Use of this book 7

What is the Mnemonic memory technique? 8

Topic 1 – Quantitative Methods 10

1.1 Distributions & Skewness: Left-Skewed Distribution 10

1.2 Distributions & Skewness: Right-Skewed Distribution 10

1.3 Distributions & Skewness: Log-normal Distribution 11

1.4 Kurtosis 12

1.5 Statistical Biases 13

1.6 Scale of Measurement 14

1.7 Type of Yields (Type of Rates) 15

1.8 Type of Means 16

1.9 Coefficient of variation 17

1.10 Ordinary Annuity versus Annuity Due: Ordinary Annuity 19

1.11 Ordinary Annuity versus Annuity Due: Annuity Due 21

1.12 Residuals 23

1.13 Sharpe ratio 24

1.14 Significance test 25

Topic 2 – Economics 26

2.1 GDP – Output Method 26

2.2 Personal Income versus Personal Disposable Income 27

2.3 Disinflation versus Deflation 27

2.4 Consumer Price Indexes: Laspeyres Price Index 28

2.5 Consumer Price Indexes: Paasche Price Index 29

2.6 Consumer Price Indexes: Fisher-Price Index 30

2.7 Money Functions 31

2.8 Factors Influencing Money Demand 32

2.9 Central Bank Roles 33

2.10 Economic Rent versus Opportunity Cost 34

2.11 Optimal Capital Budget - MCC vs IOS Schedules 35

2.12 Porter’s Five Competitive Forces 36

Topic 3 – Financial Reporting and Analysis (FR&A) 37

3.1 Effects of capital leases vs operating leases on financial ratios 37

3.2 Effects of capitalizing versus expensing on financial statements 38

3.3 Effects of capital leases versus operating leases on financial statements 39

3.4 FIFO versus LIFO inventory accounting method when rising price or stable inventory 40

3.5 Depreciation Methods 41

 3.6 Revenue recognition methods comparison 42 

3.7 Impairment Effect 43 

3.8 Cash Flow of Operations Indirect Method 44 

3.9 FIFO and LIFO Inventory Conversions 45 

3.10 Cash Conversion Cycle 46 

3.11 U.S. GAAP versus IFRS 46 

3.12 Intangible Assets Treatments 47 

3.13 License, Trademarks, Franchise and Brands Treatments 48 

3.14 Capital lease criteria 49 

3.15 Impairment Cost 50 

3.16 Accounting Diversity 51 

3.17 Sales-type Lease vs. Operating Lease (Lessor’s Perspective) 52 

3.18 Quick Ratio 54 3.19 Cash Ratio 55 

3.20 Unusual & Infrequent (Above the line) 56 

3.21 Below the Line Items (No effect on tax) 57 

3.22 Earnings manipulation 58 

3.23 ROE DuPont Analysis Basic Calculation: PTL (Profit Turnover Leverage) 59 

3.24 ROE DuPont Analysis 5-Step Calculation 60 

Topic 4 – Corporate Issuers 61 

4.1 Stakeholder Groups 61 

4.2 Managing Stakeholder Relationship 63 

4.3 Profitability Index (PI) 64 

4.4 NPV versus IRR Summary 65 

Topic 5 – Equity 66 

5.1 Preferred Stock Valuation 66 

5.2 Dividend Discount Model Valuation 68 

5.3 Sustainable Growth Rate 69 

5.4 Divided Payment Chronology 70 

5.5 Attractive investments for the five stages of the business cycle 71 

Topic 6 – Fixed Income 72 

6.1 Bonds Issued at a Premium or Discount 72 

6.2 Fixed income interest rate risk 73 

6.3 Bond Selling Price 74 

6.4 Credit Enhancements 75 

Topic 7 – Derivatives 76 

7.1 Plain Call & Put Option 76 

7.2 Options payoff table – Maximum gain/loss 77 

7.3 Roll Yield for Contango and Backwardation Markets 79 

7.4 Put-Call Parity 80 

Topic 8 –Alternative Investments 81 

8.1 Hedge Fund Unique Risks 81 

8.2 Types of Real Estate Investments 82 

8.3 Real Estate Valuation Approaches 83 

Topic 9 – Portfolio Management (PM) 84 

9.1 Investment Policy Statement (IPS) 84 

9.2 Capital Asset Pricing Model 85 

9.3 Jensen’s Alpha 86 

9.4 Investment Constraints 87 

Topic 10 – Ethics 88 

10.1 How to use CFA designation properly on business card 88 

10.2 How to use CFA designation on resume 89 

10.3 Research Record Retention 90 

10.4 GIPS – Compliance Results Retention 91 

10.5 GIPS – Discontinued Composites Presentation 92 

10.6 GIPS – Nine Major Sections 93 

10.7 GIPS – Verification Procedures 97 

10.8 Minimum Elements of a Corporate Firewall 98 

10.9 Duties to Clients and Prospective Clients 99 

10.10 Six components of the Code of Ethics 100