CFA Level 2 - LOS Changes 2012 - 2013

CFA
Level 2 LOS Changes 2012 2013

Topic LOS Level II 2012 LOS Level II 2013 Compared
describe the six components of the Code describe the six components of the
of Ethics and the seven Standards of Code of Ethics and the seven Standards
Ethics 1.1.a Professional Conduct 1.1.a of Professional Conduct
explain the ethical responsibilities explain the ethical responsibilities
required by the Code and Standards, required of CFA Institute members and
including the multiple sub-sections of candidates in the CFA Program by the Wording
Ethics 1.1.b each standard. 1.1.b Code and Standards Change
demonstrate a thorough knowledge of demonstrate a thorough knowledge of
the Code of Ethics and Standards of the Code of Ethics and Standards of
Professional Conduct by applying the Professional Conduct by applying the
Code and Standards to specific Code and Standards to specific
Ethics 1.2.a situations 1.2.a situations
recommend practices and procedures recommend practices and procedures
designed to prevent violations of the designed to prevent violations of the
Code of Ethics and Standards of Code of Ethics and Standards of
Ethics 1.2.b Professional Conduct 1.2.b Professional Conduct
define soft-dollar arrangements, and define soft-dollar arrangements, and
state the general principles of the Soft state the general principles of the Soft
Ethics 1.3.a Dollar Standards 1.3.a Dollar Standards
evaluate company soft-dollar practices evaluate company soft-dollar practices
Ethics 1.3.b and policies 1.3.b and policies
determine whether a product or service determine whether a product or service
qualifies as permissible research that qualifies as permissible research that
Ethics 1.3.c can be purchased with client brokerage 1.3.c can be purchased with client brokerage
explain the objectives of the Research explain the objectives of the Research
Ethics 1.4.a Objectivity Standards 1.4.a Objectivity Standards

www.passingscorefinance.com
evaluate company policies and practices evaluate company policies and
related to research objectivity, and practices related to research
distinguish between changes required objectivity, and distinguish between
and changes recommended for changes required and changes
compliance with the Research recommended for compliance with the
Ethics 1.4.b Objectivity Standards 1.4.b Research Objectivity Standards
evaluate the practices and policies evaluate the practices and policies
Ethics 2.5.a presented 2.5.a presented
explain the appropriate action to take in explain the appropriate action to take
response to conduct that violates the in response to conduct that violates the
CFA Institute Code of Ethics and CFA Institute Code of Ethics and
Ethics 2.5.b Standards of Professional Conduct 2.5.b Standards of Professional Conduct
evaluate trade allocation practices, and evaluate trade allocation practices, and
determine whether compliance exists determine whether compliance exists
with the CFA Institute Standards of with the CFA Institute Standards of
Professional Conduct addressing fair Professional Conduct addressing fair
Ethics 2.8.a dealing and client loyalty 2.8.a dealing and client loyalty
discuss appropriate actions to take in describe appropriate actions to take in
response to trade allocation practices response to trade allocation practices
that do not adequately respect client that do not adequately respect client Wording
Ethics 2.8.b interests 2.8.b interests Change
evaluate the disclosure of investment evaluate the disclosure of investment
objectives and basic policies and objectives and basic policies and
determine whether they comply with the determine whether they comply with
CFA Institute Standards of Professional the CFA Institute Standards of
Ethics 2.9.a Conduct 2.9.a Professional Conduct

describe appropriate actions needed to describe appropriate actions needed to
ensure adequate disclosure of the ensure adequate disclosure of the
Ethics 2.9.b investment process 2.9.b investment process
explain the basic principles of the new explain the basic principles of the new
Ethics 2.10.a Prudent Investor Rule 2.10.a Prudent Investor Rule
explain the general fiduciary standards explain the general fiduciary standards
Ethics 2.10.b to which a trustee must adhere 2.10.b to which a trustee must adhere
distinguish between the old Prudent
distinguish between the old Prudent Man Man Rule and the new Prudent Investor
Ethics 2.10.c Rule and the new Prudent Investor Rule 2.10.c Rule
explain key factors that a trustee should explain key factors that a trustee
consider when investing and managing should consider when investing and
Ethics 2.10.d trust assets 2.10.d managing trust assets
calculate and interpret a sample calculate and interpret a sample
covariance and a sample correlation covariance and a sample correlation
Quantitative 3.11.a coefficient, and interpret a scatter plot 3.11.a coefficient, and interpret a scatter plot
explain limitations to correlation explain limitations to correlation
analysis, including outliers and spurious analysis, including outliers and spurious
Quantitative 3.11.b correlation 3.11.b correlation
formulate a test of the hypothesis that formulate a test of the hypothesis that
the population correlation coefficient the population correlation coefficient
equals zero, and determine whether the equals zero, and determine whether the
hypothesis is rejected at a given level of hypothesis is rejected at a given level
Quantitative 3.11.c significance 3.11.c of significance
distinguish between the dependent and distinguish between the dependent and
independent variables in a linear independent variables in a linear
Quantitative 3.11.d regression 3.11.d regression
explain the assumptions underlying explain the assumptions underlying
linear regression, and interpret the linear regression, and interpret the
Quantitative 3.11.e regression coefficients 3.11.e regression coefficients
calculate and interpret the standard calculate and interpret the standard
error of estimate, the coefficient of error of estimate, the coefficient of
determination, and a confidence interval determination, and a confidence
Quantitative 3.11.f for a regression coefficient 3.11.f interval for a regression coefficient

formulate a null and alternative formulate a null and alternative
hypothesis about a population value of a hypothesis about a population value of
regression coefficient, and determine a regression coefficient, and determine
the appropriate test statistic and the appropriate test statistic and
whether the null hypothesis is rejected whether the null hypothesis is rejected
Quantitative 3.11.g at a given level of significance 3.11.g at a given level of significance
calculate the predicted value for the
calculate a predicted value for the dependent variable, given an estimated
dependent variable, given an estimated regression model and a value for the
regression model and a value for the independent variable, and calculate and
independent variable, and calculate and interpret a confidence interval for the
interpret a confidence interval for the predicted value of the dependent Wording
Quantitative 3.11.h predicted value of a dependent variable 3.11.h variable Change
describe the use of analysis of variance describe the use of analysis of variance
(ANOVA) in regression analysis, (ANOVA) in regression analysis,
interpret ANOVA results, and calculate interpret ANOVA results, and calculate
Quantitative 3.11.i and interpret an F-statistic 3.11.i and interpret an F-statistic
explain limitations of regression
Quantitative 3.11.j explain limitations of regression analysis 3.11.j analysis
formulate a multiple regression
formulate a multiple regression equation equation to describe the relation
to describe the relation between a between a dependent variable and
dependent variable and several several independent variables,
independent variables, determine the determine the statistical significance of
statistical significance of each each independent variable, and
independent variable, and interpret the interpret the estimated coefficients and
Quantitative 3.12.a estimated coefficients and their p-values 3.12.a their p-values
formulate a null and an alternative formulate a null and an alternative
hypothesis about the population value of hypothesis about the population value
a regression coefficient, calculate the of a regression coefficient, calculate the
value of the test statistic, determine value of the test statistic, determine
whether to reject the null hypothesis at whether to reject the null hypothesis at
a given level of significance by using a a given level of significance by using a
one-tailed or two-tailed test, and one-tailed or two-tailed test, and
Quantitative 3.12.b interpret the results of the test 3.12.b interpret the results of the test

calculate and interpret 1) a confidence calculate and interpret 1) a confidence
interval for the population value of a interval for the population value of a
regression coefficient and 2) a predicted regression coefficient and 2) a
value for the dependent variable, given predicted value for the dependent
an estimated regression model and variable, given an estimated regression
assumed values for the independent model and assumed values for the
Quantitative 3.12.c variables 3.12.c independent variables
explain the assumptions of a multiple explain the assumptions of a multiple
Quantitative 3.12.d regression model 3.12.d regression model
calculate and interpret the F-statistic, calculate and interpret the F-statistic,
and discuss how it is used in regression and describe how it is used in Wording
Quantitative 3.12.e analysis 3.12.e regression analysis Change
distinguish between and interpret the
distinguish between and interpret the R2 R2 and adjusted R2 in multiple
Quantitative 3.12.f and adjusted R2 in multiple regression 3.12.f regression
evaluate how well a regression model evaluate how well a regression model
explains the dependent variable by explains the dependent variable by
analyzing the output of the regression analyzing the output of the regression
Quantitative 3.12.g equation and an ANOVA table 3.12.g equation and an ANOVA table
formulate a multiple regression
formulate a multiple regression equation equation by using dummy variables to
by using dummy variables to represent represent qualitative factors, and
qualitative factors, and interpret the interpret the coefficients and regression
Quantitative 3.12.h coefficients and regression results 3.12.h results
explain the types of heteroskedasticity
explain the types of heteroskedasticity and the effects of heteroskedasticity
and the effects of heteroskedasticity and and serial correlation on statistical
Quantitative 3.12.i serial correlation on statistical inference 3.12.i inference
describe multicollinearity, and explain describe multicollinearity, and explain
its causes and effects in regression its causes and effects in regression
Quantitative 3.12.j analysis 3.12.j analysis
describe the effects of model describe the effects of model
misspecification on the results of a misspecification on the results of a
regression analysis, and explain how to regression analysis, and explain how to
avoid the common forms of avoid the common forms of
Quantitative 3.12.k misspecification 3.12.k misspecification
describe models with qualitative describe models with qualitative
Quantitative 3.12.l dependent variables 3.12.l dependent variables

interpret the economic meaning of the interpret the economic meaning of the
results of multiple regression analysis, results of multiple regression analysis,
and evaluate a regression model and its and evaluate a regression model and its
Quantitative 3.12.m results 3.12.m results
calculate and evaluate the predicted calculate and evaluate the predicted
trend value for a time series, modeled trend value for a time series, modeled
as either a linear trend or a log-linear as either a linear trend or a log-linear
trend, given the estimated trend trend, given the estimated trend
Quantitative 3.13.a coefficients 3.13.a coefficients
describe factors that determine
describe factors that determine whether whether a linear or a log-linear trend
a linear or a log-linear trend should be should be used with a particular time
used with a particular time series, and series, and evaluate the limitations of
Quantitative 3.13.b evaluate the limitations of trend models 3.13.b trend models
explain the requirement for a time explain the requirement for a time
series to be covariance stationary, and series to be covariance stationary, and
describe the significance of a series that describe the significance of a series
Quantitative 3.13.c is not stationary 3.13.c that is not stationary
describe the structure of an describe the structure of an
autoregressive (AR) model of order p, autoregressive (AR) model of order p,
and calculate one- and two-period- and calculate one-and two-period-
ahead forecasts given the estimated ahead forecasts given the estimated
Quantitative 3.13.d coefficients 3.13.d coefficients
explain how autocorrelations of the explain how autocorrelations of the
residuals can be used to test whether residuals can be used to test whether
the autoregressive model fits the time the autoregressive model fits the time
Quantitative 3.13.e series 3.13.e series
explain mean reversion, and calculate a explain mean reversion, and calculate a
Quantitative 3.13.f mean-reverting level 3.13.f mean-reverting level
contrast in-sample and out-of-sample contrast in-sample and out-of-sample
forecasts, and compare the forecasting forecasts, and compare the forecasting
accuracy of different time-series models accuracy of different time-series
based on the root mean squared error models based on the root mean
Quantitative 3.13.g criterion 3.13.g squared error criterion
explain instability of coefficients of time- explain the instability of coefficients of
Quantitative 3.13.h series models 3.13.h time-series models
describe characteristics of random walk describe characteristics of random walk
processes, and contrast them to processes, and contrast them to
Quantitative 3.13.i covariance stationary processes 3.13.i covariance stationary processes

describe implications of unit roots for describe implications of unit roots for
time-series analysis, explain when unit time-series analysis, explain when unit
roots are likely to occur and how to test roots are likely to occur and how to test
for them, and demonstrate how a time for them, and demonstrate how a time
series with a unit root can be series with a unit root can be
transformed so it can be analyzed with transformed so it can be analyzed with
Quantitative 3.13.j an AR model 3.13.j an AR model
describe the steps of the unit root test describe the steps of the unit root test
for nonstationarity, and explain the for nonstationarity, and explain the
relation of the test to autoregressive relation of the test to autoregressive
Quantitative 3.13.k time-series models 3.13.k time-series models
explain how to test and correct for explain how to test and correct for
seasonality in a time-series model, and seasonality in a time-series model, and
calculate and interpret a forecasted calculate and interpret a forecasted
value using an AR model with a seasonal value using an AR model with a
Quantitative 3.13.l lag 3.13.l seasonal lag
explain autoregressive conditional
explain autoregressive conditional heteroskedasticity (ARCH), and
heteroskedasticity (ARCH), and discuss describe how ARCH models can be
how ARCH models can be applied to applied to predict the variance of a time
Quantitative 3.13.m predict the variance of a time series 3.13.m series
explain how time-series variables should explain how time-series variables
be analyzed for nonstationarity and/or should be analyzed for nonstationarity
cointegration before use in a linear and/or cointegration before use in a
Quantitative 3.13.n regression 3.13.n linear regression
determine the appropriate time-series determine the appropriate time-series
model to analyze a given investment model to analyze a given investment
Quantitative 3.13.o problem, and justify that choice. 3.13.o problem, and justify that choice
describe sources of and preconditions
Economics 4.14.a for economic growth REMOVED
discuss how the one-third rule can be
used to explain the contributions of
labor and technological change to
Economics 4.14.b growth in labor productivity REMOVED
explain potential benefits and possible
Economics 4.15.b negative side effects of social regulation REMOVED

distinguish between the capture
hypothesis and the share-the-gains,
share-the-pains theory of regulator
Economics 4.15.c behavior REMOVED
explain comparative advantage and how
countries can gain from international
Economics 4.16.a trade REMOVED
compare tariffs, nontariff barriers,
Economics 4.16.b quotas, and voluntary export restraints REMOVED
evaluate arguments for trade
Economics 4.16.c restrictions. REMOVED
define direct and indirect methods of
foreign exchange quotations, and
convert direct (indirect) foreign
exchange quotations into indirect
Economics 4.17.a (direct) foreign exchange quotations REMOVED
calculate and interpret the spread on a
foreign currency quotation, and explain
how spreads on foreign currency calculate and interpret the bidask
quotations can differ as a result of spread on a spot or forward foreign
market conditions, bank/dealer currency quotation and describe the Wording
Economics 4.17.b positions, and trading volume 4.14.a factors that affect the bidoffer spread Change
calculate and interpret currency cross
rates, given two spot exchange
Economics 4.17.c quotations involving three currencies REMOVED
calculate the profit on a triangular identify a triangular arbitrage
arbitrage opportunity, given the bidask opportunity, and calculate its profit,
quotations for the currencies of three given the bidoffer quotations for three Wording
Economics 4.17.d countries involved in the arbitrage 4.14.b currencies Change
distinguish between the spot and
Economics 4.17.e forward markets for foreign exchange REMOVED
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
Economics 4.17.f maturity/length of contract REMOVED

calculate and interpret a forward
discount or premium and express it as
Economics 4.17.g an annualized rate REMOVED
explain interest rate parity and covered
Economics 4.17.h interest arbitrage REMOVED
distinguish between spot and forward
transactions, calculate the annualized
forward premium/discount for a given distinguish between spot and forward
currency, and determine whether the rates and calculate the forward Wording
Economics 4.17.i currency is strong or weak. 4.14.c premium/ discount for a given currency Change
calculate the mark-to-market value of a
Economics 4.14.d forward contract NEW
explain international parity relations
covered and uncovered interest rate
parity, purchasing power parity, and
Economics 4.14.e the international Fisher effect NEW
describe relations among the
Economics 4.14.f international parity conditions NEW
evaluate the use of the current spot
rate, the forward rate, purchasing
power parity, and uncovered interest
parity to forecast future spot exchange
Economics 4.14.g rates NEW
explain approaches to assessing the
Economics 4.14.h long-run fair value of an exchange rate NEW
describe the carry trade and its relation
to uncovered interest rate parity and
calculate the profit from such a
Economics 4.14.i strategy NEW
explain how flows in the balance of
payment accounts affect currency
Economics 4.14.j exchange rates NEW
describe the MundellFleming model,
the monetary approach, and the asset
market (portfolio balance) approach to
Economics 4.14.k exchange rate determination NEW

forecast the direction of the expected
change in an exchange rate based on
balance of payment, MundellFleming,
monetary, and asset market
approaches to exchange rate
Economics 4.14.l determination NEW
explain how monetary and fiscal policies explain the potential impacts of
affect the exchange rate and balance of monetary and fiscal policies on Wording
Economics 4.18.e payments components 4.14.m exchange rates Change
describe the objectives and
effectiveness of central bank
Economics 4.14.n intervention and capital controls NEW
describe warning signs of a currency
Economics 4.14.o crisis NEW
describe the use of technical analysis in
Economics 4.14.p forecasting exchange rates NEW
describe and compare factors favoring
and limiting economic growth in
Economics 4.15.a developed and developing economies NEW
describe the relation between the long-
run rate of stock market appreciation
and the sustainable growth rate of the
Economics 4.15.b economy NEW
explain the importance of potential GDP
and its growth rate in the investment
decisions of equity and fixed income
Economics 4.15.c investors NEW
distinguish between capital deepening
investment and technological process
and explain the impact of each on
Economics 4.15.d economic growth and labor productivity NEW
forecast potential GDP based on growth
Economics 4.15.e accounting relations NEW
explain the impact of natural resources
on economic growth and evaluate the
argument that limited availability of
natural resources constrains economic
Economics 4.15.f growth NEW

explain the effects of demographics,
immigration, and labor force
participation on the rate and
Economics 4.15.g sustainability of economic growth NEW
explain how faster economic growth can explain how investment in physical
be achieved by increasing the growth of capital, human capital, and
physical capital, technological advances, technological development affects Wording
Economics 4.14.c and investment in human capital 4.15.h economic growth Change
compare classical growth theory, compare classical growth theory,
neoclassical growth theory, and new neoclassical growth theory, and Wording
Economics 4.14.d growth theory 4.15.i endogenous growth theory Change
explain and evaluate convergence
Economics 4.15.j hypotheses NEW
explain the economic rationale for
governments to provide incentives to
private investment in technology and
Economics 4.15.k knowledge NEW
describe the expected impact of
removing trade barriers on capital
investment and profits, employment
and wages, and growth in the
Economics 4.15.l economies involved NEW
describe classifications of regulations
Economics 4.16.a and regulators NEW
describe uses of self-regulation in
Economics 4.16.b financial markets NEW
explain the rationale for government
regulation in the form of 1) economic
regulation of natural monopolies and 2)
social regulation of nonmonopolistic describe the economic rationale for Wording
Economics 4.15.a industries 4.16.c regulatory intervention Change
describe regulatory interdependencies
Economics 4.16.d and their effects NEW
describe tools of regulatory intervention
Economics 4.16.e in markets NEW
explain purposes in regulating
Economics 4.16.f commerce and financial markets NEW

describe anticompetitive behaviors
targeted by antitrust laws globally and
evaluate the antitrust risk associated
Economics 4.16.g with a given business strategy NEW
describe benefits and costs of
Economics 4.16.h regulation NEW
evaluate effects on an industry,
company, or security of a specific
Economics 4.16.i regulation NEW
explain how exchange rates are
determined in a flexible (or floating)
Economics 4.18.a exchange rate system REMOVED
explain the role of each component of
Economics 4.18.b the balance of payments accounts REMOVED
explain how current account deficits or
surpluses and financial account deficits
Economics 4.18.c or surpluses affect an economy REMOVED
describe factors that cause a nations
Economics 4.18.d currency to appreciate or depreciate REMOVED
describe a fixed exchange rate and a
Economics 4.18.f pegged exchange rate system REMOVED
explain absolute purchasing power
parity and relative purchasing power
Economics 4.18.g parity REMOVED
calculate the end-of-period exchange
rate implied by purchasing power parity,
given the beginning-of-period exchange
Economics 4.18.h rate and the inflation rates REMOVED
Economics 4.18.i explain the international Fisher relation REMOVED
calculate the real interest rate, given
nominal interest rates and expected
inflation rates, using the international
Fisher relation and its linear
Economics 4.18.j approximation REMOVED
explain the theory of uncovered interest
rate parity and the theorys relation to
Economics 4.18.k other exchange rate parity theories REMOVED

calculate the expected change in the
exchange rate, given interest rates and
the assumption that uncovered interest
Economics 4.18.l rate parity holds REMOVED
explain the foreign exchange
expectation relation between the
forward exchange
Economics 4.18.m rate and the expected exchange rate REMOVED
distinguish between the measures of
economic activity (i.e., gross domestic
product (GDP), gross national income,
and net national income), including their
Economics 4.19.a components REMOVED
distinguish between GDP at market
Economics 4.19.b prices and GDP at factor cost REMOVED
distinguish between current and
constant prices, and describe the GDP
Economics 4.19.c deflator REMOVED
calculate and explain the effect of calculate and explain the effect of
inflation and deflation of inventory costs inflation and deflation of inventory
on the financial statements and ratios of costs on the financial statements and
companies that use different inventory ratios of companies that use different
Financial valuation methods (cost formulas or inventory valuation methods (cost
Reporting 5.20.a cost flow assumptions) 5.17.a formulas or cost flow assumptions)
explain LIFO reserve and LIFO explain LIFO reserve and LIFO
Financial liquidation and their effects on financial liquidation and their effects on financial
Reporting 5.20.b statements and ratios 5.17.b statements and ratios
convert a companys reported financial convert a companys reported financial
Financial statements from LIFO to FIFO for statements from LIFO to FIFO for
Reporting 5.20.c purposes of comparison 5.17.c purposes of comparison
describe implications of valuing describe the implications of valuing
Financial inventory at net realisable value for inventory at net realisable value for
Reporting 5.20.d financial statements and ratios 5.17.d financial statements and ratios
analyze and compare financial analyze and compare the financial
statements and ratios of companies, statements and ratios of companies,
Financial including those that use different including those that use different
Reporting 5.20.e inventory valuation methods 5.17.e inventory valuation methods

explain issues that analysts should explain issues that analysts should
consider when examining a companys consider when examining a companys
Financial inventory disclosures and other sources inventory disclosures and other sources
Reporting 5.20.f of information 5.17.f of information
explain and evaluate the effects on explain and evaluate the effects on
financial statements and ratios of financial statements and ratios of
Financial capitalising versus expensing costs in capitalising versus expensing costs in
Reporting 5.21.a the period in which they are incurred 5.18.a the period in which they are incurred
financial statements and ratios of the financial statements and ratios of the
Financial different depreciation methods for different depreciation methods for
Reporting 5.21.b property, plant, and equipment 5.18.b property, plant, and equipment
impairment and revaluation of property, impairment and revaluation of
Financial plant, and equipment, and intangible property, plant, and equipment, and
Reporting 5.21.c assets 5.18.c intangible assets
analyze and interpret the financial analyze and interpret financial
Financial statement disclosures regarding long- statement disclosures regarding long-
Reporting 5.21.d lived assets 5.18.d lived assets
Financial leasing assets instead of purchasing leasing assets instead of purchasing
Reporting 5.21.e assets 5.18.e them
finance leases and operating leases from finance leases and operating leases
Financial the perspective of both the lessor and from the perspective of both the lessor
Reporting 5.21.f the lessee. 5.18.f and the lessee
describe the classification, describe the classification,
measurement, and disclosure under measurement, and disclosure under
International Financial Reporting International Financial Reporting
Standards (IFRS) for 1) investments in Standards (IFRS) for 1) investments in
financial assets, 2) investments in financial assets, 2) investments in
associates, 3) joint ventures, 4) associates, 3) joint ventures, 4)
Financial business combinations, and 5) special business combinations, and 5) special
Reporting 6.22.a purpose and variable interest entities 6.19.a purpose and variable interest entities

distinguish between IFRS and U.S. GAAP distinguish between IFRS and US GAAP
in the classification, measurement, and in the classification, measurement, and
disclosure of investments in financial disclosure of investments in financial
assets, investments in associates, joint assets, investments in associates, joint
ventures, business combinations, and ventures, business combinations, and
Financial special purpose and variable interest special purpose and variable interest
Reporting 6.22.b entities 6.19.b entities
analyze effects on financial statements analyze effects on financial statements
Financial and ratios of different methods used to and ratios of different methods used to
Reporting 6.22.c account for intercorporate investments. 6.19.c account for intercorporate investments
describe the types of post-employment describe the types of post-employment
Financial benefit plans and the implications for benefit plans and the implications for
Reporting 6.23.a financial reports 6.20.a financial reports
explain and calculate measures of a explain and calculate measures of a
defined benefit pension obligation (i.e., defined benefit pension obligation (ie,
present value of the defined benefit present value of the defined benefit
obligation and projected benefit obligation and projected benefit
Financial obligation) and net pension liability (or obligation) and net pension liability (or
Reporting 6.23.b asset) 6.20.b asset)
describe the components of a
Financial describe the components of a companys companys defined benefit pension Wording
Reporting 6.23.c defined benefit pension expense 6.20.c costs Change
explain and calculate the impact of a explain and calculate the impact of a
defined benefit plans assumptions on defined benefit plans assumptions on
Financial the defined benefit obligation and the defined benefit obligation and Wording
Reporting 6.23.d periodic expense 6.20.d periodic pension cost Change
explain the impact on financial
statements of adjustments for items of explain and calculate the effects on
pension and other post-employment financial statements of adjusting for
benefits that are reported in the notes items of pension and other post-
Financial to the financial statements rather than employment benefits that are reported Wording
Reporting 6.23.e in the financial statements 6.20.e in the notes to the financial statements Change
Financial interpret pension plan note disclosures interpret pension plan note disclosures
Reporting 6.23.f including cash flow related information 6.20.f including cash flow related information
evaluate the underlying economic
liability (or asset) of a companys
Financial pension and other post-employment
Reporting 6.23.g benefits REMOVED

calculate the underlying economic
pension expense (income) and other
Financial post-employment
Reporting 6.23.h expense (income) based on disclosures REMOVED
Financial explain issues involved in accounting for explain issues involved in accounting
Reporting 6.23.i share-based compensation 6.20.g for share-based compensation
explain the impact on financial explain the impact on financial
statements of accounting for stock statements of accounting for stock
grants and stock options, and the grants and stock options, and the
Financial importance of companies assumptions importance of companies assumptions
Reporting 6.23.j in valuing these grants and options. 6.20.h in valuing these grants and options
distinguish among presentation distinguish among presentation
Financial currency, functional currency, and local currency, functional currency, and local
Reporting 6.24.a currency 6.21.a currency
analyze the impact of changes in analyze the impact of changes in
Financial exchange rates on the translated sales exchange rates on the translated sales
Reporting 6.24.b of the subsidiary and parent company 6.21.b of a subsidiary and the parent company
compare and contrast the current rate compare the current rate method and
method and the temporal method, the temporal method, evaluate the
evaluate the effects of each on the effects of each on the parent
parent companys balance sheet and companys balance sheet and income
income statement, and determine which statement, and determine which
Financial method is appropriate in various method is appropriate in various Wording
Reporting 6.24.c scenarios 6.21.c scenarios Change
calculate the translation effects, calculate the translation effects,
evaluate the translation of a subsidiarys evaluate the translation of a
balance sheet and income statement subsidiarys balance sheet and income
into the parent companys currency, and statement into the parent companys
analyze the different effects of the currency, and analyze the effects of the
current rate method and the temporal current rate method and the temporal
Financial method on the subsidiarys financial method on the subsidiarys financial Wording
Reporting 6.24.d ratios 6.21.d ratios Change
analyze the effect on a parent analyze the effect on a parent
Financial companys financial ratios of the companys financial ratios of the
Reporting 6.24.e currency translation method used 6.21.e currency translation method used
analyze the effect of alternative analyze the effect of alternative
translation methods for subsidiaries translation methods for subsidiaries
Financial operating in hyperinflationary operating in hyperinflationary
Reporting 6.24.f economies. 6.21.f economies

distinguish among the various distinguish among the various
Financial definitions of earnings (e.g., EBITDA, definitions of earnings (eg, EBITDA,
Reporting 7.25.a operating earnings, net income, etc.) 7.22.a operating earnings, net income, etc)
explain how trends in cash flow from explain how trends in cash flow from
Financial operations can be more reliable than operations can be more reliable than
Reporting 7.25.b trends in earnings 7.22.b trends in earnings
describe the accounting treatment for describe the accounting treatment for
derivatives being used to hedge derivatives being used to hedge
exposure to changes in the value of exposure to changes in the value of
assets and liabilities, exposure to assets and liabilities, exposure to
variable cash flows, and foreign variable cash flows, and foreign
Financial currency exposure of investments in currency exposure of investments in
Reporting 7.25.c foreign corporations 7.22.c foreign corporations
contrast cash-basis and accrual-basis contrast cash-basis and accrual-basis
accounting, and explain why accounting accounting, and explain why accounting
Financial discretion exists in an accrual discretion exists in an accrual
Reporting 7.26.a accounting system 7.23.a accounting system
describe the relation between the level describe the relation between the level
of accruals and the persistence of of accruals and the persistence of
earnings and the relative multiples that earnings and the relative multiples that
the cash and accrual components of the cash and accrual components of
Financial earnings should rationally receive in earnings should rationally receive in
Reporting 7.26.b valuation 7.23.b valuation
explain opportunities and motivations explain opportunities and motivations
for management to intervene in the for management to intervene in the
external financial reporting process and external financial reporting process and
Financial mechanisms that discipline such mechanisms that discipline such
Reporting 7.26.c intervention 7.23.c intervention
describe earnings quality and measures describe earnings quality and measures
Financial of earnings quality, and compare the of earnings quality, and compare the
Reporting 7.26.d earnings quality of peer companies 7.23.d earnings quality of peer companies
explain mean reversion in earnings and explain mean reversion in earnings and
Financial how the accruals component of earnings how the accrual component of earnings
Reporting 7.26.e affects the speed of mean reversion 7.23.e affects the speed of mean reversion

explain potential problems that affect explain potential problems that affect
the quality of financial reporting, the quality of financial reporting,
including revenue recognition, expense including revenue recognition, expense
recognition, balance sheet issues, and recognition, balance sheet issues, and
cash flow statement issues, and cash flow statement issues, and
Financial interpret warning signs of these interpret warning signs of these
Reporting 7.26.f potential problems. 7.23.f potential problems
demonstrate the use of a framework for demonstrate the use of a framework for
the analysis of financial statements, the analysis of financial statements,
given a particular problem, question, or given a particular problem, question, or
purpose (e.g., valuing equity based on purpose (eg, valuing equity based on
comparables, critiquing a credit rating, comparables, critiquing a credit rating,
obtaining a comprehensive picture of obtaining a comprehensive picture of
financial leverage, evaluating the financial leverage, evaluating the
Financial perspectives given in managements perspectives given in managements
Reporting 7.27.a discussion of financial results) 7.24.a discussion of financial results)
identify financial reporting choices and identify financial reporting choices and
biases that affect the quality and biases that affect the quality and
comparability of companies financial comparability of companies financial
Financial statements and explain how such biases statements and explain how such
Reporting 7.27.b affect financial decisions 7.24.b biases affect financial decisions
evaluate the quality of a companys evaluate the quality of a companys
financial data and recommend financial data and recommend
appropriate adjustments to improve appropriate adjustments to improve
quality and comparability with similar quality and comparability with similar
companies, including adjustments for companies, including adjustments for
Financial differences in accounting rules, differences in accounting rules,
Reporting 7.27.c methods, and assumptions 7.24.c methods, and assumptions
evaluate the effect on financial evaluate the effect on financial
statements and ratios of a given change statements and ratios of a given
Corporate in accounting rules, methods, or change in accounting rules, methods,
Finance 7.27.d assumptions 7.24.d or assumptions
analyze and interpret the effects of
analyze and interpret the effects of balance sheet modifications, earnings
balance sheet modifications, earnings normalization, and cash-flow-
normalization, and cash-flow-statement- statement-related modifications on a
related modifications on a companys companys financial statements,
Corporate financial statements, financial ratios, financial ratios, and overall financial
Finance 7.27.e and overall financial condition. 7.24.e condition

calculate the yearly cash flows of an determine the yearly cash flows of
expansion capital project and a expansion and replacement capital
replacement capital project, and projects, and evaluate how the choice
Corporate evaluate how the choice of depreciation of depreciation method affects those Wording
Finance 8.28.a method affects those cash flows 8.25.a cash flows Change
Corporate explain the effects of inflation on capital explain the effects of inflation on capital
Finance 8.28.b budgeting analysis 8.25.b budgeting analysis
evaluate and select the optimal capital evaluate capital projects and determine
project in situations of 1) mutually the optimal capital project in situations
exclusive projects with unequal lives, of 1) mutually exclusive projects with
using either the least common multiple unequal lives, using either the least
of lives approach or the equivalent common multiple of lives approach or
Corporate annual annuity approach, and 2) capital the equivalent annual annuity Wording
Finance 8.28.c rationing 8.25.c approach, and 2) capital rationing Change
explain how sensitivity analysis, explain how sensitivity analysis,
scenario analysis, and Monte Carlo scenario analysis, and Monte Carlo
Corporate simulation can be used to assess the simulation can be used to assess the
Finance 8.28.d stand-alone risk of a capital project 8.25.d stand-alone risk of a capital project
explain the procedure for determining
the discount rate to be used in valuing a
capital project, and calculate a projects explain and calculate the discount rate,
Corporate required rate of return using the capital based on market risk methods, to use Wording
Finance 8.28.e asset pricing model (CAPM) 8.25.e in valuing a capital project Change
describe the types of real options and describe types of real options and
Corporate evaluate a capital project using real evaluate a capital project using real
Finance 8.28.f options 8.25.f options
Corporate explain common capital budgeting describe common capital budgeting Wording
Finance 8.28.g pitfalls 8.25.g pitfalls Change
calculate and interpret accounting calculate and interpret accounting
Corporate income and economic income in the income and economic income in the
Finance 8.28.h context of capital budgeting 8.25.h context of capital budgeting
distinguish among, and evaluate a distinguish among, and evaluate a
capital project using, the economic capital project using, the economic
Corporate profit, residual income, and claims profit, residual income, and claims
Finance 8.28.i valuation models. 8.25.i valuation models

explain the ModiglianiMiller explain the ModiglianiMiller
propositions concerning capital propositions concerning capital
structure, including the impact of structure, including the impact of
leverage, taxes, financial distress, leverage, taxes, financial distress,
agency costs, and asymmetric agency costs, and asymmetric
information on a companys cost of information on a companys cost of
Corporate equity, cost of capital, and optimal equity, cost of capital, and optimal
Finance 8.29.a capital structure 8.26.a capital structure
explain the target capital structure and explain the target capital structure and
Corporate why actual capital structure may why actual capital structure may
Finance 8.29.b fluctuate around the target 8.26.b fluctuate around the target
Corporate describe the role of debt ratings in describe the role of debt ratings in
Finance 8.29.c capital structure policy 8.26.c capital structure policy
explain factors an analyst should explain factors an analyst should
Corporate consider in evaluating the impact of consider in evaluating the impact of
Finance 8.29.d capital structure policy on valuation 8.26.d capital structure policy on valuation
describe international differences in
financial leverage, factors that explain
describe international differences in these differences, and implications of
Corporate financial leverage and their implications these differences for investment Wording
Finance 8.29.e for investment analysis. 8.26.e analysis Change
compare theories of dividend policy, and compare theories of dividend policy,
explain implications of each for share and explain implications of each for
Corporate value given a description of a corporate share value given a description of a
Finance 8.30.a dividend action 8.27.a corporate dividend action
describe types of information (signals) describe types of information (signals)
Corporate that dividend initiations, increases, that dividend initiations, increases,
Finance 8.30.b decreases, and omissions may convey 8.27.b decreases, and omissions may convey
explain how clientele effects and agency explain how clientele effects and
Corporate issues may affect a companys payout agency issues may affect a companys
Finance 8.30.c policy 8.27.c payout policy
Corporate explain factors that affect dividend explain factors that affect dividend
Finance 8.30.d policy 8.27.d policy
calculate and interpret the effective tax calculate and interpret the effective tax
rate on a given currency unit of rate on a given currency unit of
corporate earnings under double- corporate earnings under double
Corporate taxation, split rate, and tax imputation taxation, dividend imputation, and Wording
Finance 8.30.e dividend tax regimes 8.27.e split-rate tax systems Change

compare stable dividend, target payout, compare stable dividend, constant
and residual dividend payout policies, dividend payout ratio, and residual
Corporate and calculate the dividend under each dividend payout policies, and calculate Wording
Finance 8.30.f policy 8.27.f the dividend under each policy Change
Corporate explain the choice between paying cash explain the choice between paying cash
Finance 8.30.g dividends and repurchasing shares 8.27.g dividends and repurchasing shares
Corporate describe global trends in corporate describe broad trends in corporate Wording
Finance 8.30.h dividend policies 8.27.h dividend policies Change
calculate and interpret dividend calculate and interpret dividend
Corporate coverage ratios based on 1) net income coverage ratios based on 1) net income
Finance 8.30.i and 2) free cash flow 8.27.i and 2) free cash flow
identify characteristics of companies identify characteristics of companies
Corporate that may not be able to sustain their that may not be able to sustain their
Finance 8.30.j cash dividend. 8.27.j cash dividend
explain corporate governance, describe define corporate governance, describe
the objectives and core attributes of an the objectives and core attributes of an
effective corporate governance system, effective corporate governance system,
and evaluate whether a companys and evaluate whether a companys
Corporate corporate governance has those corporate governance has those Wording
Finance 9.31.a attributes 9.28.a attributes Change
compare major business forms, and compare major business forms, and
Corporate describe the conflicts of interest describe the conflicts of interest
Finance 9.31.b associated with each 9.28.b associated with each
explain conflicts that arise in agency explain conflicts that arise in agency
relationships, including manager relationships, including manager
Corporate shareholder conflicts and director shareholder conflicts and director
Finance 9.31.c shareholder conflicts 9.28.c shareholder conflicts
describe responsibilities of the board of describe responsibilities of the board of
directors, and explain qualifications and directors, and explain qualifications and
core competencies that an investment core competencies that an investment
Corporate analyst should look for in the board of analyst should look for in the board of
Finance 9.31.d directors 9.28.d directors
explain effective corporate governance explain effective corporate governance
practice as it relates to the board of practice as it relates to the board of
directors, and evaluate strengths and directors, and evaluate strengths and
Corporate weaknesses of a companys corporate weaknesses of a companys corporate
Finance 9.31.e governance practice 9.28.e governance practice

describe elements of a companys describe elements of a companys
statement of corporate governance statement of corporate governance
Corporate policies that investment analysts should policies that investment analysts should
Finance 9.31.f assess 9.28.f assess
describe environmental, social, and
9.28.g governance risk exposures NEW
Corporate explain the valuation implications of explain the valuation implications of
Finance 9.31.g corporate governance. 9.28.h corporate governance
classify merger and acquisition (M&A) classify merger and acquisition (M&A)
Corporate activities based on forms of integration activities based on forms of integration Wording
Finance 9.32.a and types of mergers 9.29.a and relatedness of business activities Change
Corporate explain common motivations behind explain common motivations behind
Finance 9.32.b M&A activity 9.29.b M&A activity
explain how earnings per share (EPS) explain how earnings per share (EPS)
Corporate bootstrapping works, and calculate a bootstrapping works, and calculate a
Finance 9.32.c companys postmerger EPS 9.29.c companys postmerger EPS
explain the relation between merger explain, based on industry life cycles,
Corporate motivations and types of mergers based the relation between merger Wording
Finance 9.32.d on industry life cycles 9.29.d motivations and types of mergers Change
contrast merger transaction contrast merger transaction
characteristics by form of acquisition, characteristics by form of acquisition,
Corporate method of payment, and attitude of method of payment, and attitude of
Finance 9.32.e target management 9.29.e target management
Corporate distinguish among pre-offer and post- distinguish among pre-offer and post-
Finance 9.32.f offer takeover defense mechanisms 9.29.f offer takeover defense mechanisms
calculate the HerfindahlHirschman calculate and interpret the Herfindahl

Index, and evaluate the likelihood of an Hirschman Index, and evaluate the
Corporate antitrust challenge for a given business likelihood of an antitrust challenge for a Wording
Finance 9.32.g combination 9.29.g given business combination Change
compare the discounted cash flow, compare the discounted cash flow,
comparable company, and comparable comparable company, and comparable
transaction analyses for valuing a target transaction analyses for valuing a
Corporate company, including the advantages and target company, including the
Finance 9.32.h disadvantages of each 9.29.h advantages and disadvantages of each
calculate free cash flows for a target calculate free cash flows for a target
company, and estimate the companys company, and estimate the companys
Corporate intrinsic value based on discounted cash intrinsic value based on discounted
Finance 9.32.i flow analysis 9.29.i cash flow analysis

estimate the value of a target company estimate the value of a target company
Corporate using comparable company and using comparable company and
Finance 9.32.j comparable transaction analyses 9.29.j comparable transaction analyses
evaluate a merger bid, calculate the evaluate a merger bid, and calculate
estimated post-merger value of an the estimated post-merger value of an
acquirer, and calculate the gains acquirer and the gains accrued to the
Corporate accrued to the target shareholders target shareholders versus the acquirer Wording
Finance 9.32.k versus the acquirer shareholders 9.29.k shareholders Change
explain the effects of price and
explain the effects of price and payment payment method on the distribution of
Corporate method on the distribution of risks and risks and benefits in a merger
Finance 9.32.l benefits in a merger transaction 9.29.l transaction
describe the characteristics of merger
Corporate describe empirical evidence related to and acquisition transactions that create Wording
Finance 9.32.m the distribution of benefits in a merger 9.29.m value Change
distinguish among divestitures, equity
Corporate carve-outs, spin-offs, split-offs, and distinguish among equity carve-outs, Wording
Finance 9.32.n liquidation 9.29.n spin-offs, split-offs, and liquidation Change
explain common reasons for Wording
Equity 9.32.o explain major reasons for divestitures. 9.29.o restructuring Change
The candidate should be able to explain
how the classic works on asset valuation
by Graham and Dodd and John Burr
Williams are reflected in modern
Equity 10.33 techniques of equity valuation. REMOVED
define valuation and intrinsic value, and
explain possible sources of perceived define valuation and intrinsic value, and Wording
Equity 10.34.a mispricing 10.30.a explain sources of perceived mispricing Change
explain the going concern assumption,
contrast a going concern value to a
liquidation value, and identify the explain the going concern assumption
definition of value most relevant to and contrast a going concern value to a
Equity 10.34.b public company valuation 10.30.b liquidation value Separation
describe definitions of value, and justify
which definition of value is most
Equity 10.30.c relevant to public company valuation Separation
describe applications of equity
Equity 10.34.c describe applications of equity valuation 10.30.d valuation

explain the elements of industry and
competitive analysis and the importance describe questions that should be
of evaluating the quality of financial addressed in conducting an industry Wording
Equity 10.34.d statement information 10.30.e and competitive analysis Change
contrast absolute and relative valuation contrast absolute and relative valuation
models, and describe examples of each models, and describe examples of each
Equity 10.34.e type of model 10.30.f type of model
describe sum-of-the-parts valuation,
Equity 10.30.g and explain a conglomerate discount NEW
explain broad criteria for choosing an explain broad criteria for choosing an
appropriate approach for valuing a given appropriate approach for valuing a
Equity 10.34.f company. 10.30.h given company
distinguish among realized holding
distinguish among expected holding period return, expected holding period
period return, realized holding period return, required return, return from
return, required return, return from convergence of price to intrinsic value,
convergence of price to intrinsic value, discount rate, and internal rate of
Equity 10.35.a discount rate, and internal rate of return 10.31.a return
calculate and interpret an equity risk calculate and interpret an equity risk
premium using historical and forward- premium using historical and forward-
Equity 10.35.b looking estimation approaches 10.31.b looking estimation approaches
estimate the required return on an
equity investment using the capital estimate the required return on an
asset pricing model (CAPM), the Fama equity investment using the capital
French model (FFM), the Pastor asset pricing model, the FamaFrench
Stambaugh model (PSM), model, the PastorStambaugh model,
macroeconomic multifactor models, and macro-economic multifactor models,
the build-up method (e.g., bond yield and the build-up method (eg, bond Wording
Equity 10.35.c plus risk premium) 10.31.c yield plus risk premium) Change
explain beta estimation for public explain beta estimation for public
companies, thinly traded public companies, thinly traded public
Equity 10.35.d companies, and nonpublic companies 10.31.d companies, and nonpublic companies
describe strengths and weaknesses of describe strengths and weaknesses of
methods used to estimate the required methods used to estimate the required
Equity 10.35.e return on an equity investment 10.31.e return on an equity investment
explain international considerations in explain international considerations in
Equity 10.35.f required return estimation 10.31.f required return estimation
explain and calculate the weighted explain and calculate the weighted
Equity 10.35.g average cost of capital for a company 10.31.g average cost of capital for a company

evaluate the appropriateness of using a evaluate the appropriateness of using a
particular rate of return as a discount particular rate of return as a discount
rate, given a description of the cash flow rate, given a description of the cash
to be discounted and other relevant flow to be discounted and other
Equity 10.35.h facts. 10.31.h relevant facts
distinguish among the five competitive
distinguish among the five competitive forces and explain how they drive
forces that drive industry profitability in industry profitability in the medium and Wording
Equity 11.36.a the medium and long run 11.32.a long run Change
explain how competitive forces drive
Equity 11.36.b industry profitability REMOVED
describe why industry growth rate,
describe why industry growth rate, technology and innovation,
technology and innovation, government, government, and complementary
and complementary products and products and services are fleeting
services are fleeting factors rather than factors rather than forces shaping
Equity 11.36.c forces shaping industry structure 11.32.b industry structure
identify changes in industry structure, identify changes in industry structure,
and forecast their effects on the and forecast their effects on the
Equity 11.36.d industrys profit potential 11.32.c industrys profit potential
explain how positioning a company, explain how positioning a company,
exploiting industry change, and shaping exploiting industry change, and shaping
industry structure may be used to industry structure may be used to
Equity 11.36.e achieve a competitive advantage. 11.32.d achieve a competitive advantage
explain key components that should be
Equity 11.37.a included in an industry analysis model REMOVED
describe the life cycle of a typical
Equity 11.37.b industry REMOVED
analyze the effects of business cycles on
industry classification (i.e., growth,
Equity 11.37.c defensive, cyclical) REMOVED
analyze the impact of external factors
(e.g., technology, government, foreign
influences, demography, and social
Equity 11.37.d changes) on industries REMOVED
describe inputs and methods used in
preparing industry demand and supply
Equity 11.37.e analyses REMOVED

explain factors that affect industry
Equity 11.37.f pricing practices. REMOVED
describe how inflation affects the
estimation of cash flows for a company
Equity 11.38.a domiciled in an emerging market REMOVED
evaluate an emerging market company
using a discounted cash flow model
based on nominal and real financial
Equity 11.38.b projections REMOVED
explain 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
Equity 11.38.c risk) in a scenario analysis REMOVED
estimate the cost of capital for emerging
market companies, and calculate and
Equity 11.38.d interpret a country risk premium. REMOVED
compare dividends, free cash flow, and compare dividends, free cash flow, and
residual income as measures in residual income as inputs to discounted
discounted cash flow models, and cash flow models, and identify
identify investment situations for which investment situations for which each Wording
Equity 11.39.a each measure is suitable 11.33.a measure is suitable Change
calculate and interpret the value of a calculate and interpret the value of a
common stock using the dividend common stock using the dividend
discount model (DDM) for one-, two-, discount model (DDM) for single and Wording
Equity 11.39.b and multiple-period holding periods 11.33.b multiple holding periods Change
calculate the value of a common stock calculate the value of a common stock
using the Gordon growth model, and using the Gordon growth model, and
explain the models underlying explain the models underlying
Equity 11.39.c assumptions 11.33.c assumptions
calculate and interpret the implied
calculate the implied growth rate of growth rate of dividends using the
dividends using the Gordon growth Gordon growth model and current stock Wording
Equity 11.39.d model and current stock price 11.33.d price Change
calculate and interpret the present value calculate and interpret the present
of growth opportunities (PVGO) and the value of growth opportunities (PVGO)
component of the leading price-to- and the component of the leading
Equity 11.39.e earnings ratio (P/E) related to PVGO 11.33.e price-to-earnings ratio (P/E) related to

PVGO
calculate the justified leading and calculate and interpret the justified
trailing P/Es using the Gordon growth leading and trailing P/Es using the Wording
Equity 11.39.f model 11.33.f Gordon growth model Change
calculate the value of noncallable fixed- calculate the value of noncallable fixed-
Equity 11.39.g rate perpetual preferred stock 11.33.g rate perpetual preferred stock
describe strengths and limitations of the describe strengths and limitations of
Gordon growth model, and justify its the Gordon growth model, and justify
selection to value a companys common its selection to value a companys
Equity 11.39.h shares 11.33.h common shares
explain the assumptions and justify the explain the assumptions and justify the
selection of the two-stage DDM, the H- selection of the two-stage DDM, the H-
model, the three-stage DDM, or model, the three-stage DDM, or
spreadsheet modeling to value a spreadsheet modeling to value a
Equity 11.39.i companys common shares 11.33.i companys common shares
explain the growth phase, transitional
explain the growth phase, transitional phase, and maturity phase of a
Equity 11.39.j phase, and maturity phase of a business 11.33.j business
describe terminal value, and explain describe terminal value, and explain
alternative approaches to determining alternative approaches to determining
Equity 11.39.k the terminal value in a DDM 11.33.k the terminal value in a DDM
calculate and interpret the value of calculate and interpret the value of
common shares using the two-stage common shares using the two-stage
DDM, the H-model, and the three-stage DDM, the H-model, and the three-stage
Equity 11.39.l DDM 11.33.l DDM
estimate a required return based on any estimate a required return based on
DDM, including the Gordon growth any DDM, including the Gordon growth
Equity 11.39.m model and the H-model 11.33.m model and the H-model
demonstrate the use of spreadsheet explain the use of spreadsheet
modeling to forecast dividends and modeling to forecast dividends and to Wording
Equity 11.39.o value common shares 11.33.n value common shares Change
calculate and interpret the sustainable calculate and interpret the sustainable
growth rate of a company, and growth rate of a company, and
demonstrate the use of DuPont analysis demonstrate the use of DuPont analysis
to estimate a companys sustainable to estimate a companys sustainable
Equity 11.39.n growth rate 11.33.o growth rate

evaluate whether a stock is overvalued, evaluate whether a stock is overvalued,
fairly valued, or undervalued by the fairly valued, or undervalued by the
market based on a DDM estimate of market based on a DDM estimate of
Equity 11.39.p value. 11.33.p value
compare the free cash flow to the firm compare the free cash flow to the firm
(FCFF) and free cash flow to equity (FCFF) and free cash flow to equity
Equity 12.40.a (FCFE) approaches to valuation 12.34.a (FCFE) approaches to valuation
contrast the ownership perspective
implicit in the FCFE approach to the
ownership perspective implicit in the explain the ownership perspective Wording
Equity 12.40.b dividend discount approach 12.34.b implicit in the FCFE approach Change
explain the appropriate adjustments to explain the appropriate adjustments to
net income, earnings before interest and net income, earnings before interest
taxes (EBIT), earnings before interest, and taxes (EBIT), earnings before
taxes, depreciation, and amortization interest, taxes, depreciation, and
(EBITDA), and cash flow from amortization (EBITDA), and cash flow
operations (CFO) to calculate FCFF and from operations (CFO) to calculate FCFF
Equity 12.40.c FCFE 12.34.c and FCFE
Equity 12.40.d calculate FCFF and FCFE 12.34.d calculate FCFF and FCFE
describe approaches for forecasting describe approaches for forecasting
Equity 12.40.e FCFF and FCFE 12.34.e FCFF and FCFE
contrast the recognition of value in the
FCFE model with recognition of value in compare the FCFE model and dividend Wording
Equity 12.40.f dividend discount models 12.34.f discount models Change
explain how dividends, share explain how dividends, share
repurchases, share issues, and changes repurchases, share issues, and changes
in leverage may affect future FCFF and in leverage may affect future FCFF and
Equity 12.40.g FCFE 12.34.g FCFE
evaluate the use of net income and evaluate the use of net income and
EBITDA as proxies for cash flow in EBITDA as proxies for cash flow in
Equity 12.40.h valuation 12.34.h valuation
explain the single-stage (stable- explain the single-stage (stable-
growth), two-stage, and three-stage growth), two-stage, and three-stage
FCFF and FCFE models, and select and FCFF and FCFE models, and select and
justify the appropriate model given a justify the appropriate model given a
Equity 12.40.i companys characteristics 12.34.i companys characteristics
estimate a companys value using the estimate a companys value using the
Equity 12.40.j appropriate free cash flow model(s) 12.34.j appropriate free cash flow model(s)

explain the use of sensitivity analysis in explain the use of sensitivity analysis in
Equity 12.40.k FCFF and FCFE valuations 12.34.k FCFF and FCFE valuations
describe approaches for calculating the describe approaches for calculating the
terminal value in a multistage valuation terminal value in a multistage valuation
Equity 12.40.l model. 12.34.l model
evaluate whether a stock is overvalued,
fairly valued, or undervalued based on
12.34.m a free cash flow valuation model NEW
distinguish between the method of distinguish between the method of
comparables and the method based on comparables and the method based on
forecasted fundamentals as approaches forecasted fundamentals as approaches
to using price multiples in valuation, and to using price multiples in valuation,
explain economic rationales for each and explain economic rationales for
Equity 12.41.a approach 12.35.a each approach
calculate and interpret a justified price Wording
Equity 12.41.b interpret a justified price multiple 12.35.b multiple Change
describe rationales for and possible describe rationales for and possible
drawbacks to using price multiples drawbacks to using alternative price
(including P/E, P/B, P/S, P/CF) and multiples and dividend yield in Wording
Equity 12.41.c dividend yield in valuation 12.35.c valuation Change
calculate and interpret alternative price calculate and interpret alternative price
Equity 12.41.d multiples and dividend yield 12.35.d multiples and dividend yield
calculate and interpret underlying calculate and interpret underlying
earnings, explain methods of earnings, explain methods of
normalizing EPS, and calculate normalizing earnings per share (EPS),
Equity 12.41.e normalized EPS 12.35.e and calculate normalized EPS
explain and justify the use of earnings explain and justify the use of earnings
Equity 12.41.f yield (E/P) 12.35.f yield (E/P)
describe fundamental factors that describe fundamental factors that
influence alternative price multiples and influence alternative price multiples and
Equity 12.41.g dividend yield 12.35.g dividend yield
calculate and interpret the justified calculate and interpret the justified
price-to-earnings ratio (P/E), price-to- price-to-earnings ratio (P/E), price-to-
book ratio (P/B), and price-to-sales ratio book ratio (P/B), and price-to-sales
(P/S) for a stock, based on forecasted ratio (P/S) for a stock, based on
Equity 12.41.h fundamentals 12.35.h forecasted fundamentals

calculate and interpret a predicted P/E, calculate and interpret a predicted P/E,
given a cross-sectional regression on given a cross-sectional regression on
fundamentals, and explain limitations to fundamentals, and explain limitations
the cross-sectional regression to the cross-sectional regression
Equity 12.41.i methodology 12.35.i methodology
evaluate a stock by the method of evaluate a stock by the method of
comparables, and explain the comparables, and explain the
importance of fundamentals in using the importance of fundamentals in using
Equity 12.41.j method of comparables 12.35.j the method of comparables
calculate and interpret the P/E-to- calculate and interpret the P/E-to-
growth ratio (PEG), and explain its use growth ratio (PEG), and explain its use
Equity 12.41.k in relative valuation 12.35.k in relative valuation
calculate and explain the use of price calculate and explain the use of price
multiples in determining terminal value multiples in determining terminal value
in a multistage discounted cash flow in a multistage discounted cash flow
Equity 12.41.l (DCF) model 12.35.l (DCF) model
explain alternative definitions of cash explain alternative definitions of cash
flow used in price and enterprise value flow used in price and enterprise value
multiples, and describe limitations of (EV) multiples, and describe limitations
Equity 12.41.m each definition 12.35.m of each definition
calculate and interpret enterprise value
multiples, and evaluate the use of calculate and interpret EV multiples,
Equity 12.41.n EV/EBITDA 12.35.n and evaluate the use of EV/EBITDA
explain sources of differences in cross- explain sources of differences in cross-
Equity 12.41.o border valuation comparisons 12.35.o border valuation comparisons
describe momentum indicators and their describe momentum indicators and
Equity 12.41.p use in valuation 12.35.p their use in valuation
explain the use of the arithmetic mean, explain the use of the arithmetic mean,
the harmonic mean, the weighted the harmonic mean, the weighted
harmonic mean, and the median to harmonic mean, and the median to
describe the central tendency of a group describe the central tendency of a
Equity 12.41.r of multiples. 12.35.q group of multiples
fairly valued, or undervalued based on fairly valued, or undervalued based on
Equity 12.41.q comparisons of multiples 12.35.r comparisons of multiples
calculate and interpret residual income, calculate and interpret residual income,
economic value added, and market economic value added, and market
Equity 12.42.a value added 12.36.a value added

describe the uses of residual income describe the uses of residual income
Equity 12.42.b models 12.36.b models
calculate the intrinsic value of a
common stock using the residual income calculate the intrinsic value of a
model, and contrast the recognition of common stock using the residual
value in the residual income model to income model, and compare value
value recognition in other present value recognition in residual income and Wording
Equity 12.42.c models 12.36.c other present value models Change
explain fundamental determinants of explain fundamental determinants of
Equity 12.42.d residual income 12.36.d residual income
explain the relation between residual explain the relation between residual
income valuation and the justified price- income valuation and the justified
to-book ratio based on forecasted price-to-book ratio based on forecasted
Equity 12.42.e fundamentals 12.36.e fundamentals
calculate and interpret the intrinsic calculate and interpret the intrinsic
value of a common stock using single- value of a common stock using single-
stage (constant-growth) and multistage stage (constant-growth) and multistage
Equity 12.42.f residual income models 12.36.f residual income models
calculate the implied growth rate in calculate the implied growth rate in
residual income, given the market price- residual income, given the market
to-book ratio and an estimate of the price-to-book ratio and an estimate of
Equity 12.42.g required rate of return on equity 12.36.g the required rate of return on equity
explain continuing residual income, and explain continuing residual income, and
justify an estimate of continuing residual justify an estimate of continuing
income at the forecast horizon, given residual income at the forecast horizon,
Equity 12.42.h company and industry prospects 12.36.h given company and industry prospects
compare residual income models to compare residual income models to
dividend discount and free cash flow dividend discount and free cash flow
Equity 12.42.i models 12.36.i models
explain strengths and weaknesses of
residual income models, and justify the
explain strengths and weaknesses of selection of a residual income model to
Equity 12.42.j residual income models 12.36.j value a companys common stock Separation
justify the selection of a residual income
model to value a companys common
Equity 12.42.k stock Separation
describe accounting issues in applying describe accounting issues in applying
Equity 12.42.l residual income models 12.36.k residual income models

Alternative fairly valued, or undervalued based on a fairly valued, or undervalued based on
Investments 12.42.m residual income model. 12.36.l a residual income model
Alternative compare public and private company compare public and private company
Investments 12.43.a valuation 12.37.a valuation
describe uses of private business describe uses of private business
Alternative valuation, and explain applications of valuation, and explain applications of
Investments 12.43.b greatest concern to financial analysts 12.37.b greatest concern to financial analysts
explain alternative definitions of value,
and demonstrate how different explain various definitions of value, and
Alternative definitions can lead to different demonstrate how different definitions Wording
Investments 12.43.c estimates of value 12.37.c can lead to different estimates of value Change
explain the income, market, and asset- explain the income, market, and asset-
based approaches to private company based approaches to private company
Alternative valuation and factors relevant to the valuation and factors relevant to the
Investments 12.43.d selection of each approach 12.37.d selection of each approach
explain cash flow estimation issues explain cash flow estimation issues
related to private companies and related to private companies and
Alternative adjustments required to estimate adjustments required to estimate
Investments 12.43.e normalized earnings 12.37.e normalized earnings
demonstrate the free cash flow,
capitalized cash flow, and excess calculate the value of private company
Alternative earnings methods of private company using free cash flow, capitalized cash Wording
Investments 12.43.f valuation 12.37.f flow, and/or excess earnings methods Change
explain factors that require adjustment explain factors that require adjustment
Alternative when estimating the discount rate for when estimating the discount rate for
Investments 12.43.g private companies 12.37.g private companies
compare models used to estimate the compare models used to estimate the
required rate of return to private required rate of return to private
company equity (for example, the company equity (for example, the
Alternative CAPM, the expanded CAPM, and the CAPM, the expanded CAPM, and the
Investments 12.43.h build-up approach) 12.37.h build-up approach)
demonstrate the market approaches to
private company valuation (for example,
guideline public company method, determine the value of a private
guideline transaction method, and prior company based on market approach
Alternative transaction method), and describe methods, and describe advantages and Wording
Investments 12.43.i advantages and disadvantages of each 12.37.i disadvantages of each method Change

Alternative demonstrate the asset-based approach describe the asset-based approach to Wording
Investments 12.43.j to private company valuation 12.37.j private company valuation Change
private company valuations of discounts private company valuations of
Alternative and premiums based on control and discounts and premiums based on
Investments 12.43.k marketability 12.37.k control and marketability
Alternative describe the role of valuation standards describe the role of valuation standards
Investments 12.43.l in valuing private companies. 12.37.l in valuing private companies
explain, for each type of real property
investment, the main value
determinants, investment
Alternative characteristics, principal risks, and most classify and describe basic forms of real Wording
Investments 13.44.a likely investors 13.38.a estate investments Change
evaluate a real estate investment using
net present value (NPV) and internal
Alternative rate of return (IRR) from the
Investments 13.44.b perspective of an equity investor REMOVED
calculate the after-tax cash flow and the
Alternative after-tax equity reversion from real
Investments 13.44.c estate properties REMOVED
explain potential problems associated
Alternative with using IRR as a measurement tool in
Investments 13.44.d real estate investments. REMOVED
describe the characteristics, the
Alternative classification, and basic segments of
Investments 13.38.b real estate NEW
explain the role in a portfolio, the major
economic value determinants,
Alternative investment characteristics, and
Investments 13.38.c principal risks of private real estate NEW
describe commercial property types,
Alternative including their distinctive investment
Investments 13.38.d characteristics NEW
compare the income, cost, and sales
Alternative comparison approaches to valuing real
Investments 13.38.e estate properties NEW

estimate and interpret the inputs (for
example, net operating income,
capitalization rate, and discount rate)
Alternative to the direct capitalization and
Investments 13.38.f discounted cash flow valuation methods NEW
calculate the value of a property using
Alternative the direct capitalization and discounted
Investments 13.38.g cash flow methods NEW
explain the relation between a real
Alternative estate capitalization rate and a discount compare the direct capitalization and Wording
Investments 13.45.a rate 13.38.h discounted cash flow methods Change
estimate the capitalization rate by the
market-extraction method, band-of-
investment
method, and built-up method, and
Alternative justify each methods use in
Investments 13.45.b capitalization rate determination REMOVED
estimate the market value of a real
estate investment using the direct
Alternative income capitalization approach and the
Investments 13.45.c gross income multiplier technique REMOVED
contrast limitations of the direct
Alternative capitalization approach to those of the
Investments 13.45.d gross income multiplier technique. REMOVED
calculate the value of a property using
Alternative the cost and sales comparison
Investments 13.38.i approaches NEW
Alternative describe due diligence in private equity
Investments 13.38.j real estate investment NEW
discuss private equity real estate
Alternative investment indices, including their
Investments 13.38.k construction and potential biases NEW
explain the role in a portfolio, the major
economic value determinants,
investment characteristics, principal
Alternative risks, and due diligence of private real
Investments 13.38.l estate debt investment and NEW

calculate and interpret financial ratios
Alternative used to analyze and evaluate private
Investments 13.38.m real estate investments NEW
Alternative describe types of publicly traded real
Investments 13.39.a estate securities NEW
explain advantages and disadvantages
Alternative of investing in real estate through
Investments 13.39.b publicly traded securities NEW
explain economic value determinants,
investment characteristics, principal
risks, and due diligence considerations
Alternative for real estate investment trust (REIT)
Investments 13.39.c shares NEW
Alternative
Investments 13.39.d describe types of REITs NEW
justify the use of net asset value per
share (NAVPS) in REIT valuation and
Alternative estimate NAVPS based on forecasted
Investments 13.39.e cash net operating income NEW
describe the use of funds from
operations (FFO) and adjusted funds
Alternative from operations (AFFO) in REIT
Investments 13.39.f valuation NEW
compare the net asset value, relative
value (price-to-FFO and price-to-AFFO),
Alternative and discounted cash flow approaches to
Investments 13.39.g REIT valuation NEW
calculate the value of a REIT share
using net asset value, price-to-FFO and
Alternative price-to-AFFO, and discounted cash
Investments 13.39.h flow approaches NEW
Alternative explain sources of value creation in explain sources of value creation in
Investments 13.46.a private equity 13.40.a private equity
explain how private equity firms align explain how private equity firms align
Alternative their interests with those of the their interests with those of the
Investments 13.46.b managers of portfolio companies 13.40.b managers of portfolio companies
distinguish between the characteristics distinguish between the characteristics
Alternative of buyout and venture capital of buyout and venture capital
Investments 13.46.c investments 13.40.c investments

Alternative describe valuation issues in buyout and describe valuation issues in buyout and
Investments 13.46.d venture capital transactions 13.40.d venture capital transactions
Alternative explain alternative exit routes in private explain alternative exit routes in private
Investments 13.46.e equity and their impact on value 13.40.e equity and their impact on value
explain private equity fund structures, explain private equity fund structures,
terms, valuation, and due diligence in terms, valuation, and due diligence in
Alternative the context of an analysis of private the context of an analysis of private
Investments 13.46.f equity fund returns 13.40.f equity fund returns
Alternative explain risks and costs of investing in explain risks and costs of investing in
Investments 13.46.g private equity 13.40.g private equity
interpret and compare financial interpret and compare financial
Alternative performance of private equity funds performance of private equity funds
Investments 13.46.h from the perspective of an investor 13.40.h from the perspective of an investor
calculate management fees, carried calculate management fees, carried
interest, net asset value, distributed to interest, net asset value, distributed to
paid in (DPI), residual value to paid in paid in (DPI), residual value to paid in
Alternative (RVPI), and total value to paid in (TVPI) (RVPI), and total value to paid in
Investments 13.46.i of a private equity fund 13.40.i (TVPI) of a private equity fund
calculate pre-money valuation, post- calculate pre-money valuation, post-
money valuation, ownership fraction, money valuation, ownership fraction,
and price per share applying the venture and price per share applying the
capital method 1) with single and venture capital method 1) with single
Alternative multiple financing rounds and 2) in and multiple financing rounds and 2) in
Investments 13.46.j terms of IRR 13.40.j terms of IRR
Alternative demonstrate alternative methods to demonstrate alternative methods to
Investments 13.46.k account for risk in venture capital. 13.40.k account for risk in venture capital
distinguish between hedge funds and distinguish between hedge funds and
mutual funds in terms of leverage, use mutual funds in terms of leverage, use
of derivatives, disclosure requirements of derivatives, disclosure requirements
Alternative and practices, lockup periods, and fee and practices, lockup periods, and fee
Investments 13.47.a structures 13.41.a structures
Alternative
Investments 13.47.b describe hedge fund strategies 13.41.b describe hedge fund strategies
Alternative explain possible biases in reported explain possible biases in reported
Investments 13.47.c hedge fund performance 13.41.c hedge fund performance
Alternative describe factor models for hedge fund describe factor models for hedge fund
Investments 13.47.d returns 13.41.d returns

describe sources of non-normality in describe sources of non-normality in
Alternative hedge fund returns and implications for hedge fund returns and implications for
Investments 13.47.e performance appraisal 13.41.e performance appraisal
Alternative describe motivations for hedge fund describe motivations for hedge fund
Investments 13.47.f replication strategies 13.41.f replication strategies
explain difficulties in applying
Alternative explain difficulties in applying traditional traditional portfolio analysis to hedge
Investments 13.47.g portfolio analysis to hedge funds 13.41.g funds
Alternative compare funds of funds to single compare funds of funds to single
Investments 13.47.h manager hedge funds. 13.41.h manager hedge funds
Fixed distinguish among default risk, credit
Income 14.48.a spread risk, and downgrade risk REMOVED
explain and analyze capacity, collateral,
Fixed covenants, and character as
Income 14.48.b components of credit analysis REMOVED
Fixed describe credit risk and credit-related
Income 14.42.a risks affecting corporate bonds NEW
describe seniority rankings of corporate
debt and explain the potential violation
Fixed of the priority of claims in a bankruptcy
Income 14.42.b proceeding NEW
distinguish between corporate issuer
credit ratings and issue credit ratings
Fixed and describe the rating agency practice
Income 14.42.c of notching NEW
Fixed explain risks in relying on ratings from
Income 14.42.d credit rating agencies NEW
Fixed explain the components of traditional
Income 14.42.e credit analysis NEW
Fixed calculate and interpret key financial calculate and interpret financial ratios Wording
Income 14.48.c ratios used by credit analysts 14.42.f used in credit analysis Change
evaluate the credit quality of an issuer evaluate the credit quality of a
of a corporate bond, given such data as corporate bond issuer and a bond of
Fixed key financial ratios for the issuer and that issuer, given key financial ratios Wording
Income 14.48.d the industry 14.42.g for the issuer and the industry Change
Fixed describe factors that influence the level
Income 14.42.h and volatility of yield spreads NEW
Fixed calculate the return impact of spread
Income 14.42.i changes NEW

analyze why and how cash flow from
operations is used to assess the ability
of an issuer to service its debt
Fixed obligations and to assess the financial
Income 14.48.e flexibility of a company REMOVED
explain and interpret typical elements of
the corporate structure and debt
structure of a high-yield issuer and the
Fixed effect of these elements on the risk
Income 14.48.f position of the lender REMOVED
describe factors considered by rating
Fixed agencies in rating asset-backed
Income 14.48.g securities REMOVED
explain how the credit worthiness of
municipal bonds is assessed, and
Fixed contrast the analysis of tax-backed debt
Income 14.48.h with the analysis of revenue obligations REMOVED
describe considerations used by
Standard & Poors in assigning sovereign
Fixed ratings, and explain why two ratings are
Income 14.48.i assigned to each national government REMOVED
contrast the credit analysis required for explain special considerations when
corporate bonds to that required for 1) evaluating the credit of high yield,
Fixed asset-backed securities, 2) municipal sovereign, and municipal debt issuers Wording
Income 14.48.j securities, and 3) sovereign debt. 14.42.j and issues Change
explain parallel and nonparallel shifts in
the yield curve, a yield curve twist, and
Fixed a change in the curvature of the yield explain parallel and nonparallel shifts in Wording
Income 14.49.a curve (i.e., a butterfly shift) 14.43.a the yield curve Change
describe factors that drive U.S. Treasury describe factors that drive US Treasury
Fixed security returns, and evaluate the security returns, and evaluate the
Income 14.49.b importance of each factor 14.43.b importance of each factor
explain various universes of Treasury
explain various universes of Treasury securities that are used to construct the
securities that are used to construct the theoretical spot rate curve, and
Fixed theoretical spot rate curve, and evaluate evaluate their advantages and
Income 14.49.c their advantages and disadvantages 14.43.c disadvantages

explain the swap rate curve (LIBOR explain the swap rate curve (LIBOR
curve) and why market participants curve) and why market participants
have used the swap rate curve rather have used the swap rate curve rather
Fixed than a government bond yield curve as than a government bond yield curve as
Income 14.49.d a benchmark 14.43.d a benchmark
explain the pure expectations, liquidity, explain the pure expectations, liquidity,
and preferred habitat theories of the and preferred habitat theories of the
term structure of interest rates and the term structure of interest rates and the
Fixed implications of each for the shape of the implications of each for the shape of
Income 14.49.e yield curve 14.43.e the yield curve
calculate and interpret the yield curve calculate and interpret the yield curve
Fixed risk of a security or a portfolio by using risk of a security or a portfolio by using
Income 14.49.f key rate duration 14.43.f key rate duration
calculate and interpret yield volatility,
calculate and interpret yield volatility, distinguish between historical yield
distinguish between historical yield volatility and implied yield volatility,
Fixed volatility and implied yield volatility, and and explain how to forecast yield Wording
Income 14.49.g explain how yield volatility is forecasted. 14.43.g volatility Change
evaluate, using relative value analysis, evaluate, using relative value analysis,
Fixed whether a security is undervalued or whether a security is undervalued, Wording
Income 14.50.a overvalued 14.44.a fairly valued, or overvalued Change
evaluate the importance of benchmark evaluate the importance of benchmark
Fixed interest rates in interpreting spread interest rates in interpreting spread
Income 14.50.b measures 14.44.b measures
describe the backward induction describe the backward induction
Fixed valuation methodology within the valuation methodology within the
Income 14.50.c binomial interest rate tree framework 14.44.c binomial interest rate tree framework
Fixed calculate the value of a callable bond calculate the value of a callable bond
Income 14.50.d from an interest rate tree 14.44.d from an interest rate tree
explain the relations among the values explain the relations among the values
of a callable (putable) bond, the of a callable (putable) bond, the
Fixed corresponding option-free bond, and the corresponding option-free bond, and
Income 14.50.e embedded option 14.44.e the embedded option
Fixed explain the effect of volatility on the explain the effect of volatility on the
Income 14.50.f arbitrage-free value of an option 14.44.f arbitrage-free value of an option
interpret an option-adjusted spread with interpret an option-adjusted spread
Fixed respect to a nominal spread and to with respect to a nominal spread and to
Income 14.50.g benchmark interest rates 14.44.g benchmark interest rates

explain how effective duration and explain how effective duration and
Fixed effective convexity are calculated using effective convexity are calculated using
Income 14.50.h the binomial model 14.44.h the binomial model
Fixed calculate the value of a putable bond, calculate the value of a putable bond,
Income 14.50.i using an interest rate tree 14.44.i using an interest rate tree
Fixed describe and evaluate a convertible describe and evaluate a convertible
Income 14.50.j bond and its various component values 14.44.j bond and its various component values
compare the risk-return characteristics compare the risk-return characteristics
of a convertible bond with the risk- of a convertible bond with the risk-
Fixed return characteristics of ownership of return characteristics of ownership of
Income 14.50.k the underlying common stock. 14.44.k the underlying common stock
describe a mortgage loan, and explain describe a mortgage loan, and explain
the cash flow characteristics of a fixed- the cash flow characteristics of a fixed-
Fixed rate, level payment, and fully amortized rate, level payment, and fully
Income 15.51.a mortgage loan 15.45.a amortized mortgage loan
explain investment characteristics, explain investment characteristics,
Fixed payment characteristics, and risks of payment characteristics, and risks of
Income 15.51.b mortgage passthrough securities 15.45.b mortgage passthrough securities
calculate the prepayment amount on a
calculate the prepayment amount for a mortgage passthrough security for a
Fixed month, given the single monthly month, given the single monthly Wording
Income 15.51.c mortality rate 15.45.c mortality rate Change
compare the conditional prepayment compare the conditional prepayment
rate (CPR) with the Public Securities rate (CPR) with the Public Securities
Fixed Association (PSA) prepayment Association (PSA) prepayment
Income 15.51.d benchmark 15.45.d benchmark
explain why the average life of a explain why the average life of a
Fixed mortgage-backed security is more mortgage-backed security is more
Income 15.51.e relevant than the securitys maturity 15.45.e relevant than the securitys maturity
Fixed explain factors that affect prepayments explain factors that affect prepayments
Income 15.51.f and the types of prepayment risks 15.45.f and the types of prepayment risks
explain how a collateralized mortgage explain how a collateralized mortgage
obligation (CMO) is created and how it obligation (CMO) is created and how it
Fixed provides a better matching of assets provides a better matching of assets
Income 15.51.g and liabilities for institutional investors 15.45.g and liabilities for institutional investors
distinguish among the sequential pay distinguish among the sequential pay
tranche, the accrual tranche, the tranche, the accrual tranche, the
Fixed planned amortization class tranche, and planned amortization class tranche, and
Income 15.51.h the support tranche in a CMO 15.45.h the support tranche in a CMO

evaluate the risk characteristics and evaluate the risk characteristics and
relative performance of each type of relative performance of each type of
Fixed CMO tranche, given changes in the CMO tranche, given changes in the
Income 15.51.i interest rate environment 15.45.i interest rate environment
Fixed explain investment characteristics of explain investment characteristics of
Income 15.51.j stripped mortgage-backed securities 15.45.j stripped mortgage-backed securities
Fixed compare agency and nonagency compare agency and nonagency
Income 15.51.k mortgage-backed securities 15.45.k mortgage-backed securities
compare credit risk analysis of
commercial and residential nonagency compare credit risk analysis of
Fixed mortgage-backed commercial and residential nonagency
Income 15.51.l securities 15.45.l mortgage-backed securities
describe the basic structure of a describe the basic structure of a
commercial mortgage-backed security commercial mortgage-backed security
(CMBS), and explain the ways in which (CMBS), and explain the ways in which
a CMBS investor may realize call a CMBS investor may realize call
Fixed protection at the loan level and by protection at the loan level and by
Income 15.51.m means of the CMBS structure. 15.45.m means of the CMBS structure
describe the basic structural features of describe the basic structural features of
Derivative and parties to a securitization and parties to a securitization
Investments 15.52.a transaction 15.46.a transaction
Derivative explain and contrast prepayment explain and contrast prepayment
Investments 15.52.b tranching and credit tranching 15.46.b tranching and credit tranching
distinguish between the payment distinguish between the payment
structure and collateral structure of a structure and collateral structure of a
Derivative securitization backed by amortizing securitization backed by amortizing
Investments 15.52.c assets and non-amortizing assets 15.46.c assets and non-amortizing assets
distinguish among various types of distinguish among various types of
Derivative external and internal credit external and internal credit
Investments 15.52.d enhancements 15.46.d enhancements
describe cash flow and prepayment describe cash flow and prepayment
characteristics for securities backed by characteristics for securities backed by
home equity loans, manufactured home equity loans, manufactured
housing loans, automobile loans, housing loans, automobile loans,
Derivative student loans, SBA loans, and credit student loans, SBA loans, and credit
Investments 15.52.e card receivables 15.46.e card receivables
describe collateralized debt obligations describe collateralized debt obligations
Derivative (CDOs), including cash and synthetic (CDOs), including cash and synthetic
Investments 15.52.f CDOs 15.46.f CDOs

distinguish among the primary distinguish among the primary
motivations for creating a collateralized motivations for creating a collateralized
Derivative debt obligation (arbitrage and balance debt obligation (arbitrage and balance
Investments 15.52.g sheet transactions). 15.46.g sheet transactions)
explain the calculation, use, and explain the calculation, use, and
limitations of the cash flow yield, limitations of the cash flow yield,
nominal spread, and zero-volatility nominal spread, and zero-volatility
Derivative spread for a mortgage-backed security spread for a mortgage-backed security
Investments 15.53.a and an asset-backed security 15.47.a and an asset-backed security
describe the Monte Carlo simulation describe the Monte Carlo simulation
Derivative model for valuing a mortgage-backed model for valuing a mortgage-backed
Investments 15.53.b security 15.47.b security
describe path dependency in describe path dependency in
Derivative passthrough securities and the passthrough securities and the
Investments 15.53.c implications for valuation models 15.47.c implications for valuation models
explain how the option-adjusted spread explain how the option-adjusted spread
is calculated using the Monte Carlo is calculated using the Monte Carlo
Derivative simulation model and how this spread simulation model and how this spread
Investments 15.53.d measure is interpreted 15.47.d measure is interpreted
Derivative evaluate a mortgage-backed security evaluate a mortgage-backed security
Investments 15.53.e using option-adjusted spread analysis 15.47.e using option-adjusted spread analysis
explain why effective durations reported explain why effective durations
Derivative by various dealers and vendors may reported by various dealers and
Investments 15.53.f differ 15.47.f vendors may differ
analyze the interest rate risk of a analyze the interest rate risk of a
Derivative security, given the securitys effective security, given the securitys effective
Investments 15.53.g duration 15.47.g duration
explain cash flow, coupon curve, and explain cash flow, coupon curve, and
empirical measures of duration, and empirical measures of duration, and
Derivative describe limitations of each in relation to describe limitations of each in relation
Investments 15.53.h mortgage-backed securities 15.47.h to mortgage-backed securities
determine whether the nominal spread, determine whether the nominal spread,
zero-volatility spread, or option- zero-volatility spread, or option-
adjusted spread should be used to adjusted spread should be used to
Derivative evaluate a specific fixed income evaluate a specific fixed income
Investments 15.53.i security. 15.47.i security

explain how the value of a forward explain how the value of a forward
contract is determined at initiation, contract is determined at initiation,
Derivative during the life of the contract, and at during the life of the contract, and at
Investments 16.54.a expiration 16.48.a expiration
calculate and interpret the price and calculate and interpret the price and
value of an equity forward contract, value of an equity forward contract,
Derivative assuming dividends are paid either assuming dividends are paid either
Investments 16.54.b discretely or continuously 16.48.b discretely or continuously
calculate and interpret the price and calculate and interpret the price and
value of 1) a forward contract on a value of 1) a forward contract on a
fixed-income security, 2) a forward rate fixed-income security, 2) a forward rate
Derivative agreement (FRA), and 3) a forward agreement (FRA), and 3) a forward
Investments 16.54.c contract on a currency 16.48.c contract on a currency
evaluate credit risk in a forward evaluate credit risk in a forward
contract, and explain how market value contract, and explain how market value
Derivative is a measure of exposure to a party in a is a measure of exposure to a party in a
Investments 16.54.d forward contract. 16.48.d forward contract
Derivative explain why the futures price must explain why the futures price must
Investments 16.55.a converge to the spot price at expiration 16.49.a converge to the spot price at expiration
Derivative determine the value of a futures determine the value of a futures
Investments 16.55.b contract 16.49.b contract
Derivative explain why forward and futures prices explain why forward and futures prices
Investments 16.55.c differ 16.49.c differ
describe monetary and nonmonetary
describe monetary and nonmonetary benefits and costs associated with
benefits and costs associated with holding the underlying asset, and
Derivative holding the underlying asset, and explain how they affect the futures
Investments 16.55.d explain how they affect the futures price 16.49.d price
Derivative
Investments 16.55.e describe backwardation and contango 16.49.e describe backwardation and contango
Derivative explain the relation between futures explain the relation between futures
Investments 16.55.f prices and expected spot prices 16.49.f prices and expected spot prices
describe the difficulties in pricing
Derivative describe the difficulties in pricing Eurodollar futures and creating a pure Wording
Investments 16.55.g Eurodollar futures 16.49.g arbitrage opportunity Change
calculate and interpret the prices of calculate and interpret the prices of
Derivative Treasury bond futures, stock index Treasury bond futures, stock index
Investments 16.55.h futures, and currency futures. 16.49.h futures, and currency futures

calculate and interpret the prices of a calculate and interpret the prices of a
synthetic call option, synthetic put synthetic call option, synthetic put
option, synthetic bond, and synthetic option, synthetic bond, and synthetic
underlying stock, and explain why an underlying stock, and explain why an
Derivative investor would want to create such investor would want to create such
Investments 17.56.a instruments 17.50.a instruments
calculate and interpret prices of interest
calculate and interpret prices of interest rate options and options on assets
Derivative rate options and options on assets using using one- and two-period binomial
Investments 17.56.b one- and two-period binomial models 17.50.b models
explain and evaluate the assumptions explain and evaluate the assumptions
Derivative underlying the BlackScholesMerton underlying the BlackScholesMerton
Investments 17.56.c model 17.50.c model
explain how an option price, as explain how an option price, as

represented by the BlackScholes represented by the BlackScholes
Derivative Merton model, is affected by a change in Merton model, is affected by a change
Investments 17.56.d the value of each of the inputs 17.50.d in the value of each of the inputs
explain the delta of an option, and explain the delta of an option, and
Derivative demonstrate how it is used in dynamic demonstrate how it is used in dynamic
Investments 17.56.e hedging 17.50.e hedging
explain the gamma effect on an options explain the gamma effect on an
Derivative delta and how gamma can affect a delta options delta and how gamma can
Investments 17.56.f hedge 17.50.f affect a delta hedge
explain the effect of the underlying explain the effect of the underlying
Derivative assets cash flows on the price of an assets cash flows on the price of an
Investments 17.56.g option 17.50.g option
demonstrate the historical volatility and
implied volatility methods for estimating
Derivative the future volatility of the underlying determine the historical and implied Wording
Investments 17.56.h asset 17.50.h volatilities of an underlying asset Change
demonstrate how put-call parity for demonstrate how put-call parity for
Derivative options on forwards (or futures) is options on forwards (or futures) is
Investments 17.56.i established 17.50.i established
compare American and European compare American and European
options on forwards and futures and options on forwards and futures and
Derivative identify the appropriate pricing model identify the appropriate pricing model
Investments 17.56.j for European options. 17.50.j for European options

Derivative distinguish between the pricing and distinguish between the pricing and
Investments 17.57.a valuation of swaps 17.51.a valuation of swaps
explain the equivalence of 1) interest explain the equivalence of 1) interest
rate swaps to a series of off-market rate swaps to a series of off-market
forward rate agreements (FRAs) and 2) forward rate agreements (FRAs) and 2)
a plain vanilla swap to a combination of a plain vanilla swap to a combination of
Derivative an interest rate call and an interest rate an interest rate call and an interest rate
Investments 17.57.b put 17.51.b put
calculate and interpret the fixed rate on calculate and interpret the fixed rate on
a plain vanilla interest rate swap and a plain vanilla interest rate swap and
Derivative the market value of the swap during its the market value of the swap during its
Investments 17.57.c life 17.51.c life
calculate and interpret the fixed rate, if calculate and interpret the fixed rate, if
applicable, and the foreign notional applicable, and the foreign notional
principal for a given domestic notional principal for a given domestic notional
principal on a currency swap, and principal on a currency swap, and
estimate the market values of each of estimate the market values of each of
Derivative the different types of currency swaps the different types of currency swaps
Investments 17.57.d during their lives 17.51.d during their lives
calculate and interpret the fixed rate, if calculate and interpret the fixed rate, if
applicable, on an equity swap and the applicable, on an equity swap and the
Derivative market values of the different types of market values of the different types of
Investments 17.57.e equity swaps during their lives 17.51.e equity swaps during their lives
explain and interpret the characteristics explain and interpret the characteristics
and uses of swaptions, including the and uses of swaptions, including the
Derivative difference between payer and receiver difference between payer and receiver
Investments 17.57.f swaptions 17.51.f swaptions
Derivative calculate the payoffs and cash flows of calculate the payoffs and cash flows of
Investments 17.57.g an interest rate swaption 17.51.g an interest rate swaption
Derivative calculate and interpret the value of an calculate and interpret the value of an
Investments 17.57.h interest rate swaption at expiration 17.51.h interest rate swaption at expiration
evaluate swap credit risk for each party evaluate swap credit risk for each party
and during the life of the swap, and during the life of the swap,
distinguish between current credit risk distinguish between current credit risk
and potential credit risk, and explain and potential credit risk, and explain
Derivative how swap credit risk is reduced by both how swap credit risk is reduced by both
Investments 17.57.i netting and marking to market 17.51.i netting and marking to market
Derivative define swap spread and explain its define swap spread and explain its
Investments 17.57.j relation to credit risk. 17.51.j relation to credit risk

demonstrate how both a cap and a floor demonstrate how both a cap and a floor
are packages of 1) options on interest are packages of 1) options on interest
Derivative rates and 2) options on fixed-income rates and 2) options on fixed-income
Investments 17.58.a instruments 17.52.a instruments
calculate the payoff for a cap and a calculate the payoff for a cap and a
Derivative floor, and explain how a collar is floor, and explain how a collar is
Investments 17.58.b created. 17.52.b created
describe the structure and features
describe the characteristics of a credit (reference entity, credit events,
Derivative default swap, and compare a credit settlement method, CDS spread) of Wording
Investments 17.59.a default swap with a corporate bond 17.53.a credit default swaps (CDS) Change
explain advantages of using credit
Derivative derivatives over other credit
Investments 17.59.b instruments REMOVED
describe obligations of the protection
Derivative buyer and seller and risks faced by
Investments 17.53.b each NEW
Derivative compare CDS, total return swaps, asset
Investments 17.53.c swaps, and credit spread options NEW
identify uses of CDS (such as, hedging
exposure to credit risk, enabling action
Derivative explain the use of credit derivatives by on a negative credit view, engaging in Wording
Investments 17.59.c the various market participants 17.53.d arbitrage between markets) Change
describe credit derivatives trading
strategies, and explain how they are
Derivative used by hedge funds and other
Investments 17.59.d managers. REMOVED
explain the relation among CDS spread,
Derivative expected spread payments, and
Investments 17.53.e expected default losses NEW
Derivative describe risk management roles and
Investments 17.53.f activities of credit derivative dealers NEW
explain meanvariance analysis and its explain meanvariance analysis and its
assumptions, and calculate the expected assumptions, and calculate the
return and the standard deviation of expected return and the standard
Portfolio return for a portfolio of two or three deviation of return for a portfolio of two
Management 18.60.a assets 18.54.a or three assets

describe the minimum-variance and describe the minimum-variance and
efficient frontiers, and explain the steps efficient frontiers, and explain the steps
Portfolio to solve for the minimum-variance to solve for the minimum-variance
Management 18.60.b frontier 18.54.b frontier
explain the benefits of diversification explain the benefits of diversification
and how the correlation in a two-asset and how the correlation in a two-asset
portfolio and the number of assets in a portfolio and the number of assets in a
Portfolio multi-asset portfolio affect the multi-asset portfolio affect the
Management 18.60.c diversification benefits 18.54.c diversification benefits
calculate the variance of an equally calculate the variance of an equally
weighted portfolio of n stocks, explain weighted portfolio of n stocks, explain
the capital allocation and capital market the capital allocation and capital market
lines (CAL and CML) and the relation lines (CAL and CML) and the relation
between them, and calculate the value between them, and calculate the value
Portfolio of one of the variables given values of of one of the variables given values of
Management 18.60.d the remaining variables 18.54.d the remaining variables
explain the capital asset pricing model explain the capital asset pricing model
(CAPM), including its underlying (CAPM), including its underlying
Portfolio assumptions and the resulting assumptions and the resulting
Management 18.60.e conclusions 18.54.e conclusions
explain the security market line (SML), explain the security market line (SML),
the beta coefficient, the market risk the beta coefficient, the market risk
premium, and the Sharpe ratio, and premium, and the Sharpe ratio, and
calculate the value of one of these calculate the value of one of these
Portfolio variables given the values of the variables given the values of the
Management 18.60.f remaining variables 18.54.f remaining variables
explain the market model, and state and explain the market model, and state
interpret the market models predictions and interpret the market models
Portfolio with respect to asset returns, variances, predictions with respect to asset
Management 18.60.g and covariances 18.54.g returns, variances, and covariances
calculate an adjusted beta, and explain calculate an adjusted beta, and explain
Portfolio the use of adjusted and historical betas the use of adjusted and historical betas
Management 18.60.h as predictors of future betas 18.54.h as predictors of future betas
explain reasons for and problems explain reasons for and problems
Portfolio related to instability in the minimum- related to instability in the minimum-
Management 18.60.i variance frontier 18.54.i variance frontier
describe and compare macroeconomic describe and compare macroeconomic
Portfolio factor models, fundamental factor factor models, fundamental factor
Management 18.60.j models, and statistical factor models 18.54.j models, and statistical factor models

calculate the expected return on a calculate the expected return on a
portfolio of two stocks, given the portfolio of two stocks, given the
Portfolio estimated macroeconomic factor model estimated macroeconomic factor model
Management 18.60.k for each stock 18.54.k for each stock
describe the arbitrage pricing theory
describe the arbitrage pricing theory (APT), including its underlying
(APT), including its underlying assumptions and its relation to the
assumptions and its relation to the multifactor models, calculate the
multifactor models, calculate the expected return on an asset given an
expected return on an asset given an assets factor sensitivities and the
assets factor sensitivities and the factor factor risk premiums, and determine
risk premiums, and determine whether whether an arbitrage opportunity
Portfolio an arbitrage opportunity exists, exists, including how to exploit the
Management 18.60.l including how to exploit the opportunity 18.54.l opportunity
explain sources of active risk, interpret explain sources of active risk, interpret
tracking error, tracking risk, and the tracking error, tracking risk, and the
Portfolio information ratio, and explain factor information ratio, and explain factor
Management 18.60.m portfolio and tracking portfolio 18.54.m portfolio and tracking portfolio
compare underlying assumptions and compare underlying assumptions and
conclusions of the CAPM and APT model, conclusions of the CAPM and APT
and explain why an investor can model, and explain why an investor can
possibly earn a substantial premium for possibly earn a substantial premium for
Portfolio exposure to dimensions of risk unrelated exposure to dimensions of risk
Management 18.60.n to market movements. 18.54.n unrelated to market movements
explain the efficiency of the market
portfolio in the CAPM and the relation
between the expected return and beta
of an asset when restrictions on
Portfolio borrowing at the risk-free rate and on
Management 18.61.a short selling exist REMOVED
describe practical consequences that
follow when restrictions on borrowing at
Portfolio the risk-free rate and on short selling
Management 18.61.b exist. REMOVED
explain international market integration
Portfolio and segmentation and the impediments
Management 18.62.a to international capital mobility REMOVED
Portfolio describe factors that favor international
Management 18.62.b market integration REMOVED

Portfolio explain the assumptions of the domestic
Management 18.62.c capital asset pricing model (CAPM) REMOVED
justify extension of the domestic CAPM
to an international context (extended
Portfolio CAPM), and describe the assumptions
Management 18.62.d needed to make the extension REMOVED
Portfolio determine whether the real exchange
Management 18.62.e rate has changed in a period REMOVED
calculate the expected 1) exchange rate
Portfolio and 2) domestic-currency holding period
Management 18.62.f return on a foreign bond (security) REMOVED
calculate the end-of-period real
exchange rate and the domestic-
Portfolio currency ex-post return on a foreign
Management 18.62.g bond (security) REMOVED
calculate a foreign currency risk
premium, and explain a foreign currency
Portfolio risk premium in terms of interest rate
Management 18.62.h differentials and forward rates REMOVED
state the risk pricing relation and the
formula for the international capital
asset pricing model (ICAPM), and
Portfolio calculate the expected return on a stock
Management 18.62.i using the model REMOVED
Portfolio explain the effect of market
Management 18.62.j segmentation on the ICAPM REMOVED
Portfolio define currency exposure, and explain
Management 18.62.k exposures in terms of correlations REMOVED
describe the likely exchange rate
exposure of a company based on the
companys activities, and explain the
impact of both real and nominal
Portfolio exchange rate changes on the valuation
Management 18.62.l of the company REMOVED
explain currency exposures of national
Portfolio economies, equity markets, and bond
Management 18.62.m markets REMOVED

contrast the traditional trade approach
(J-curve) and the money demand
approach to modeling the relation
Portfolio between real exchange rate changes
Management 18.62.n and domestic economic activity. REMOVED
justify active portfolio management justify active portfolio management
Portfolio when security markets are nearly when security markets are nearly
Management 18.63.a efficient 18.55.a efficient
describe the steps and the approach of describe the steps and the approach of
Portfolio the Treynor-Black model for security the Treynor-Black model for security
Management 18.63.b selection 18.55.b selection
explain how an analysts accuracy in explain how an analysts accuracy in
forecasting alphas can be measured and forecasting alphas can be measured
how estimates of forecasting can be and how estimates of forecasting can
Portfolio incorporated into the Treynor-Black be incorporated into the Treynor-Black
Management 18.63.c approach. 18.55.c approach
Portfolio explain the importance of the portfolio explain the importance of the portfolio
Management 18.64.a perspective 18.56.a perspective
describe the steps of the portfolio describe the steps of the portfolio
Portfolio management process and the management process and the
Management 18.64.b components of those steps 18.56.b components of those steps
explain the role of the investment
explain the role of the investment policy policy statement in the portfolio
statement in the portfolio management management process, and describe the
Portfolio process, and describe the elements of elements of an investment policy
Management 18.64.d an investment policy statement 18.56.c statement
explain how capital market
explain how capital market expectations expectations and the investment policy
and the investment policy statement statement help influence the strategic
help influence the strategic asset asset allocation decision and how an
allocation decision and how an investors investors investment time horizon may
Portfolio investment time horizon may influence influence the investors strategic asset
Management 18.64.e the investors strategic asset allocation 18.56.d allocation
define investment objectives and define investment objectives and
constraints, and explain and distinguish constraints, and explain and distinguish
Portfolio among the types of investment among the types of investment
Management 18.64.c objectives and constraints 18.56.e objectives and constraints

contrast the types of investment time contrast the types of investment time
horizons, determine the time horizon for horizons, determine the time horizon
a particular investor, and evaluate the for a particular investor, and evaluate
Portfolio effects of this time horizon on portfolio the effects of this time horizon on
Management 18.64.f choice 18.56.f portfolio choice
Portfolio justify ethical conduct as a requirement justify ethical conduct as a requirement
Management 18.64.g for managing investment portfolios. 18.56.g for managing investment portfolios


CFA Level 2 - LOS Changes 2012 - 2013

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Level 2 LOS Changes 2012 2013

calculate the HerfindahlHirschman calculate and interpret the Herfindahl

explain how an option price, as explain how an option price, as

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