285) |
|
|
N. |
Discuss the currency exposures of national economies, equity markets, and bond
markets; |
|
|
O. |
Contrast the traditional trade approach (J-cure) and the money demand approach to modeling the relationship between real exchange rate changes and domestic economic activity. (page |
|
|
O. |
Contrast the traditional trade approach ( j-curve) and the money demand
approach to modeling the relation between real exchange rate changes and
domestic economic activity. |
|
69 |
A. |
Justify the need for a theory of active portfolio management. (page 300) |
|
67 |
A. |
Justify active portfolio management when security markets are nearly efficient; |
|
|
B. |
Discuss the steps and the approach of the Treynor-Black model for security selection. (page 301)
|
|
|
B. |
Discuss the steps and the approach of the Treynor–Black model for security selection |
|
|
C. |
Describe how an analyst's accuracy in forecasting alphas can he measured and how estimates of forecasting can be incorporated into the Treynor-Black approach. (page 307)
|
|
|
C. |
Describe how an analyst’s accuracy in forecasting alphas can be measured and how estimates of forecasting can be incorporated into the Treynor–Black approach. |
|
70 |
A. |
Describe basic global taxation regimes as they relate to taxing dividend income, interest income, realized capital gains, and unrealized capital gains. (page 314)
|
|
|
- |
- |
|
|
B. |
Calculate the impact of different types of taxes and tax regimes on Future accumulations. (page 316) |
|
|
- |
- |
|
|
C. |
Calculate accrual equivalent after-tax returns, (page 324) |
|
|
- |
- |
|
|
D. |
Calculate accrual equivalent tax rates. (page 325) |
|
|
- |
- |
|
|
E. |
Describe how investment return and investment horizon affect the tax impact associated with an investment. (page 316) |
|
|
- |
- |
|
|
F. |
Describe the tax profile of different types of investment accounts and the impact they have on after-tax returns and future accumulations. (page 326) |
|
|
- |
- |
|
|
G. |
Explain how taxes affect investment risk. {page 330) |
|
|
- |
- |
|
|
H. |
Explain the relation of after-tax returns with trading behavior and capital gains recognition. (page 332) |
|
|
- |
- |
|
|
I. |
Explain the benefits of tax loss harvesting and highest-in, first-out (HIFO) tax lot accounting. (page 334) |
|
|
- |
- |
|
|
J. |
Describe how taxes relate to mean-variance oprimization and asset location. (page 337) |
|
|
- |
- |
|
71 |
A. |
Explain the importance of the portfolio perspective. (page 353) |
|
68 |
A. |
Explain the importance of the portfolio perspective |
|
|
B. |
Describe the steps of the portfolio management process and the components of those steps. (page 353) |
|
|
B. |
Describe the steps of the portfolio management process and the components of those steps |
|
|
C. |
Define investment objectives and constraints and explain and distinguish among the types of investment objectives and constraints. (page 354) |
|
|
C. |
Define investment objectives and constraints and explain and distinguish among the types of investment objectives and constraints |
|
|
D. |
Discuss the role of the investment policy statement in the portfolio management process and explain the elements of an investment policy statement. (page 358) |
|
|
D. |
Discuss the role of the investment policy statement in the portfolio management process and explain the elements of an investment policy statement |
|
|
E. |
Explain how capital marker expectations and the investment policy statement help influence the strategic asset allocation decision and discuss how an Investor's investment time horizon may influence the investors' strategic asset allocation. (page 359) |
|
|
E. |
Explain how capital market expectations and the investment policy statement help influence the strategic asset allocation decision, and discuss how investors’ investment time horizon may influence their strategic asset allocation |
|
|
F. |
Contrast the types of investment time horizons, determine the time horizon for a particular investor, and evaluate the effects of this rime horizon on Portfolio choice. (page 356) |
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F. |
Contrast the types of investment time horizons, determine the time horizon for a particular investor, and evaluate the effects of this time horizon on portfolio choice
Justify ethical conduct as a requirement for managing investment portfolios. |
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G. |
Justify ethical conduct as a requirement for managing investment portfolios. (page 360) |
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G. |
Justify ethical conduct as a requirement for managing investment portfolios |
