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CFA Program Curriculum 2017 Level I, Volumes 1 - 6

CFA Program Curriculum 2017 Level I, Volumes 1 - 6

ISBN: 978-1-942-47185-1

Aug 2016

3824 pages


Clear, concise instruction for all CFA Level I concepts and competencies for the 2017 exam

The same official curricula that CFA Program candidates receive with program registration is now available publicly for purchase. CFA Program Curriculum 2017 Level I, Volumes 1-6 provides the complete Level I Curriculum for the 2017 exam, delivering the Candidate Body of Knowledge (CBOK) with expert instruction on all ten topic areas of the CFA Program. Fundamental concepts are explained with in-depth discussion and 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.

The Level I Curriculum covers a large amount of information; this set breaks the CBOK down into discrete study sessions to help you stay organized and focused on learning-not just memorizing-important CFA 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. The three levels of the program build on each other. Level I provides foundational knowledge and teaches the use of investment tools; Level II focuses on application of concepts and analysis, particularly in the valuation of assets; and Level III builds toward synthesis across topics with an emphasis on portfolio management.

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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

Reading 2 Code of Ethics and Standards of Professional Conduct 29

Preface 29

Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct 30

Standards of Practice Handbook 30

Summary of Changes in the Eleventh Edition 31

CFA Institute Professional Conduct Program 33

Adoption of the Code and Standards 34

Acknowledgments 34

Ethics and the Investment Industry 35

Why Ethics Matters 35

CFA Institute Code of Ethics and Standards of Professional Conduct 39

Preamble 39

The Code of Ethics 40

Standards of Professional Conduct 40

Reading 3 Guidance for Standards I–VII 45

Standard I: Professionalism 45

Standard I(A) Knowledge of the Law 45

Guidance 45

Recommended Procedures for Compliance 50

Application of the Standard 51

Standard I(B) Independence and Objectivity 54

Guidance 54

Recommended Procedures for Compliance 59

Application of the Standard 60

Standard I(C) Misrepresentation 67

Guidance 67

Recommended Procedures for Compliance 70

Application of the Standard 72

Standard I(D) Misconduct 77

Guidance 77

Recommended Procedures for Compliance 78

Application of the Standard 78

Standard II: Integrity of Capital Markets 80

Standard II(A) Material Nonpublic Information 80

Guidance 80

Recommended Procedures for Compliance 84

Application of the Standard 87

Standard II(B) Market Manipulation 92

Guidance 92

Application of the Standard 93

Standard III: Duties to Clients 97

Standard III(A) Loyalty, Prudence, and Care 97

Guidance 97

Recommended Procedures for Compliance 101

Application of the Standard 102

Standard III(B) Fair Dealing 106

Guidance 106

Recommended Procedures for Compliance 108

Application of the Standard 110

Standard III(C) Suitability 114

Guidance 114

Recommended Procedures for Compliance 117

Application of the Standard 118

Standard III(D) Performance Presentation 121

Guidance 121

Recommended Procedures for Compliance 122

Application of the Standard 122

Standard III(E) Preservation of Confidentiality 125

Guidance 125

Recommended Procedures for Compliance 127

Application of the Standard 127

Standard IV: Duties to Employers 129

Standard IV(A) Loyalty 129

Guidance 129

Recommended Procedures for Compliance 133

Application of the Standard 133

Standard IV(B) Additional Compensation Arrangements 140

Guidance 140

Recommended Procedures for Compliance 140

Application of the Standard 140

Standard IV(C) Responsibilities of Supervisors 142

Guidance 142

Recommended Procedures for Compliance 144

Application of the Standard 146

Standard V: Investment Analysis, Recommendations, and Actions 150

Standard V(A) Diligence and Reasonable Basis 150

Guidance 150

Recommended Procedures for Compliance 154

Application of the Standard 154

Standard V(B) Communication with Clients and Prospective Clients 161

Guidance 162

Recommended Procedures for Compliance 164

Application of the Standard 165

Standard V(C) Record Retention 170

Guidance 170

Recommended Procedures for Compliance 171

Application of the Standard 172

Standard VI: Conflicts of Interest 173

Standard VI(A) Disclosure of Conflicts 173

Guidance 173

Recommended Procedures for Compliance 176

Application of the Standard 176

Standard VI(B) Priority of Transactions 181

Guidance 181

Recommended Procedures for Compliance 182

Application of the Standard 184

Standard VI(C) Referral Fees 186

Guidance 186

Recommended Procedures for Compliance 186

Application of the Standard 186

Standard VII: Responsibilities as a CFA Institute Member or CFA Candidate 189

Standard VII(A) Conduct as Participants in CFA Institute Programs 189

Guidance 189

Application of the Standard 191

Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program 194

Guidance 194

Recommended Procedures for Compliance 198

Application of the Standard 198

Practice Problems 201

Solutions 211

Reading 4 Introduction to the Global Investment Performance Standards (GIPS) 219

Why Were the GIPS Standards Created? 219

Who Can Claim Compliance? 220

Who Benefits from Compliance? 220

Composites 221

Verification 221

The Structure of the GIPS Standards 222

Reading 5 The GIPS Standards 223

Preface 223

History 224

Introduction 225

Preamble—Why Is a Global Investment Performance Standard Needed? 225

Objectives 225

Overview 226

Historical Performance Record 226

Compliance 227

Effective Date 227

Implementing a Global Standard 227

Sponsors 228

Provisions of the Global Investment Performance Standards 229

Fundamentals of Compliance 231

Input Data 233

Calculation Methodology 233

Composite Construction 234

Disclosure 235

Presentation and Reporting 238

Real Estate 240

Private Equity 245

Wrap Fee/Separately Managed Account (SMA) Portfolios 248

GIPS Valuation Principles 250

Fair Value Definition 250

Valuation Requirements 251

Valuation Recommendations 252

GIPS Advertising Guidelines 254

Purpose of the GIPS Advertising Guidelines 254

Requirements of the GIPS Advertising Guidelines 254

Verification 256

Scope and Purpose of Verification 256

Required Verification Procedures 257

Performance Examinations 260

GIPS Glossary 260

Appendix A: Sample Compliant Presentations 270

Appendix B: Sample Advertisements 287

Appendix C: Sample List of Composite Descriptions 290

Practice Problems 294

Solutions 295

Quantitative Methods

Study Session 2 Quantitative Methods: Basic Concepts 299

Reading 6 The Time Value of Money 301

Introduction 301

Interest Rates: Interpretation 302

The Future Value of a Single Cash Flow 304

The Frequency of Compounding 308

Continuous Compounding 310

Stated and Effective Rates 311

The Future Value of a Series of Cash Flows 312

Equal Cash Flows—Ordinary Annuity 313

Unequal Cash Flows 314

The Present Value of a Single Cash Flow 315

Finding the Present Value of a Single Cash Flow 315

The Frequency of Compounding 317

The Present Value of a Series of Cash Flows 318

The Present Value of a Series of Equal Cash Flows 318

The Present Value of an Infinite Series of Equal Cash Flows—Perpetuity 323

Present Values Indexed at Times Other than t = 0 324

The Present Value of a Series of Unequal Cash Flows 326

Solving for Rates, Number of Periods, or Size of Annuity Payments 326

Solving for Interest Rates and Growth Rates 327

Solving for the Number of Periods 329

Solving for the Size of Annuity Payments 330

Review of Present and Future Value Equivalence 334

The Cash Flow Additivity Principle 336

Summary 337

Practice Problems 338

Solutions 343

Reading 7 Discounted Cash Flow Applications 357

Introduction 357

Net Present Value and Internal Rate of Return 358

Net Present Value and the Net Present Value Rule 358

The Internal Rate of Return and the Internal Rate of Return Rule 360

Problems with the IRR Rule 363

Portfolio Return Measurement 365


Rate of Return 366


Rate of Return 367

Money Market Yields 372

Summary 377

Practice Problems 379

Solutions 382

Reading 8 Statistical Concepts and Market Returns 385

Introduction 386

Some Fundamental Concepts 386

The Nature of Statistics 387

Populations and Samples 387

Measurement Scales 388

Summarizing Data Using Frequency Distributions 389

The Graphic Presentation of Data 397

The Histogram 398

The Frequency Polygon and the Cumulative Frequency Distribution 399

Measures of Central Tendency 402

The Arithmetic Mean 402

The Median 407

The Mode 410

Other Concepts of Mean 410

Other Measures of Location: Quantiles 420

Quartiles, Quintiles, Deciles, and Percentiles 420

Quantiles in Investment Practice 424

Measures of Dispersion 426

The Range 427

The Mean Absolute Deviation 427

Population Variance and Population Standard Deviation 429

Sample Variance and Sample Standard Deviation 432

Semivariance, Semideviation, and Related Concepts 436

Chebyshev’s Inequality 437

Coefficient of Variation 439

The Sharpe Ratio 441

Symmetry and Skewness in Return Distributions 444

Kurtosis in Return Distributions 450

Using Geometric and Arithmetic Means 454

Summary 456

Practice Problems 459

Solutions 466

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: Application 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 569

Reading 11 Sampling and Estimation 575

Introduction 576

Sampling 576

Simple Random Sampling 576

Stratified Random Sampling 578


and Cross-Sectional

Data 579

Distribution of the Sample Mean 582

The Central Limit Theorem 582

Point and Interval Estimates of the Population Mean 585

Point Estimators 585

Confidence Intervals for the Population Mean 587

Selection of Sample Size 593

More on Sampling 595


Bias 595

Sample Selection Bias 598


Bias 599


Bias 599

Summary 601

Practice Problems 604

Solutions 609

Reading 12 Hypothesis Testing 615

Introduction 616

Hypothesis Testing 617

Hypothesis Tests Concerning the Mean 626

Tests Concerning a Single Mean 626

Tests Concerning Differences between Means 633

Tests Concerning Mean Differences 638

Hypothesis Tests Concerning Variance 642

Tests Concerning a Single Variance 642

Tests Concerning the Equality (Inequality) of Two Variances 644

Other Issues: Nonparametric Inference 647

Tests Concerning Correlation: The Spearman Rank Correlation Coefficient 649

Nonparametric Inference: Summary 651

Summary 652

Practice Problems 655

Solutions 661

Reading 13 Technical Analysis 669

Introduction 669

Technical Analysis: Definition and Scope 670

Principles and Assumptions 670

Technical and Fundamental Analysis 672

Technical Analysis Tools 674

Charts 674

Trend 683

Chart Patterns 686

Technical Indicators 697

Cycles 714

Elliott Wave Theory 715

Intermarket Analysis 718

Summary 720

Practice Problems 723

Solutions 728

Appendices 731

Glossary G-1

Index I-1