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					                   LOS Detail June 2010 (Old)                                                       LOS Detail June 2011
SS   LOS   LOS Description Sub     Sub LOS Description                      SS       LOS     LOS Description
                            LOS
 1    1    Code of Ethics   a.     state the six components of the Code          1         1 Code of Ethics
           and Standards of        of Ethics and the seven Standards of                      and Standards of
           Professional            Professional Conduct;                                     Professional
           Conduct                                                                           Conduct
                            b.     explain the ethical responsibilities
                                   required by the Code and Standards.

      2    "Guidance" for     a.   demonstrate a thorough knowledge                        2 Guidance for
           Standards I-VII         of the Code of Ethics and Standards                       Standards I-VII
                                   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.

      3    CFA Institute Soft a.   define soft-dollar arrangements and                     3 CFA Institute Soft
           Dollar Standards        state the general principles of the                       Dollar Standards
                                   Soft Dollar Standards;




                              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.
    4   CFA Institute     a.   explain the objectives of the                 4 CFA Institute
        Research               Research Objectivity Standards;                 Research
        Objectivity       b.   critique company policies and                   Objectivity
        Standards              practices related to research                   Standards
                               objectivity and distinguish between
                               changes required and changes
                               recommended for compliance with
                               the Research Objectivity Standards.




2   5   The Glenarm       a.   critique the practices and policies       2   5 The Glenarm
        Company                presented;                                      Company
                          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   Preston Partners a.    critique the practices and policies           6 Preston Partners
                               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.


    7   Super Selection   a.   critique the practices and policies           7 Super Selection
                               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.


    8   Trade Allocation: a.   critique trade allocation practices and       8 Trade Allocation:
        Fair Dealing and       determine whether there is                      Fair Dealing and
        Disclosure             compliance with the CFA Institute               Disclosure
                               Standards of Professional Conduct
                               addressing fair dealing and client
                               loyalty;
     Fair Dealing and        determine whether there is                  Fair Dealing and
     Disclosure              compliance with the CFA Institute           Disclosure
                             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.




9    Changing           a.   critique the disclosure of investment     9 Changing
     Investment              objectives and basic policies and           Investment
     Objectives              determine whether they comply with          Objectives
                             the CFA Institute Standards of
                             Professional Conduct;




                        b.   discuss appropriate actions needed
                             to ensure adequate disclosure of the
                             investment process.

10   Prudence in        a.   explain the basic principles of the      10 Prudence in
     perspective             new Prudent Investor Rule;                  Perspective
                        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;
                           d.   explain the key factors that a trustee
                                should consider when investing and
                                managing trust assets.




3   11   Correlation and   a.   calculate and interpret a sample            3   11 Correlation and
         Regression             covariance and a sample correlation                Regression
                                coefficient and interpret a scatter plot;

                           b.   explain the limitations to correlation
                                analysis, including outliers and
                                spurious correlation;




                           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;




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;




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;


                      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.
12   Multiple         a.   formulate a multiple regression          12 Multiple
     Regression and        equation to describe the relation           Regression and
     Issues in             between a dependent variable and            Issues in
     Regression            several independent variables,              Regression
     Analysis              determine the statistical significance      Analysis
                           of each independent variable, and
                           interpret the estimated coefficients
                           and their p-values




                      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-tailed test, and interpret the
                           results of the test;


                      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 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 analyzing the
     output of the regression equation and
     an ANOVA table.
-    -


-    -




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
     heteroskedasticity and the effects of
     heteroskedasticity and
     serial correlation on statistical
     inference;
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;

j.   discuss models with qualitative
     dependent variables;
k.   interpret the economic meaning of
     the results of multiple regression
     analysis and
     critique a regression model and its
     results.
13   Time-Series   a.   calculate and evaluate the predicted      13 Time-Series
     Analysis           trend value for a time series,               Analysis
                        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;

                   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 (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 time
                        series
                   -    -




                   e.   explain mean reversion and calculate
                        a mean-reverting level;
                   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;
                   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
                         i.


                              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 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;
                         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
                              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.
4   14   Economic Growth a.   define the sources of economic            4   14 Economic Growth
                              growth and discuss the preconditions
                              for
                              economic growth;
                         b.   discuss how the one-third rule can be
                              used to explain the contributions of
                              labor
                              and technological change to growth
                              in labor productivity;
                         c.   discuss how faster economic growth
                              can be achieved by increasing the
                              growth
                              of physical capital, technological
                              advances, and investment in human
                              capital;
                         d.   compare and contrast classical
                              growth theory, new classical growth
                              theory, and
                              new growth theory.
15   Regulation and      a.   explain the rationale for government      15 Regulation and
     Antitrust Policy in      regulation in the form of 1) economic        Antitrust Policy in
     a Globalized                                                          a Globalized
     Economy                  regulation of natural monopolies and         Economy
                              2) social regulation of
                              nonmonopolistic
                              industries;
                         b.   discuss the potential benefits and
                              possible negative side effects of
                              social
                              regulation;
                         c.   differentiate between the capture
                              hypothesis and the share-the-gains,
                              share-thepains
                              theory of regulator behavior.
16   Trading with the    a.   explain comparative advantage and         16 Trading with the
     world                    how countries can gain from                  World
                              international
                              trade;
                         b.   compare and contrast tariffs, nontariff
                              barriers, quotas, and voluntary
                              export
                              restraints;
                         c.   critique the arguments for trade
                              restrictions.
17   The Exchange        a.   define an exchange rate and               17 The Exchange
     Rate and the             differentiate between the nominal            Rate and the
     Balance of               exchange rate                                Balance of
     Payments                 and the real exchange rate;                  Payments
                         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
                              rate;
                         d.   differentiate between interest rate
                              parity and purchasing power parity;

                         e.   describe the balance of payments
                              accounts;
                         f.   describe the following exchange rate
                              policies: flexible exchange rates,
                              fixed
                              exchange rates, and crawling pegs.

18   Currency            a.   define direct and indirect methods of     18 Currency
     Exchange Rates           foreign exchange quotations and              Exchange Rate
                              convert
                              direct (indirect) foreign exchange
                              quotations into indirect (direct)
                              foreign
                              exchange quotations;
                       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;
                       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 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
                            maturity/length
                            of contract;
                       g.   calculate and interpret a forward
                            discount or premium and express it
                            as an
                            annualized rate;
                       h.   explain interest rate parity and
                            illustrate covered interest arbitrage;

                       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   Foreign           a.   explain how exchange rates are           19 Foreign
     Exchange Parity        determined in a flexible (or floating)      Exchange Parity
     Relations              exchange                                    Relations
                            rate system;
                       b.   explain the role of each component of
                            the balance of payments accounts;
Relations                                                  Relations




            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;
            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;

            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;

            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;

            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 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;
            n.   discuss the foreign exchange
                 expectation relation between the
                 forward exchange
                 rate and the expected exchange rate.
20   Measuring         a.   distinguish between the different         20 Measuring
     Economic Activity      measures of economic activity and            Economic Activity
                            their
                            components;




                       b.   differentiate between GDP at market
                            prices and GDP at factor cost and
                            explain
                            the adjustments made;
                       c.   differentiate between current and
                            constant prices and describe the
                            GDP deflator.

                                                                  5   21 Inventories:
                                                                         Implications for
                                                                         Financial
                                                                         Statements and
                                                                         Ratios




                                                                      22 Long-lived
                                                                         Assets:
                                                                         Implications for
                                                                         Financial
                                                                         Statements
                                                                         and Ratios
5   21   Intercorporate   a.   describe the classification,              6   23 Intercorporate
         Investments           measurement, and disclosure under                Investments
                               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

                          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.   analyze the effects on financial ratios
                               of the different methods used to
                               account
                               for intercorporate investments.
6   22   Employee        a.   discuss the types of post-                24 Employee
         Compensation:        employment benefit plans and the             Compensation:
         Post-Employment      implications for                             Post-Employment
         and Share-Based                                                   and

                              financial reports;                          Share-Based
                         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;
                         d.   explain the impact of a defined
                              benefit plan’s assumptions on the
                              defined
                              benefit obligation and periodic
                              expense;
                         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

                         f.   evaluate pension plan footnote
                              disclosures including cash flow
                              related
                              information;
                         g.   evaluate the underlying economic
                              liability (or asset) of a company’s
                              pension and
                              other post-employment benefits;
                         h.   calculate the underlying economic
                              pension expense (income) and other
                              postemployment
                              expense (income) based on
                              disclosures;
                         i.   discuss the issues involved in
                              accounting for share-based
                              compensation;
                         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.
    23   Multinational   a.   distinguish among presentation                25 Multinational
         Operations           currency, functional currency, and               Operations
                              local currency;
                         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
                              determine which method is
                              appropriate in various
                              scenarios;
                         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;
                         f.   illustrate and analyze alternative
                              accounting methods for subsidiaries
                              operating
                              in hyperinflationary economies.
7   24   The Lessons We a.    distinguish among the various             7   26 The Lessons We
         Learn                definitions of earnings (e.g., EBITDA,           Learn
                              operating
                              earnings, net income, etc.);
                         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,
                                exposure to variable cash flow, and
                              a foreign currency exposure of an
                            instrument in a foreign corporation

25   Evaluating        a.   contrast cash-basis and accrual-         27 Evaluating
     Financial              basis accounting and explain why            Financial
     Reporting Quality      accounting                                  Reporting Quality
                            discretion exists in an accrual
                            accounting system;
                       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.   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 and the
                            measures of earnings quality, and
                            compare and
                            contrast the earnings quality of peer
                            companies;
                       e.   explain mean reversion in earnings
                            and how the accruals component of
                            earnings
                            affects the speed of mean reversion;

                       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.
26   *Integration of   a.   demonstrate the use of a framework       28 Integration of
     Financial              for the analysis of financial               Financial
     Statement              statements,                                 Statement
     Analysis               given a particular problem, question,       Analysis
     *Techniques            or purpose (e.g., valuing equity based      Techniques
                            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.   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.   adjustments to improve quality and
                                comparability with similar
                                companies,
                                including adjustments for differences
                                in accounting rules, 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   27   Capital Budgeting a.   compute the yearly cash flows of an       8   29 Capital Budgeting
                                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;
                           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
                       d.


                            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 capital
                            asset pricing model (CAPM);
                       f.   discuss the types of real options and
                            evaluate a capital project using real
                            options;
                       g.   discuss common capital budgeting
                            pitfalls;
                       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, residual
                            income, and claims valuation.
28   Capital Structure a.   define and explain leverage, business     30 Capital Structure
     and Leverage           risk, sales risk, operating risk, and
                            financial
                            risk and classify a risk, given a
                            description;
                       b.   calculate and interpret the degree of
                            operating leverage, the degree of
                            financial
                            leverage, and the degree of total
                            leverage;
                       c.   calculate the breakeven quantity of
                            sales and determine the company’s
                            net
                            income at various sales levels;
                       d.   describe the effect of financial
                            leverage on a company’s net income
                            and return
                            on equity;
                       e.   compare and contrast the risks of
                            creditors and owners;
                       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;
                       g.   explain the target capital structure
                            and why actual capital structure may
                            fluctuate
                            around the target;
                       h.   review the role of debt ratings in
                            capital structure policy;
                       i.   explain the factors an analyst should
                            consider in evaluating the impact of
                            capital
                            structure policy on valuation;
                       j.   discuss international differences in
                            financial leverage and the
                            implications for
                            investment analysis.
29   Dividends and     a.   discuss cash dividends, stock           31 Dividends and
     Dividend Policy        dividends, stocks splits, and reverse      Share
                            stock splits and                           Repurchases:
                            evaluate their impact on a                 Analysis
                            shareholder’s wealth;

                       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;
                       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;




                       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;
                      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;
                      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;
                      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;
                      n.   demonstrate how the initiation of a
                           regular dividend payout might affect
                           the
                           price-to-earnings multiple.
9   30   Corporate    a.   explain corporate governance,            9   32 Corporate
         Governance        discuss the objectives and the core             Governance
                           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;
                      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;
                    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;
                    g.   discuss the valuation implications of
                         corporate governance.
31   Mergers and    a.   categorize merger and acquisition         33 Mergers and
     Acquisitions        (M&A) activities based on forms of           Acquisitions
                         integration
                         and types of mergers;
                    b.   explain the common motivations
                         behind M&A activity;
                    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 life cycles;
                    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;
                    g.   summarize U.S. antitrust legislation;

                    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;
                            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
                                 and comparable transaction analysis;

                            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;
                            m.   explain the effects of price and
                                 payment method on the distribution of
                                 risks and
                                 benefits in a merger transaction;
                            n.   describe the empirical evidence
                                 related to the distribution of benefits
                                 in a
                                 merger;
                            o.   compare and contrast divestitures,
                                 equity carve-outs, spin-offs, split-offs,
                                 and
                                 liquidation;
                            p.   discuss the major reasons for
                                 divestitures.
10   32   A Note on Asset   -    valuation by Graham and Dodd and            10   34 A Note on Asset
          Valuation              John Burr Williams are reflected in                 Valuation
                                 modern techniques of equity
                                 valuation. (page 13)




     33   Equity Valuation: a.   define valuation and intrinsic value,            35 Equity Valuation:
          Applications and       and explain possible sources of                     Applications and
          Processes              perceived                                           Processes
                                 mispricing;
33   Equity Valuation:                                                 35 Equity Valuation:
     Applications and                                                     Applications and
     Processes                                                            Processes

                         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 uses of equity valuation;

                         d.   explain the elements of industry and
                              competitive analysis and the
                              importance of
                              evaluating the quality of financial
                              statement information;
                         e.   contrast absolute and relative
                              valuation models, and describe
                              examples of each
                              type of model;
                         f.   illustrate the broad criteria for
                              choosing an appropriate approach for
                              valuing a
                              given company.
34   Equity: Markets     a.   explain the origins of different         36 Equity: Markets
     and Instruments          national market organizations;              and Instruments
                         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 of an
                              international
                              investment;
                         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
                              Receipt (ADR) and differentiate
                              among the
                              various forms of ADRs in terms of
                              trading and information supplied by
                              the listed
                              company;
                         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;
                     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 investing.
35   Return Concepts a.   distinguish among the following           37 Return Concepts
                          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
                     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 methods used to
                          estimate the equity
                          risk premium;
                     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 for public
                          companies, thinly traded public
                          companies,
                           e.


                                and nonpublic companies;
                           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;

                           h.   explain and calculate the weighted
                                average cost of capital for a
                                company;
                           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   36   Equity: Concepts a.   discuss common issues that arise         11   38 Equity: Concepts
          and Techniques        when investing internationally (e.g.,            and Techniques
                                differences
                                in accounting standards);
                           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
                           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;
                           d.   analyze the effects of inflation on
                                asset valuation;
                           e.   discuss multifactor models in a global
                                context.
     37   The Five         a.   distinguish among the five                    39 The Five
          Competitive           competitive forces that drive industry           Competitive
          Forces that           profitability in                                 Forces That
          Shape Strategy        the medium and long run;                         Shape Strategy
                           b.   illustrate how the competitive forces
                                drive industry profitability;
                           c.   describe why industry growth rate,
                                technology and innovation,
                                government, and
                       c.


                            complementary products and
                            services are fleeting factors rather
                            than forces
                            shaping industry structure;
                       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.
38   Industry Analysis a.   discuss the key components that          40 Industry Analysis
                            should be included in an industry
                            analysis
                            model;
                       b.   illustrate the life cycle of a typical
                            industry;
                       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;
                       e.   illustrate the inputs and methods
                            used in preparing industry demand
                            and supply
                            analyses;
                       f.   explain factors that affect industry
                            pricing practices.
39   Valuation in      a.   describe how inflation affects the       41 Valuation in
     Emerging               estimation of cash flows for a              Emerging
     Markets                company                                     Markets
                            domiciled in an emerging market;
                       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 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.
40   Discounted   a.   compare and contrast dividends, free    42 Discounted
     Dividend          cash flow, and residual income as          Dividend
     Valuation                                                    Valuation
                       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;

                  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;
                  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-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 pr
                  g.   calculate the justified leading and
                       trailing P/Es based on fundamentals
                       using the
                       Gordon growth model;
                  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
                           i.


                                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 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 maturity phase of a
                                business;
                           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;

                           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
                                rate expression;
                           p.   illustrate the use of spreadsheet
                                modeling to forecast dividends and
                                value
                                common shares.
                           -    -




12   41   Free Cash Flow   a.   interpret free cash flow to the firm     12   43 Free Cash Flow
          Valuation             (FCFF) and free cash flow to equity              Valuation
                                (FCFE);
12   41   Free Cash Flow   a.   interpret free cash flow to the firm    12   43 Free Cash Flow
          Valuation             (FCFF) and free cash flow to equity             Valuation
                                (FCFE);


                           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;
                           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 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;
                           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;

                           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 justify the use of each model;
                           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;
                        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.
42   Market-Based       a.   distinguish among types of valuation      44 Market-Based
     Valuation: Price        indicators;                                  Valuation: Price
     and *Enterprise                                                      and Enterprise
     Value Multiples                                                      Value
                                                                          Multiples




                        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;
                        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;
                        e.   calculate and interpret each price
                             multiple and dividend yield;
                        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;
                        h.   explain and justify the use of earnings
                             yield (i.e., EPS divided by share
                             price);
                        i.   discuss the fundamental factors that
                             influence each price multiple and
                             dividend
                             yield;
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;
k.   calculate and interpret a predicted
     P/E, given a cross-sectional
     regression on
     fundamentals, and explain limitations
     to the cross-sectional regression

     methodology;
l.   explain the benchmark value of a
     multiple;



m.   evaluate a stock using the method of
     comparables;
n.   discuss the importance of
     fundamentals in the method of
     comparables;
o.   calculate and interpret the P/E-to-
     growth (PEG) ratio and explain its
     use in
     relative valuation;
p.   calculate and explain the use of price
     multiples to determine terminal value
     in a
     multistage discounted cash flow
     model;
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;
s.   discuss the sources of differences in
     cross-border valuation comparisons;

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.
43   Residual Income a.   calculate and interpret residual        45 Residual Income
     Valuation            income and related measures (e.g.,         Valuation
                          economic
                          value added and market value
                          added);
                     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;



                     d.   discuss the fundamental
                          determinants of residual income;
                     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 common stock using a
                          single-stage
                          (constant-growth) residual income
                          model;
                     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
                          and the common assumptions
                          regarding
                          continuing residual income;


                     i.   justify an estimate of continuing
                          residual income at the forecast
                          horizon, given
                     i.


                          company and industry prospects;
                     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;
                     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;
                     m.   discuss the strengths and
                          weaknesses of the residual income
                          model;


                     n.   justify the selection of the residual
                          income model for equity valuation,
                          given the
                          characteristics of the company being
                          valued;
                     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   Private Company a.   compare and contrast public and            46 Private Company
     Valuation            private company valuation;                    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;
                       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   45   Investment   a.   illustrate, for each type of real         13   47 Investment
          Analysis          property investment, the main value               Analysis
                            determinants,
13   45   Investment        a.                                             13   47 Investment
          Analysis                                                                 Analysis

                                 investment characteristics, principal
                                 risks, and most likely investors;

                            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;
                            d.   explain the potential problems
                                 associated with using IRR as a
                                 measurement tool
                                 in real estate investments.
     46   Income Property   a.   explain the relation between a real            48 Income Property
          Analysis and           estate capitalization rate and a                  Analysis and
          Appraisal              discount rate;                                    Appraisal
                            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 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.
     47   Private Equity    a.   explain the sources of value creation          49 Private Equity
          Valuation              in private equity;                                Valuation
                            b.   explain how private equity firms align
                                 their interests with those of the
                                 managers
                                 of portfolio companies;
                            c.   distinguish between the
                                 characteristics of buyout and venture
                                 capital
                                 investments;
                            d.   discuss the valuation issues in buyout
                                 and venture capital transactions;

                            e.   explain alternative exit routes in
                                 private equity and their impact on
                                 value;
                            f.   explain private equity fund structures,
                                 terms, valuation, and due diligence in
                                 the
                    f.


                         context of an analysis of private
                         equity fund returns;
                    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;
                    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)
                    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;
                    k.   demonstrate alternative methods to
                         account for risk in venture capital;

                         Technical Notes on LBO
                         Valuation—(A) and (B):
                         (Reading Appendix 47B)
                    l.   calculate and interpret free cash flow
                         forecasts in a leveraged buyout
                         (LBO)
                         transaction;
                    m.   explain the role of cash sweep in an
                         LBO transaction;
                    n.   explain how private equity firms
                         manage their exit routes in LBO
                         companies;
                    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.
48   Investing in   a.   explain why some commodity futures       50 Investing in
     Commodities         such as gold have limited                   Commodities
                         “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 futures position can be
                                 positive
                                 (negative);
                            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, whereas the
                                 underlying average commodity has a

                                 geometric return near zero;
                            e.   discuss why investing in commodities
                                 offers diversification opportunities
                                 during
                                 periods of economic fluctuation in the
                                 short run and inflation in the long run.

     49   Evaluating the    a.   discuss how the characteristics of              51 Evaluating the
          Performance of         hedge funds affect traditional                     Performance of
          Your Hedge             methods of                                         Your Hedge
          Funds                  performance measurements;                          Funds
                            b.   compare and contrast the use of
                                 market indices, hedge fund indices,
                                 and positive
                                 risk-free rates to evaluate hedge fund
                                 performance.
     50   Buyers Beware:    a.   discuss common types of investment              52 Buyers Beware:
          Evaluating and         risks for hedge funds;                             Evaluating and
          Managing the                                                              Managing the
          Many Facets of                                                            Many Facets
          the Risks of                                                              of the Risks of
          Hedge Funds                                                               Hedge Funds
                            b.   evaluate maximum drawdown and
                                 value-at-risk for measuring risks of
                                 hedge
                                 funds.
14   51   General           a.   distinguish among default risk, credit     14   53 General
          Principles of          spread risk, and downgrade risk;                   Principles of
          Credit Analysis                                                           Credit Analysis
                            b.   explain and analyze the key
                                 components of credit analysis;
                            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;
                     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.   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 rating asset-
                          backed
                          securities;
                     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;
                     j.   contrast the credit analysis required
                          for corporate bonds to that required
                          for
                          1) asset-backed securities, 2)
                          municipal securities, and 3)
                          sovereign debt.
52   The Liquidity   a.   contrast the concept of liquidity as       54 The Liquidity
     Conundrum            “appetite for risk” with the more             Conundrum
                          traditional
                          view that liquidity is created by the
                          central bank;
                     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 subprime mortgage
                          borrowers are granted a free at-the-
                          money call
                          option on the value of their property.
53   Term Structure      a.   illustrate and explain parallel and        55 Term Structure
     and Volatility of        nonparallel shifts in the yield curve, a      and Volatility of
     Interest Rates           yield                                         Interest Rates
                              curve twist, and a change in the
                              curvature of the yield curve (i.e., a
                              butterfly
                              shift);
                         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;
                         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 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 by
                              using key
                              rate duration;
                         g.   compute and interpret yield volatility,
                              distinguish between historical yield
                              volatility
                              and implied yield volatility, and
                              explain how yield volatility is
                              forecasted.
54   Valuing Bonds       a.   evaluate, using relative value             56 Valuing Bonds
     with Embedded            analysis, whether a security is               with Embedded
     Options                  undervalued or                                Options
                              overvalued;
                         b.   evaluate the importance of
                              benchmark interest rates in
                              interpreting spread
                              measures;
                         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;
                          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;

                          g.   interpret an option-adjusted spread
                               with respect to a nominal spread and
                               to
                               benchmark interest rates;
                          h.   illustrate how effective duration and
                               effective convexity are calculated
                               using the
                               binomial model;
                          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;
                          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   55   Mortgage-Backed a.   describe a mortgage loan and               15   57 Mortgage-Backed
          Sector of the        illustrate the cash flow characteristics           Sector of the
          Bond Market          of a fixedrate,                                    Bond Market
                               level payment, and fully amortized
                               mortgage loan;
                          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;
                          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 more
                               relevant than
                               the security’s maturity;
                     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 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;
                     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;
                     k.   compare and contrast agency and
                          nonagency mortgage-backed
                          securities;
                     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.
56   Asset-Backed    a.   illustrate the basic structural features   58 Asset-Backed
     Sector of the        of and parties to a securitization            Sector of the
     Bond Market                                                        Bond Market
                          transaction;
                     b.   explain and contrast prepayment
                          tranching and credit tranching;
                     c.   distinguish between the payment
                          structure and collateral structure of a

                          securitization backed by amortizing
                          assets and non-amortizing assets;

                     d.   distinguish among the various types
                          of external and internal credit

                          enhancements;
                       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 collateralized debt
                            obligations (CDOs), including cash
                            and synthetic
                            CDOs;
                       g.   distinguish among the primary
                            motivations for creating a
                            collateralized debt
                            obligation (arbitrage and balance
                            sheet transactions).
57   Valuing Mortgage- a.   illustrate the computation, use, and      59 Valuing Mortgage-
     Backed and             limitations of the cash flow yield,          Backed and
     Asset-Backed           nominal                                      Asset-Backed
     Securities             spread, and zero-volatility spread for       Securities
                            a mortgage-backed security and an
                            assetbacked
                            security;
                       b.   describe the Monte Carlo simulation
                            model for valuing a mortgage-
                            backed
                            security;
                       c.   describe path dependency in
                            passthrough securities and the
                            implications for
                            valuation models;
                       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;
                       f.   discuss why effective durations
                            reported by various dealers and
                            vendors may
                            differ;
                       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-
                            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 nominal
                                 spread, zero-volatility spread, or
                                 option-adjusted
                                 spread should be used to evaluate a
                                 specific fixed income security.
16   58   Forward Markets a.     explain how the value of a forward      16   60 Forward Markets
          and Contracts          contract is determined at initiation,           and Contracts
                                 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;
                            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 market
                                 value is a
                                 measure of the credit risk to a party
                                 in a forward contract.
     59   Futures Markets   a.   explain why the futures price must           61 Futures Markets
          and Contracts          converge to the spot price at                   and Contracts
                                 expiration;
                            b.   determine the value of a futures
                                 contract;
                            c.   explain how forward and futures
                                 prices differ;
                            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;
                            f.   discuss whether futures prices equal
                                 expected spot prices;
                            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.
17   60   Option Markets   a.   calculate and interpret the prices of a      17   62 Option Markets
          and Contracts         synthetic call option, synthetic put                 and Contracts
                                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;

                           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);
                           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;
                           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);

                           i.   illustrate how put-call parity for
                                options on forwards (or futures) is
                                established;
                           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.
     61   Swap Markets     a.   distinguish between the pricing and               63 Swap Markets
          and Contracts         valuation of swaps;                                  and Contracts
                           b.   explain the equivalence of the
                                following swaps to combinations of
                                other
61   Swap Markets                                                   63 Swap Markets
     and Contracts                                                     and Contracts
                     b.


                          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;
                     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 rate,
                          if applicable, on an equity swap and
                          the
                          market values of the different types of
                          equity swaps during their lives;

                     f.   explain and interpret the
                          characteristics and uses of
                          swaptions, including the
                          difference between payer and
                          receiver swaptions;
                     g.   identify and calculate the possible
                          payoffs and cash flows of an interest
                          rate
                          swaption;
                     h.   calculate and interpret the value of an
                          interest rate swaption on the
                          expiration
                          day;
                     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.
     62   Interest Rate   a.   demonstrate how both a cap and a               64 Interest Rate
          Derivative           floor are packages of options on                  Derivative
          Instruments          interest                                          Instruments
                               rates and options on fixed-income
                               instruments;
                          b.   compute the payoff for a cap and a
                               floor and explain how a collar is
                               created.
     63   Using Credit    a.   describe the characteristics of a              65 Using Credit
          Derivatives to       credit default swap, and compare and              Derivatives to
          Enhance Return       contrast a                                        Enhance Return
          and Manage Risk                                                        and Manage
                               credit default swap with a corporate              Risk
                               bond;
                          b.   explain the advantages of using
                               credit derivatives over other credit
                               instruments;
                          c.   explain the use of credit derivatives
                               by the various market participants;

                          d.   discuss credit derivatives trading
                               strategies and how they are used by
                               hedge
                               funds and other managers.
18   64   Portfolio       a.   discuss mean–variance analysis and        18   66 Portfolio
          Concepts             its assumptions, and calculate the                Concepts
                               expected
                               return and the standard deviation of
                               return for a portfolio of two or three
                               assets;
                          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 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) and the
                               relation
                               between them, and calculate the
                               values of one of the variables given
                               the values
                               of the remaining variables
                          e.   explain the capital asset pricing
                               model (CAPM), including its
                               underlying
e.


     assumptions and the resulting
     conclusions;
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 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;
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;
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 whether an arbitrage
     opportunity exists, including how to
     exploit the
     opportunity;
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
                          market
                          movements.
65   A Note on Harry a.   discuss the efficiency of the market      67 A Note on Harry
     M. Markowitz’s       portfolio in the CAPM and the                M. Markowitz’s
     “Market              relation                                     “Market
     Efficiency: A                                                     Efficiency: A
     Theoretical          between the expected return and              Theoretical
     Distinction and So   beta of an asset when restrictions on        Distinction and So
     What?”                                                            What?”
                          borrowing at the risk-free rate and on
                          short selling exist;
                     b.   discuss the practical consequences
                          that follow when restrictions on
                          borrowing at
                          the risk-free rate and on short selling
                          exist.
66   International   a.   explain international market              68 International
     Asset Pricing        integration and segmentation and the         Asset Pricing
                          impediments
                          to international capital mobility;
                     b.   discuss the factors that favor
                          international market integration;
                     c.   state the assumptions of the
                          domestic capital asset pricing model
                          (CAPM);
                     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
                          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
                          rates,
     the beginning-of-period nominal
     exchange rate, and the constant real
     exchange
     rate;
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 rates;
i.   state the risk pricing relation and the
     formula for the international capital
     asset
     pricing model (ICAPM);




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 market
     segmentation on the ICAPM;
l.   define currency exposure and explain
     exposures in terms of correlations;

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 markets,
     and bond
     markets;
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.
67   The Theory of      a.   justify active portfolio management       69 The Theory of
     Active Portfolio        when security markets are nearly             Active Portfolio
     Management              efficient;                                   Management
                        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 be measured
                             and
                             how estimates of forecasting can be
                             incorporated into the Treynor–Black

                             approach.
68   The Portfolio     a.    explain the importance of the portfolio   70 The Portfolio
     Management              perspective;                                 Management
     Process and the                                                      Process and the
     Investment Policy                                                    Investment
     Statement         b.    describe the steps of the portfolio          Policy Statement
                             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;
                        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 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 time horizon on
                             portfolio
                             choice;
                        g.   justify ethical conduct as a
                             requirement for managing investment
                             portfolios.
LOS Detail June 2011 (New)                                            Legend
        Sub   Sub LOS Description                      Significance
        LOS                                                           None – Change is insignificant and you c
        a     state the six components of the Code
              of Ethics and the seven Standards of
              Professional Conduct;
                                                                      New – New LOS in 2011 curriculum
        b     explain the ethical responsibilities
              required by the Code and Standards.
                                                                      Low – Change is of low significance
        a     demonstrate a thorough knowledge
              of the Code of Ethics and Standards
              of                                                      High – LOS has changed substantially an
              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.
        a     define soft-dollar arrangements and
              state the general principles of the
              Soft Dollar




              Standards;
        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.
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.
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.

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.

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.

a   critique trade allocation practices, None
    and determine whether compliance
    exists 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.
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.
a   explain the basic principles of the
    new Prudent Investor Rule;
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;
d   explain the key factors that a trustee
    should consider when investing and




    managing trust assets.
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;
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   distinguish between the dependent     None
    and independent variables in a linear




    regression;
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;
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
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.
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-values;
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-tailed test, and interpret the
    results of the test;
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 of a multiple
    regression model;
e   calculate and interpret the F-statistic, None
    and discuss how it is used in
    regression
    analysis;




f   distinguish between and interpret the None
    R2 and adjusted R2 in multiple
    regression;
g   infer how well a regression model      None
    explains the dependent variable by
    analyzing
    the output of the regression equation
    and an ANOVA table;
h   formulate a multiple regression
    equation by using dummy variables
    to represent
    qualitative factors, and interpret the
    coefficients and regression results;

i   discuss the types of
    heteroskedasticity and the effects of
    heteroskedasticity and
    serial correlation on statistical
    inference;
j   describe multicollinearity, and discuss
    its causes and effects in regression
    analysis;
k   discuss the effects of model
    misspecification on the results of a
    regression
    analysis, and explain how to avoid
    the common forms of
    misspecification;
l   discuss models with qualitative
    dependent variables;
m   interpret the economic meaning of
    the results of multiple regression
    analysis and
    critique a regression model and its
    results.
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;
c   explain the requirement for a time       None
    series to be covariance stationary,
    and discuss
    the significance of a series that is not
    stationary;
d   discuss the structure of an              None
    autoregressive (AR) model of order
    p, and calculate
    one- and two-period-ahead forecasts
    given the estimated coefficients;




e   explain how autocorrelations of the     None
    residuals can be used to test whether
    the
    autoregressive model fits the time
    series;
f   explain mean reversion, and
    calculate a mean-reverting level;
g   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;
h   discuss the instability of coefficients
    of time-series models;
i   describe the characteristics of
    random walk processes, and contrast
    them to
    covariance stationary processes;
j   discuss the implications of unit roots
    for time-series analysis, explain when
    unit
j


    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;
k   discuss the steps of the unit root test
    for nonstationarity, and explain the
    relation
    of the test to autoregressive time-
    series models;
l   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;
m   explain autoregressive conditional
    heteroskedasticity (ARCH), and
    discuss how
    ARCH models can be applied to
    predict the variance of a time series;

n   explain how time-series variables
    should be analyzed for
    nonstationarity and/or
    cointegration before use in a linear
    regression;
o   select and justify the choice of a
    particular time-series model from a
    group of
    models.
a   define the sources of economic
    growth, and discuss the preconditions
    for
    economic growth;
b   discuss how the one-third rule can be
    used to explain the contributions of
    labor
    and technological change to growth
    in labor productivity;
c   discuss how faster economic growth
    can be achieved by increasing the
    growth
    of physical capital, technological
    advances, and investment in human
    capital;
d   compare and contrast classical        None
    growth theory, neoclassical growth
    theory, and
    new growth theory.
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 potential benefits and
    possible negative side effects of
    social
    regulation;
c   differentiate between the capture
    hypothesis and the share-the-gains,
    share-thepains
    theory of regulator behavior.
a   explain comparative advantage and
    how countries can gain from
    international
    trade;
b   compare and contrast tariffs, nontariff
    barriers, quotas, and voluntary
    export
    restraints;
c   critique the arguments for trade
    restrictions.
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
    market;
c   discuss how the supply and demand
    for a currency changes the exchange
    rate;
d   differentiate between interest rate
    parity and purchasing power parity;

e   describe the balance of payments
    accounts;
f   describe the following exchange rate
    policies: flexible exchange rates,
    fixed
    exchange rates, and crawling pegs.

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 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;
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 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
    maturity/length
    of contract;
g   calculate and interpret a forward
    discount or premium and express it
    as an
    annualized rate;
h   explain interest rate parity, and
    illustrate covered interest arbitrage;

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.”
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;
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;
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;

g   discuss absolute purchasing power         None
    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;

i   discuss the international Fisher          None
    relation;
j   calculate the real interest rate, given   Low
    nominal interest rates and expected

    inflation rates, using the international
    Fisher relation and its linear
    approximation;
k   discuss the theory of uncovered          None
    interest rate parity, and explain the
    theory’s
    relation to other exchange rate parity
    theories;
-   -




l   calculate the expected change in the
    exchange rate, given interest rates
    and the
    assumption that uncovered interest
    rate parity holds;
m   discuss the foreign exchange
    expectation relation between the
    forward exchange
    rate and the expected exchange rate.
a   distinguish between the measures of Low
    economic activity (i.e., gross
    domestic
    product, gross national income, and
    net national income), including their

    components;
b   differentiate between GDP at market None
    prices and GDP at factor cost;


c   differentiate between current and
    constant prices, and describe the
    GDP
    deflator.
a   explain and calculate the effect of    New
    inflation and deflation of inventory
    costs on
    the financial statements and ratios of
    companies that use different
    inventory
    valuation methods (cost formulas or
    cost flow assumptions);
b   discuss LIFO reserve and LIFO          New
    liquidation and their effects on
    financial statements
    and ratios;
c   demonstrate how to adjust a            New
    company’s reported financial
    statements from LIFO
    to FIFO for purposes of comparison;

d   discuss the implications of valuing      New
    inventory at net realisable value for
    financial
    statements and ratios;
e   analyze and compare the financial        New
    statements and ratios of companies,
    including
    those that use different inventory
    valuation methods;
f   discuss issues that analysts should      New
    consider when examining a
    company’s
    inventory disclosures and other
    sources of information.
a   discuss the implications for financial   New
    statements and ratios of capitalising
    versus


    expensing costs in the period in
    which they are incurred;
b   discuss the implications for financial New
    statements and ratios of the different

    depreciation methods for property,
    plant, and equipment;
c   discuss the implications for financial    New
    statements and ratios of impairment
    and
    revaluation of property, plant, and
    equipment, and intangible assets;
d   analyze and interpret the financial       New
    statement disclosures regarding long-
    lived
    assets;
e   discuss the implications for financial    New
    statements and ratios of leasing
    assets
    instead of purchasing assets;
f   discuss the implications for financial    New
    statements and ratios of finance
    leases and
    operating leases from the perspective
    of both the lessor and the lessee.

    2011 Level
a   describe the classification,            None
    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   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   analyze the effects on financial ratios
    of the different methods used to
    account
    for intercorporate investments.
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 liability (i.e.,
    defined
    benefit obligation and projected
    benefit obligation);
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;
e   explain the impact on financial         None
    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;
f   evaluate pension plan footnote
    disclosures including cash flow
    related
    information;
g   evaluate the underlying economic
    liability (or asset) of a company’s
    pension and
    other post-employment benefits;
h   calculate the underlying economic
    pension expense (income) and other
    postemployment
    expense (income) based on
    disclosures;
i   discuss the issues involved in
    accounting for share-based
    compensation;
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.
a   distinguish among presentation
    currency, functional currency, and
    local currency;
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
    determine which method is
    appropriate in various
    scenarios;
d   calculate the translation effects,      None
    evaluate the translation of a
    subsidiary’s balance
    sheet and income statement into the
    parent company’s currency, and
    analyze
    the different effects 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;
f   illustrate and analyze alternative
    accounting methods for subsidiaries
    operating
    in hyperinflationary economies.
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

    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,
      exposure to variable cash flow, and
      a foreign currency exposure of an
    instrument in a foreign corporation.

a   contrast cash-basis and accrual-
    basis accounting and explain why
    accounting
    discretion exists in an accrual
    accounting system;
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   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 and the
    measures of earnings quality, and
    compare and
    contrast the earnings quality of peer
    companies;
e   explain mean reversion in earnings
    and how the accruals component of
    earnings
    affects the speed of mean reversion;

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.
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   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   evaluate the quality of a company’s   None
    financial data and recommend
    appropriate
    adjustments to improve quality and
    comparability with similar
    companies,
    including adjustments for differences
    in accounting rules, 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.

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;
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
d


    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 capital
    asset pricing model (CAPM);
f   discuss the types of real options and
    evaluate a capital project using real
    options
g   discuss common capital budgeting
    pitfalls;
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, residual
    income, and claims valuation.
-   -                                       High




-   -




-   -




-   -




-   -

a   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;
b   explain the target capital structure
    and why actual capital structure may
    fluctuate
    around the target;
c   review the role of debt ratings in
    capital structure policy;
d   explain the factors an analyst should
    consider in evaluating the impact of
    capital
    structure policy on valuation;
e   discuss international differences in
    financial leverage and the
    implications for
    investment analysis.
a   compare and contrast theories of      High
    dividend policy, and explain the
    implications of
    each for share value given a
    description of a corporate dividend
    action;
b   discuss the types of information      High
    (signals) that dividend initiations,
    increases,
    decreases, and omissions may
    convey;
c   illustrate how clientele effects and  High
    agency issues may affect a
    company’s payout
    policy;




d   discuss the factors that affect         High
    dividend policy;



e   calculate and interpret the effective High
    tax rate on a given currency unit of
    corporate
    earnings under double-taxation, split
    rate, and tax imputation dividend tax

    regimes;
f   compare and contrast stable             High
    dividend, target payout, and residual
    dividend
    payout policies, and calculate the
    dividend under each policy;

g   discuss the choice between paying       High
    cash dividends and repurchasing
    shares;
h   discuss global trends in corporate    High
    dividend policies;




i   calculate and interpret dividend      High
    coverage ratios based on 1) net
    income and
    2) free cash flow;




j   discuss the symptoms of companies High
    that may not be able to sustain their
    cash
    dividend.

-   -




-   -




-   -




-   -




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;
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;
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;
g   discuss the valuation implications of
    corporate governance.
a   categorize merger and acquisition
    (M&A) activities based on forms of
    integration
    and types of mergers;
b   explain the common motivations
    behind M&A activity;
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 life cycles;
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;
g   summarize U.S. antitrust legislation;

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;
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
    and comparable transaction analysis;

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;
m   explain the effects of price and
    payment method on the distribution of
    risks and
    benefits in a merger transaction;
n   describe the empirical evidence
    related to the distribution of benefits
    in a
    merger;
o   compare and contrast divestitures,
    equity carve-outs, spin-offs, split-offs,
    and
    liquidation;
p   discuss the major reasons for
    divestitures.
-   valuation by Graham and Dodd and
    John Burr Williams are reflected in
    modern




    techniques of equity valuation.
a   define valuation and intrinsic value,
    and explain possible sources of
    perceived
    mispricing;
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 uses of equity valuation;

d   explain the elements of industry and
    competitive analysis and the
    importance of
    evaluating the quality of financial
    statement information;
e   contrast absolute and relative
    valuation models, and describe
    examples of each
    type of model;
f   illustrate the broad criteria for
    choosing an appropriate approach for
    valuing a
    given company.
a   explain the historical differences in Low
    market organization;
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 of an
    international
    investment;
d   discuss components of execution       None
    costs (including commissions and
    fees, market
    impact, and opportunity cost) and
    approaches to reducing these costs;

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 companies choose to be None
    listed abroad, and calculate the cost

    difference between buying shares
    listed abroad and buying ADRs;
g   state the determinants of the value of
    a closed-end country fund;
h   describe exchange-traded funds         None
    (ETFs), and explain the pricing of
    international
    ETFs in relation to their net asset
    value (NAV);
i   discuss the advantages and             Low
    disadvantages of alternatives to
    direct international
    investing.
a   distinguish among expected holding Low
    period return, realized holding period

    return, required return, return from
    convergence of price to intrinsic
    value,
    discount rate, and internal rate of
    return;


b   calculate and interpret an equity risk   Low
    premium using historical and
    forwardlooking
    estimation approaches;


-   -




c   demonstrate the use of the capital       None
    asset pricing model (CAPM), the
    Fama–French




    model (FFM), the Pastor–Stambaugh
    model (PSM), macroeconomic
    multifactor
    models, and the build-up method (for
    example, bond yield plus risk
    premium) for
    estimating the required return on an
    equity investment;
d   discuss beta estimation for public
    companies, thinly traded public
    companies,
d


    and nonpublic companies;
e   analyze the strengths and
    weaknesses of methods used to
    estimate the required
    return on an equity investment;
f   discuss international considerations
    in required return estimation;

g   explain and calculate the weighted
    average cost of capital for a
    company;
h   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.
-   -




a   distinguish between country analysis None
    and industry analysis, and evaluate
    an
    industry’s demand, life cycle,
    competition structure, and risk
    elements;




b   discuss approaches to equity          None
    analysis (ratio analysis and
    discounted cash flow
    models, including the franchise value
    model);



c   analyze the effects of inflation on
    asset valuation;
d   discuss multifactor models in a global
    context.
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;
c   describe why industry growth rate,
    technology and innovation,
    government, and
c


    complementary products and
    services are fleeting factors rather
    than forces
    shaping industry structure;
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.
a   discuss the key components that
    should be included in an industry
    analysis
    model;
b   illustrate the life cycle of a typical
    industry;
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;
e   illustrate the inputs and methods
    used in preparing industry demand
    and supply
    analyses;
f   explain factors that affect industry
    pricing practices.
a   describe how inflation affects the
    estimation of cash flows for a
    company
    domiciled in an emerging market;
b   evaluate an emerging market            Low
    company using a discounted cash
    flow model
    based on nominal and real financial
    projections;
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.
a   compare and contrast dividends, free None
    cash flow, and residual income as

    alternative measures in discounted
    cash flow models, and identify the
    investment
    situations for which each measure is
    suitable;
b   calculate and interpret the value of a None
    common stock using the dividend
    discount
    model (DDM) for one-, two-, and
    multiple-period holding periods
-   -




c   calculate the value of a common
    stock using the Gordon growth
    model, and
    explain the model’s underlying
    assumptions;
d   calculate the implied growth rate of
    dividends using the Gordon growth
    model
    and current stock price;
e   calculate and interpret the present   None
    value of growth opportunities (PVGO)
    and the
    component of the leading price-to-
    earnings ratio (P/E) related to PVGO;




f   calculate the justified leading and   None
    trailing P/Es using the Gordon growth
    model;

g   calculate the value of noncallable      None
    fixed-rate perpetual preferred stock;



h   explain the strengths and limitations   None
    of the Gordon growth model, and
    justify its
h


    selection to value a company’s
    common shares;



i   explain the assumptions and justify      None
    the selection of the two-stage DDM,
    the
    H-model, the three-stage DDM, or
    spreadsheet modeling to value a
    company’s
    common shares;


j   explain the growth phase, transitional
    phase, and maturity phase of a
    business;
k   explain terminal value, and discuss
    alternative approaches to determining
    the
    terminal value in a DDM;

l   calculate and interpret the value of None
    common shares using the two-stage
    DDM,
    the H-model, and the three-stage
    DDM;
m   estimate a required return based on None
    any DDM, the Gordon growth model,
    and
    the H-model;

n   calculate and interpret the              Low
    sustainable growth rate of a
    company, and
    demonstrate the use of DuPont
    analysis to estimate a company’s
    sustainable
    growth rate;




o   illustrate the use of spreadsheet
    modeling to forecast dividends and
    value
    common shares;
p   evaluate whether a stock is           New
    overvalued, fairly valued, or
    undervalued by the
    market based on a DDM estimate of
    value.
a   compare and contrast the free cash None
    flow to the firm (FCFF) and free cash
    flow to
a


    equity (FCFE) approaches to
    valuation;
-   -


b   contrast the ownership perspective
    implicit in the FCFE approach to the

    ownership perspective implicit in the
    dividend discount approach;
c   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;
d   calculate FCFF and FCFE;                None




e   discuss approaches for forecasting
    FCFF and FCFE;
f   contrast the recognition of value in None
    the FCFE model with the recognition
    of value
    in dividend discount models;
g   explain how dividends, share         None
    repurchases, share issues, and
    changes in leverage
    may affect future FCFF and FCFE;

h   critique the use of net income and
    EBITDA as proxies for cash flow in
    valuation;
i   discuss the single-stage (stable-    None
    growth), two-stage, and three-stage
    FCFF and
    FCFE models, and select and justify
    the appropriate model given a
    company’s
    characteristics;
j   estimate a company’s value using the None
    appropriate model(s);
k   explain the use of sensitivity analysis None
    in FCFF and FCFE valuations;

l   discuss approaches for calculating
    the terminal value in a multistage
    valuation
    model.
-   -




a   differentiate between the method of      None
    comparables and the method based
    on

    forecasted fundamentals as
    approaches to using price multiples
    in valuation, and
    discuss the economic rationales for
    each approach;
b   define and interpret a justified price   None
    multiple;




c   discuss rationales for and possible      None
    drawbacks to using price multiples
    (including
    P/E, P/B, P/S, P/CF) and dividend
    yield in valuation;
d   calculate and interpret alternative      None
    price multiples and dividend yield;

e   calculate and interpret underlying  None
    earnings;
f   discuss methods of normalizing EPS, None
    and calculate normalized EPS;



g   explain and justify the use of earnings None
    yield (E/P);


-   -


h   discuss the fundamental factors that     None
    influence alternative price multiples
    and
    dividend yield;
i   calculate and interpret the justified    None
    price-to-earnings ratio (P/E), price-to-
    book
    ratio (P/B), and price-to-sales ratio
    (P/S) for a stock, based on
    forecasted
    fundamentals;
j   calculate and interpret a predicted
    P/E, given a cross-sectional
    regression on
    fundamentals, and explain limitations
    to the cross-sectional regression

    methodology;
k   evaluate a stock by the method of   None
    comparables, and explain the
    importance of
    fundamentals in using the method of
    comparables;
-   -

-   -


l   calculate and interpret the P/E-to-
    growth ratio (PEG), and explain its
    use in
    relative valuation;
m   calculate and explain the use of price None
    multiples in determining terminal
    value in a
    multistage discounted cash flow
    (DCF) model;
n   discuss alternative definitions of cash None
    flow used in price and enterprise
    value
    multiples, and explain the limitations
    of each definition;




o   calculate and interpret enterprise      None
    value multiples, and critique the use
    of
    EV/EBITDA;

p   discuss the sources of differences in
    cross-border valuation comparisons;

q   describe momentum indicators and        None
    their use in valuation;
r   evaluate whether a stock is
    overvalued, fairly valued, or
    undervalued based on
    comparisons of multiples;
s   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;
t   explain the use of stock screens in
    investment management.
a   calculate and interpret residual      None
    income, economic value added, and
    market value
    added;

b   discuss the uses of residual income None
    models;
c   calculate the intrinsic value of a    High
    common stock using the residual
    income model,
    and contrast the recognition of value
    in the residual income model to
    value
    recognition in other present value
    models;
d   discuss the fundamental
    determinants of residual income;
e   explain the relation between residual
    income valuation and the justified
    price-tobook
    ratio based on forecasted
    fundamentals;
f   calculate and interpret the intrinsic None
    value of a common stock using single-
    stage
    (constant-growth) and multistage
    residual income models;
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    None
    and justify an estimate of continuing
    residual
    income at the forecast horizon given
    company and industry prospects;

i   compare and contrast the residual     None
    income model to the dividend
    discount and
i


    free cash flow to equity models;
j   discuss the strengths and            None
    weaknesses of the residual income
    model;




k   justify the selection of the residual None
    income model to value a company’s
    common
    stock;
l   discuss accounting issues in applying
    residual income models;



m   evaluate whether a stock is          None
    overvalued, fairly valued, or
    undervalued by the
    market based on a residual income
    model.
-   -




-   -




a   compare and contrast public and
    private company valuation;
b   discuss the uses of private business High
    valuation, and explain applications of
    greatest
    concern to financial analysts;
c   explain alternative definitions of     None
    value, and demonstrate how
    different
    definitions can lead to different
    estimates of value;


d   discuss the income, market, and      Low
    asset-based approaches to private
    company
d


    valuation and the factors relevant to
    the selection of each approach;
e   discuss cash flow estimation issues Low
    related to private companies and the

    adjustments required to estimate
    normalized earnings;




f   demonstrate the free cash flow,        None
    capitalized cash flow, and excess
    earnings
    methods of private company
    valuation;


g   discuss factors that require           None
    adjustment when estimating the
    discount rate for
    private companies;

h   compare and contrast models used None
    to estimate the required rate of return
    to
    private company equity (for example,
    the CAPM, the expanded CAPM, and
    the
    build-up approach);

i   demonstrate the market approaches
    to private company valuation (for
    example,
    guideline public company method,
    guideline transaction method, and
    prior
    transaction method), and discuss the
    advantages and disadvantages of
    each;

j   demonstrate the asset-based
    approach to private company
    valuation;
k   discuss the use of discounts and       None
    premiums in private company
    valuation;
l   describe the role of valuation         None
    standards in valuing private
    companies.
a   illustrate, for each type of real
    property investment, the main value
    determinants,
a


    investment characteristics, principal
    risks, and most likely investors;

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;
d   explain the potential problems
    associated with using IRR as a
    measurement tool
    in real estate investments.
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 each method’s use in
    capitalization rate determination;
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.
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;
c   distinguish between the
    characteristics of buyout and venture
    capital
    investments;
d   discuss the valuation issues in buyout
    and venture capital transactions;

e   explain alternative exit routes in
    private equity and their impact on
    value;
f   explain private equity fund structures,
    terms, valuation, and due diligence in
    the
f


    context of an analysis of private
    equity fund returns;
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;
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;
-   -


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;
k   demonstrate alternative methods to
    account for risk in venture capital.

-   -


-   -




-   -

-   -


-   -




a   explain why 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 futures position can be
    positive
    (negative);
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, whereas the
    underlying average commodity has a

    geometric return near zero;
e   discuss why investing in commodities
    offers diversification opportunities
    during
    periods of economic fluctuation in the
    short run and inflation in the long run.

a   discuss how the characteristics of
    hedge funds affect traditional
    methods of
    performance measurements;
b   compare and contrast the use of
    market indices, hedge fund indices,
    and positive
    risk-free rates to evaluate hedge fund
    performance.
a   discuss common types of investment
    risks for hedge funds;




b   evaluate maximum drawdown and
    value-at-risk for measuring risks of
    hedge
    funds.
a   distinguish among default risk, credit
    spread risk, and downgrade risk;

b   explain and analyze the key
    components of credit analysis;
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;
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   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 rating asset-
    backed
    securities;
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;
j   contrast the credit analysis required
    for corporate bonds to that required
    for
    1) asset-backed securities, 2)
    municipal securities, and 3)
    sovereign debt.
a   contrast the concept of liquidity as
    “appetite for risk” with the more
    traditional
    view that liquidity is created by the
    central bank;
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 subprime mortgage
    borrowers are granted a free at-the-
    money call
    option on the value of their property.
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 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;
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 theories of the term      None
    structure of interest rates (i.e., pure

    expectations, liquidity, and preferred
    habitat), and discuss 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 by
    using key
    rate duration;
g   compute and interpret yield volatility,
    distinguish between historical yield
    volatility
    and implied yield volatility, and
    explain how yield volatility is
    forecasted.
a   evaluate, using relative value
    analysis, whether a security is
    undervalued or
    overvalued;
b   evaluate the importance of
    benchmark interest rates in
    interpreting spread
    measures;
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;
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;

g   interpret an option-adjusted spread
    with respect to a nominal spread and
    to
    benchmark interest rates;
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;

j   describe and evaluate a convertible
    bond and its various component
    values;
k   compare and contrast the risk-return
    characteristics of a convertible bond
    with
    the risk-return characteristics of
    ownership of the underlying common
    stock.
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;
c   calculate the prepayment amount for
    a month, given the single monthly

    mortality rate;
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 more
    relevant than
    the security’s maturity;
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 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;
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;
k   compare and contrast agency and
    nonagency mortgage-backed
    securities;
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.
a   illustrate the basic structural features
    of and parties to a securitization

    transaction;
b   explain and contrast prepayment
    tranching and credit tranching;
c   distinguish between the payment
    structure and collateral structure of a

    securitization backed by amortizing
    assets and non-amortizing assets;

d   distinguish among the various types
    of external and internal credit

    enhancements;
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 collateralized debt
    obligations (CDOs), including cash
    and synthetic
    CDOs;
g   distinguish among the primary
    motivations for creating a
    collateralized debt
    obligation (arbitrage and balance
    sheet transactions).
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 the Monte Carlo simulation
    model for valuing a mortgage-
    backed
    security;
c   describe path dependency in
    passthrough securities and the
    implications for
    valuation models;
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;
f   discuss why effective durations
    reported by various dealers and
    vendors may
    differ;
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-
    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 nominal
    spread, zero-volatility spread, or
    option-adjusted
    spread should be used to evaluate a
    specific fixed income security.
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;
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 market
    value is a
    measure of the credit risk to a party
    in a forward contract.
a   explain why the futures price must
    converge to the spot price at
    expiration;
b   determine the value of a futures
    contract;
c   explain how forward and futures
    prices differ;
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;
f   discuss whether futures prices equal
    expected spot prices;
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.
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;

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);
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;
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);

i   illustrate how put-call parity for
    options on forwards (or futures) is
    established;
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.
a   distinguish between the pricing and
    valuation of swaps;
b   explain the equivalence of 1) interest None
    rate swaps to a series of off-market
    forward
b


    rate agreements (FRAs) and 2) a
    plain vanilla swap to a combination of
    an
    interest rate call and an 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;
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 rate,
    if applicable, on an equity swap and
    the
    market values of the different types of
    equity swaps during their lives;

f   explain and interpret the
    characteristics and uses of
    swaptions, including the
    difference between payer and
    receiver swaptions;
g   identify and calculate the possible
    payoffs and cash flows of an interest
    rate
    swaption;
h   calculate and interpret the value of an
    interest rate swaption on the
    expiration
    day;
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.
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.
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;
c   explain the use of credit derivatives
    by the various market participants;

d   discuss credit derivatives trading
    strategies and how they are used by
    hedge
    funds and other managers.
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
    efficient frontiers, and discuss the
    steps to
    solve for the minimum-variance
    frontier;
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) and the
    relation
    between them, and calculate the
    values of one of the variables given
    the values
    of the remaining variables;
e   explain the capital asset pricing
    model (CAPM), including its
    underlying
e


    assumptions and the resulting
    conclusions;
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 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;
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;
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 whether an arbitrage
    opportunity exists, including how to
    exploit the
    opportunity;
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
    market
    movements.
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 restrictions on
    borrowing at
    the risk-free rate and on short selling
    exist.
a   explain international market
    integration and segmentation and the
    impediments
    to international capital mobility;
b   discuss the factors that favor
    international market integration;
c   discuss the assumptions of the
    domestic capital asset pricing model
    (CAPM);
d   justify the extension of the domestic None
    CAPM to an international context
    (the
    extended CAPM), and discuss the
    assumptions needed to make the
    extension;
e   determine whether the real exchange None
    rate has changed in a period;




f   calculate the expected 1) exchange      None
    rate and 2) domestic-currency
    holding period
    return on a foreign bond (security);
g   calculate the end-of-period real        None
    exchange rate and the domestic-
    currency ex-post
    return on a foreign bond (security);




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 None
    formula for the international capital
    asset
    pricing model (ICAPM), and calculate
    the expected return on a stock using
    the
    model;
-   -




j   explain the effect of market
    segmentation on the ICAPM;
k   define currency exposure, and
    explain exposures in terms of
    correlations;
l   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;
m   discuss the currency exposures of
    national economies, equity markets,
    and bond
    markets;
n   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.
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;
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.
a   explain the importance of the portfolio
    perspective;


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;
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 market             None
    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 investor’s 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 time horizon on
    portfolio
    choice;
g   justify ethical conduct as a
    requirement for managing investment
    portfolios.
ange is insignificant and you can refer to the 2010 version.



w LOS in 2011 curriculum


nge is of low significance


 has changed substantially and you need to refer to the new book.
None – Change is insignificant and you can refer to the 2010 version.
New – New LOS in 2011 curriculum
Low – Change is of low significance
High – LOS has changed substantially and you need to refer to the new book.

				
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