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2022 CFA® PROGRAM CURRICULUM LEVEL I VOLUMES 1–6
Quantitative Methods
Title Page
Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Quantitative Methods
Study Session 1 Quantitative Methods (1)
Reading 1 The Time Value of Money
Introduction
Interest Rates
Future Value of a Single Cash Flow (Lump Sum)
Non-Annual Compounding (Future Value)
Continuous Compounding, Stated and Effective Rates
Stated and Effective Rates
Future Value of a Series of Cash Flows, Future Value Annuities
Equal Cash Flows—Ordinary Annuity
Unequal Cash Flows
Present Value of a Single Cash Flow (Lump Sum)
Non-Annual Compounding (Present Value)
Present Value of a Series of Equal Cash Flows (Annuities) and Unequal Cash Flows
The Present Value of a Series of Equal Cash Flows
The Present Value of a Series of Unequal Cash Flows
Present Value of a Perpetuity and Present Values Indexed at Times other than t=0
Present Values Indexed at Times Other than t = 0
Solving for Interest Rates, Growth Rates, and Number of Periods
Solving for Interest Rates and Growth Rates
Solving for the Number of Periods
Solving for Size of Annuity Payments (Combining Future Value and Present Value Annuities)
Present Value and Future Value Equivalence, Additivity Principle
The Cash Flow Additivity Principle
Summary
Practice Problems
Solutions
Reading 2 Organizing, Visualizing, and Describing Data
Introduction
Data Types
Numerical versus Categorical Data
Cross-Sectional versus Time-Series versus Panel Data
Structured versus Unstructured Data
Data Summarization
Organizing Data for Quantitative Analysis
Summarizing Data Using Frequency Distributions
Summarizing Data Using a Contingency Table
Data Visualization
Histogram and Frequency Polygon
Bar Chart
Tree-Map
Word Cloud
Line Chart
Scatter Plot
Heat Map
Guide to Selecting among Visualization Types
Measures of Central Tendency
The Arithmetic Mean
The Median
The Mode
Other Concepts of Mean
Quantiles
Quartiles, Quintiles, Deciles, and Percentiles
Quantiles in Investment Practice
Measures of Dispersion
The Range
The Mean Absolute Deviation
Sample Variance and Sample Standard Deviation
Downside Deviation and Coefficient of Variation
Coefficient of Variation
The Shape of the Distributions
The Shape of the Distributions: Kurtosis
Correlation between Two Variables
Properties of Correlation
Limitations of Correlation Analysis
Summary
Practice Problems
Solutions
Reading 3 Probability Concepts
Introduction, Probability Concepts, and Odds Ratios
Probability, Expected Value, and Variance
Conditional and Joint Probability
Expected Value (Mean), Variance, and Conditional Measures of Expected Value and Variance
Expected Value, Variance, Standard Deviation, Covariances, and Correlations of Portfolio Returns
Covariance Given a Joint Probability Function
Bayes' Formula
Bayes’ Formula
Principles of Counting
Summary
Practice Problems
Solutions
Study Session 2 Quantitative Methods (2)
Reading 4 Common Probability Distributions
Introduction and Discrete Random Variables
Discrete Random Variables
Discrete and Continuous Uniform Distribution
Continuous Uniform Distribution
Binomial Distribution
Normal Distribution
The Normal Distribution
Probabilities Using the Normal Distribution
Standardizing a Random Variable
Probabilities Using the Standard Normal Distribution
Applications of the Normal Distribution
Lognormal Distribution and Continuous Compounding
The Lognormal Distribution
Continuously Compounded Rates of Return
Student’s t-, Chi-Square, and F-Distributions
Student’s t-Distribution
Chi- Square and F-Distribution
Monte Carlo Simulation
Summary
Practice Problems
Solutions
Reading 5 Sampling and Estimation
Introduction
Sampling Methods
Simple Random Sampling
Stratified Random Sampling
Cluster Sampling
Non-Probability Sampling
Sampling from Different Distributions
Distribution of the Sample Mean and the Central Limit Theorem
The Central Limit Theorem
Standard Error of the Sample Mean
Point Estimates of the Population Mean
Point Estimators
Confidence Intervals for the Population Mean and Selection of Sample Size
Selection of Sample Size
Resampling
Data Snooping Bias, Sample Selection Bias, Look-Ahead Bias, and Time-Period Bias
Data Snooping Bias
Sample Selection Bias
Look-Ahead Bias
Time-Period Bias
Summary
Practice Problems
Solutions
Reading 6 Hypothesis Testing
Introduction
Why Hypothesis Testing?
Implications from a Sampling Distribution
The Process of Hypothesis Testing
Stating the Hypotheses
Two-Sided vs. One-Sided Hypotheses
Selecting the Appropriate Hypotheses
Identify the Appropriate Test Statistic
Test Statistics
Identifying the Distribution of the Test Statistic
Specify the Level of Significance
State the Decision Rule
Determining Critical Values
Decision Rules and Confidence Intervals
Collect the Data and Calculate the Test Statistic
Make a Decision
Make a Statistical Decision
Make an Economic Decision
Statistically Significant but Not Economically Significant?
The Role of p-Values
Multiple Tests and Interpreting Significance
Tests Concerning a Single Mean
Test Concerning Differences between Means with Independent Samples
Test Concerning Differences between Means with Dependent Samples
Testing Concerning Tests of Variances (Chi-Square Test)
Tests of a Single Variance
Test Concerning the Equality of Two Variances (F-Test)
Parametric vs. Nonparametric Tests
Uses of Nonparametric Tests
Nonparametric Inference: Summary
Tests Concerning Correlation
Parametric Test of a Correlation
Tests Concerning Correlation: The Spearman Rank Correlation Coefficient
Test of Independence Using Contingency Table Data
Summary
Practice Problems
Solutions
Reading 7 Introduction to Linear Regression
Simple Linear Regression
Estimating the Parameters of a Simple Linear Regression
The Basics of Simple Linear Regression
Estimating the Regression Line
Interpreting the Regression Coefficients
Cross- Sectional vs. Time- Series Regressions
Assumptions of the Simple Linear Regression Model
Assumption 1: Linearity
Assumption 2: Homoskedasticity
Assumption 3: Independence
Assumption 4: Normality
Analysis of Variance
Breaking down the Sum of Squares Total into Its Components
Measures of Goodness of Fit
ANOVA and Standard Error of Estimate in Simple Linear Regression
Hypothesis Testing of Linear Regression Coefficients
Hypothesis Tests of the Slope Coefficient
Hypothesis Tests of the Intercept
Hypothesis Tests of Slope When Independent Variable Is an Indicator Variable
Test of Hypotheses: Level of Significance and p-Values
Prediction Using Simple Linear Regression and Prediction Intervals
Functional Forms for Simple Linear Regression
The Log-Lin Model
The Lin-Log Model
The Log-Log Model
Selecting the Correct Functional Form
Summary
Practice Problems
Solutions
Appendices
Glossary
Economics and Financial Statement Analysis
Title Page
Contents
How to Use the CFA Program Curriculum ix
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Economics
Study Session 3 Economics (1)
Reading 8 Topics in Demand and Supply Analysis
Introduction
Demand Concepts
Demand Concepts
Price Elasticity of Demand
Extremes of Price Elasticity
Predicting Demand Elasticity, Price Elasticity and Total Expenditure
Elasticity and Total Expenditure
Income Elasticity of Demand, Cross-Price Elasticity of Demand
Cross-Price Elasticity of Demand
Substitution and Income Effects; Normal Goods, Inferior Goods and Special Cases
Normal and Inferior Goods
Supply Analysis: Cost, Marginal Return, and Productivity
Marginal Returns and Productivity
Economc Profit Versus Accounting Profit
Economic Cost vs. Accounting Cost
Marginal Revenue, Marginal Cost and Profit Maximization; Short-Run Cost Curves: Total, Variable, Fixed, and Marginal Costs
Understanding the Interaction between Total, Variable, Fixed, and Marginal Cost and Output
Perfect and Imperfect Competition, Profit Maximization
Profit-Maximization, Breakeven, and Shutdown Points of Production
Breakeven Analysis and Shutdown Decision
The Shutdown Decision
Economies and Diseconomies of Scale with Short-Run and Long-Run Cost Analysis
Short- and Long-Run Cost Curves
Defining Economies of Scale and Diseconomies of Scale
Summary
Practice Problems
Solutions
Reading 9 The Firm and Market Structures
Introduction & Analysis of Market Structures
Analysis of Market Structures
Perfect Competition & Demand Analysis in Perfectly Competitive Markets
Demand Analysis in Perfectly Competitive Markets
Elasticity of Demand
Other Factors Affecting Demand
Consumer Surplus: Value Minus Expenditure
Supply Analysis & Optimal Price and Optimal Output In Perfectly Competitive Markets
Optimal Price and Output in Perfectly Competitive Markets
Factors Affecting Long-Run Equilibrium in Perfectly Competitive Markets
Supply, Demand, Optimal Pricing, and Optimal Ouput under Monopolistic Competition
Demand Analysis in Monopolistically Competitive Markets
Supply Analysis in Monopolistically Competitive Markets
Optimal Price and Output in Monopolistically Competitive Markets
Long-Run Equilibrium for Monopolistically Competitive Firm
Oligopoly & Demand Analysis and Pricing Strategies in Oligopoly Markets: Pricing Independence Portion
Demand Analysis and Pricing Strategies in Oligopoly Markets
Oligopoly & Demand Analysis and Pricing Strategies in Oligopoly Markets: The Cournot Assumption Part
Oligopoly & Demand Analysis and Pricing Strategies in Oligopoly Markets: The Nash Equilibrium part
Supply Analysis & Optimal Price and Output & Long-Run Equilibrium in Oligopoly Markets
Optimal Price and Output in Oligopoly Markets
Factors Affecting Long-Run Equilibrium in Oligopoly Markets
Monopoly & Demand & Supply & Optimal Price and Output in Monopoly Markets
Demand Analysis in Monopoly Markets
Supply Analysis in Monopoly Markets
Optimal Price and Output in Monopoly Markets
Price Discrimination and Consumer Surplus
Factors Affecting Long-Run Equilibrium in Monopoly Markets
Identification of Market Structure
Econometric Approaches
Simpler Measures
Summary
Practice Problems
Solutions
Reading 10 Aggregate Output, Prices, and Economic Growth
Introduction
Aggregate Output and Income
Gross Domestic Product
The Components of GDP
GDP, National Income, Personal Income, and Personal Disposable Income
Relationship among Saving, Investment, the Fiscal Balance and the Trade Balance
Aggregate Demand and Aggregate Supply
Aggregate Demand
Aggregate Supply
Shifts in the Aggregate Demand Curve
Equilibrium GDP and Prices
Economic Growth and Sustainability
The Production Function and Potential GDP
Sources of Economic Growth
Measures of Sustainable Growth
Measuring Sustainable Growth
Summary
Practice Problems
Solutions
Reading 11 Understanding Business Cycles
Introduction
Overview of the Business Cycle
Phases of the Business Cycle
Leads and Lags in Business and Consumer Decision Making
Market Conditions and Investor Behavior
Credit Cycles and Their Relationship to Business Cycles
Applications of Credit Cycles
Consequences for Policy
Business Cycle Fluctuations from a Firm’s Perspective
The Workforce and Company Costs
Fluctuations in Capital Spending
Fluctuations in Inventory Levels
Consumer Behavior
Consumer Confidence
Measures of Consumption
Income Growth
Saving Rates
Housing Sector Behavior
Available Statistics
Sensitivity to Interest Rates and Relationship to Credit Cycle
The Role of Demographics
Impact on the Economic Cycle
External Trade Sector Behavior
Cyclical Fluctuations of Imports and Exports
The Role of the Exchange Rate
Overall Effect on Exports and Imports
Theoretical Considerations
Historical Context
Neoclassical Economics
The Austrian School
Monetarism
Keynesianism
Modern Approach to Business Cycles
Economic Indicators
Types of Indicators
Composite Indicators
Leading Indicators
Using Economic Indicators
Other Composite Leading Indicators
Surveys
The Use of Big Data in Economic Indicators
Nowcasting
GDPNow
Unemployment
Unemployment
Inflation
Deflation, Hyperinflation, and Disinflation
Measuring Inflation: The Construction of Price Indexes
Price Indexes and Their Usage
Explaining Inflation
Summary
Practice Problems
Solutions
Study Session 4 Economics (2)
Reading 12 Monetary and Fiscal Policy
Introduction to Monetary and Fiscal Policy
Monetary Policy
Money: Functions, Creation, and Definition
The Functions of Money
Paper Money and the Money Creation Process
Definitions of Money
Money: Quantity Theory, Supply and Demand, Fisher Effect
The Demand for Money
The Supply and Demand for Money
The Fisher Effect
Roles of Central Banks & Objectives of Monetary Policy
The Objectives of Monetary Policy
The Costs of Inflation
Monetary Policy Tools
Open Market Operations
The Central Bank’s Policy Rate
Reserve Requirements
The Transmission Mechanism
Inflation Targeting
Central Bank Independence
Credibility
Transparency
Exchange Rate Targeting
Monetary Policies: Contractionary, Expansionary, Limitations
What’s the Source of the Shock to the Inflation Rate?
Limitations of Monetary Policy
Roles and Objectives of Fiscal Policy
Roles and Objectives of Fiscal Policy
Deficits and the National Debt
Fiscal Policy Tools
The Advantages and Disadvantages of Using the Different Tools of Fiscal Policy
Modeling the Impact of Taxes and Government Spending: The Fiscal Multiplier
The Balanced Budget Multiplier
Fiscal Policy Implementation
Deficits and the Fiscal Stance
Difficulties in Executing Fiscal Policy
The Relationship between Monetary and Fiscal Policy
Factors Influencing the Mix of Fiscal and Monetary Policy
Quantitative Easing and Policy Interaction
The Importance of Credibility and Commitment
Summary
Practice Problems
Solutions
Reading 13 International Trade and Capital Flows
Introduction & International Trade-Basic Terminology
International Trade
Patterns and Trends in International Trade and Capital Flows
Benefits and Costs of International Trade
Comparative Advantage and the Gains from Trade: Absolute and Comparative Advantage
Gains from Trade: Absolute and Comparative Advantage
Ricardian and Heckscher–Ohlin Models of Comparative Advantage
Trade and Capital Flows: Restrictions & Agreements- Tariffs, Quotas and Export Subsidies
Tariffs
Quotas
Export Subsidies
Trading Blocs, Common Markets, and Economic Unions
Capital Restrictions
Balance of Payments- Accounts and Components
Balance of Payments Accounts
Balance of Payment Components
Paired Transactions in the BOP Bookkeeping System
Commercial Exports: Transactions (ia) and (ib)
Commercial Imports: Transaction (ii)
Loans to Borrowers Abroad: Transaction (iii)
Purchases of Home-Country Currency by Foreign Central Banks: Transaction (iv)
Receipts of Income from Foreign Investments: Transaction (v)
Purchase of Non-financial Assets: Transaction (vi)
National Economic Accounts and the Balance of Payments
Trade Organizations
International Monetary Fund
World Bank Group
World Trade Organization
Summary
Practice Problems
Solutions
Reading 14 Currency Exchange Rates
Introduction & The Foreign Exchange Market
The Foreign Exchange Market
Market Functions
Market Participants, Size and Composition
Market Size and Composition
Exchange Rate Quotations
Exchange Rate Quotations
Cross-Rate Calculations
Forward Calculations
Exchange Rate Regimes- Ideals and Historical Perspective
The Ideal Currency Regime
Historical Perspective on Currency Regimes
A Taxonomy of Currency Regimes
Arrangements with No Separate Legal Tender
Currency Board System
Fixed Parity
Target Zone
Active and Passive Crawling Pegs
Fixed Parity with Crawling Bands
Managed Float
Independently Floating Rates
Exchange Rates and the Trade Balance: Introduction
Exchange Rates and the Trade Balance: The Elasticities Approach
Exchange Rates and the Trade Balance: The Absorption Approach
Summary
Practice Problems
Solutions
Financial Statement Analysis
Study Session 5 Financial Statement Analysis (1)
Reading 15 Introduction to Financial Statement Analysis
Introduction
Scope of Financial Statement Analysis
Major Financial Statements - Balance Sheet
Financial Statements and Supplementary Information
Statement of Comprehensive Income
Income Statement
Other Comprehensive Income
Statement of Changes in Equity and Cash Flow Statement
Cash Flow Statement
Financial Notes, Supplementary Schedules, and Management Commentary
Management Commentary or Management’s Discussion and Analysis
Auditor's Reports
Other Sources of Information
Financial Statement Analysis Framework
Articulate the Purpose and Context of Analysis
Collect Data
Process Data
Analyze/Interpret the Processed Data
Develop and Communicate Conclusions/Recommendations
Follow-Up
Summary
Practice Problems
Solutions
Reading 16 Financial Reporting Standards
Introduction
The Objective of Financial Reporting
Accounting Standards Boards
Accounting Standards Boards
Regulatory Authorities
International Organization of Securities Commissions
The Securities and Exchange Commission (US)
Capital Markets Regulation in Europe
The International Financial Reporting Standards Framework
Qualitative Characteristics of Financial Reports
Constraints on Financial Reports
The Elements of Financial Statements
Underlying Assumptions in Financial Statements
Recognition of Financial Statement Elements
Measurement of Financial Statement Elements
General Requirements for Financial Statements
Required Financial Statements
General Features of Financial Statements
Structure and Content Requirements
Comparison of IFRS with Alternative Reporting Systems
Monitoring Developments in Financial Reporting Standards
New Products or Types of Transactions
Evolving Standards and the Role of CFA Institute
Summary
Practice Problems
Solutions
Glossary
Financial Statement Analysis and Corporate Issuers
Title Page
Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Financial Statement Analysis
Study Session 6 Financial Statement Analysis (2)
Reading 17 Understanding Income Statements
Introduction
Components and Format of the Income Statement
Revenue Recognition
General Principles
Accounting Standards for Revenue Recognition
Expense Recognition: General Principles
General Principles
Issues in Expense Recognition: Doubtful Accounts, Warranties
Doubtful Accounts
Warranties
Issues in Expense Recognition: Depreciation and Amortization
Implications for Financial Analysts: Expense Recognition
Non-Recurring Items and Non-Operating Items: Discontinued Operations and Unusual or Infrequent items
Discontinued Operations
Unusual or Infrequent Items
Non-Recurring Items: Changes in Accounting Policy
Non-Operating Items
Earnings Per Share and Capital Structure and Basic EPS
Simple versus Complex Capital Structure
Basic EPS
Diluted EPS: the If-Converted Method
Diluted EPS When a Company Has Convertible Preferred Stock Outstanding
Diluted EPS When a Company Has Convertible Debt Outstanding
Diluted EPS: the Treasury Stock Method
Other Issues with Diluted EPS and Changes in EPS
Changes in EPS
Common-Size Analysis of the Income Statement
Common-Size Analysis of the Income Statement
Income Statement Ratios
Comprehensive Income
Summary
Practice Problems
Solutions
Reading 18 Understanding Balance Sheets
Introduction and Components of the Balance Sheet
Components and Format of the Balance Sheet
Balance Sheet Components
Current and Non-Current Classification
Liquidity-Based Presentation
Current Assets: Cash and Cash Equivalents, Marketable Securities and Trade Receivables
Current Assets
Current Assets: Inventories and Other Current Assets
Other Current Assets
Current liabilities
Non-Current Assets: Property, Plant and Equipment and Investment Property
Property, Plant, and Equipment
Investment Property
Non-Current Assets: Intangible Assets
Identifiable Intangibles
Non-Current Assets: Goodwill
Non-Current Assets: Financial Assets
Non-Current Assets: Deferred Tax Assets
Non-Current Liabilities
Long-term Financial Liabilities
Deferred Tax Liabilities
Components of Equity
Components of Equity
Statement of Changes in Equity
Common Size Analysis of Balance Sheet
Common-Size Analysis of the Balance Sheet
Balance Sheet Ratios
Summary
Practice Problems
Solutions
Reading 19 Understanding Cash Flow Statements
Introduction
Classification Of Cash Flows and Non-Cash Activities
Classification of Cash Flows and Non-Cash Activities
Cash Flow Statement: Differences Between IFRS and US GAAP
Cash Flow Statement: Direct and Indirect Methods for Reporting Cash Flow from Operating Activities
Cash Flow Statement: Indirect Method Under IFRS
Cash Flow Statement: Direct Method Under IFRS
Cash Flow Statement: Direct Method Under US GAAP
Cash Flow Statement: Indirect Method Under US GAAP
Linkages of Cash Flow Statement with the Income Statement and Balance Sheet
Linkages of the Cash Flow Statement with the Income Statement and Balance Sheet
Preparing the Cash Flow Statement: The Direct Method for Operating Activities
Operating Activities: Direct Method
Preparing the Cash Flow Statement: Investing Activities
Preparing the Cash Flow Statement: Financing Activities
Long-Term Debt and Common Stock
Dividends
Preparing the Cash Flow Statement: Overall Statement of Cash Flows Under the Direct Method
Preparing the Cash Flow Statement: Overall Statement of Cash Flows Under the Indirect Method
Conversion of Cash Flows from the Indirect to Direct Method
Cash Flow Statement Analysis: Evaluation of Sources and Uses of Cash
Evaluation of the Sources and Uses of Cash
Cash Flow Statement Analysis: Common Size Analysis
Cash Flow Statement Analysis: Free Cash Flow to Firm and Free Cash Flow to Equity
Cash Flow Statement Analysis: Cash Flow Ratios
Summary
Practice Problems
Solutions
Reading 20 Financial Analysis Techniques
Introduction
The Financial Analysis Process
Analytical Tools and Techniques
Financial Ratio Analysis
The Universe of Ratios
Value, Purposes, and Limitations of Ratio Analysis
Sources of Ratios
Common Size Balance Sheets and Income Statements
Common-Size Analysis of the Balance Sheet
Common-Size Analysis of the Income Statement
Cross-Sectional, Trend Analysis & Relationships in Financial Statements
Trend Analysis
Relationships among Financial Statements
The Use of Graphs and Regression Analysis
Regression Analysis
Common Ratio Categories & Interpretation and Context
Interpretation and Context
Activity Ratios
Calculation of Activity Ratios
Interpretation of Activity Ratios
Liquidity Ratios
Calculation of Liquidity Ratios
Interpretation of Liquidity Ratios
Solvency Ratios
Calculation of Solvency Ratios
Interpretation of Solvency Ratios
Profitability Ratios
Calculation of Profitability Ratios
Interpretation of Profitability Ratios
Integrated Financial Ratio Analysis
The Overall Ratio Picture: Examples
DuPont Analysis: The Decomposition of ROE
Equity Analysis and Valuation Ratios
Valuation Ratios
Industry-Specific Financial Ratios
Research on Financial Ratios in Credit and Equity Analysis
Credit Analysis
The Credit Rating Process
Historical Research on Ratios in Credit Analysis
Business and Geographic Segments
Segment Reporting Requirements
Segment Ratios
Model Building and Forecasting
Summary
Practice Problems
Solutions
Study Session 7 Financial Statement Analysis (3)
Reading 21 Inventories
Introduction
Cost of inventories
Inventory valuation methods
Specific Identification
First-In, First-Out (FIFO)
Weighted Average Cost
Last-In, First-Out (LIFO)
Calculations of cost of sales, gross profit, and ending inventory
Periodic versus perpetual inventory systems
Comparison of inventory valuation methods
The LIFO method and LIFO reserve
LIFO Reserve
LIFO liquidations
Inventory method changes
Inventory adjustments
Evaluation of inventory management: Disclosures & ratios
Presentation and Disclosure
Inventory Ratios
Illustrations of inventory analysis: Adjusting LIFO to FIFO
Illustrations of inventory analysis: Impacts of writedowns
Summary
Practice Problems
Solutions
Reading 22 Long-Lived Assets
Introduction & Acquisition of Property, Plant and Equipment
Introduction
Acquisition of Long-Lived Assets
Property, Plant, and Equipment
Acquisition of Intangible Assets
Intangible Assets Purchased in Situations Other Than Business Combinations
Intangible Assets Developed Internally
Intangible Assets Acquired in a Business Combination
Capitalization versus Expensing: Impact on Financial Statements and Ratios
Capitalisation of Interest Costs
Capitalisation of Interest and Internal Development Costs
Depreciation of Long-Lived Assets: Methods and Calculation
Depreciation Methods and Calculation of Depreciation Expense
Amortisation of Long-Lived Assets: Methods and Calculation
The Revaluation Model
Impairment of Assets
Impairment of Property, Plant, and Equipment
Impairment of Intangible Assets with a Finite Life
Impairment of Intangibles with Indefinite Lives
Impairment of Long-Lived Assets Held for Sale
Reversals of Impairments of Long-Lived Assets
Derecognition
Sale of Long-Lived Assets
Long-Lived Assets Disposed of Other Than by a Sale
Presentation and Disclosure Requirements
Using Disclosures in Analysis
Investment Property
Summary
Practice Problems
Solutions
Reading 23 Income Taxes
Introduction
Differences Between Accounting Profit and Taxable Income
Current and Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities
Determining the Tax Base of Assets and Liabilities
Determining the Tax Base of an Asset
Determining the Tax Base of a Liability
Changes in Income Tax Rates
Temporary and Permanent Differences Between Taxable and Accounting Profit
Taxable Temporary Differences
Deductible Temporary Differences
Examples of Taxable and Deductible Temporary Differences
Exceptions to the Usual Rules for Temporary Differences
Business Combinations and Deferred Taxes
Investments in Subsidiaries, Branches, Associates and Interests in Joint Ventures
Unused Tax Losses and Tax Credits
Recognition and Measurement of Current and Deferred Tax
Recognition of a Valuation Allowance
Recognition of Current and Deferred Tax Charged Directly to Equity
Presentation and Disclosure
Comparison of IFRS and US GAAP
Summary
Practice Problems
Solutions
Reading 24 Non-Current (Long-Term) Liabilities
Introduction
Bonds Payable & Accounting for Bond Issuance
Accounting for Bond Issuance
Accounting for Bond Amortisation, Interest Expense, and Interest Payments
Accounting for Bonds at Fair Value
Derecognition of Debt
Debt Covenants
Presentation and Disclosure of Long-Term Debt
Leases
Examples of Leases
Advantages of Leasing
Lease Classification as Finance or Operating
Financial Reporting of Leases
Lessee Accounting—IFRS
Lessee Accounting—US GAAP
Lessor Accounting
Introduction to Pensions and Other Post-Employment Benefits
Evaluating Solvency: Leverage and Coverage Ratios
Summary
Practice Problems
Solutions
Study Session 8 Financial Statement Analysis (4)
Reading 25 Financial Reporting Quality
Introduction & Conceptual Overview
Conceptual Overview
GAAP, Decision Useful Financial Reporting
GAAP, Decision-Useful, but Sustainable?
Biased Accounting Choices
Within GAAP, but “Earnings Management”
Departures from GAAP
Differentiate between Conservative and Aggressive Accounting
Conservatism in Accounting Standards
Bias in the Application of Accounting Standards
Context for Assessing Financial Reporting Quality: Motivations and Conditions Conducive to Issuing Low Quality Financial Reports
Motivations
Conditions Conducive to Issuing Low-Quality Financial Reports
Mechanisms That Discipline Financial Reporting Quality
Market Regulatory Authorities
Auditors
Private Contracting
Detection of Financial Reporting Quality Issues: Introduction & Presentation Choices
Presentation Choices
Accounting Choices and Estimates and How Accounting Choices and Estimates Affect Earnings and Balance Sheets
How Accounting Choices and Estimates Affect Earnings and Balance Sheets
How Choices that Affect the Cash Flow Statement
Choices that Affect Financial Reporting
Warning Signs
1) Pay attention to revenue.
2) Pay attention to signals from inventories.
3) Pay attention to capitalization policies and deferred costs.
4) Pay attention to the relationship of cash flow and net income.
5) Other potential warnings signs.
Summary
Practice Problems
Solutions
Reading 26 Applications of Financial Statement Analysis
Introduction & Evaluating Past Financial Performance
Application: Evaluating Past Financial Performance
Application: Projecting Future Financial Performance as an Input to Market Based Valuation
Projecting Performance: An Input to Market-Based Valuation
Projecting Multiple-Period Performance
Application: Assessing Credit Risk
Screening for Potential Equity Investments
Framework for Analyst Adjustments & Adjustments to Investments & Adjustments to Inventory
A Framework for Analyst Adjustments
Analyst Adjustments Related to Investments
Analyst Adjustments Related to Inventory
Adjustments Related to Property, Plant, and Equipment
Adjustments Related to Goodwill
Summary
Practice Problems
Solutions
Corporate Issuers
Study Session 9 Corporate Issuers (1)
Reading 27 Introduction to Corporate Governance and Other ESG Considerations
Introduction and Overview of Corporate Governance
Corporate Governance Overview
Stakeholder Groups
Stakeholder Groups
Principal–Agent and Other Relationships in Corporate Governance
Shareholder and Manager/Director Relationships
Controlling and Minority Shareholder Relationships
Manager and Board Relationships
Shareholder versus Creditor Interests
Other Stakeholder Conflicts
Overview and Mechanisms of Stakeholder Management
Overview of Stakeholder Management
Mechanisms of Stakeholder Management
Mechanisms to Mitigate Associated Stakeholder Risks
Employee Laws and Contracts
Contractual Agreements with Customers and Suppliers
Laws and Regulations
Company Boards and Committees
Composition of the Board of Directors
Functions and Responsibilities of the Board
Board of Directors Committees
Relevant Factors in Analyzing Corporate Governance and Stakeholder Management
Market Factors
Non-Market Factors
Risks and Benefits of Corporate Governance and Stakeholder Management
Risks of Poor Governance and Stakeholder Management
Benefits of Effective Governance and Stakeholder Management
Factors Relevant to Corporate Governance and Stakeholder Management Analysis
Economic Ownership and Voting Control
Board of Directors Representation
Remuneration and Company Performance
Investors in the Company
Strength of Shareholders’ Rights
Managing Long-Term Risks
Summary of Analyst Considerations
ESG Considerations for Investors and Analysts
Introduction to Environmental, Social, and Governance issues
ESG Investment Strategies
ESG Investment Approaches
Catalysts for Growth in ESG Investing
ESG Market Overview
ESG Factors in Investment Analysis
Summary
Practice Problems
Solutions
Reading 28 Uses of Capital
Introduction
The Capital Allocation Process
Investment Decision Criteria
Net Present Value
Internal Rate of Return
Corporate Usage of Capital Allocation Methods
Real Options
Timing Options
Sizing Options
Flexibility Options
Fundamental Options
Common Capital Allocation Pitfalls
Summary
Practice Problems
Solutions
Reading 29 Sources of Capital
Introduction
Corporate Financing Options
Internal Financing
Financial Intermediaries
Capital Markets
Other Financing
Considerations Affecting Financing Choices
Managing and Measuring Liquidity
Defining Liquidity Management
Measuring Liquidity
Evaluating Short-Term Financing Choices
Summary
Practice Problems
Solutions
Glossary
Corporate Issuers, Equity, and Fixed Income
Title Page
Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Corporate Issuers
Study Session 10 Corporate Issuers (2)
Reading 30 Cost of Capital-Foundational Topics
Introduction
Cost of Capital
Taxes and the Cost of Capital
Costs of the Various Sources of Capital
Cost of Debt
Cost of Preferred Stock
Cost of Common Equity
Estimating Beta
Estimating Beta for Public Companies
Estimating Beta for Thinly Traded and Nonpublic Companies
Flotation Costs
Methods in Use
Summary
Practice Problems
Solutions
Reading 31 Capital Structure
Introduction
Capital Structure and Company Life Cycle
Background
Start-Ups
Growth Businesses
Mature Businesses
Unique Situations
Modigliani–Miller Propositions
MM Proposition I without Taxes: Capital Structure Irrelevance
MM Proposition II without Taxes: Higher Financial Leverage Raises the Cost of Equity
MM Propositions with Taxes: Taxes, Cost of Capital, and Value of the Company
Costs of Financial Distress
Optimal and Target Capital Structure
Factors Affecting Capital Structure Decisions
Capital Structure Policies and Target Capital Structures
Financing Capital Investments
Market Conditions
Information Asymmetries and Signaling
Agency Costs
Stakeholder Interests
Shareholder vs. Stakeholder Theory
Debt vs. Equity Conflict
Preferred Shareholders
Private Equity Investors/Controlling Shareholders
Bank and Private Lenders
Other Stakeholders
Summary
Practice Problems
Solutions
Reading 32 Measures of Leverage
Introduction
Leverage
Business and Sales Risks
Business Risk and Its Components
Sales Risk
Operating Risk and the Degree of Operating Leverage
Financial Risk, the Degree of Financial Leverage and the Leveraging Role of Debt
Total Leverage and the Degree of Total Leverage
Breakeven Points and Operating Breakeven Points
The Risks of Creditors and Owners
Summary
Practice Problems
Solutions
Equity Investments
Study Session 11 Equity Investments (1)
Reading 33 Market Organization and Structure
Introduction
The Functions of the Financial System
Helping People Achieve Their Purposes in Using the Financial System
Determining Rates of Return
Capital Allocation Efficiency
Assets and Contracts
Classifications of Assets and Markets
Securities
Fixed Income
Equities
Pooled Investments
Currencies, Commodities, and Real Assets
Commodities
Real Assets
Contracts
Forward Contracts
Futures Contracts
Swap Contracts
Option Contracts
Other Contracts
Financial Intermediaries
Brokers, Exchanges, and Alternative Trading Systems
Dealers
Arbitrageurs
Securitizers, Depository Institutions and Insurance Companies
Depository Institutions and Other Financial Corporations
Insurance Companies
Settlement and Custodial Services and Summary
Summary
Positions and Short Positions
Short Positions
Leveraged Positions
Orders and Execution Instructions
Execution Instructions
Validity Instructions and Clearing Instructions
Stop Orders
Clearing Instructions
Primary Security Markets
Public Offerings
Private Placements and Other Primary Market Transactions
Importance of Secondary Markets to Primary Markets
Secondary Security Market and Contract Market Structures
Trading Sessions
Execution Mechanisms
Market Information Systems
Well-functioning Financial Systems
Market Regulation
Summary
Practice Problems
Solutions
Reading 34 Security Market Indexes
Introduction
Index Definition and Calculations of Value and Returns
Calculation of Single-Period Returns
Calculation of Index Values over Multiple Time Periods
Index Construction
Target Market and Security Selection
Index Weighting
Index Management: Rebalancing and Reconstitution
Rebalancing
Reconstitution
Uses of Market Indexes
Gauges of Market Sentiment
Proxies for Measuring and Modeling Returns, Systematic Risk, and Risk-Adjusted Performance
Proxies for Asset Classes in Asset Allocation Models
Benchmarks for Actively Managed Portfolios
Model Portfolios for Investment Products
Equity indexes
Broad Market Indexes
Multi-Market Indexes
Sector Indexes
Style Indexes
Fixed-income indexes
Construction
Types of Fixed-Income Indexes
Indexes for Alternative Investments
Commodity Indexes
Real Estate Investment Trust Indexes
Hedge Fund Indexes
Summary
Practice Problems
Solutions
Reading 35 Market Efficiency
Introduction
The Concept of Market Efficiency
The Description of Efficient Markets
Market Value versus Intrinsic Value
Factors Affecting Market Efficiency Including Trading Costs
Market Participants
Information Availability and Financial Disclosure
Limits to Trading
Transaction Costs and Information-Acquisition Costs
Forms of Market Efficiency
Weak Form
Semi-Strong Form
Strong Form
Implications of the Efficient Market Hypothesis
Fundamental Analysis
Technical Analysis
Portfolio Management
Market Pricing Anomalies - Time Series and Cross-Sectional
Time-Series Anomalies
Cross-Sectional Anomalies
Other Anomalies, Implications of Market Pricing Anomalies
Closed-End Investment Fund Discounts
Earnings Surprise
Initial Public Offerings (IPOs)
Predictability of Returns Based on Prior Information
Implications for Investment Strategies
Behavioral Finance
Loss Aversion
Herding
Overconfidence
Information Cascades
Other Behavioral Biases
Behavioral Finance and Investors
Behavioral Finance and Efficient Markets
Summary
Practice Problems
Solutions
Study Session 12 Equity Investments (2)
Reading 36 Overview of Equity Securities
Importance of Equity Securities
Equity Securities in Global Financial Markets
Characteristics of Equity Securities
Common Shares
Preference Shares
Private Versus Public Equity Securities
Non-Domestic Equity Securities
Direct Investing
Depository Receipts
Risk and Return Characteristics
Return Characteristics of Equity Securities
Risk of Equity Securities
Equity and Company Value
Accounting Return on Equity
The Cost of Equity and Investors’ Required Rates of Return
Summary
Practice Problems
Solutions
Reading 37 Introduction to Industry and Company Analysis
Introduction
Uses of Industry Analysis
Approaches to Identifying Similar Companies
Products and/or Services Supplied
Business-Cycle Sensitivities
Statistical Similarities
Industry Classification Systems
Commercial Industry Classification Systems
Constructing a Peer Group
Describing and Analyzing an Industry and Principles of Strategic Analysis
Principles of Strategic Analysis
Barriers to Entry
Industry Concentration
Industry Capacity
Market Share Stability
Price Competition
Industry Life Cycle
External Influences on Industry
Macroeconomic Influences
Technological Influences
Demographic Influences
Governmental Influences
Social Influences
Environmental Influences
Industry Comparison
Company Analysis
Elements That Should Be Covered in a Company Analysis
Spreadsheet Modeling
Summary
Practice Problems
Solutions
Reading 38 Equity Valuation: Concepts and Basic Tools
Introduction
Estimated Value and Market Price
Categories of Equity Valuation Models
Background for the Dividend Discount Model
Dividends: Background for the Dividend Discount Model
Dividend Discount Model (DDM) and Free-Cash-Flow-to-Equity Model (FCFE)
Preferred Stock Valuation
The Gordon Growth Model
Multistage Dividend Discount Models
Multipler Models and Relationship Among Price Multiples, Present Value Models, and Fundamentals
Relationships among Price Multiples, Present Value Models, and Fundamentals
Method of Comparables and Valuation Based on Price Multiples
Illustration of a Valuation Based on Price Multiples
Enterprise Value
Asset-Based Valuation
Summary
Practice Problems
Solutions
Fixed Income
Study Session 13 Fixed Income (1)
Reading 39 Fixed-Income Securities: Defining Elements
Introduction and Overview of a Fixed-Income Security
Overview of a Fixed-Income Security
Bond Indenture
Bond Indenture
Legal, Regulatory, and Tax Considerations
Tax Considerations
Principal Repayment Structures
Principal Repayment Structures
Coupon Payment Structures
Floating-Rate Notes
Step-Up Coupon Bonds
Credit-Linked Coupon Bonds
Payment-in-Kind Coupon Bonds
Deferred Coupon Bonds
Index-Linked Bonds
Callable and Putable Bonds
Callable Bonds
Putable Bonds
Convertible Bonds
Summary
Practice Problems
Solutions
Reading 40 Fixed-Income Markets: Issuance, Trading, and Funding
Introduction
Classification of Fixed-Income Markets
Classification of Fixed-Income Markets
Fixed-Income Indexes
Investors in Fixed-Income Securities
Primary Bond Markets
Primary Bond Markets
Secondary Bond Markets
Sovereign Bonds
Characteristics of Sovereign Bonds
Credit Quality of Sovereign Bonds
Types of Sovereign Bonds
Non-Sovereign, Quasi-Government, and Supranational Bonds
Non-Sovereign Bonds
Quasi-Government Bonds
Supranational Bonds
Corporate Debt: Bank Loans, Syndicated Loans, and Commercial Paper
Bank Loans and Syndicated Loans
Commercial Paper
Corporate Debt: Notes and Bonds
Maturities
Coupon Payment Structures
Principal Repayment Structures
Asset or Collateral Backing
Contingency Provisions
Issuance, Trading, and Settlement
Structured Financial Instruments
Capital Protected Instruments
Yield Enhancement Instruments
Participation Instruments
Leveraged Instruments
Short-Term Bank Funding Alternatives
Retail Deposits
Short-Term Wholesale Funds
Repurchase and Reverse Repurchase Agreements
Structure of Repurchase and Reverse Repurchase Agreements
Credit Risk Associated with Repurchase Agreements
Summary
Practice Problems
Solutions
Reading 41 Introduction to Fixed-Income Valuation
Introduction
Bond Prices and the Time Value of Money
Bond Pricing with a Market Discount Rate
Yield-to-Maturity
Relationships between the Bond Price and Bond Characteristics
Pricing Bonds Using Spot Rates
Prices and Yields: Conventions For Quotes and Calculations
Flat Price, Accrued Interest, and the Full Price
Matrix Pricing
Annual Yields for Varying Compounding Periods in the Year
Yield Measures for Fixed-Rate Bonds
Yield Measures for Floating-Rate Notes
Yield Measures for Money Market Instruments
The Maturity Structure of Interest Rates
Yield Spreads
Yield Spreads over Benchmark Rates
Yield Spreads over the Benchmark Yield Curve
Summary
Practice Problems
Solutions
Reading 42 Introduction to Asset-Backed Securities
Introduction: Benefits of Securitization
Benefits of Securitization for Economies and Financial Markets
How Securitization Works
An Example of a Securitization
Parties to a Securitization and Their Roles
Structure of a Securitization
Key Role of the Special Purpose Entity
Residential Mortgage Loans
Maturity
Interest Rate Determination
Amortization Schedule
Prepayment Options and Prepayment Penalties
Rights of the Lender in a Foreclosure
Mortgage Pass-Through Securities
Mortgage Pass-Through Securities
Collateralized Mortgage Obligations and Non-Agency RMBS
Sequential-Pay CMO Structures
CMO Structures Including Planned Amortization Class and Support Tranches
Other CMO Structures
Non-Agency Residential Mortgage-Backed Securities
Commercial Mortgage-Backed Securities
Credit Risk
CMBS Structure
Non-Mortgage Asset-Backed Securities
Auto Loan ABS
Credit Card Receivable ABS
Collateralized Debt Obligations
CDO Structure
An Example of a CDO Transaction
Covered Bonds
Summary
Practice Problems
Solutions
Glossary
Fixed Income, Derivatives, Alternative Investments, and Portfolio Management
Title Page
Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Fixed Income
Study Session 14 Fixed Income (2)
Reading 43 Understanding Fixed-Income Risk and Return
Introduction
Sources of Return
Macaulay and Modified Duration
Macaulay, Modified, and Approximate Duration
Approximate Modified and Macaulay Duration
Effective and Key Rate Duration
Key Rate Duration
Properties of Bond Duration
Duration of a Bond Portfolio
Money Duration and the Price Value of a Basis Point
Bond Convexity
Investment Horizon, Macaulay Duration and Interest Rate Risk
Yield Volatility
Investment Horizon, Macaulay Duration, and Interest Rate Risk
Credit and Liquidity Risk
Empirical Duration
Summary
Practice Problems
Solutions
Reading 44 Fundamentals of Credit Analysis
Introduction
Credit Risk
Capital Structure, Seniority Ranking, and Recovery Rates
Capital Structure
Seniority Ranking
Recovery Rates
Rating Agencies, Credit Ratings, and Their Role in the Debt Markets
Credit Ratings
Issuer vs. Issue Ratings
ESG Ratings
Risks in Relying on Agency Ratings
Traditional Credit Analysis: Corporate Debt Securities
Credit Analysis vs. Equity Analysis: Similarities and Differences
The Four Cs of Credit Analysis: A Useful Framework
Credit Risk vs. Return: Yields and Spreads
Credit Risk vs. Return: The Price Impact of Spread Changes
High-Yield, Sovereign, and Non-Sovereign Credit Analysis
High Yield
Sovereign Debt
Non-Sovereign Government Debt
Summary
Practice Problems
Solutions
Derivatives
Study Session 15 Derivatives
Reading 45 Derivative Markets and Instruments
Derivatives: Introduction, Definitions, and Uses
Derivatives: Definitions and Uses
The Structure of Derivative Markets
Exchange-Traded Derivatives Markets
Over-the-Counter Derivatives Markets
Types of Derivatives: Introduction, Forward Contracts
Forward Commitments
Types of Derivatives: Futures
Types of Derivatives: Swaps
Contingent Claims: Options
Options
Contingent Claims: Credit Derivatives
Types of Derivatives: Asset-Backed Securities and Hybrids
Hybrids
Derivatives Underlyings
Equities
Fixed-Income Instruments and Interest Rates
Currencies
Commodities
Credit
Other
The Purposes and Benefits of Derivatives
Risk Allocation, Transfer, and Management
Information Discovery
Operational Advantages
Market Efficiency
Criticisms and Misuses of Derivatives
Speculation and Gambling
Destabilization and Systemic Risk
Elementary Principles of Derivative Pricing
Storage
Arbitrage
Summary
Practice Problems
Solutions
Reading 46 Basics of Derivative Pricing and Valuation
Introduction
Basic Derivative Concepts, Pricing the Underlying
Basic Derivative Concepts
Pricing the Underlying
The Principle of Arbitrage
The (In)Frequency of Arbitrage Opportunities
Arbitrage and Derivatives
Arbitrage and Replication
Risk Aversion, Risk Neutrality, and Arbitrage-Free Pricing
Limits to Arbitrage
Pricing and Valuation of Forward Contracts: Pricing vs. Valuation; Expiration; Initiation
Pricing and Valuation of Forward Commitments
Pricing and Valuation of Forward Contracts: Between Initiation and Expiration; Forward Rate Agreements
A Word about Forward Contracts on Interest Rates
Pricing and Valuation of Futures Contracts
Pricing and Valuation of Swap Contracts
Pricing and Valuation of Options
European Option Pricing
Lower Limits for Prices of European Options
Put-Call Parity, Put-Call-Forward Parity
Put–Call–Forward Parity
Binomial Valuation of Options
American Option Pricing
Summary
Practice Problems
Solutions
Alternative Investments
Study Session 16 Alternative Investments
Reading 47 Introduction to Alternative Investments
Introduction
Why Investors Consider Alternative Investments
Categories of Alternative Investments
Investment Methods
Methods of Investing in Alternative Investments
Advantages and Disadvantages of Direct Investing, Co-Investing, and Fund Investing
Due Diligence for Fund Investing, Direct Investing, and Co-Investing
Investment and Compensation Structures
Partnership Structures
Compensation Structures
Common Investment Clauses, Provisions, and Contingencies
Hedge Funds
Characteristics of Hedge Funds
Hedge Fund Strategies
Hedge Funds and Diversification Benefits
Private Capital
Overview of Private Capital
Description: Private Equity
Description: Private Debt
Risk/Return of Private Equity
Risk/Return of Private Debt
Diversification Benefits of Investing in Private Capital
Natural Resources
Overview of Natural Resources
Characteristics of Natural Resources
Risk/Return of Natural Resources
Diversification Benefits of Natural Resources
Instruments
Real Estate
Overview of the Real Estate Market
Characteristics: Forms of Real Estate Ownership
Characteristics: Real Estate Investment Categories
Risk and Return Characteristics
Diversification Benefits
Infrastructure
Introduction and Overview
Description
Risk and Return Characteristics
Diversification Benefits
Issues in Performance Appraisal
Overview of Performance Appraisal for Alternative Investments
Common Approaches to Performance Appraisal and Application Challenges
Private Equity and Real Estate Performance Evaluation
Hedge Funds: Leverage, Illiquidity, and Redemption Terms
Calculating Fees and Returns
Alternative Asset Fee Structures and Terms
Custom Fee Arrangements
Alignment of Interests and Survivorship Bias
Summary
Portfolio Management
Study Session 17 Portfolio Management (1)
Reading 48 Portfolio Management: An Overview
Introduction
Portfolio Perspective: Diversification and Risk Reduction
Historical Example of Portfolio Diversification: Avoiding Disaster
Portfolios: Reduce Risk
Portfolio Perspective: Risk-Return Trade-off, Downside Protection, Modern Portfolio Theory
Historical Portfolio Example: Not Necessarily Downside Protection
Portfolios: Modern Portfolio Theory
Steps in the Portfolio Management Process
Step One: The Planning Step
Step Two: The Execution Step
Step Three: The Feedback Step
Types of Investors
Individual Investors
Institutional Investors
The Asset Management Industry
Active versus Passive Management
Traditional versus Alternative Asset Managers
Ownership Structure
Asset Management Industry Trends
Pooled Interest - Mutual Funds
Mutual Funds
Pooled Interest - Type of Mutual Funds
Money Market Funds
Bond Mutual Funds
Stock Mutual Funds
Hybrid/Balanced Funds
Pooled Interest - Other Investment Products
Exchange-Traded Funds
Hedge Funds
Private Equity and Venture Capital Funds
Summary
Practice Problems
Solutions
Reading 49 Portfolio Risk and Return: Part I
Introduction
Investment Characteristics of Assets: Return
Return
Money-Weighted Return or Internal Rate of Return
Time-Weighted Rate of Return
Annualized Return
Other Major Return Measures and their Applications
Gross and Net Return
Pre-tax and After-tax Nominal Return
Real Returns
Leveraged Return
Historical Return and Risk
Historical Mean Return and Expected Return
Nominal Returns of Major US Asset Classes
Real Returns of Major US Asset Classes
Nominal and Real Returns of Asset Classes in Major Countries
Risk of Major Asset Classes
Risk–Return Trade-off
Other Investment Characteristics
Distributional Characteristics
Market Characteristics
Risk Aversion and Portfolio Selection & The Concept of Risk Aversion
The Concept of Risk Aversion
Utility Theory and Indifference Curves
Indifference Curves
Application of Utility Theory to Portfolio Selection
Portfolio Risk & Portfolio of Two Risky Assets
Portfolio of Two Risky Assets
Portfolio of Many Risky Assets
Importance of Correlation in a Portfolio of Many Assets
The Power of Diversification
Correlation and Risk Diversification
Historical Risk and Correlation
Historical Correlation among Asset Classes
Avenues for Diversification
Efficient Frontier: Investment Opportunity Set & Minimum Variance Portfolios
Investment Opportunity Set
Minimum-Variance Portfolios
Efficient Frontier: A Risk-Free Asset and Many Risky Assets
Capital Allocation Line and Optimal Risky Portfolio
The Two-Fund Separation Theorem
Efficient Frontier: Optimal Investor Portfolio
Investor Preferences and Optimal Portfolios
Summary
Practice Problems
Solutions
Reading 50 Portfolio Risk and Return: Part II
Introduction
Capital Market Theory: Risk-Free and Risky Assets
Portfolio of Risk-Free and Risky Assets
Capital Market Theory: The Capital Market Line
Passive and Active Portfolios
What Is the “Market”?
The Capital Market Line (CML)
Capital Market Theory: CML - Leveraged Portfolios
Leveraged Portfolios with Different Lending and Borrowing Rates
Systematic and Nonsystematic Risk
Systematic Risk and Nonsystematic Risk
Return Generating Models
Return-Generating Models
Decomposition of Total Risk for a Single-Index Model
Return-Generating Models: The Market Model
Calculation and Interpretation of Beta
Estimation of Beta
Beta and Expected Return
Capital Asset Pricing Model: Assumptions and the Security Market Line
Assumptions of the CAPM
The Security Market Line
Capital Asset Pricing Model: Applications
Estimate of Expected Return
Beyond CAPM: Limitations and Extensions of CAPM
Limitations of the CAPM
Extensions to the CAPM
Portfolio Performance Appraisal Measures
The Sharpe Ratio
The Treynor Ratio
M2: Risk-Adjusted Performance (RAP)
Jensen’s Alpha
Applications of the CAPM in Portfolio Construction
Security Characteristic Line
Security Selection
Implications of the CAPM for Portfolio Construction
Summary
Practice Problems
Solutions
Glossary
Portfolio Management and Ethical and Professional Standards
Title Page
Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prep Providers
Feedback
Portfolio Management
Study Session 18 Portfolio Management (2)
Reading 51 Basics of Portfolio Planning and Construction
Introduction
Portfolio Planning, the Investment Policy Statement (IPS) and Its Major Components
The Investment Policy Statement
Major Components of an IPS
IPS Risk and Return Objectives
Return Objectives
IPS Constraints: Liquidity, Time Horizon, Tax Concerns, Legal and Regulatory Factors, and Unique Circumstances
Liquidity Requirements
Time Horizon
Tax Concerns
Legal and Regulatory Factors
Unique Circumstances and ESG Considerations
Gathering Client Information
Portfolio Construction and Capital Market Expectations
Capital Market Expectations
The Strategic Asset Allocation
Steps Toward an Actual Portfolio and Alternative Portfolio Organizing Principles
New Developments in Portfolio Management
ESG Considerations in Portfolio Planning and Construction
Summary
Practice Problems
Solutions
Reading 52 The Behavioral Biases of Individuals
Introduction and Categorizations of Behavioral Biases
Categorizations of Behavioral Biases
Cognitive Errors
Belief Perseverance Biases
Processing Errors
Emotional Biases
Loss-Aversion Bias
Overconfidence Bias
Self-Control Bias
Status Quo Bias
Endowment Bias
Regret-Aversion Bias
How Behavioral Finance Influences Market Behavior
Defining Market Anomalies
Momentum
Bubbles and Crashes
Value
Summary
Practice Problems
Solutions
Reading 53 Introduction to Risk Management
Introduction
The Risk Management Process
The Risk Management Framework
Risk Governance - An Enterprise View
An Enterprise View of Risk Governance
Risk Tolerance
Risk Budgeting
Identification of Risk - Financial and Non-Financial Risk
Financial Risks
Non-Financial Risks
Identification of Risk - Interactions Between Risks
Measuring and Modifying Risk - Drivers and Metrics
Drivers
Metrics
Methods of Risk Modification - Prevention, Avoidance, and Acceptance
Risk Prevention and Avoidance
Risk Acceptance: Self-Insurance and Diversification
Methods of Risk Modification - Transfer, Shifting, Choosing a Method for Modifying
Risk Shifting
How to Choose Which Method for Modifying Risk
Summary
Practice Problems
Solutions
Reading 54 Technical Analysis
Introduction
Technical Analysis: Principles, Assumptions, and links to Investment Analysis
Principles and Assumptions
Technical Analysis and Behavioral Finance
Technical Analysis and Fundamental Analysis
The Differences in Conducting/Interpreting Technical Analysis in Various Types of Markets
Chart Types
Types of Technical Analysis Charts
Trend, Support, and Resistance
Common Chart Patterns
Reversal Patterns
Continuation Patterns
Technical Indicators: Moving Averages and Bollinger Bands
Technical Indicators
Technical Indicators: Oscillators, Relative Strength, and Sentiment
Rate of Change Oscillator
Relative Strength Index
Stochastic Oscillator
Moving-Average Convergence/Divergence Oscillator (MACD)
Sentiment Indicators
Intermarket Analysis
Principles of Intermarket Analysis
Technical Analysis Applications to Portfolio Management
The Role of the Technical Analyst in Fundamental Portfolio Management
Summary
Practice Problems
Solutions
Reading 55 Fintech in Investment Management
Introduction and What is Fintech
What Is Fintech?
Big Data
Sources of Big Data
Big Data Challenges
Advanced Analytical Tools: Artificial Intelligence and Machine Learning
Types of Machine Learning
Data Science: Extracting Information from Big Data
Data Processing Methods
Data Visualization
Selected Applications of Fintech to Investment Management Text Analytics and Natural Language Processing
Text Analytics and Natural Language Processing
Robo-Advisory Services
Risk Analysis
Algorithmic Trading
Distributed Ledger Technology, and Permissioned and Permissionless Networks
Permissioned and Permissionless Networks
Applications of Distributed Ledger Technology to Investment Management
Cryptocurrencies
Tokenization
Post-Trade Clearing and Settlement
Compliance
Summary
Practice Problems
Solutions
Ethical and Professional Standards
Study Session 19 Ethical and Professional Standards
Reading 56 Ethics and Trust in the Investment Profession
Introduction
Ethics
Ethics and Professionalism
How Professions Establish Trust
Professions Are Evolving
Professionalism in Investment Management
Trust in Investment Management
CFA Institute as an Investment Management Professional Body
Challenges to Ethical Conduct
Ethical vs. Legal Standards
Ethical Decision-Making Frameworks
The Framework for Ethical Decision-Making
Applying the Framework
Conclusion
Summary
Practice Problems
Solutions
Reading 57 Code of Ethics and Standards of Professional Conduct
Preface
Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct
Standards of Practice Handbook
Summary of Changes in the Eleventh Edition
CFA Institute Professional Conduct Program
Adoption of the Code and Standards
Acknowledgments
Ethics and the Investment Industry
Why Ethics Matters
CFA Institute Code of Ethics and Standards of Professional Conduct
Preamble
The Code of Ethics
Standards of Professional Conduct
Practice Problems
Solutions
Reading 58 Guidance for Standards I–VII
Standard I(A): Professionalism - Knowledge of the Law
Standard I(A) Knowledge of the Law
Guidance
Standard I(A): Recommended Procedures
Members and Candidates
Distribution Area Laws
Legal Counsel
Dissociation
Firms
Standard I(A): Application of the Standard
Example 1 (Notification of Known Violations):
Example 2 (Dissociating from a Violation):
Example 3 (Dissociating from a Violation):
Example 4 (Following the Highest Requirements):
Example 5 (Following the Highest Requirements):
Example 6 (Laws and Regulations Based on Religious Tenets):
Example 7 (Reporting Potential Unethical Actions):
Example 8 (Failure to Maintain Knowledge of the Law):
Standard I(B): Professionalism - Independence and Objectivity
Guidance
Standard I(B): Recommended Procedures
Standard I(B): Application of the Standard
Example 1 (Travel Expenses):
Example 2 (Research Independence):
Example 3 (Research Independence and Intrafirm Pressure):
Example 4 (Research Independence and Issuer Relationship Pressure):
Example 5 (Research Independence and Sales Pressure):
Example 6 (Research Independence and Prior Coverage):
Example 7 (Gifts and Entertainment from Related Party):
Example 8 (Gifts and Entertainment from Client):
Example 9 (Travel Expenses from External Manager):
Example 10 (Research Independence and Compensation Arrangements):
Example 11 (Recommendation Objectivity and Service Fees):
Example 12 (Recommendation Objectivity):
Example 13 (Influencing Manager Selection Decisions):
Example 14 (Influencing Manager Selection Decisions):
Example 15 (Fund Manager Relationships):
Example 16 (Intrafirm Pressure):
Standard I(C): Professionalism – Misrepresentation
Guidance
Standard I(C): Recommended Procedures
Factual Presentations
Qualification Summary
Verify Outside Information
Maintain Webpages
Plagiarism Policy
Standard I(C): Application of the Standard
Example 1 (Disclosure of Issuer-Paid Research):
Example 2 (Correction of Unintentional Errors):
Example 3 (Noncorrection of Known Errors):
Example 4 (Plagiarism):
Example 5 (Misrepresentation of Information):
Example 6 (Potential Information Misrepresentation):
Example 7 (Plagiarism):
Example 8 (Plagiarism):
Example 9 (Plagiarism):
Example 10 (Plagiarism):
Example 11 (Misrepresentation of Information):
Example 12 (Misrepresentation of Information):
Example 13 (Avoiding a Misrepresentation):
Example 14 (Misrepresenting Composite Construction):
Example 15 (Presenting Out-of-Date Information):
Example 16 (Overemphasis of Firm Results):
Standard I(D): Professionalism – Misconduct
Guidance
Standard I(D): Recommended Procedures
Standard I(D): Application of the Standard
Example 1 (Professionalism and Competence):
Example 2 (Fraud and Deceit):
Example 3 (Fraud and Deceit):
Example 4 (Personal Actions and Integrity):
Example 5 (Professional Misconduct):
Standard II(A): Integrity of Capital Markets - Material Nonpublic Information
Standard II(A) Material Nonpublic Information
Guidance
Standard II(A): Recommended Procedures
Achieve Public Dissemination
Adopt Compliance Procedures
Adopt Disclosure Procedures
Issue Press Releases
Firewall Elements
Appropriate Interdepartmental Communications
Physical Separation of Departments
Prevention of Personnel Overlap
A Reporting System
Personal Trading Limitations
Record Maintenance
Proprietary Trading Procedures
Communication to All Employees
Standard II(A): Application of the Standard
Example 1 (Acting on Nonpublic Information):
Example 2 (Controlling Nonpublic Information):
Example 3 (Selective Disclosure of Material Information):
Example 4 (Determining Materiality):
Example 5 (Applying the Mosaic Theory):
Example 6 (Applying the Mosaic Theory):
Example 7 (Analyst Recommendations as Material Nonpublic Information):
Example 8 (Acting on Nonpublic Information):
Example 9 (Mosaic Theory):
Example 10 (Materiality Determination):
Example 11 (Using an Expert Network):
Example 12 (Using an Expert Network):
Standard II(B): Integrity of Capital Markets - Market Manipulation
Guidance
Standard II(B): Application of the Standard
Example 1 (Independent Analysis and Company Promotion):
Example 2 (Personal Trading Practices and Price):
Example 3 (Creating Artificial Price Volatility):
Example 4 (Personal Trading and Volume):
Example 5 (“Pump-Priming” Strategy):
Example 6 (Creating Artificial Price Volatility):
Example 7 (Pump and Dump Strategy):
Example 8 (Manipulating Model Inputs):
Example 9 (Information Manipulation):
Standard III(A): Duties to Clients - Loyalty, Prudence, and Care
Standard III(A) Loyalty, Prudence, and Care
Guidance
Standard III(A): Recommended Procedures
Regular Account Information
Client Approval
Firm Policies
Standard III(A): Application of the Standard
Example 1 (Identifying the Client—Plan Participants):
Example 2 (Client Commission Practices):
Example 3 (Brokerage Arrangements):
Example 4 (Brokerage Arrangements):
Example 5 (Client Commission Practices):
Example 6 (Excessive Trading):
Example 7 (Managing Family Accounts):
Example 8 (Identifying the Client):
Example 9 (Identifying the Client):
Example 10 (Client Loyalty):
Example 11 (Execution-Only Responsibilities):
Standard III(B): Duties to Clients - Fair Dealing
Guidance
Standard III(B): Recommended Procedures
Develop Firm Policies
Disclose Trade Allocation Procedures
Establish Systematic Account Review
Disclose Levels of Service
Standard III(B): Application of the Standard
Example 1 (Selective Disclosure):
Example 2 (Fair Dealing between Funds):
Example 3 (Fair Dealing and IPO Distribution):
Example 4 (Fair Dealing and Transaction Allocation):
Example 5 (Selective Disclosure):
Example 6 (Additional Services for Select Clients):
Example 7 (Minimum Lot Allocations):
Example 8 (Excessive Trading):
Example 9 (Limited Social Media Disclosures):
Example 10 (Fair Dealing between Clients):
Standard III(C): Duties to Clients – Suitability
Guidance
Standard III(C): Recommended Procedures
Investment Policy Statement
Regular Updates
Suitability Test Policies
Standard III(C): Application of the Standard
Example 1 (Investment Suitability—Risk Profile):
Example 2 (Investment Suitability—Entire Portfolio):
Example 3 (IPS Updating):
Example 4 (Following an Investment Mandate):
Example 5 (IPS Requirements and Limitations):
Example 6 (Submanager and IPS Reviews):
Example 7 (Investment Suitability—Risk Profile):
Example 8 (Investment Suitability):
Standard III(D): Duties to Clients - Performance Presentation
Guidance
Standard III(D): Recommended Procedures
Apply the GIPS Standards
Compliance without Applying GIPS Standards
Standard III(D): Application of the Standard
Example 1 (Performance Calculation and Length of Time):
Example 2 (Performance Calculation and Asset Weighting):
Example 3 (Performance Presentation and Prior Fund/Employer):
Example 4 (Performance Presentation and Simulated Results):
Example 5 (Performance Calculation and Selected Accounts Only):
Example 6 (Performance Attribution Changes):
Example 7 (Performance Calculation Methodology Disclosure):
Example 8 (Performance Calculation Methodology Disclosure):
Standard III(E): Duties to Clients - Preservation of Confidentiality
Guidance
Standard III(E): Recommended Procedures
Communicating with Clients
Standard III(E): Application of the Standard
Example 1 (Possessing Confidential Information):
Example 2 (Disclosing Confidential Information):
Example 3 (Disclosing Possible Illegal Activity):
Example 4 (Disclosing Possible Illegal Activity):
Example 5 (Accidental Disclosure of Confidential Information):
Standard IV(A): Duties to Employers – Loyalty
Standard IV(A) Loyalty
Guidance
Standard IV(A): Recommended Procedures
Competition Policy
Termination Policy
Incident-Reporting Procedures
Employee Classification
Standard IV(A): Application of the Standard
Example 1 (Soliciting Former Clients):
Example 2 (Former Employer’s Documents and Files):
Example 3 (Addressing Rumors):
Example 4 (Ownership of Completed Prior Work):
Example 5 (Ownership of Completed Prior Work):
Example 6 (Soliciting Former Clients):
Example 7 (Starting a New Firm):
Example 8 (Competing with Current Employer):
Example 9 (Externally Compensated Assignments):
Example 10 (Soliciting Former Clients):
Example 11 (Whistleblowing Actions):
Example 12 (Soliciting Former Clients):
Example 13 (Notification of Code and Standards):
Example 14 (Leaving an Employer):
Example 15 (Confidential Firm Information):
Standard IV(B): Duties to Employers - Additional Compensation Arrangements
Guidance
Standard IV(B): Recommended Procedures
Standard IV(B): Application of the Standard
Example 1 (Notification of Client Bonus Compensation):
Example 2 (Notification of Outside Compensation):
Example 3 (Prior Approval for Outside Compensation):
Standard IV(C): Duties to Employers - Responsibilities of Supervisors
Guidance
Standard IV(C): Recommended Procedures
Codes of Ethics or Compliance Procedures
Adequate Compliance Procedures
Implementation of Compliance Education and Training
Establish an Appropriate Incentive Structure
Standard IV(C): Application of the Standard
Example 1 (Supervising Research Activities):
Example 2 (Supervising Research Activities):
Example 3 (Supervising Trading Activities):
Example 4 (Supervising Trading Activities and Record Keeping):
Example 5 (Accepting Responsibility):
Example 6 (Inadequate Procedures):
Example 7 (Inadequate Supervision):
Example 8 (Supervising Research Activities):
Example 9 (Supervising Research Activities):
Standard V(A): Investment Analysis, Recommendations, and Actions - Diligence and Reasonable Basis
Standard V(A) Diligence and Reasonable Basis
Guidance
Standard V(A): Recommended Procedures
Standard V(A): Application of the Standard
Example 1 (Sufficient Due Diligence):
Example 2 (Sufficient Scenario Testing):
Example 3 (Developing a Reasonable Basis):
Example 4 (Timely Client Updates):
Example 5 (Group Research Opinions):
Example 6 (Reliance on Third-Party Research):
Example 7 (Due Diligence in Submanager Selection):
Example 8 (Sufficient Due Diligence):
Example 9 (Sufficient Due Diligence):
Example 10 (Sufficient Due Diligence):
Example 11 (Use of Quantitatively Oriented Models):
Example 12 (Successful Due Diligence/Failed Investment):
Example 13 (Quantitative Model Diligence):
Example 14 (Selecting a Service Provider):
Example 15 (Subadviser Selection):
Example 16 (Manager Selection):
Example 17 (Technical Model Requirements):
Standard V(B): Investment Analysis, Recommendations, and Actions - Communication with Clients and Prospective Clients
Guidance
Standard V(B): Recommended Procedures
Standard V(B): Application of the Standard
Example 1 (Sufficient Disclosure of Investment System):
Example 2 (Providing Opinions as Facts):
Example 3 (Proper Description of a Security):
Example 4 (Notification of Fund Mandate Change):
Example 5 (Notification of Fund Mandate Change):
Example 6 (Notification of Changes to the Investment Process):
Example 7 (Notification of Changes to the Investment Process):
Example 8 (Notification of Changes to the Investment Process):
Example 9 (Sufficient Disclosure of Investment System):
Example 10 (Notification of Changes to the Investment Process):
Example 11 (Notification of Errors):
Example 12 (Notification of Risks and Limitations):
Example 13 (Notification of Risks and Limitations):
Example 14 (Notification of Risks and Limitations):
Standard V(C): Investment Analysis, Recommendations, and Actions - Record Retention
Guidance
Standard V(C): Recommended Procedures
Standard V(C): Application of the Standard
Example 1 (Record Retention and IPS Objectives and Recommendations):
Example 2 (Record Retention and Research Process):
Example 3 (Records as Firm, Not Employee, Property):
Standard VI(A): Conflicts of Interest - Disclosure of Conflicts
Standard VI(A) Disclosure of Conflicts
Guidance
Standard VI(A): Recommended Procedures
Standard VI(A): Application of the Standard
Example 1 (Conflict of Interest and Business Relationships):
Example 2 (Conflict of Interest and Business Stock Ownership):
Example 3 (Conflict of Interest and Personal Stock Ownership):
Example 4 (Conflict of Interest and Personal Stock Ownership):
Example 5 (Conflict of Interest and Compensation Arrangements):
Example 6 (Conflict of Interest, Options, and Compensation Arrangements):
Example 7 (Conflict of Interest and Compensation Arrangements):
Example 8 (Conflict of Interest and Directorship):
Example 9 (Conflict of Interest and Personal Trading):
Example 10 (Conflict of Interest and Requested Favors):
Example 11 (Conflict of Interest and Business Relationships):
Example 12 (Disclosure of Conflicts to Employers):
Standard VI(B): Conflicts of Interest - Priority of Transactions
Guidance
Standard VI(B): Recommended Procedures
Standard VI(B): Application of the Standard
Example 1 (Personal Trading):
Example 2 (Trading for Family Member Account):
Example 3 (Family Accounts as Equals):
Example 4 (Personal Trading and Disclosure):
Example 5 (Trading Prior to Report Dissemination):
Standard VI(C): Conflicts of Interest - Referral Fees
Guidance
Standard VI(C): Recommended Procedures
Standard VI(C): Application of the Standard
Example 1 (Disclosure of Referral Arrangements and Outside Parties):
Example 2 (Disclosure of Interdepartmental Referral Arrangements):
Example 3 (Disclosure of Referral Arrangements and Informing Firm):
Example 4 (Disclosure of Referral Arrangements and Outside Organizations):
Example 5 (Disclosure of Referral Arrangements and Outside Parties):
Standard VII(A): Responsibilities as a CFA Institute Member or CFA Candidate - Conduct as Participants in CFA Institute Programs
Standard VII(A) Conduct as Participants in CFA Institute Programs
Guidance
Standard VII(A): Application of the Standard
Example 1 (Sharing Exam Questions):
Example 2 (Bringing Written Material into Exam Room):
Example 3 (Writing after Exam Period End):
Example 4 (Sharing Exam Content):
Example 5 (Sharing Exam Content):
Example 6 (Sharing Exam Content):
Example 7 (Discussion of Exam Grading Guidelines and Results):
Example 8 (Compromising CFA Institute Integrity as a Volunteer):
Example 9 (Compromising CFA Institute Integrity as a Volunteer):
Standard VII(B): Responsibilities as a CFA Institute Member or CFA Candidate - Reference to CFA Institute, the CFA Designation, and the CFA Program
Guidance
Standard VII(B): Recommended Procedures
Standard VII(B): Application of the Standard
Example 1 (Passing Exams in Consecutive Years):
Example 2 (Right to Use CFA Designation):
Example 3 (“Retired” CFA Institute Membership Status):
Example 4 (Stating Facts about CFA Designation and Program):
Example 5 (Order of Professional and Academic Designations):
Example 6 (Use of Fictitious Name):
Practice Problems
Solutions
Reading 59 Introduction to the Global Investment Performance Standards (GIPS)
Why Were the GIPS Created, Who Can Claim Compliance & Who Benefits from Compliance
Who Can Claim Compliance?
Who Benefits from Compliance?
Composites
Fundamentals of Compliance
Verification
Practice Problems
Solutions
Reading 60 Ethics Application
Introduction
Professionalism
Knowledge of the Law
Independence and Objectivity
Misrepresentation
Misconduct
Integrity of Capital Markets
Material Nonpublic Information
Market Manipulation
Duties to Clients
Loyalty, Prudence, and Care
Fair Dealing
Suitability
Performance Presentation
Preservation of Confidentiality
Duties to Employers
Loyalty
Additional Compensation Arrangements
Responsibilities of Supervisors
Investment Analysis, Recommendations, and Actions
Diligence and Reasonable Basis
Communication with Clients and Prospective Clients
Record Retention
Conflicts of Interest
Disclosure of Conflicts
Priority of Transactions
Referral Fees
Responsibilities as a CFA Institute Member or CFA Candidate
Conduct as Participants in CFA Institute Programs
Reference to CFA Institute, the CFA Designation, and the CFA Program
Glossary
EULA