Clear, concise instruction for all CFA Program Level I concepts and competencies for the 2019 exam
The same official curricula that CFA Program candidates receive with program registration is now publicly available for purchase. CFA Program Curriculum 2019 Level I, Volumes 1-6 provides the complete Level I curriculum for the 2019 exam, delivering the Candidate Body of Knowledge (CBOK) with expert instruction on all 10 topic areas of the CFA Program. Fundamental concepts are explained in-depth with a heavily visual style, while cases and examples demonstrate how concepts apply in real-world scenarios. Coverage includes ethical and professional standards, quantitative analysis, economics, financial reporting and analysis, corporate finance, equities, fixed income, derivatives, alternative investments, and portfolio management, all organized into individual sessions with clearly defined Learning Outcome Statements. Charts, graphs, figures, diagrams, and financial statements illustrate concepts to facilitate retention, and practice questions provide the opportunity to gauge your understanding while reinforcing important concepts.
- Learning Outcome Statement checklists guide readers to important concepts to derive from the readings
- Embedded case studies and examples throughout demonstrate practical application of concepts
- Figures, diagrams, and additional commentary make difficult concepts accessible
- Practice problems support learning and retention
CFA Institute promotes the highest standards of ethics, education, and professional excellence among investment professionals. The CFA Program curriculum guides you through the breadth of knowledge required to uphold these standards.
Table of Contents:
How to Use the CFA Program Curriculum ix
Curriculum Development Process ix
Organization of the Curriculum x
Features of the Curriculum x
Designing Your Personal Study Program xi
Feedback xiii
Ethical and Professional Standards
Study Session 1 Ethical and Professional Standards 3
Reading 1 Ethics and Trust in the Investment Profession 5
Introduction 5
Ethics 6
Ethics and Professionalism 9
Challenges to Ethical Conduct 11
The Importance of Ethical Conduct in the Investment Industry 15
Ethical vs. Legal Standards 17
Ethical Decision-Making Frameworks 20
Applying the Framework 22
Conclusion 27
Summary 28
Practice Problems 29
Solutions 30
Reading 2 Code of Ethics and Standards of Professional Conduct 33
Preface 33
Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct 34
Standards of Practice Handbook 34
Summary of Changes in the Eleventh Edition 35
CFA Institute Professional Conduct Program 37
Adoption of the Code and Standards 38
Acknowledgments 38
Ethics and the Investment Industry 39
Why Ethics Matters 39
CFA Institute Code of Ethics and Standards of Professional Conduct 43
Preamble 43
The Code of Ethics 44
Standards of Professional Conduct 44
Reading 3 Guidance for Standards I–VII 49
Standard I: Professionalism 49
Standard I(A) Knowledge of the Law 49
Guidance 49
Recommended Procedures for Compliance 54
Application of the Standard 55
Standard I(B) Independence and Objectivity 58
Guidance 58
Recommended Procedures for Compliance 63
Application of the Standard 64
Standard I(C) Misrepresentation 71
Guidance 71
Recommended Procedures for Compliance 74
Application of the Standard 76
Standard I(D) Misconduct 81
Guidance 81
Recommended Procedures for Compliance 82
Application of the Standard 82
Standard II: Integrity of Capital Markets 84
Standard II(A) Material Nonpublic Information 84
Guidance 84
Recommended Procedures for Compliance 88
Application of the Standard 91
Standard II(B) Market Manipulation 96
Guidance 96
Application of the Standard 97
Standard III: Duties to Clients 101
Standard III(A) Loyalty, Prudence, and Care 101
Guidance 101
Recommended Procedures for Compliance 105
Application of the Standard 106
Standard III(B) Fair Dealing 110
Guidance 110
Recommended Procedures for Compliance 112
Application of the Standard 114
Standard III(C) Suitability 118
Guidance 118
Recommended Procedures for Compliance 121
Application of the Standard 122
Standard III(D) Performance Presentation 125
Guidance 125
Recommended Procedures for Compliance 126
Application of the Standard 126
Standard III(E) Preservation of Confidentiality 129
Guidance 129
Recommended Procedures for Compliance 131
Application of the Standard 131
Standard IV: Duties to Employers 133
Standard IV(A) Loyalty 133
Guidance 133
Recommended Procedures for Compliance 137
Application of the Standard 137
Standard IV(B) Additional Compensation Arrangements 144
Guidance 144
Recommended Procedures for Compliance 144
Application of the Standard 144
Standard IV(C) Responsibilities of Supervisors 146
Guidance 146
Recommended Procedures for Compliance 148
Application of the Standard 150
Standard V: Investment Analysis, Recommendations, and Actions 154
Standard V(A) Diligence and Reasonable Basis 154
Guidance 154
Recommended Procedures for Compliance 158
Application of the Standard 158
Standard V(B) Communication with Clients and Prospective Clients 165
Guidance 166
Recommended Procedures for Compliance 168
Application of the Standard 169
Standard V(C) Record Retention 174
Guidance 174
Recommended Procedures for Compliance 175
Application of the Standard 176
Standard VI: Conflicts of Interest 177
Standard VI(A) Disclosure of Conflicts 177
Guidance 177
Recommended Procedures for Compliance 180
Application of the Standard 180
Standard VI(B) Priority of Transactions 185
Guidance 185
Recommended Procedures for Compliance 186
Application of the Standard 188
Standard VI(C) Referral Fees 190
Guidance 190
Recommended Procedures for Compliance 190
Application of the Standard 190
Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate 193
Standard VII(A) Conduct as Participants in CFA Institute Programs 193
Guidance 193
Application of the Standard 195
Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program 198
Guidance 198
Recommended Procedures for Compliance 200
Application of the Standard 201
Practice Problems 203
Solutions 213
Reading 4 Introduction to the Global Investment Performance Standards (GIPS) 221
Why Were the GIPS Standards Created? 221
Who Can Claim Compliance? 222
Who Benefits from Compliance? 222
Composites 223
Verification 223
The Structure of the GIPS Standards 224
Reading 5 Global Investment Performance Standards (GIPS) 225
Preface 225
History 226
Introduction 227
Preamble—Why Is a Global Investment Performance Standard Needed? 227
Objectives 227
Overview 228
Historical Performance Record 228
Compliance 229
Effective Date 229
Implementing a Global Standard 229
Sponsors 230
Provisions of the Global Investment Performance Standards 231
Fundamentals of Compliance 233
Input Data 235
Calculation Methodology 235
Composite Construction 236
Disclosure 237
Presentation and Reporting 240
Real Estate 242
Private Equity 247
Wrap Fee/Separately Managed Account (SMA) Portfolios 250
GIPS Valuation Principles 252
Fair Value Definition 252
Valuation Requirements 253
Valuation Recommendations 254
GIPS Advertising Guidelines 256
Purpose of the GIPS Advertising Guidelines 256
Requirements of the GIPS Advertising Guidelines 256
Verification 258
Scope and Purpose of Verification 258
Required Verification Procedures 259
Performance Examinations 262
GIPS Glossary 262
Appendix A: Sample Compliant Presentations 272
Appendix B: Sample Advertisements 289
Appendix C: Sample List of Composite Descriptions 292
Practice Problems 296
Solutions 297
Quantitative Methods
Study Session 2 Quantitative Methods (1) 301
Reading 6 The Time Value of Money 303
Introduction 303
Interest Rates: Interpretation 304
The Future Value of a Single Cash Flow 306
The Frequency of Compounding 310
Continuous Compounding 312
Stated and Effective Rates 313
The Future Value of a Series of Cash Flows 314
Equal Cash Flows—Ordinary Annuity 315
Unequal Cash Flows 316
The Present Value of a Single Cash Flow 317
Finding the Present Value of a Single Cash Flow 317
The Frequency of Compounding 319
The Present Value of a Series of Cash Flows 320
The Present Value of a Series of Equal Cash Flows 320
The Present Value of an Infinite Series of Equal Cash Flows—Perpetuity 325
Present Values Indexed at Times Other than t = 0 326
The Present Value of a Series of Unequal Cash Flows 328
Solving for Rates, Number of Periods, or Size of Annuity Payments 328
Solving for Interest Rates and Growth Rates 329
Solving for the Number of Periods 331
Solving for the Size of Annuity Payments 332
Review of Present and Future Value Equivalence 336
The Cash Flow Additivity Principle 338
Summary 339
Practice Problems 340
Solutions 345
Reading 7 Discounted Cash Flow Applications 359
Introduction 359
Net Present Value and Internal Rate of Return 360
Net Present Value and the Net Present Value Rule 360
The Internal Rate of Return and the Internal Rate of Return Rule 362
Problems with the IRR Rule 365
Portfolio Return Measurement 367
Money-Weighted Rate of Return 368
Time-Weighted Rate of Return 369
Money Market Yields 374
Summary 379
Practice Problems 381
Solutions 384
Reading 8 Statistical Concepts and Market Returns 387
Introduction 388
Some Fundamental Concepts 388
The Nature of Statistics 389
Populations and Samples 389
Measurement Scales 390
Summarizing Data Using Frequency Distributions 391
The Graphic Presentation of Data 399
The Histogram 400
The Frequency Polygon and the Cumulative Frequency Distribution 401
Measures of Central Tendency 404
The Arithmetic Mean 404
The Median 408
The Mode 411
Other Concepts of Mean 411
Other Measures of Location: Quantiles 421
Quartiles, Quintiles, Deciles, and Percentiles 421
Quantiles in Investment Practice 425
Measures of Dispersion 427
The Range 428
The Mean Absolute Deviation 428
Population Variance and Population Standard Deviation 430
Sample Variance and Sample Standard Deviation 433
Semivariance, Semideviation, and Related Concepts 437
Chebyshev’s Inequality 438
Coefficient of Variation 440
The Sharpe Ratio 442
Symmetry and Skewness in Return Distributions 445
Kurtosis in Return Distributions 451
Using Geometric and Arithmetic Means 455
Summary 457
Practice Problems 460
Solutions 467
Reading 9 Probability Concepts 471
Introduction 472
Probability, Expected Value, and Variance 472
Portfolio Expected Return and Variance of Return 494
Topics in Probability 502
Bayes’ Formula 502
Principles of Counting 506
Summary 510
Practice Problems 513
Solutions 517
Study Session 3 Quantitative Methods (2) 521
Reading 10 Common Probability Distributions 523
Introduction to Common Probability Distributions 524
Discrete Random Variables 525
The Discrete Uniform Distribution 526
The Binomial Distribution 528
Continuous Random Variables 537
Continuous Uniform Distribution 538
The Normal Distribution 541
Applications of the Normal Distribution 547
The Lognormal Distribution 549
Monte Carlo Simulation 555
Summary 561
Practice Problems 564
Solutions 571
Reading 11 Sampling and Estimation 579
Introduction 580
Sampling 580
Simple Random Sampling 580
Stratified Random Sampling 582
Time-Series and Cross-Sectional Data 583
Distribution of the Sample Mean 586
The Central Limit Theorem 586
Point and Interval Estimates of the Population Mean 589
Point Estimators 589
Confidence Intervals for the Population Mean 591
Selection of Sample Size 597
More on Sampling 599
Data-Mining Bias 599
Sample Selection Bias 602
Look-Ahead Bias 603
Time-Period Bias 603
Summary 605
Practice Problems 608
Solutions 613
Reading 12 Hypothesis Testing 619
Introduction 620
Hypothesis Testing 621
Hypothesis Tests Concerning the Mean 630
Tests Concerning a Single Mean 630
Tests Concerning Differences between Means 638
Tests Concerning Mean Differences 642
Hypothesis Tests Concerning Variance 646
Tests Concerning a Single Variance 646
Tests Concerning the Equality (Inequality) of Two Variances 648
Other Issues: Nonparametric Inference 652
Tests Concerning Correlation: The Spearman Rank Correlation Coefficient 653
Nonparametric Inference: Summary 656
Summary 656
Practice Problems 660
Solutions 668
Reading 13 Technical Analysis 675
Introduction 675
Technical Analysis: Definition and Scope 676
Principles and Assumptions 676
Technical and Fundamental Analysis 678
Technical Analysis Tools 680
Charts 680
Trend 689
Chart Patterns 692
Technical Indicators 703
Cycles 720
Elliott Wave Theory 721
Intermarket Analysis 724
Summary 726
Practice Problems 729
Solutions 734
Appendices 737
Glossary G-1
Index I-1
