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CFA-Level 2-2019-Curriculum Updates PDF
CFA-Level 2-2019-Curriculum Updates PDF
CFA-Level 2-2019-Curriculum Updates PDF
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Ethics 1.1.a describe the six components of 1.1.a describe the six components of
the Code of Ethics and the seven the Code of Ethics and the seven
Standards of Professional Conduct Standards of Professional Conduct
explain the ethical responsibilities explain the ethical responsibilities
required of CFA Institute members required of CFA Institute members
Ethics 1.1.b and candidates in the CFA 1.1.b and candidates in the CFA
Program by the Code and Program by the Code and
Standards Standards
demonstrate a thorough
demonstrate a thorough knowledge of the CFA Institute
knowledge of the Code of Ethics Code of Ethics and Standards of Wording
Ethics 1.2.a 1.2.a
and Standards of Professional Professional Conduct by applying Change
Conduct by applying the Code and the Code and Standards to specific
Standards to specific situations situations
recommend practices and recommend practices and
procedures designed to prevent procedures designed to prevent
Ethics 1.2.b violations of the Code of Ethics 1.2.b violations of the Code of Ethics
and Standards of Professional and Standards of Professional
Conduct Conduct
explain the objectives of the
Ethics 1.3.a Removed
Research Objectivity Standards
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Quantitative
3.6.b describe Big Data, artificial New
Methods
intelligence, and machine learning
Quantitative describe fintech applications to
3.6.c New
Methods investment management
Quantitative describe financial applications of
3.6.d New
Methods distributed ledger technology
calculate and interpret a sample calculate and interpret a sample
Quantitative covariance and a sample covariance and a sample
3.9.a 3.7.a
Methods correlation coefficient and correlation coefficient and
interpret a scatter plot interpret a scatter plot
Quantitative describe limitations to correlation describe limitations to correlation
3.9.b 3.7.b
Methods analysis analysis
formulate a test of the hypothesis formulate a test of the hypothesis
that the population correlation that the population correlation
Quantitative coefficient equals zero and coefficient equals zero and
3.9.c 3.7.c
Methods determine whether the hypothesis determine whether the hypothesis
is rejected at a given level of is rejected at a given level of
significance significance
distinguish between the dependent distinguish between the dependent
Quantitative
3.9.d and independent variables in a 3.7.d and independent variables in a
Methods
linear regression linear regression
explain the assumptions explain the assumptions
Quantitative
3.9.e underlying linear regression and 3.7.e underlying linear regression and
Methods
interpret regression coefficients interpret regression coefficients
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Quantitative calculate the predicted value for calculate the predicted value for
3.9.h the dependent variable, given an 3.7.h the dependent variable, given an
Methods
estimated regression model and a estimated regression model and a
value for the independent variable value for the independent variable
calculate and interpret a calculate and interpret a
Quantitative confidence interval for the confidence interval for the
3.9.i 3.7.i
Methods predicted value of the dependent predicted value of the dependent
variable variable
describe the use of analysis of describe the use of analysis of
Quantitative variance (ANOVA) in regression variance (ANOVA) in regression
3.9.j analysis, interpret ANOVA results, 3.7.j analysis, interpret ANOVA results,
Methods
and calculate and interpret the F- and calculate and interpret the F-
statistic statistic
Quantitative describe limitations of regression describe limitations of regression
3.9.k 3.7.k
Methods analysis analysis
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Quantitative explain the requirement for a time explain the requirement for a time
3.11.c series to be covariance stationary 3.9.c series to be covariance stationary
Methods
and describe the significance of a and describe the significance of a
series that is not stationary series that is not stationary
describe the structure of an describe the structure of an
Quantitative autoregressive (AR) model of autoregressive (AR) model of
3.11.d order p and calculate one- and 3.9.d order p and calculate one- and
Methods
two-period-ahead forecasts given two-period-ahead forecasts given
the estimated coefficients the estimated coefficients
explain how autocorrelations of explain how autocorrelations of
Quantitative the residuals can be used to test the residuals can be used to test
3.11.e 3.9.e
Methods whether the autoregressive model whether the autoregressive model
fits the time series fits the time series
Quantitative explain mean reversion and explain mean reversion and
3.11.f 3.9.f
Methods calculate a mean-reverting level calculate a mean-reverting level
Quantitative
3.11.h explain the instability of 3.9.h explain the instability of
Methods
coefficients of time-series models coefficients of time-series models
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Quantitative describe the steps of the unit root describe the steps of the unit root
3.11.k test for nonstationarity and 3.9.k test for nonstationarity and
Methods
explain the relation of the test to explain the relation of the test to
autoregressive time-series models autoregressive time-series models
explain how to test and correct for explain how to test and correct for
Quantitative seasonality in a time-series model seasonality in a time-series model
3.11.l and calculate and interpret a 3.9.l and calculate and interpret a
Methods
forecasted value using an AR forecasted value using an AR
model with a seasonal lag model with a seasonal lag
explain autoregressive conditional explain autoregressive conditional
Quantitative heteroskedasticity (ARCH) and heteroskedasticity (ARCH) and
3.11.m describe how ARCH models can be 3.9.m describe how ARCH models can be
Methods
applied to predict the variance of applied to predict the variance of
a time series a time series
explain how time-series variables explain how time-series variables
Quantitative should be analyzed for should be analyzed for
3.11.n nonstationarity and/or 3.9.n nonstationarity and/or
Methods
cointegration before use in a cointegration before use in a
linear regression linear regression
determine an appropriate time- determine an appropriate time-
Quantitative series model to analyze a given series model to analyze a given
3.11.o 3.9.o
Methods investment problem and justify investment problem and justify
that choice that choice
Quantitative describe steps in running a describe steps in running a
3.12.a 3.10.a
Methods simulation simulation
explain three ways to define the explain three ways to define the
Quantitative
3.12.b probability distributions for a 3.10.b probability distributions for a
Methods
simulation’s variables simulation’s variables
Quantitative describe how to treat correlation describe how to treat correlation
3.12.c 3.10.c
Methods across variables in a simulation across variables in a simulation
Quantitative describe advantages of using describe advantages of using
3.12.d 3.10.d
Methods simulations in decision making simulations in decision making
describe some common describe some common
Quantitative
3.12.e constraints introduced into 3.10.e constraints introduced into
Methods
simulations simulations
Quantitative describe issues in using describe issues in using
3.12.f 3.10.f
Methods simulations in risk assessment simulations in risk assessment
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Quantitative compare scenario analysis, compare scenario analysis,
3.12.g 3.10.g
Methods decision trees, and simulations decision trees, and simulations
calculate and interpret the calculate and interpret the
bid–offer spread on a spot or bid–offer spread on a spot or
Economics 4.13.a forward currency quotation and 4.11.a forward currency quotation and
describe the factors that affect the describe the factors that affect the
bid–offer spread bid–offer spread
identify a triangular arbitrage identify a triangular arbitrage
Economics 4.13.b opportunity and calculate its 4.11.b opportunity and calculate its
profit, given the bid–offer profit, given the bid–offer
quotations for three currencies quotations for three currencies
distinguish between spot and distinguish between spot and
Economics 4.13.c forward rates and calculate the 4.11.c forward rates and calculate the
forward premium/discount for a forward premium/discount for a
given currency given currency
calculate the mark-to-market calculate the mark-to-market
Economics 4.13.d 4.11.d
value of a forward contract value of a forward contract
explain international parity explain international parity
conditions (covered and uncovered conditions (covered and uncovered
Economics 4.13.e interest rate parity, forward rate 4.11.e interest rate parity, forward rate
parity, purchasing power parity, parity, purchasing power parity,
and the international Fisher and the international Fisher
effect) effect)
describe relations among the describe relations among the
Economics 4.13.f 4.11.f
international parity conditions international parity conditions
evaluate the use of the current evaluate the use of the current
spot rate, the forward rate, spot rate, the forward rate,
Economics 4.13.g purchasing power parity, and 4.11.g purchasing power parity, and
uncovered interest parity to uncovered interest parity to
forecast future spot exchange forecast future spot exchange
rates rates
explain approaches to assessing explain approaches to assessing
Economics 4.13.h the long-run fair value of an 4.11.h the long-run fair value of an
exchange rate exchange rate
describe the carry trade and its describe the carry trade and its
Economics 4.13.i relation to uncovered interest rate 4.11.i relation to uncovered interest rate
parity and calculate the profit parity and calculate the profit
from a carry trade from a carry trade
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
explain how flows in the balance explain how flows in the balance
Economics 4.13.j of payment accounts affect 4.11.j of payment accounts affect
currency exchange rates currency exchange rates
explain the potential effects of explain the potential effects of
Economics 4.13.k monetary and fiscal policy on 4.11.k monetary and fiscal policy on
exchange rates exchange rates
describe objectives of central bank describe objectives of central bank
or government intervention and or government intervention and
Economics 4.13.l capital controls and describe the 4.11.l capital controls and describe the
effectiveness of intervention and effectiveness of intervention and
capital controls capital controls
describe warning signs of a describe warning signs of a
Economics 4.13.m 4.11.m
currency crisis currency crisis
compare factors favoring and compare factors favoring and
Economics 4.14.a limiting economic growth in 4.12.a limiting economic growth in
developed and developing developed and developing
economies economies
describe the relation between the describe the relation between the
Economics 4.14.b long-run rate of stock market 4.12.b long-run rate of stock market
appreciation and the sustainable appreciation and the sustainable
growth rate of the economy growth rate of the economy
explain why potential GDP and its explain why potential GDP and its
Economics 4.14.c growth rate matter for equity and 4.12.c growth rate matter for equity and
fixed income investors fixed income investors
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
compare the current rate method compare the current rate method
and the temporal method, and the temporal method,
Financial evaluate how each affects the evaluate how each affects the
5.18.d parent company’s balance sheet 5.16.d parent company’s balance sheet
Reporting
and income statement, and and income statement, and
determine which method is determine which method is
appropriate in various scenarios appropriate in various scenarios
calculate the translation effects calculate the translation effects
Financial and evaluate the translation of a and evaluate the translation of a
5.18.e subsidiary’s balance sheet and 5.16.e subsidiary’s balance sheet and
Reporting
income statement into the parent income statement into the parent
company’s presentation currency company’s presentation currency
analyze how the current rate analyze how the current rate
Financial method and the temporal method method and the temporal method
5.18.f 5.16.f
Reporting affect financial statements and affect financial statements and
ratios ratios
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Financial
5.17.b describe key aspects of financial New
Reporting
regulations of financial institutions
explain the CAMELS (capital
adequacy, asset quality,
Financial management, earnings, liquidity,
5.17.c New
Reporting and sensitivity) approach to
analyzing a bank, including key
ratios and its limitations
Financial describe other factors to consider
5.17.d New
Reporting in analyzing a bank
Financial analyze a bank based on financial
5.17.e New
Reporting statements and other factors
describe key ratios and other
Financial
5.17.f factors to consider in analyzing an New
Reporting
insurance company
demonstrate the use of a demonstrate the use of a
Financial conceptual framework for conceptual framework for
6.19.a 6.18.a
Reporting assessing the quality of a assessing the quality of a
company’s financial reports company’s financial reports
explain potential problems that explain potential problems that
Financial
6.19.b affect the quality of financial 6.18.b affect the quality of financial
Reporting
reports reports
describe how to evaluate the describe how to evaluate the
Financial
6.19.c quality of a company’s financial 6.18.c quality of a company’s financial
Reporting
reports reports
Financial evaluate the quality of a evaluate the quality of a
6.19.d 6.18.d
Reporting company’s financial reports company’s financial reports
Financial describe the concept of describe the concept of
6.19.e 6.18.e
Reporting sustainable (persistent) earnings sustainable (persistent) earnings
Financial describe indicators of earnings describe indicators of earnings
6.19.f 6.18.f
Reporting quality quality
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
analyze and interpret how balance analyze and interpret how balance
sheet modifications, earnings sheet modifications, earnings
Financial normalization, and cash flow normalization, and cash flow
6.20.e 6.19.e
Reporting statement related modifications statement related modifications
affect a company’s financial affect a company’s financial
statements, financial ratios, and statements, financial ratios, and
overall financial condition overall financial condition
calculate the yearly cash flows of calculate the yearly cash flows of
Corporate expansion and replacement capital expansion and replacement capital
7.21.a projects and evaluate how the 7.20.a projects and evaluate how the
Finance
choice of depreciation method choice of depreciation method
affects those cash flows affects those cash flows
Corporate explain how inflation affects explain how inflation affects
7.21.b 7.20.b
Finance capital budgeting analysis capital budgeting analysis
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
calculate and compare the effect calculate and compare the effect
of a share repurchase on earnings of a share repurchase on earnings
Corporate per share when 1) the repurchase per share when 1) the repurchase
7.23.i is financed with the company’s 7.22.i is financed with the company’s
Finance
surplus cash and 2) the company surplus cash and 2) the company
uses debt to finance the uses debt to finance the
repurchase repurchase
calculate the effect of a share calculate the effect of a share
Corporate
7.23.j repurchase on book value per 7.22.j repurchase on book value per
Finance
share share
explain the choice between paying explain the choice between paying
Corporate
7.23.k cash dividends and repurchasing 7.22.k cash dividends and repurchasing
Finance
shares shares
Corporate describe broad trends in corporate describe broad trends in corporate
7.23.l 7.22.l
Finance payout policies payout policies
calculate and interpret dividend calculate and interpret dividend
Corporate
7.23.m coverage ratios based on 1) net 7.22.m coverage ratios based on 1) net
Finance
income and 2) free cash flow income and 2) free cash flow
identify characteristics of identify characteristics of
Corporate
7.23.n companies that may not be able 7.22.n companies that may not be able
Finance
to sustain their cash dividend to sustain their cash dividend
compare interests of key compare interests of key
Corporate stakeholder groups and explain stakeholder groups and explain
8.24.a 8.23.a
Finance the purpose of a stakeholder the purpose of a stakeholder
impact analysis impact analysis
discuss problems that can arise in discuss problems that can arise in
Corporate principal–agent relationships and principal–agent relationships and
8.24.b 8.23.b
Finance mechanisms that may mitigate mechanisms that may mitigate
such problems such problems
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
compare the discounted cash flow, compare the discounted cash flow,
comparable company, and comparable company, and
Corporate comparable transaction analyses comparable transaction analyses
8.26.h 8.25.h
Finance for valuing a target company, for valuing a target company,
including the advantages and including the advantages and
disadvantages of each disadvantages of each
calculate free cash flows for a calculate free cash flows for a
Corporate target company and estimate the target company and estimate the
8.26.i 8.25.i
Finance company’s intrinsic value based on company’s intrinsic value based on
discounted cash flow analysis discounted cash flow analysis
estimate the value of a target estimate the value of a target
Corporate company using comparable company using comparable
8.26.j 8.25.j
Finance company and comparable company and comparable
transaction analyses transaction analyses
evaluate a takeover bid and evaluate a takeover bid and
calculate the estimated post- calculate the estimated post-
Corporate acquisition value of an acquirer acquisition value of an acquirer
8.26.k 8.25.k
Finance and the gains accrued to the and the gains accrued to the
target shareholders versus the target shareholders versus the
acquirer shareholders acquirer shareholders
explain how price and payment explain how price and payment
Corporate method affect the distribution of method affect the distribution of
8.26.l 8.25.l
Finance risks and benefits in M&A risks and benefits in M&A
transactions transactions
Corporate describe characteristics of M&A describe characteristics of M&A
8.26.m 8.25.m
Finance transactions that create value transactions that create value
distinguish among equity carve- distinguish among equity carve-
Corporate
8.26.n outs, spin-offs, split-offs, and 8.25.n outs, spin-offs, split-offs, and
Finance
liquidation liquidation
Corporate explain common reasons for explain common reasons for
8.26.o 8.25.o
Finance restructuring restructuring
define valuation and intrinsic define valuation and intrinsic
Equity 9.27.a value and explain sources of 9.26.a value and explain sources of
perceived mispricing perceived mispricing
explain the going concern explain the going concern
Equity 9.27.b assumption and contrast a going 9.26.b assumption and contrast a going
concern value to a liquidation concern value to a liquidation
value value
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explain beta estimation for public explain beta estimation for public
Equity 9.28.d companies, thinly traded public 9.27.d companies, thinly traded public
companies, and nonpublic companies, and nonpublic
companies companies
describe strengths and weaknesses describe strengths and weaknesses
Equity 9.28.e of methods used to estimate the 9.27.e of methods used to estimate the
required return on an equity required return on an equity
investment investment
explain international explain international
Equity 9.28.f considerations in required return 9.27.f considerations in required return
estimation estimation
explain and calculate the weighted explain and calculate the weighted
Equity 9.28.g average cost of capital for a 9.27.g average cost of capital for a
company company
evaluate the appropriateness of evaluate the appropriateness of
using a particular rate of return as using a particular rate of return as
Equity 9.28.h a discount rate, given a 9.27.h a discount rate, given a
description of the cash flow to be description of the cash flow to be
discounted and other relevant discounted and other relevant
facts facts
compare top-down, bottom-up, compare top-down, bottom-up,
Equity 10.29.a and hybrid approaches for 10.28.a and hybrid approaches for
developing inputs to equity developing inputs to equity
valuation models valuation models
compare “growth relative to GDP compare “growth relative to GDP
Equity 10.29.b growth” and “market growth and 10.28.b growth” and “market growth and
market share” approaches to market share” approaches to
forecasting revenue forecasting revenue
evaluate whether economies of evaluate whether economies of
Equity 10.29.c scale are present in an industry by 10.28.c scale are present in an industry by
analyzing operating margins and analyzing operating margins and
sales levels sales levels
forecast the following costs: cost forecast the following costs: cost
Equity 10.29.d of goods sold, selling general and 10.28.d of goods sold, selling general and
administrative costs, financing administrative costs, financing
costs, and income taxes costs, and income taxes
describe approaches to balance describe approaches to balance
Equity 10.29.e 10.28.e
sheet modeling sheet modeling
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
describe the relationship between describe the relationship between
Equity 10.29.f return on invested capital and 10.28.f return on invested capital and
competitive advantage competitive advantage
explain how competitive factors explain how competitive factors
Equity 10.29.g 10.28.g
affect prices and costs affect prices and costs
judge the competitive position of judge the competitive position of
Equity 10.29.h a company based on a Porter’s 10.28.h a company based on a Porter’s
five forces analysis five forces analysis
explain how to forecast industry explain how to forecast industry
Equity 10.29.i and company sales and costs 10.28.i and company sales and costs
when they are subject to price when they are subject to price
inflation or deflation inflation or deflation
evaluate the effects of evaluate the effects of
Equity 10.29.j technological developments on 10.28.j technological developments on
demand, selling prices, costs, and demand, selling prices, costs, and
margins margins
explain considerations in the explain considerations in the
Equity 10.29.k choice of an explicit forecast 10.28.k choice of an explicit forecast
horizon horizon
explain an analyst’s choices in explain an analyst’s choices in
Equity 10.29.l developing projections beyond the 10.28.l developing projections beyond the
short-term forecast horizon short-term forecast horizon
demonstrate the development of a demonstrate the development of a
Equity 10.29.m sales-based pro forma company 10.28.m sales-based pro forma company
model model
compare dividends, free cash compare dividends, free cash
flow, and residual income as flow, and residual income as
Equity 10.30.a inputs to discounted cash flow 10.29.a inputs to discounted cash flow
models and identify investment models and identify investment
situations for which each measure situations for which each measure
is suitable is suitable
calculate and interpret the value calculate and interpret the value
of a common stock using the of a common stock using the
Equity 10.30.b dividend discount model (DDM) 10.29.b dividend discount model (DDM)
for single and multiple holding for single and multiple holding
periods periods
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
calculate and interpret the present calculate and interpret the present
Equity 10.30.e value of growth opportunities 10.29.e value of growth opportunities
(PVGO) and the component of the (PVGO) and the component of the
leading price-to-earnings ratio leading price-to-earnings ratio
(P/E) related to PVGO (P/E) related to PVGO
calculate and interpret the calculate and interpret the
Equity 10.30.f justified leading and trailing P/Es 10.29.f justified leading and trailing P/Es
using the Gordon growth model using the Gordon growth model
calculate the value of noncallable calculate the value of noncallable
Equity 10.30.g fixed-rate perpetual preferred 10.29.g fixed-rate perpetual preferred
stock stock
describe strengths and limitations describe strengths and limitations
Equity 10.30.h of the Gordon growth model and 10.29.h of the Gordon growth model and
justify its selection to value a justify its selection to value a
company’s common shares company’s common shares
explain the assumptions and explain the assumptions and
justify the selection of the two- justify the selection of the two-
Equity 10.30.i stage DDM, the H-model, the 10.29.i stage DDM, the H-model, the
three-stage DDM, or spreadsheet three-stage DDM, or spreadsheet
modeling to value a company’s modeling to value a company’s
common shares common shares
explain the growth phase, explain the growth phase,
Equity 10.30.j transitional phase, and maturity 10.29.j transitional phase, and maturity
phase of a business phase of a business
describe terminal value and describe terminal value and
Equity 10.30.k explain alternative approaches to 10.29.k explain alternative approaches to
determining the terminal value in determining the terminal value in
a DDM a DDM
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
calculate and interpret the value calculate and interpret the value
Equity 10.30.l of common shares using the two- 10.29.l of common shares using the two-
stage DDM, the H-model, and the stage DDM, the H-model, and the
three-stage DDM three-stage DDM
Equity 10.30.m estimate a required return based 10.29.m estimate a required return based
on any DDM, including the Gordon on any DDM, including the Gordon
growth model and the H-model growth model and the H-model
explain the use of spreadsheet explain the use of spreadsheet
Equity 10.30.n modeling to forecast dividends 10.29.n modeling to forecast dividends
and to value common shares and to value common shares
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
calculate and explain the use of calculate and explain the use of
Equity 11.32.l price multiples in determining 11.31.l price multiples in determining
terminal value in a multistage terminal value in a multistage
discounted cash flow (DCF) model discounted cash flow (DCF) model
explain alternative definitions of explain alternative definitions of
cash flow used in price and cash flow used in price and
Equity 11.32.m enterprise value (EV) multiples 11.31.m enterprise value (EV) multiples
and describe limitations of each and describe limitations of each
definition definition
calculate and interpret EV calculate and interpret EV
Equity 11.32.n multiples and evaluate the use of 11.31.n multiples and evaluate the use of
EV/EBITDA EV/EBITDA
explain sources of differences in explain sources of differences in
Equity 11.32.o cross-border valuation 11.31.o cross-border valuation
comparisons comparisons
describe momentum indicators describe momentum indicators
Equity 11.32.p 11.31.p
and their use in valuation and their use in valuation
explain the use of the arithmetic explain the use of the arithmetic
Equity 11.32.q mean, the harmonic mean, the 11.31.q mean, the harmonic mean, the
weighted harmonic mean, and the weighted harmonic mean, and the
median to describe the central median to describe the central
tendency of a group of multiples tendency of a group of multiples
evaluate whether a stock is evaluate whether a stock is
Equity 11.32.r overvalued, fairly valued, or 11.31.r overvalued, fairly valued, or
undervalued based on comparisons undervalued based on comparisons
of multiples of multiples
calculate and interpret residual calculate and interpret residual
Equity 11.33.a income, economic value added, 11.32.a income, economic value added,
and market value added and market value added
describe the uses of residual describe the uses of residual
Equity 11.33.b 11.32.b
income models income models
calculate the intrinsic value of a calculate the intrinsic value of a
common stock using the residual common stock using the residual
Equity 11.33.c income model and compare value 11.32.c income model and compare value
recognition in residual income and recognition in residual income and
other present value models other present value models
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
explain fundamental determinants explain fundamental determinants
Equity 11.33.d 11.32.d
of residual income of residual income
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Equity 11.34.j describe the asset-based approach 11.33.j describe the asset-based approach
to private company valuation to private company valuation
explain and evaluate the effects explain and evaluate the effects
Equity 11.34.k on private company valuations of 11.33.k on private company valuations of
discounts and premiums based on discounts and premiums based on
control and marketability control and marketability
describe the role of valuation describe the role of valuation
Equity 11.34.l standards in valuing private 11.33.l standards in valuing private
companies companies
describe relationships among spot describe relationships among spot
rates, forward rates, yield to rates, forward rates, yield to
Fixed Income 12.35.a maturity, expected and realized 12.34.a maturity, expected and realized
returns on bonds, and the shape returns on bonds, and the shape
of the yield curve of the yield curve
describe the forward pricing and describe the forward pricing and
Fixed Income 12.35.b forward rate models and calculate 12.34.b forward rate models and calculate
forward and spot prices and rates forward and spot prices and rates
using those models using those models
describe how zero-coupon rates describe how zero-coupon rates
Fixed Income 12.35.c (spot rates) may be obtained 12.34.c (spot rates) may be obtained
from the par curve by from the par curve by
bootstrapping bootstrapping
describe the assumptions describe the assumptions
concerning the evolution of spot concerning the evolution of spot
Fixed Income 12.35.d rates in relation to forward rates 12.34.d rates in relation to forward rates
implicit in active bond portfolio implicit in active bond portfolio
management management
describe the strategy of riding the describe the strategy of riding the
Fixed Income 12.35.e 12.34.e
yield curve yield curve
explain the swap rate curve and explain the swap rate curve and
Fixed Income 12.35.f why and how market participants 12.34.f why and how market participants
use it in valuation use it in valuation
calculate and interpret the swap calculate and interpret the swap
Fixed Income 12.35.g 12.34.g
spread for a given maturity spread for a given maturity
Fixed Income 12.35.h describe the Z-spread 12.34.h describe the Z-spread
describe the TED and Libor–OIS
Fixed Income 12.35.i 12.34.i describe the TED and Libor–OIS
spreads spreads
passingscorefinance.com 34
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Fixed Income 12.36.e describe the process of calibrating 12.35.e describe the process of calibrating
a binomial interest rate tree to a binomial interest rate tree to
match a specific term structure match a specific term structure
compare pricing using the zero- compare pricing using the zero-
Fixed Income 12.36.f coupon yield curve with pricing 12.35.f coupon yield curve with pricing
using an arbitrage-free binomial using an arbitrage-free binomial
lattice lattice
passingscorefinance.com 35
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Fixed Income 12.36.h describe a Monte Carlo forward- 12.35.h describe a Monte Carlo forward-
rate simulation and its application rate simulation and its application
describe fixed-income securities describe fixed-income securities
Fixed Income 13.37.a 13.36.a
with embedded options with embedded options
explain the relationships between explain the relationships between
the values of a callable or putable the values of a callable or putable
Fixed Income 13.37.b bond, the underlying option-free 13.36.b bond, the underlying option-free
(straight) bond, and the (straight) bond, and the
embedded option embedded option
describe how the arbitrage-free describe how the arbitrage-free
Fixed Income 13.37.c framework can be used to value a 13.36.c framework can be used to value a
bond with embedded options bond with embedded options
explain how interest rate volatility explain how interest rate volatility
Fixed Income 13.37.d affects the value of a callable or 13.36.d affects the value of a callable or
putable bond putable bond
explain how changes in the level explain how changes in the level
Fixed Income 13.37.e and shape of the yield curve 13.36.e and shape of the yield curve
affect the value of a callable or affect the value of a callable or
putable bond putable bond
calculate the value of a callable or calculate the value of a callable or
Fixed Income 13.37.f putable bond from an interest rate 13.36.f putable bond from an interest rate
tree tree
explain the calculation and use of explain the calculation and use of
Fixed Income 13.37.g 13.36.g
option-adjusted spreads option-adjusted spreads
Fixed Income 13.37.h explain how interest rate volatility 13.36.h explain how interest rate volatility
affects option-adjusted spreads affects option-adjusted spreads
calculate and interpret effective calculate and interpret effective
Fixed Income 13.37.i duration of a callable or putable 13.36.i duration of a callable or putable
bond bond
passingscorefinance.com 36
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
compare effective durations of compare effective durations of
Fixed Income 13.37.j callable, putable, and straight 13.36.j callable, putable, and straight
bonds bonds
describe the use of one-sided describe the use of one-sided
durations and key rate durations durations and key rate durations
Fixed Income 13.37.k to evaluate the interest rate 13.36.k to evaluate the interest rate
sensitivity of bonds with sensitivity of bonds with
embedded options embedded options
compare effective convexities of compare effective convexities of
Fixed Income 13.37.l callable, putable, and straight 13.36.l callable, putable, and straight
bonds bonds
Fixed Income 13.37.m calculate the value of a capped or 13.36.m calculate the value of a capped or
floored floating-rate bond floored floating-rate bond
Fixed Income 13.37.n describe defining features of a 13.36.n describe defining features of a
convertible bond convertible bond
calculate and interpret the calculate and interpret the
Fixed Income 13.37.o components of a convertible 13.36.o components of a convertible
bond’s value bond’s value
describe how a convertible bond is describe how a convertible bond is
Fixed Income 13.37.p valued in an arbitrage-free 13.36.p valued in an arbitrage-free
framework framework
compare the risk–return compare the risk–return
characteristics of a convertible characteristics of a convertible
Fixed Income 13.37.q bond with the risk–return 13.36.q bond with the risk–return
characteristics of a straight bond characteristics of a straight bond
and of the underlying common and of the underlying common
stock stock
explain probability of default, loss
given default, expected loss, and
present value of the expected loss explain expected exposure, the Wording
Fixed Income 13.38.a 13.37.a
and describe the relative loss given default, the probability Change
importance of each across the of default, and the credit
credit spectrum valuation adjustment
explain credit scoring and credit explain credit scoring and credit
Fixed Income 13.38.b 13.37.b
ratings ratings
explain strengths and weaknesses
Fixed Income 13.38.c Removed
of credit ratings
passingscorefinance.com 37
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
passingscorefinance.com 38
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
describe and compare how equity, describe and compare how equity,
Derivatives 14.40.a interest rate, fixed-income, and 14.39.a interest rate, fixed-income, and
currency forward and futures currency forward and futures
contracts are priced and valued contracts are priced and valued
calculate and interpret the no- calculate and interpret the no-
Derivatives 14.40.b arbitrage value of equity, interest 14.39.b arbitrage value of equity, interest
rate, fixed-income, and currency rate, fixed-income, and currency
forward and futures contracts forward and futures contracts
Derivatives 14.40.c describe and compare how interest 14.39.c describe and compare how interest
rate, currency, and equity swaps rate, currency, and equity swaps
are priced and valued are priced and valued
passingscorefinance.com 39
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
calculate and interpret the no- calculate and interpret the no-
Derivatives 14.40.d arbitrage value of interest rate, 14.39.d arbitrage value of interest rate,
currency, and equity swaps currency, and equity swaps
describe and interpret the describe and interpret the
Derivatives 14.41.a binomial option valuation model 14.40.a binomial option valuation model
and its component terms and its component terms
Derivatives 14.41.b calculate the no-arbitrage values 14.40.b calculate the no-arbitrage values
of European and American options of European and American options
using a two-period binomial model using a two-period binomial model
identify an arbitrage opportunity identify an arbitrage opportunity
Derivatives 14.41.c involving options and describe the 14.40.c involving options and describe the
related arbitrage related arbitrage
calculate and interpret the value calculate and interpret the value
Derivatives 14.41.d of an interest rate option using a 14.40.d of an interest rate option using a
two-period binomial model two-period binomial model
describe how the value of a describe how the value of a
European option can be analyzed European option can be analyzed
Derivatives 14.41.e as the present value of the 14.40.e as the present value of the
option’s expected payoff at option’s expected payoff at
expiration expiration
identify assumptions of the identify assumptions of the
Derivatives 14.41.f Black–Scholes–Merton option 14.40.f Black–Scholes–Merton option
valuation model valuation model
interpret the components of the interpret the components of the
Black–Scholes–Merton model as Black–Scholes–Merton model as
Derivatives 14.41.g applied to call options in terms of 14.40.g applied to call options in terms of
a leveraged position in the a leveraged position in the
underlying underlying
describe how the describe how the
Derivatives 14.41.h Black–Scholes–Merton model is 14.40.h Black–Scholes–Merton model is
used to value European options on used to value European options on
equities and currencies equities and currencies
describe how the Black model is describe how the Black model is
Derivatives 14.41.i used to value European options on 14.40.i used to value European options on
futures futures
passingscorefinance.com 40
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
describe how the Black model is describe how the Black model is
Derivatives 14.41.j used to value European interest 14.40.j used to value European interest
rate options and European rate options and European
swaptions swaptions
Derivatives 14.41.k interpret each of the option 14.40.k interpret each of the option
Greeks Greeks
Derivatives 14.41.l describe how a delta hedge is 14.40.l describe how a delta hedge is
executed executed
Derivatives 14.41.m describe the role of gamma risk in 14.40.m describe the role of gamma risk in
options trading options trading
define implied volatility and define implied volatility and
Derivatives 14.41.n explain how it is used in options 14.40.n explain how it is used in options
trading trading
Derivatives 14.42.b describe how to replicate an asset 14.41.b describe how to replicate an asset
by using options and by using cash by using options and by using cash
plus forwards or futures plus forwards or futures
describe the investment describe the investment
Derivatives 14.42.c objectives, structure, payoff, and 14.41.c objectives, structure, payoff, and
risk(s) of a covered call position risk(s) of a covered call position
describe the investment describe the investment
Derivatives 14.42.d objectives, structure, payoff, and 14.41.d objectives, structure, payoff, and
risks(s) of a protective put risks(s) of a protective put
position position
calculate and interpret the value calculate and interpret the value
at expiration, profit, maximum at expiration, profit, maximum
Derivatives 14.42.e profit, maximum loss, and 14.41.e profit, maximum loss, and
breakeven underlying price at breakeven underlying price at
expiration for covered calls and expiration for covered calls and
protective puts protective puts
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
calculate and interpret the value calculate and interpret the value
at expiration, profit, maximum at expiration, profit, maximum
profit, maximum loss, and profit, maximum loss, and
Derivatives 14.42.h breakeven underlying price at 14.41.h breakeven underlying price at
expiration of the following option expiration of the following option
strategies: bull spread, bear strategies: bull spread, bear
spread, collar, and straddle spread, collar, and straddle
Derivatives 14.42.i describe uses of calendar spreads 14.41.i describe uses of calendar spreads
identify and evaluate appropriate identify and evaluate appropriate
Derivatives 14.42.j derivatives strategies consistent 14.41.j derivatives strategies consistent
with given investment objectives with given investment objectives
Alternative classify and describe basic forms classify and describe basic forms
15.43.a 15.42.a
Investments of real estate investments of real estate investments
describe the characteristics, the describe the characteristics, the
Alternative
15.43.b classification, and basic segments 15.42.b classification, and basic segments
Investments
of real estate of real estate
explain the role in a portfolio, explain the role in a portfolio,
Alternative economic value determinants, economic value determinants,
15.43.c investment characteristics, and 15.42.c investment characteristics, and
Investments
principal risks of private real principal risks of private real
estate estate
describe commercial property describe commercial property
Alternative
15.43.d types, including their distinctive 15.42.d types, including their distinctive
Investments
investment characteristics investment characteristics
compare the income, cost, and compare the income, cost, and
Alternative
15.43.e sales comparison approaches to 15.42.e sales comparison approaches to
Investments
valuing real estate properties valuing real estate properties
passingscorefinance.com 42
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
estimate and interpret the inputs estimate and interpret the inputs
(for example, net operating (for example, net operating
Alternative income, capitalization rate, and income, capitalization rate, and
15.43.f 15.42.f
Investments discount rate) to the direct discount rate) to the direct
capitalization and discounted cash capitalization and discounted cash
flow valuation methods flow valuation methods
calculate the value of a property calculate the value of a property
Alternative using the direct capitalization and using the direct capitalization and
15.43.g 15.42.g
Investments discounted cash flow valuation discounted cash flow valuation
methods methods
compare the direct capitalization compare the direct capitalization
Alternative
15.43.h and discounted cash flow valuation 15.42.h and discounted cash flow valuation
Investments
methods methods
calculate the value of a property calculate the value of a property
Alternative
15.43.i using the cost and sales 15.42.i using the cost and sales
Investments
comparison approaches comparison approaches
Alternative describe due diligence in private describe due diligence in private
15.43.j 15.42.j
Investments equity real estate investment equity real estate investment
discuss private equity real estate discuss private equity real estate
Alternative investment indexes, including investment indexes, including
15.43.k 15.42.k
Investments their construction and potential their construction and potential
biases biases
explain the role in a portfolio, the explain the role in a portfolio, the
major economic value major economic value
Alternative determinants, investment determinants, investment
15.43.l 15.42.l
Investments characteristics, principal risks, and characteristics, principal risks, and
due diligence of private real due diligence of private real
estate debt investment estate debt investment
calculate and interpret financial calculate and interpret financial
Alternative
15.43.m ratios used to analyze and 15.42.m ratios used to analyze and
Investments evaluate private real estate evaluate private real estate
investments investments
Alternative
15.44.a describe types of publicly traded 15.43.a describe types of publicly traded
Investments real estate securities real estate securities
explain advantages and explain advantages and
Alternative disadvantages of investing in real disadvantages of investing in real
15.44.b 15.43.b
Investments estate through publicly traded estate through publicly traded
securities securities
passingscorefinance.com 43
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Alternative
15.45.d describe valuation issues in buyout 15.44.d describe valuation issues in buyout
Investments
and venture capital transactions and venture capital transactions
passingscorefinance.com 44
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
explain alternative exit routes in explain alternative exit routes in
Alternative
15.45.e private equity and their impact on 15.44.e private equity and their impact on
Investments
value value
explain private equity fund explain private equity fund
Alternative structures, terms, valuation, and structures, terms, valuation, and
15.45.f due diligence in the context of an 15.44.f due diligence in the context of an
Investments
analysis of private equity fund analysis of private equity fund
returns returns
Alternative explain risks and costs of explain risks and costs of
15.45.g 15.44.g
Investments investing in private equity investing in private equity
interpret and compare financial interpret and compare financial
Alternative performance of private equity performance of private equity
15.45.h 15.44.h
Investments funds from the perspective of an funds from the perspective of an
investor investor
calculate management fees, calculate management fees,
carried interest, net asset value, carried interest, net asset value,
Alternative distributed to paid in (DPI), distributed to paid in (DPI),
15.45.i 15.44.i
Investments residual value to paid in (RVPI), residual value to paid in (RVPI),
and total value to paid in (TVPI) and total value to paid in (TVPI)
of a private equity fund of a private equity fund
passingscorefinance.com 45
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
contrast the valuation of contrast the valuation of
Alternative
15.46.c commodities with the valuation of 15.45.c commodities with the valuation of
Investments
equities and bonds equities and bonds
Alternative describe types of participants in describe types of participants in
15.46.d 15.45.d
Investments commodity futures markets commodity futures markets
analyze the relationship between analyze the relationship between
Alternative spot prices and expected future spot prices and future prices in Wording
15.46.e 15.45.e
Investments prices in markets in contango and markets in contango and markets Change
markets in backwardation in backwardation
Alternative compare theories of commodity compare theories of commodity
15.46.f 15.45.f
Investments futures returns futures returns
describe, calculate, and interpret describe, calculate, and interpret
Alternative the components of total return for the components of total return for
15.46.g 15.45.g
Investments a fully collateralized commodity a fully collateralized commodity
futures contract futures contract
contrast roll return in markets in contrast roll return in markets in
Alternative
15.46.h contango and markets in 15.45.h contango and markets in
Investments
backwardation backwardation
describe how commodity swaps describe how commodity swaps
Alternative
15.46.i are used to obtain or modify 15.45.i are used to obtain or modify
Investments
exposure to commodities exposure to commodities
describe how the construction of describe how the construction of
Alternative
15.46.j commodity indexes affects index 15.45.j commodity indexes affects index
Investments
returns returns
Portfolio explain the importance of the explain the importance of the
16.47.a 16.46.a
Management portfolio perspective portfolio perspective
describe the steps of the portfolio describe the steps of the portfolio
Portfolio
16.47.b management process and the 16.46.b management process and the
Management
components of those steps components of those steps
explain the role of the investment explain the role of the investment
Portfolio policy statement in the portfolio policy statement in the portfolio
16.47.c 16.46.c
Management management process and describe management process and describe
the elements of an investment the elements of an investment
policy statement policy statement
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
passingscorefinance.com 47
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
explain sources of active risk and explain sources of active risk and
Portfolio
16.48.e interpret tracking risk and the 16.47.e interpret tracking risk and the
Management
information ratio information ratio
describe uses of multifactor describe uses of multifactor
Portfolio models and interpret the output of models and interpret the output of
16.48.f 16.47.f
Management analyses based on multifactor analyses based on multifactor
models models
describe the potential benefits for describe the potential benefits for
Portfolio investors in considering multiple investors in considering multiple
16.48.g 16.47.g
Management risk dimensions when modeling risk dimensions when modeling
asset returns asset returns
Portfolio explain the use of value at risk explain the use of value at risk
16.49.a 16.48.a
Management (VaR) in measuring portfolio risk (VaR) in measuring portfolio risk
compare the parametric compare the parametric
Portfolio (variance–covariance), historical (variance–covariance), historical
16.49.b simulation, and Monte Carlo 16.48.b simulation, and Monte Carlo
Management
simulation methods for estimating simulation methods for estimating
VaR VaR
estimate and interpret VaR under estimate and interpret VaR under
Portfolio the parametric, historical the parametric, historical
16.49.c 16.48.c
Management simulation, and Monte Carlo simulation, and Monte Carlo
simulation methods simulation methods
Portfolio describe advantages and describe advantages and
16.49.d 16.48.d
Management limitations of VaR limitations of VaR
Portfolio
16.49.e 16.48.e
Management describe extensions of VaR describe extensions of VaR
describe sensitivity risk measures describe sensitivity risk measures
Portfolio
16.49.f and scenario risk measures and 16.48.f and scenario risk measures and
Management
compare these measures to VaR compare these measures to VaR
demonstrate how equity, fixed- demonstrate how equity, fixed-
Portfolio income, and options exposure income, and options exposure
16.49.g measures may be used in 16.48.g measures may be used in
Management
measuring and managing market measuring and managing market
risk and volatility risk risk and volatility risk
describe the use of sensitivity risk describe the use of sensitivity risk
Portfolio
16.49.h measures and scenario risk 16.48.h measures and scenario risk
Management
measures measures
passingscorefinance.com 48
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
Portfolio
16.49.l explain how risk measures may be 16.48.l explain how risk measures may be
Management
used in capital allocation decisions used in capital allocation decisions
explain the notion that to affect explain the notion that to affect
market values, economic factors market values, economic factors
must affect one or more of the must affect one or more of the
Portfolio following: 1) default-free interest following: 1) default-free interest
17.50.a 17.49.a
Management rates across maturities, 2) the rates across maturities, 2) the
timing and/or magnitude of timing and/or magnitude of
expected cash flows, and 3) risk expected cash flows, and 3) risk
premiums premiums
explain the role of expectations explain the role of expectations
Portfolio
17.50.b and changes in expectations in 17.49.b and changes in expectations in
Management
market valuation market valuation
passingscorefinance.com 49
Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
explain how the phase of the explain how the phase of the
business cycle affects policy and business cycle affects policy and
Portfolio short-term interest rates, the short-term interest rates, the
17.50.d slope of the term structure of 17.49.d slope of the term structure of
Management
interest rates, and the relative interest rates, and the relative
performance of bonds of differing performance of bonds of differing
maturities maturities
describe the factors that affect describe the factors that affect
Portfolio yield spreads between non- yield spreads between non-
17.50.e 17.49.e
Management inflation-adjusted and inflation- inflation-adjusted and inflation-
indexed bonds indexed bonds
explain how the phase of the explain how the phase of the
Portfolio business cycle affects credit business cycle affects credit
17.50.f spreads and the performance of 17.49.f spreads and the performance of
Management
credit-sensitive fixed-income credit-sensitive fixed-income
instruments instruments
explain how the characteristics of explain how the characteristics of
Portfolio the markets for a company’s the markets for a company’s
17.50.g 17.49.g
Management products affect the company’s products affect the company’s
credit quality credit quality
explain how the phase of the explain how the phase of the
Portfolio business cycle affects short-term business cycle affects short-term
17.50.h 17.49.h
Management and long-term earnings growth and long-term earnings growth
expectations expectations
explain the relationship between explain the relationship between
Portfolio the consumption-hedging the consumption-hedging
17.50.i 17.49.i
Management properties of equity and the equity properties of equity and the equity
risk premium risk premium
Portfolio describe cyclical effects on describe cyclical effects on
17.50.j 17.49.j
Management valuation multiples valuation multiples
Portfolio
17.50.l describe how economic analysis is 17.49.l describe how economic analysis is
Management
used in sector rotation strategies used in sector rotation strategies
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Topic LOS Level II - 2018 (465 LOS) LOS Level II - 2019 (471 LOS) Compared
describe the economic factors describe the economic factors
Portfolio
17.50.m affecting investment in 17.49.m affecting investment in
Management
commercial real estate commercial real estate
Portfolio
17.51.a describe how value added by 17.50.a describe how value added by
Management active management is measured active management is measured
calculate and interpret the calculate and interpret the
Portfolio information ratio (ex post and ex information ratio (ex post and ex
17.51.b 17.50.b
Management ante) and contrast it to the ante) and contrast it to the
Sharpe ratio Sharpe ratio
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