CFA Program Curriculum 2020 Level I Volumes 1-6


CFA Program Curriculum 2020 Level I Volumes 1-6

Author: CFA Institute
Edition: 1st Edition
Year: 2011
Language: English
ISBN 13: 978-1-946442-76-5
Publisher: Wiley
ISBN 10: 1946442941
Pages: 3506
File: PDF
Price: 15.99$
Digital delivery: Via Email check your SPAM

CFA Program Curriculum 2020 Level I Volumes 1-6

The same official curricula that CFA Program candidates receive with program registration are now publicly available for purchase. CFA Program Curriculum 2020 Level I, Volumes 1-6 provides the complete Level I Curriculum for the 2020 exam, delivering the Candidate Body of Knowledge (CBOK) with expert instruction on all 10 topic areas of the CFA Program. Fundamental concepts are explained in-depth with a heavily visual style, while cases and examples demonstrate how concepts apply in real-world scenarios.

Coverage includes ethical and professional standards, quantitative analysis, economics, financial reporting and analysis, corporate finance, equities, fixed income, derivatives, alternative investments, and portfolio management, all organized into individual sessions with clearly defined Learning Outcome Statements. Charts, graphs, figures, diagrams, and financial statements illustrate concepts to facilitate retention, and practice questions provide the opportunity to gauge your understanding while reinforcing important concepts.

Get effective and efficient instruction on all CFA Level I competencies for the 2020 exam The CFA Program Curriculum 2020 Level I Volumes 1-6 Box Set provides readers with the official curricula received by all CFA program candidates. The Box Set includes the Candidate Body of Knowledge (CBOK) with concise instruction on all 10 topic areas covered by the CFA Program. The Box Set explains fundamental concepts with a heavily visual style and includes cases and examples to illustrate the ideas found within and show how they apply in real-world scenarios.

About the author:

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community. The end goal: to create an environment where investors’ interests come first, markets function at their best, and economies grow. CFA Institute has more than 155,000 members in 165 countries and territories, including 150,000 CFA® charterholders, and 148 member societies.


Table of Contents:

CFA® Program Curriculum 2020 • LEVEL I • VOLUME 1

How to Use the CFA Program Curriculum

Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
Designing Your Personal Study Program

Ethical and Professional Standards

Study Session 1 Ethical and Professional Standards

Reading 1 Ethics and Trust in the Investment Profession

Ethics and Professionalism

How Professions Establish Trust
Professions Are Evolving

Professionalism in Investment Management

Trust in Investment Management
CFA Institute as an Investment Management Professional Body

Challenges to Ethical Conduct
Ethical vs. Legal Standards
Ethical Decision-Making Frameworks

The Framework for Ethical Decision-Making
Applying the Framework

Practice Problems

Reading 2 Code of Ethics and Standards of Professional Conduct


Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct
Standards of Practice Handbook
Summary of Changes in the Eleventh Edition
CFA Institute Professional Conduct Program
Adoption of the Code and Standards

Ethics and the Investment Industry

Why Ethics Matters

CFA Institute Code of Ethics and Standards of Professional Conduct

The Code of Ethics
Standards of Professional Conduct

Practice Problems

Reading 3 Guidance for Standards I–VII

Standard I: Professionalism

Standard I(A) Knowledge of Law
Recommended Procedures for Compliance
Application of the Standard
Standard I(B) Independence and Objectivity
Recommended Procedures for Compliance
Application of the Standard
Standard I(C) Misrepresentation
Recommended Procedures for Compliance
Application of the Standard
Standard, I(D) Misconduct
Recommended Procedures for Compliance
Application of the Standard

Standard II: Integrity of Capital Markets

Standard II(A) Material Nonpublic Information
Recommended Procedures for Compliance
Application of the Standard
Standard II(B) Market Manipulation
Application of the Standard

Standard III: Duties to Clients 107

Standard III(A) Loyalty, Prudence, and Care 107
Guidance 107
Recommended Procedures for Compliance 111
Application of the Standard 112
Standard III(B) Fair Dealing 116
Guidance 116
Recommended Procedures for Compliance 118
Application of the Standard 120
Standard III(C) Suitability 124
Guidance 124
Recommended Procedures for Compliance 127
Application of the Standard 128
Standard III(D) Performance Presentation 131
Guidance 131
Recommended Procedures for Compliance 132
Application of the Standard 132
Standard III(E) Preservation of Confidentiality 135
Guidance 135
Recommended Procedures for Compliance
Application of the Standard 137

Standard IV: Duties to Employers 139

Standard IV(A) Loyalty 139
Guidance 139
Recommended Procedures for Compliance 143
Application of the Standard 143
Standard IV(B) Additional Compensation Arrangements 150
Guidance 150
Recommended Procedures for Compliance 150
Application of the Standard 150
Standard IV(C) Responsibilities of Supervisors 152
Guidance 152
Recommended Procedures for Compliance 154
Application of the Standard 156

Standard V: Investment Analysis, Recommendations, and Actions 160

Standard V(A) Diligence and Reasonable Basis 160
Guidance 160
Recommended Procedures for Compliance 164
Application of the Standard 164
Standard V(B) Communication with Clients and Prospective Clients 171
Guidance 172
Recommended Procedures for Compliance 174
Application of the Standard 175
Standard V(C) Record Retention 180
Guidance 180
Recommended Procedures for Compliance 181
Application of the Standard 182

Standard VI: Conflicts of Interest 183

Standard VI(A) Disclosure of Conflicts 183
Guidance 183
Recommended Procedures for Compliance 186
Application of the Standard 186
Standard VI(B) Priority of Transactions 191
Guidance 191
Recommended Procedures for Compliance 192
Application of the Standard 194
Standard VI(C) Referral Fees 196
Guidance 196
Recommended Procedures for Compliance 196
Application of the Standard 196

Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate 199

Standard VII(A) Conduct as Participants in CFA Institute Programs 199
Guidance 199
Application of the Standard 201
Standard VII(B) Reference to CFA Institute, the CFA Designation, and

the CFA Program 204

Guidance 204
Recommended Procedures for Compliance 206
Application of the Standard

Practice Problems 209
Solutions 219

Reading 4 Introduction to the Global Investment Performance Standards (GIPS) 227

Why Were the GIPS Standards Created? 227
Who Can Claim Compliance? 228
Who Benefits from Compliance? 228
Composites 229
Verification 229
The Structure of the GIPS Standards 230
Practice Problems 231
Solutions 232

Reading 5 Global Investment Performance Standards (GIPS) 233

Preface 233

History 234

Introduction 235

Preamble—Why Is a Global Investment Performance Standard Needed? 235
Objectives 235
Overview 236
Historical Performance Record 236
Compliance 237
Effective Date 237
Implementing a Global Standard 237
Sponsors 238

Provisions of the Global Investment Performance Standards 239

Fundamentals of Compliance 241
Input Data 243
Calculation Methodology 243
Composite Construction 244
Disclosure 245
Presentation and Reporting 248
Real Estate 250
Private Equity 255
Wrap Fee/Separately Managed Account (SMA) Portfolios 258

GIPS Valuation Principles 260

Fair Value Definition 260
Valuation Requirements 261
Valuation Recommendations 262

GIPS Advertising Guidelines 264

Purpose of the GIPS Advertising Guidelines 264
Requirements of the GIPS Advertising Guidelines 264

Verification 266

Scope and Purpose of Verification 266
Required Verification Procedures 267
Performance Examinations 270

GIPS Glossary 270
Appendix A: Sample Compliant Presentations

Appendix B: Sample Advertisements 297
Appendix C: Sample List of Composite Descriptions 300
Practice Problems 304
Solutions 306

Quantitative Methods

Study Session 2 Quantitative Methods (1) 311
Reading 6 The Time Value of Money 313

Introduction 313
Interest Rates: Interpretation 314
The Future Value of a Single Cash Flow 316

The Frequency of Compounding 321
Continuous Compounding 323
Stated and Effective Rates 324

The Future Value of a Series of Cash Flows 325

Equal Cash Flows—Ordinary Annuity 325
Unequal Cash Flows 327

The Present Value of a Single Cash Flow 327

Finding the Present Value of a Single Cash Flow 327
The Frequency of Compounding 330

The Present Value of a Series of Cash Flows 331

The Present Value of a Series of Equal Cash Flows 331
The Present Value of an Infinite Series of Equal Cash Flows Perpetuity 336
Present Values Indexed at Times Other than t = 0 337
The Present Value of a Series of Unequal Cash Flows 339

Solving for Rates, Number of Periods, or Size of Annuity Payments 339

Solving for Interest Rates and Growth Rates 340
Solving for the Number of Periods 342
Solving for the Size of Annuity Payments 343
Review of Present and Future Value Equivalence 347
The Cash Flow Additivity Principle 349

Summary 350
Practice Problems 351
Solutions 356

Reading 7 Statistical Concepts and Market Returns 369

Introduction 370
Some Fundamental Concepts 370

The Nature of Statistics 371
Populations and Samples 371
Measurement Scales 372

Summarizing Data Using Frequency Distributions 373
The Graphic Presentation of Data 381

The Histogram 382
The Frequency Polygon and the Cumulative Frequency Distribution

Measures of Central Tendency 386

The Arithmetic Mean 386
The Median 391
The Mode 393
Other Concepts of Mean 394

Other Measures of Location: Quantiles 403

Quartiles, Quintiles, Deciles, and Percentiles 403
Quantiles in Investment Practice 408

Measures of Dispersion 410

The Range 411
The Mean Absolute Deviation 411
Population Variance and Population Standard Deviation 413
Sample Variance and Sample Standard Deviation 416
Semivariance, Semideviation, and Related Concepts 419
Chebyshev’s Inequality 420
Coefficient of Variation 422

Symmetry and Skewness in Return Distributions 424
Kurtosis in Return Distributions 430
Using Geometric and Arithmetic Means 434
Summary 436
Practice Problems 439
Solutions 449

Reading 8 Probability Concepts 457

Introduction 458
Probability, Expected Value, and Variance 458
Portfolio Expected Return and Variance of Return 480
Topics in Probability 491

Bayes’ Formula 491
Principles of Counting 495

Summary 499
Practice Problems 502
Solutions 506

Study Session 3 Quantitative Methods (2) 511

Reading 9 Common Probability Distributions 513

Introduction to Common Probability Distributions 514
Discrete Random Variables 515

The Discrete Uniform Distribution 516
The Binomial Distribution 518

Continuous Random Variables 527

Continuous Uniform Distribution 528
The Normal Distribution 531
Applications of the Normal Distribution 537
The Lognormal Distribution 539

Monte Carlo Simulation

Summary 551
Practice Problems 554
Solutions 561

Reading 10 Sampling and Estimation 569

Introduction 570
Sampling 570

Simple Random Sampling 570
Stratified Random Sampling 572
Time-Series and Cross-Sectional Data 573

Distribution of the Sample Mean 576

The Central Limit Theorem 576

Point and Interval Estimates of the Population Mean 579

Point Estimators 579
Confidence Intervals for the Population Mean.
Selection of Sample Size.

More on Sampling.

Data-Mining Bias.
Sample Selection Bias.
Look-Ahead Bias.
Time-Period Bias.

Practice Problems.

Reading 11 Hypothesis Testing.

Hypothesis Testing.
Hypothesis Tests Concerning the Mean.

Tests Concerning a Single Mean.
Tests Concerning Differences between Means.
Tests Concerning Mean Differences.

Hypothesis Tests Concerning Variance and Correlation.

Tests Concerning a Single Variance.
Tests Concerning the Equality (Inequality) of Two Variances.
Tests Concerning Correlation.

Other Issues: Nonparametric Inference.

Nonparametric Tests Concerning Correlation: The Spearman Rank Correlation Coefficient.
Nonparametric Inference: Summary

Practice Problems

CFA® Program Curriculum 2020 • LEVEL I • VOLUME 2

How to Use the CFA Program Curriculum v
Background on the CBOK v
Organization of the Curriculum vi
Features of the Curriculum vi
Designing Your Personal Study Program viii
Feedback ix
Study Session 4 Economics (1) 3
Reading 12 Topics in Demand and Supply Analysis 5
Introduction 5
Demand Analysis: The Consumer 6
Demand Concepts 6
The elasticity of Demand 9
Income Elasticity of Demand 14
The elasticity of Demand 15
Substitution and Income Effects 18
Normal and Inferior Goods 19
Supply Analysis: The Firm 22
Marginal Returns and Productivity 23
Breakeven and Shutdown Analysis 27
Understanding Economies and Diseconomies of Scale 42
Summary 47
Practice Problems 50
Solutions 57
Reading 13 The Firm and Market Structures 61
Introduction 61
Analysis of Market Structures 62
Economists’ Four Types of Structure 62
Factors That Determine Market Structure 64
Perfect Competition 66
Demand Analysis in Perfectly Competitive Markets 67
Supply Analysis in Perfectly Competitive Markets 75
Optimal Price and Output in Perfectly Competitive Markets 76
Factors Affecting Long-Run
Equilibrium in Perfectly Competitive
Markets 79
Monopolistic Competition 81
Demand Analysis in Monopolistically Competitive Markets 82
Supply Analysis in Monopolistically Competitive Markets 83
Optimal Price and Output in Monopolistically Competitive Markets 83
Factors Affecting Long-Run Equilibrium in Monopolistically Competitive Markets 84

Oligopoly 85
Demand Analysis and Pricing Strategies in Oligopoly Markets 86
Supply Analysis in Oligopoly Markets 92
Optimal Price and Output in Oligopoly Markets 93
Factors Affecting Long-Run
Equilibrium in Oligopoly Markets 94
Monopoly 95
Demand Analysis in Monopoly Markets 96
Supply Analysis in Monopoly Markets 97
Optimal Price and Output in Monopoly Markets 99
Price Discrimination and Consumer Surplus 100
Factors Affecting Long-Run
Equilibrium in Monopoly Markets 102
Identification of Market Structure 103
Econometric Approaches 104
Simpler Measures 104
Summary 106
Practice Problems 108
Solutions 112
Reading 14 Aggregate Output, Prices, and Economic Growth 115
Introduction 116
Aggregate Output and Income 117
Gross Domestic Product 118
The Components of GDP 125
GDP, National Income, Personal Income, and Personal Disposable
Income 129
Aggregate Demand, Aggregate Supply, and Equilibrium 135
Aggregate Demand 135
Aggregate Supply 147
Shifts in Aggregate Demand and Supply 148
Equilibrium GDP and Prices 161
Economic Growth and Sustainability 172
The Production Function and Potential GDP 172
Sources of Economic Growth 175
Measures of Sustainable Growth 178
Summary 183
Practice Problems 188
Solutions 193
Reading 15 Understanding Business Cycles 197
Introduction 197
Overview of the Business Cycle 198
Phases of the Business Cycle 198
Resource Use through the Business Cycle 202
Housing Sector Behavior 208
External Trade Sector Behavior 209
Theories of the Business Cycle 211
Neoclassical and Austrian Schools 211
Keynesian and Monetarist Schools 212
The New Classical School 215
Unemployment and Inflation 219
Unemployment 219
Inflation 223
Economic Indicators 237
Popular Economic Indicators 237
Other Variables Used as Economic Indicators 242
Summary 245
Practice Problems 247
Solutions 253
Study Session 5 Economics (2) 257
Reading 16 Monetary and Fiscal Policy 259
Introduction 260
Monetary Policy 262
Money 262
The Roles of Central Banks 275
The Objectives of Monetary Policy 278
Contractionary and Expansionary Monetary Policies and the Neutral
Rate 294
Limitations of Monetary Policy 295
Fiscal Policy 300
Roles and Objectives of Fiscal Policy 301
Fiscal Policy Tools and the Macroeconomy 309
Fiscal Policy Implementation: Active and Discretionary Fiscal Policy 315
The Relationship between Monetary and Fiscal Policy 319
Factors Influencing the Mix of Fiscal and Monetary Policy 320
Quantitative Easing and Policy Interaction 321
The Importance of Credibility and Commitment 321
Summary 323
Practice Problems 325
Solutions 330
Reading 17 International Trade and Capital Flows 333
Introduction 333
International Trade 334
Basic Terminology 334
Patterns and Trends in International Trade and Capital Flows 337
Benefits and Costs of International Trade 341
Comparative Advantage and the Gains from Trade 343
Trade and Capital Flows: Restrictions and Agreements 352
Tariffs 352
Quotas 355
Export Subsidies 355
Trading Blocs, Common Markets, and Economic Unions 358
Capital Restrictions 362
The Balance of Payments 365
Balance of Payments Accounts 365
Balance of Payment Components 367
Paired Transactions in the BOP Bookkeeping System 369
National Economic Accounts and the Balance of Payments 372
Trade Organizations 377
International Monetary Fund 378
World Bank Group 380
World Trade Organization 381
Summary 383
Practice Problems 387
Solutions 391
Reading 18 Currency Exchange Rates 395
Introduction 395
The Foreign Exchange Market 397
Market Functions 402
Market Participants 408
Market Size and Composition 411
Currency Exchange Rate Calculations 414
Exchange Rate Quotations 414
Calculations 417
Forward Calculations 421
Exchange Rate Regimes 428
The Ideal Currency Regime 429
Historical Perspective on Currency Regimes 430
A Taxonomy of Currency Regimes 432
Exchange Rates, International Trade, and Capital Flows 440
Exchange Rates and the Trade Balance: The Elasticities Approach 441
Exchange Rates and the Trade Balance: The Absorption Approach 446
Summary 450
Practice Problems 453
Solutions 456
Glossary G-1

CFA® Program Curriculum 2020 • LEVEL I • VOLUME 3

How to Use the CFA Program Curriculum ix
Background on the CBOK ix
Organization of the Curriculum x
Features of the Curriculum x
Designing Your Personal Study Program xii
Feedback xiii
Financial Reporting and Analysis
Study Session 6 Financial Reporting and Analysis (1) 3
Reading 19 Introduction to Financial Statement Analysis 5
Introduction 6
Roles of Financial Reporting and Financial Statement Analysis 6
Primary Financial Statements and Other Information Sources 13
Financial Statements and Supplementary Information 13
Other Sources of Information 31
Financial Statement Analysis Framework 32
Articulate the Purpose and Context of Analysis 33
Collect Data 34
Process Data 35
Analyze/Interpret the Processed Data 35
Develop and Communicate Conclusions/Recommendations 35
Summary 36
Practice Problems 39
Solutions 42
Reading 20 Financial Reporting Standards 45
Introduction 46
The Objective of Financial Reporting 46
Bodies and Regulatory Authorities 47
Accounting Standards Boards 48
Regulatory Authorities 49
The International Financial Reporting Standards Framework 54
Qualitative Characteristics of Financial Reports 54
Constraints on Financial Reports 55
The Elements of Financial Statements 56
General Requirements for Financial Statements 58
Comparison of IFRS with Alternative Reporting Systems 61
Monitoring Developments in Financial Reporting Standards 62
New Products or Types of Transactions 63
Evolving Standards and the Role of CFA Institute 63
Summary 64
Practice Problems 66
Solutions 68
Study Session 7 Financial Reporting and Analysis (2) 69
Reading 21 Understanding Income Statements 71
Introduction 72
Components and Format of the Income Statement 72
Revenue Recognition 78
General Principles 79
Accounting Standards for Revenue Recognition 80
Expense Recognition 84
General Principles 84
Issues in Expense Recognition 88
Implications for Financial Analysis 93
Items and Non-Operating
Items 93
Discontinued Operations 94
Unusual or Infrequent Items 94
Changes in Accounting Policies 96
Items 98
Earnings per Share 99
Simple versus Complex Capital Structure 100
Basic EPS 101
Diluted EPS 102
Changes in EPS 109
Analysis of the Income Statement 109
Analysis of the Income Statement 109
Income Statement Ratios 111
Comprehensive Income 113
Summary 116
Practice Problems 119
Solutions 124
Reading 22 Understanding Balance Sheets 127
Introduction 128
Components and Format of the Balance Sheet 128
Balance Sheet Components 129
Current and Non-Current
Classification 131
Presentation 132
Current Assets and Current Liabilities 133
Current Assets 133
Current Liabilities 138
Assets 142
Property, Plant, and Equipment 143
Investment Property 144
Intangible Assets 145
Goodwill 148
Financial Assets 150
Deferred Tax Assets 154
Liabilities 154
Financial Liabilities 156
Deferred Tax Liabilities 156
Equity 157
Components of Equity 157
Statement of Changes in Equity 160
Analysis of the Balance Sheet 161
Analysis of the Balance Sheet 161
Balance Sheet Ratios 169
Summary 171
Practice Problems 174
Solutions 179
Reading 23 Understanding Cash Flow Statements 183
Introduction 184
Components and Format of the Cash Flow Statement 185
Classification of Cash Flows and Non-Cash
Activities 185
A Summary of Differences between IFRS and US GAAP 187
Direct and Indirect Methods for Reporting Cash Flow from
Operating Activities 188
The Cash Flow Statement: Linkages and Preparation 198
Linkages of the Cash Flow Statement with the Income Statement
and Balance Sheet 198
Steps in Preparing the Cash Flow Statement 199
Conversion of Cash Flows from the Indirect to the Direct Method 211
Cash Flow Statement Analysis 212
Evaluation of the Sources and Uses of Cash 212
Analysis of the Statement of Cash Flows 216
Free Cash Flow to the Firm and Free Cash Flow to Equity 222
Cash Flow Ratios 223
Summary 225
Practice Problems 226
Solutions 232
Reading 24 Financial Analysis Techniques 235
Introduction 236
The Financial Analysis Process 237
The Objectives of the Financial Analysis Process 237
Distinguishing between Computations and Analysis 238
Analytical Tools and Techniques 241
Ratios 243
Analysis 248
The Use of Graphs as an Analytical Tool 254
Regression Analysis 256
Common Ratios Used in Financial Analysis 256
Interpretation and Context 257
Activity Ratios 258
Liquidity Ratios 264
Solvency Ratios 269
Profitability Ratios 273
Integrated Financial Ratio Analysis 276
Equity Analysis 284
Valuation Ratios 284
Ratios 287
Historical Research on Ratios in Equity Analysis 289
Credit Analysis 290
The Credit Rating Process 290
Historical Research on Ratios in Credit Analysis 291
Business and Geographic Segments 292
Segment Reporting Requirements 292
Segment Ratios 293
Model Building and Forecasting 296
Summary 297
Practice Problems 299
Solutions 305
Study Session 8 Financial Reporting and Analysis (3) 309
Reading 25 Inventories 311
Introduction 312
Cost of Inventories 313
Inventory Valuation Methods 314
Specific Identification 315
(FIFO) 315
Weighted Average Cost 315
(LIFO) 316
Calculation of Cost of Sales, Gross Profit, and Ending Inventory 316
Periodic versus Perpetual Inventory Systems 318
Comparison of Inventory Valuation Methods 320
The LIFO Method 323
LIFO Reserve 323
LIFO Liquidations 324
Inventory Method Changes 331
Inventory Adjustments 332
Evaluation of Inventory Management 339
Presentation and Disclosure 339
Inventory Ratios 340
Financial Analysis Illustrations 341
Summary 350
Practice Problems 353
Solutions 369
Reading 26 Long-Lived
Assets 377
Introduction 378
Acquisition of Long-Lived
Assets 379
Property, Plant, and Equipment 379
Intangible Assets 382
Capitalising versus Expensing: Impact on Financial Statements and
Ratios 386
Capitalisation of Interest Costs 391
Capitalisation of Internal Development Costs 394
Depreciation and Amortisation of Long-Lived
Assets 398
Depreciation Methods and Calculation of Depreciation Expense 398
Amortisation Methods and Calculation of Amortisation Expense 406
The Revaluation Model 407
Impairment of Assets 411
Impairment of Property, Plant, and Equipment 412
Impairment of Intangible Assets with a Finite Life 414
Impairment of Intangibles with Indefinite Lives 414
Impairment of Long-Lived
Assets Held for Sale 414
Reversals of Impairments of Long-Lived
Assets 414
Derecognition 415
Sale of Long-Lived
Assets 415
Assets Disposed of Other Than by a Sale 416
Presentation and Disclosures 417
Investment Property 428
Summary 432
Practice Problems 434
Solutions 446
Reading 27 Income Taxes 451
Introduction 452
Differences between Accounting Profit and Taxable Income 452
Current Tax Assets and Liabilities 453
Deferred Tax Assets and Liabilities 454
Determining the Tax Base of Assets and Liabilities 457
Determining the Tax Base of an Asset 457
Determining the Tax Base of a Liability 459
Changes in Income Tax Rates 461
Temporary and Permanent Differences Between Taxable and Accounting
Profit 462
Taxable Temporary Differences 463
Deductible Temporary Differences 463
Examples of Taxable and Deductible Temporary Differences 464
Temporary Differences at Initial Recognition of Assets and Liabilities 466
Business Combinations and Deferred Taxes 466
Investments in Subsidiaries, Branches, Associates and Interests in
Joint Ventures 467
Unused Tax Losses and Tax Credits 467
Recognition and Measurement of Current and Deferred Tax 468
Recognition of a Valuation Allowance 469
Recognition of Current and Deferred Tax Charged Directly to Equity 469
Presentation and Disclosure 471
Comparison of IFRS and US GAAP 477
Summary 479
Practice Problems 481
Solutions 486
Reading 28 Non-Current
Liabilities 489
Introduction 490
Bonds Payable 490
Accounting for Bond Issuance 490
Accounting for Bond Amortisation, Interest Expense, and Interest
Payments 494
Current Market Rates and Fair Value Reporting Option 498
Derecognition of Debt 502
Debt Covenants 504
Presentation and Disclosure of Long-Term
Debt 506
Leases 509
Lessee accounting 510
Lessor accounting 511
Introduction to Pensions and Other Post-Employment
Benefits 513
Evaluating Solvency: Leverage and Coverage Ratios 516
Summary 520
Practice Problems 523
Solutions 529
Study Session 9 Financial Reporting and Analysis (4) 537
Reading 29 Financial Reporting Quality 539
Introduction 540
Conceptual Overview 540
GAAP, Decision-Useful,
Sustainable, and Adequate Returns 542
GAAP, Decision-Useful,
but Sustainable? 542
Biased Accounting Choices 543
Departures from GAAP 552
Differentiate between Conservative and Aggressive Accounting 554
Context for Assessing Financial Reporting Quality 557
Motivations 557
Conditions Conducive to Issuing Low-Quality
Financial Reports 558
Mechanisms That Discipline Financial Reporting Quality 559
Detection of Financial Reporting Quality Issues 566
Presentation Choices 567
Accounting Choices and Estimates 573
Warning Signs 591
Summary 596
Practice Problems 599
Solutions 603
Reading 30 Applications of Financial Statement Analysis 607
Introduction 608
Application: Evaluating Past Financial Performance 609
Application: Projecting Future Financial Performance 612
Projecting Performance: An Input to Market-Based
Valuation 613
Projecting Multiple-Period
Performance 618
Application: Assessing Credit Risk 622
Application: Screening for Potential Equity Investments 624
Analyst Adjustments to Reported Financials 627
A Framework for Analyst Adjustments 627
Analyst Adjustments Related to Investments 628
Analyst Adjustments Related to Inventory 628
Analyst Adjustments Related to Property, Plant, and Equipment 632
Analyst Adjustments Related to Goodwill 634
Summary 636
Practice Problems 638
Solutions 640
Glossary G-1

CFA® Program Curriculum 2020 • LEVEL I • VOLUME 4

How to Use the CFA Program Curriculum ix
Background on the CBOK ix
Organization of the Curriculum x
Features of the Curriculum x
Designing Your Personal Study Program xii
Feedback xiii
Corporate Finance
Study Session 10 Corporate Finance (1) 3
Reading 31 Introduction to Corporate Governance and Other ESG Considerations 5
Introduction 6
Corporate Governance Overview 6
Company Stakeholders 8
Stakeholder Groups 8
Principal–Agent and Other Relationships in Corporate Governance 11
Stakeholder Management 14
Overview of Stakeholder Management 14
Mechanisms of Stakeholder Management 15
Board of Directors and Committees 21
Composition of the Board of Directors 21
Functions and Responsibilities of the Board 22
Board of Directors Committees 23
Factors Affecting Stakeholder Relationships and Corporate Governance 25
Market Factors 25
Factors 27
Corporate Governance and Stakeholder Management Risks and Benefits 28
Risks of Poor Governance and Stakeholder Management 28
Benefits of Effective Governance and Stakeholder Management 30
Analyst Considerations in Corporate Governance and Stakeholder
Management 31
Economic Ownership and Voting Control 32
Board of Directors Representation 32
Remuneration and Company Performance 33
Investors in the Company 34
Strength of Shareholders’ Rights 34
Managing Long-Term
Risks 35
Summary of Analyst Considerations 35
ESG Considerations for Investors 36
ESG Terminology 37
ESG Implementation Approaches 37
Catalysts for ESG Growth 39
ESG Market Overview 39
ESG Factors in Investment Analysis 40
Summary 41
Practice Problems 44
Solutions 46
Reading 32 Capital Budgeting 47
Introduction 47
The Capital Budgeting Process 48
Basic Principles of Capital Budgeting 50
Investment Decision Criteria 52
Net Present Value 52
Internal Rate of Return 53
Payback Period 54
Discounted Payback Period 56
Average Accounting Rate of Return 57
Profitability Index 58
NPV Profile 58
Ranking Conflicts between NPV and IRR 60
The Multiple IRR Problem and the No IRR Problem 63
Corporate Usage of Various Capital Budgeting Methods 66
Summary 67
Practice Problems 69
Solutions 73
Reading 33 Cost of Capital 77
Introduction 78
Cost of Capital 78
Taxes and the Cost of Capital 79
Weights of the Weighted Average 80
Applying the Cost of Capital to Capital Budgeting and Security
Valuation 82
Costs of the Different Sources of Capital 84
Cost of Debt 84
Cost of Preferred Stock 86
Cost of Common Equity 88
Topics in Cost of Capital Estimation 93
Estimating Beta and Determining a Project Beta 94
Country Risk 100
Marginal Cost of Capital Schedule 102
Flotation Costs 105
What Do CFOs Do? 107
Summary 108
Practice Problems 111
Solutions 118
Study Session 11 Corporate Finance (2) 123
Reading 34 Measures of Leverage 125
Introduction 125
Leverage 126
Business Risk and Financial Risk 128
Business Risk and Its Components 128
Sales Risk 129
Operating Risk 130
Financial Risk 137
Total Leverage 140
Breakeven Points and Operating Breakeven Points 143
The Risks of Creditors and Owners 145
Summary 147
Practice Problems 149
Solutions 153
Reading 35 Working Capital Management 155
Introduction 155
Managing and Measuring Liquidity 156
Defining Liquidity Management 157
Measuring Liquidity 159
Managing the Cash Position 164
Forecasting Short-Term
Cash Flows 165
Monitoring Cash Uses and Levels 166
Investing Short-Term
Funds 167
Investment Instruments 168
Strategies 171
Evaluating Short-Term
Funds Management 174
Managing Accounts Receivable 175
Key Elements of the Trade Credit Granting Process 176
Managing Customers’ Receipts 177
Evaluating Accounts Receivable Management 180
Managing Inventory 182
Approaches to Managing Levels of Inventory 183
Inventory Costs 184
Evaluating Inventory Management 184
Managing Accounts Payable 185
The Economics of Taking a Trade Discount 187
Managing Cash Disbursements 188
Evaluating Accounts Payable Management 188
Managing Short-Term
Financing 189
Sources of Short-Term
Financing 189
Borrowing Approaches 191
Loans 192
Computing the Costs of Borrowing 193
Summary 194
Practice Problems 196
Solutions 199
Equity Investments
Study Session 12 Equity Investments (1) 205
Reading 36 Market Organization and Structure 207
Introduction 208
The Functions of the Financial System 208
Helping People Achieve Their Purposes in Using the Financial System 209
Determining Rates of Return 214
Capital Allocation Efficiency 215
Assets and Contracts 216
Classifications of Assets and Markets 216
Securities 218
Currencies 221
Contracts 222
Commodities 227
Real Assets 228
Financial Intermediaries 230
Brokers, Exchanges, and Alternative Trading Systems 230
Dealers 232
Securitizers 233
Depository Institutions and Other Financial Corporations 234
Insurance Companies 235
Arbitrageurs 236
Settlement and Custodial Services 238
Summary 240
Positions 240
Short Positions 242
Leveraged Positions 243
Orders 246
Execution Instructions 246
Validity Instructions 250
Clearing Instructions 251
Primary Security Markets 252
Public Offerings 252
Private Placements and Other Primary Market Transactions 254
Importance of Secondary Markets to Primary Markets 255
Secondary Security Market and Contract Market Structures 255
Trading Sessions 256
Execution Mechanisms 256
Market Information Systems 260
Financial Systems 260
Market Regulation 262
Summary 265
Practice Problems 268
Solutions 275
Reading 37 Security Market Indexes 279
Introduction 279
Index Definition and Calculations of Value and Returns 280
Calculation of Single-Period
Returns 281
Calculation of Index Values over Multiple Time Periods 283
Index Construction and Management 284
Target Market and Security Selection 284
Index Weighting 285
Index Management: Rebalancing and Reconstitution 293
Uses of Market Indexes 295
Gauges of Market Sentiment 295
Proxies for Measuring and Modeling Returns, Systematic Risk, and
Performance 296
Proxies for Asset Classes in Asset Allocation Models 296
Benchmarks for Actively Managed Portfolios 296
Model Portfolios for Investment Products 296
Equity Indexes 297
Broad Market Indexes 297
Indexes 297
Sector Indexes 299
Style Indexes 299
Indexes 300
Construction 300
Types of Fixed-Income
Indexes 300
Indexes for Alternative Investments 303
Commodity Indexes 303
Real Estate Investment Trust Indexes 303
Hedge Fund Indexes 304
Summary 306
Practice Problems 308
Solutions 314
Reading 38 Market Efficiency 317
Introduction 317
The Concept of Market Efficiency 319
The Description of Efficient Markets 319
Market Value versus Intrinsic Value 321
Factors Contributing to and Impeding a Market’s Efficiency 322
Transaction Costs and Information-Acquisition
Costs 325
Forms of Market Efficiency 326
Weak Form 327
Form 327
Strong Form 330
Implications of the Efficient Market Hypothesis 330
Market Pricing Anomalies 332
Anomalies 333
Anomalies 335
Other Anomalies 335
Implications for Investment Strategies 338
Behavioral Finance 338
Loss Aversion 339
Herding 339
Overconfidence 339
Information Cascades 340
Other Behavioral Biases 340
Behavioral Finance and Investors 341
Behavioral Finance and Efficient Markets 341
Summary 341
Practice Problems 344
Solutions 347
Study Session 13 Equity Investments (2) 349
Reading 39 Overview of Equity Securities 351
Introduction 351
Equity Securities in Global Financial Markets 352
Types and Characteristics of Equity Securities 357
Common Shares 358
Preference Shares 360
Private versus Public Equity Securities 362
Investing in Non-Domestic
Equity Securities 365
Direct Investing 366
Depository Receipts 367
Risk and Return Characteristics of Equity Securities 370
Return Characteristics of Equity Securities 370
Risk of Equity Securities 371
Equity Securities and Company Value 373
Accounting Return on Equity 373
The Cost of Equity and Investors’ Required Rates of Return 378
Summary 379
Practice Problems 381
Solutions 385
Reading 40 Introduction to Industry and Company Analysis 387
Introduction 388
Uses of Industry Analysis 388
Approaches to Identifying Similar Companies 389
Products and/or Services Supplied 389
Sensitivities 390
Statistical Similarities 391
Industry Classification Systems 392
Commercial Industry Classification Systems 392
Governmental Industry Classification Systems 396
Strengths and Weaknesses of Current Systems 397
Constructing a Peer Group 398
Describing and Analyzing an Industry 402
Principles of Strategic Analysis 404
External Influences on Industry Growth, Profitability, and Risk 422
Company Analysis 429
Elements That Should be Covered in a Company Analysis 430
Spreadsheet Modeling 433
Summary 434
Practice Problems 438
Solutions 442
Reading 41 Equity Valuation: Concepts and Basic Tools 445
Introduction 446
Estimated Value and Market Price 447
Major Categories of Equity Valuation Models 448
Present Value Models: The Dividend Discount Model 450
Dividends: Background for the Dividend Discount Model 450
The Dividend Discount Model: Description 453
Preferred Stock Valuation 456
The Gordon Growth Model 459
Multistage Dividend Discount Models 463
Multiplier Models 468
Relationships among Price Multiples, Present Value Models, and
Fundamentals 469
The Method of Comparables 472
Illustration of a Valuation Based on Price Multiples 475
Enterprise Value 477
Valuation 479
Summary 483
Practice Problems 486
Solutions 492
Glossary G-1

CFA® Program Curriculum 2020 • LEVEL I • VOLUME 5

How to Use the CFA Program Curriculum vii
Background on the CBOK vii
Organization of the Curriculum viii
Features of the Curriculum viii
Designing Your Personal Study Program x
Feedback xi
Fixed Income
Study Session 14 Fixed Income (1) 3
Reading 42 Fixed-Income
Securities: Defining Elements 5
Introduction 5
Overview of a Fixed-Income
Security 6
Basic Features of a Bond 7
Yield Measures 12
Legal, Regulatory, and Tax Considerations 12
Bond Indenture 13
Legal and Regulatory Considerations 21
Tax Considerations 24
Structure of a Bond’s Cash Flows 26
Principal Repayment Structures 26
Coupon Payment Structures 30
Bonds with Contingency Provisions 37
Callable Bonds 37
Putable Bonds 39
Convertible Bonds 40
Summary 43
Practice Problems 46
Solutions 50
Reading 43 Fixed-Income
Markets: Issuance, Trading, and Funding 55
Introduction 55
Overview of Global Fixed-Income
Markets 56
Classification of Fixed-Income
Markets 56
Indexes 63
Investors in Fixed-Income
Securities 64
Primary and Secondary Bond Markets 65
Primary Bond Markets 66
Secondary Bond Markets 70
Sovereign Bonds 73
Characteristics of Sovereign Bonds 73
Credit Quality of Sovereign Bonds 74
Types of Sovereign Bonds 75
Government, Quasi-Government,
and Supranational Bonds 77
Bonds 77
Bonds 77
Supranational Bonds 78
Corporate Debt 79
Bank Loans and Syndicated Loans 79
Commercial Paper 80
Corporate Notes and Bonds 83
Structured Financial Instruments 87
Capital Protected Instruments 88
Yield Enhancement Instruments 88
Participation Instruments 88
Leveraged Instruments 89
Funding Alternatives Available to Banks 90
Retail Deposits 90
Wholesale Funds 91
Repurchase and Reverse Repurchase Agreements 92
Summary 96
Practice Problems 99
Solutions 103
Reading 44 Introduction to Fixed-Income
Valuation 107
Introduction 107
Bond Prices and the Time Value of Money 108
Bond Pricing with a Market Discount Rate 108
Yield-to-Maturity 112
Relationships between the Bond Price and Bond Characteristics 113
Pricing Bonds with Spot Rates 117
Prices and Yields: Conventions for Quotes and Calculations 119
Flat Price, Accrued Interest, and the Full Price 119
Matrix Pricing 123
Annual Yields for Varying Compounding Periods in the Year 126
Yield Measures for Fixed-Rate
Bonds 129
Yield Measures for Floating-Rate
Notes 132
Yield Measures for Money Market Instruments 135
The Maturity Structure of Interest Rates 140
Yield Spreads 147
Yield Spreads over Benchmark Rates 147
Yield Spreads over the Benchmark Yield Curve 149
Summary 152
Practice Problems 155
Solutions 164
Reading 45 Introduction to Asset-Backed
Securities 179
Introduction 179
Benefits of Securitization for Economies and Financial Markets 180
How Securitization Works 181
An Example of a Securitization 182
Parties to a Securitization and Their Roles 183
Structure of a Securitization 185
Key Role of the Special Purpose Entity 187
Residential Mortgage Loans 190
Maturity 191
Interest Rate Determination 191
Amortization Schedule 192
Prepayment Options and Prepayment Penalties 192
Rights of the Lender in a Foreclosure 193
Residential Mortgage-Backed
Securities 194
Mortgage Pass-Through
Securities 195
Collateralized Mortgage Obligations 201
Residential Mortgage-Backed
Securities 208
Commercial Mortgage-Backed
Securities 208
Credit Risk 209
CMBS Structure 209
Securities 213
Auto Loan ABS 213
Credit Card Receivable ABS 216
Collateralized Debt Obligations 217
CDO Structure 217
An Example of a CDO Transaction 218
Summary 220
Practice Problems 224
Solutions 229
Study Session 15 Fixed Income (2) 237
Reading 46 Understanding Fixed‑Income Risk and Return 239
Introduction 240
Sources of Return 240
Interest Rate Risk on Fixed-Rate
Bonds 247
Macaulay, Modified, and Approximate Duration 248
Effective Duration 255
Key Rate Duration 259
Properties of Bond Duration 259
Duration of a Bond Portfolio 265
Money Duration of a Bond and the Price Value of a Basis Point 267
Bond Convexity 269
Interest Rate Risk and the Investment Horizon 277
Yield Volatility 278
Investment Horizon, Macaulay Duration, and Interest Rate Risk 279
Credit and Liquidity Risk 284
Summary 285
Practice Problems 289
Solutions 294
Reading 47 Fundamentals of Credit Analysis 301
Introduction 302
Credit Risk 302
Capital Structure, Seniority Ranking, and Recovery Rates 305
Capital Structure 305
Seniority Ranking 305
Recovery Rates 307
Ratings Agencies, Credit Ratings, and Their Role in the Debt Markets 311
Credit Ratings 312
Issuer vs. Issue Ratings 313
Risks in Relying on Agency Ratings 315
Traditional Credit Analysis: Corporate Debt Securities 320
Credit Analysis vs. Equity Analysis: Similarities and Differences 320
The Four Cs of Credit Analysis: A Useful Framework 321
Credit Risk vs. Return: Yields and Spreads 338
Special Considerations of High-Yield,
Sovereign, and Non-Sovereign
Credit Analysis 347
High Yield 347
Sovereign Debt 355
Government Debt 359
Summary 361
Practice Problems 365
Solutions 375
Study Session 16 Derivatives 383
Reading 48 Derivative Markets and Instruments 385
Introduction 385
Derivatives: Definitions and Uses 386
The Structure of Derivative Markets 389
Derivatives Markets 390
Over-the- Counter Derivatives Markets 391
Types of Derivatives 394
Forward Commitments 394
Contingent Claims 406
Hybrids 418
Derivatives Underlyings 419
The Purposes and Benefits of Derivatives 422
Risk Allocation, Transfer, and Management 423
Information Discovery 424
Operational Advantages 425
Market Efficiency 425
Criticisms and Misuses of Derivatives 426
Speculation and Gambling 426
Destabilization and Systemic Risk 427
Elementary Principles of Derivative Pricing 429
Storage 429
Arbitrage 430
Summary 435
Practice Problems 438
Solutions 445
Reading 49 Basics of Derivative Pricing and Valuation 455
Introduction 456
Fundamental Concepts of Derivative Pricing 456
Basic Derivative Concepts 456
Pricing the Underlying 458
The Principle of Arbitrage 462
The Concept of Pricing vs. Valuation 468
Pricing and Valuation of Forward Commitments 469
Pricing and Valuation of Forward Contracts 469
Pricing and Valuation of Futures Contracts 476
Pricing and Valuation of Swap Contracts 478
Pricing and Valuation of Options 481
European Option Pricing 482
Binomial Valuation of Options 496
American Option Pricing 500
Practice Problems

CFA® Program Curriculum 2020 • LEVEL I • VOLUME 6

How to Use the CFA Program Curriculum vii
Background on the CBOK vii
Organization of the Curriculum viii
Features of the Curriculum viii
Designing Your Personal Study Program x
Feedback xi
Alternative Investments
Study Session 17 Alternative Investments 3
Reading 50 Introduction to Alternative Investments 5
Introduction 5
Alternative Investments 6
Categories of Alternative Investments 10
Returns to Alternative Investments 12
Portfolio Context: Integration of Alternative Investments with
Traditional Investments 13
Investment Structures 14
Hedge Funds 15
Hedge Fund Strategies 16
Hedge Funds and Diversification Benefits 20
Hedge Fund Fees and Other Considerations 20
Hedge Fund Valuation Issues 27
Due Diligence for Investing in Hedge Funds 28
Private Equity 30
Private Equity Structure and Fees 31
Private Equity Strategies 32
Private Equity: Diversification Benefits, Performance, and Risk 36
Portfolio Company Valuation 38
Private Equity: Investment Considerations and Due Diligence 39
Real Estate 40
Forms of Real Estate Investment 41
Real Estate Investment Categories 42
Real Estate Performance and Diversification Benefits 45
Real Estate Valuation 46
Real Estate Investment Risks 48
Commodities 48
Commodity Derivatives and Indexes 50
Other Commodity Investment Vehicles 50
Commodity Performance and Diversification Benefits 51
Commodity Prices and Investments 52
Infrastructure 55
Categories of Infrastructure Investments 55
Forms of Infrastructure Investments 56
Risk and Return Overview 56
Other Alternative Investments 57
Risk Management Overview 57
Investment and Risk Management Process 57
Risk–Return Measures 59
Due Diligence Overview 60
Summary 62
Practice Problems 65
Solutions 70
Portfolio Management
Study Session 18 Portfolio Management (1) 77
Reading 51 Portfolio Management: An Overview 79
Introduction 79
A Portfolio Approach to Investing 80
Historical Example of Portfolio Diversification: Avoiding Disaster 80
Portfolios: Reduce Risk 82
Portfolios: Composition Matters for the Risk–Return Trade-off
Historical Portfolio Example: Not Necessarily Downside Protection 85
Portfolios: Modern Portfolio Theory 88
Steps in the Portfolio Management Process 89
Step One: The Planning Step 89
Step Two: The Execution Step 90
Step Three: The Feedback Step 92
Types of Investors 93
Individual Investors 93
Institutional Investors 94
The Asset Management Industry 99
Active versus Passive Management 100
Traditional versus Alternative Asset Managers 101
Ownership Structure 101
Asset Management Industry Trends 101
Mutual Funds and Pooled Investment Products 104
Mutual Funds 104
Types of Mutual Funds 106
Separately Managed Accounts 107
Funds 108
Hedge Funds 108
Private Equity and Venture Capital Funds 109
Summary 110
Practice Problems 112
Solutions 114
Reading 52 Portfolio Risk and Return: Part I 115
Introduction 115
Investment Characteristics of Assets 116
Return 116
Other Major Return Measures and their Applications 130
Historical Return and Risk 133
Other Investment Characteristics 137
Risk Aversion and Portfolio Selection 140
The Concept of Risk Aversion 140
Utility Theory and Indifference Curves 141
Application of Utility Theory to Portfolio Selection 146
Portfolio Risk 149
Portfolio of Two Risky Assets 149
Portfolio of Many Risky Assets 157
The Power of Diversification 158
Efficient Frontier and Investor’s Optimal Portfolio 163
Investment Opportunity Set 164
Portfolios 165
A Risk-Free
Asset and Many Risky Assets 166
Optimal Investor Portfolio 169
Summary 175
Practice Problems 177
Solutions 185
Reading 53 Portfolio Risk and Return: Part II 191
Introduction 191
Capital Market Theory 192
Portfolio of Risk-Free
and Risky Assets 192
The Capital Market Line 196
Pricing of Risk and Computation of Expected Return 204
Systematic Risk and Nonsystematic Risk 204
Calculation and Interpretation of Beta 206
The Capital Asset Pricing Model 213
Assumptions of the CAPM 213
The Security Market Line 215
Applications of the CAPM 217
Beyond the Capital Asset Pricing Model 219
Limitations of the CAPM 219
Extensions to the CAPM 220
Portfolio Performance Appraisal Measures 222
The Sharpe Ratio 222
The Treynor Ratio 223
M2: Risk-Adjusted
Performance (RAP) 224
Jensen’s Alpha 225
Applications of the CAPM in Portfolio Construction 228
Security Characteristic Line 228
Security Selection 229
Implications of the CAPM for Portfolio Construction 230
Summary 233
Practice Problems 235
Solutions 241
Study Session 19 Portfolio Management (2) 245
Reading 54 Basics of Portfolio Planning and Construction 247
Introduction 247
Portfolio Planning 248
The Investment Policy Statement 248
Major Components of an IPS 249
Gathering Client Information 262
Portfolio Construction 265
Capital Market Expectations 266
The Strategic Asset Allocation 266
Steps Toward an Actual Portfolio 274
ESG Considerations in Portfolio Planning and Construction 278
Alternative Portfolio Organizing Principles 279
Conclusion and Summary 280
Practice Problems 283
Solutions 287
Reading 55 Introduction to Risk Management 289
Introduction 289
The Risk Management Process 291
Risk Governance 299
An Enterprise View of Risk Governance 299
Risk Tolerance 301
Risk Budgeting 303
Identification of Risks 306
Financial Risks 307
Risks 308
Interactions between Risks 312
Measuring and Modifying Risks 315
Drivers 316
Metrics 317
Methods of Risk Modification 321
Summary 329
Practice Problems 332
Solutions 335
Reading 56 Technical Analysis 337
Introduction 337
Technical Analysis: Definition and Scope 338
Principles and Assumptions 338
Technical and Fundamental Analysis 340
Technical Analysis Tools 342
Charts 342
Trend 353
Chart Patterns 355
Technical Indicators 366
Cycles 384
Elliott Wave Theory 385
Intermarket Analysis 388
Summary 390
Practice Problems 393
Solutions 398
Reading 57 Fintech in Investment Management 401
Introduction 401
What Is Fintech? 402
Big Data 403
Sources of Big Data 404
Big Data Challenges 406
Advanced Analytical Tools: Artificial Intelligence and Machine Learning 406
Types of Machine Learning 408
Data Science: Extracting Information from Big Data 409
Data Processing Methods 409
Data Visualization 410
Selected Applications of Fintech to Investment Management 411
Text Analytics and Natural Language Processing 411
Services 413
Risk Analysis 415
Algorithmic Trading 415
Distributed Ledger Technology 416
Permissioned and Permissionless Networks 418
Applications of Distributed Ledger Technology to Investment
Management 418
Summary 420
Practice Problems 422
Solutions 424
Glossary G-1

Reviews about the author:

  • Aku Maya:
  • Grace:
    Those books are 100%new.
  • DeltaTangoPapa:
    I bought this set and started studying because I was interested in helping managing funds and investing for my family foundation’s office.
    But in light of recent events regarding Citadel, Melvin Capital, Robinhood, and other financial institutions in the midst of the $GME ordeal, the integrity of the financial industry and general profession is being completely obliterated right before the world’s eyes. Meanwhile, CFA Institute seems to be a useless association, a front, in terms of holding financial professionals accountable. At best, CFA revokes any wrongdoers in this situation’s ability to use the CFA designation? However, this doesn’t prevent those standards violators from practicing their profession in the future. In this respect, the CFA license is going to become the more expensive and time-consuming equivalent of an ordained minister certificate you can purchase online to officiate weddings.Hopefully, regulators will take the necessary steps to bring justice to this cluster foxtrot, but I doubt anyone would ever take a CFA designation seriously again. If you were just here looking for a good study book, sure I would give this review 5 stars — it’s extremely informative, a bit wordy but comprehensive and thorough, and contains all of the information needed to pass the L1 exam. But if you’re considering studying for the CFA designation for whatever purpose, I’d seriously contemplate the view of the financial profession in greater society in light of recent events, and instead dedicate 300 hours of your life to pursuing a career or other activities that are more beneficial to society.
  • Jeremy:
    These books are terrible and will actively make you dumber. Save your money and buy the Schweser books instead. These will only make the exam harder. These are basically a collection of mathematical research papers that are impossible to understand unless you have a Ph.D. in math. And I have a business diploma so it’s not like this is new material to me.
  • M:
    Just count the pages and see the density of those sentences — how many hours of serious reading do you think it will need?
  • Melissa:
    My corporate finance and equity textbook is missing pages 113 to 144. Could I be sent these pages?
  • Sunshine90:
    Arrived as promised. Well-packaged (actually wish amazon had not added their own box, since the CFA Institute has their own sturdy box for the books), and the books are wonderfully informative and thorough.
  • Hemkesh:
    The syllabus is thorough and helpful for all CFA candidates.
  • Oluwatosin:
    Purchased these ebooks for my exams.
  • Yuji:
    Best thing I’ve bought in a while.

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