Cfa 2019 Schweser - Level 1 Schweser’s Quicksheet: Critical Concepts For The 2019 Cfa Exam

/ C r i t i c a l C o n c e pt s f o r t h e 2 0 1 9 ETHICAL AND PROFESSIONAL STANDARDS I 1(A) 1(B) 1(C) 1(D) II 11(A) 11(B) III III (A) III(B) III(C) III(D) III(E) IV IV(A) IV(B) IV(C) V V(A) V(B) V(C) VI VI(A) VI (B) VI(C) VII VII(A) VII(B) Professionalism Knowledge of the Law. Independence and Objectivity. Misrepresentation. Misconduct. Integrity of Capital Markets Material Nonpublic Information. Market Manipulation. Duties to Clients Loyalty, Prudence, and Care. Fair Dealing. Suitability. Performance Presentation. Preservation of Confidentiality. Duties to Employers Loyalty. Additional Compensation Arrangements. Responsibilities of Supervisors. Investment Analysis, Recommendations, and Actions Diligence and Reasonable Basis. Communication with Clients and Prospective Clients. Record Retention. Conflicts of Interest Disclosure of Conflicts. Priority of Transactions. Referral Fees. Responsibilities as a CFA Institute Member or CFA Candidate Conduct as Participants in CFA Institute Programs. Reference to CFA Institute, the CFA Designation, and the CFA Program. Global Investment Performance Standards (GIPS®) • Compliance statement: “[Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS).” Compliance must be applied on a firm-wide basis. • Nine sections: fundamentals of compliance, input data, calculation methodology, composite construction, disclosures, presentation and reporting, real estate, private equity, and wrap fee/separately managed account portfolios. QUANTITATIVE METHODS Time Value of Money Basics • Future value (FV): amount to which investment grows after one or more compounding periods. • Future value: FV = PV(1 + I/Y)N. • Present value (PV): current value of some future cash flow PV - FV/(1 + I/Y)N. • Annuities: series of equal cash flows that occur at evenly spaced intervals over time. • Ordinary annuity: cash flow at end-oFum e. period. • Annuity due: cash flow at beginning- of-time period. • Perpetuities: annuities with infinite lives. PVperpetuity . = PMT/(discount rate). v Required Rate o f Return Components: 1. Real risk-free rate (RFR). 2. Expected inflation rate premium (IP). 3. Risk premium. E(R) = (1 + RFRreal)(l + IP)(1 + RP) —1 C FA® Approximation formula for nominal required rate: E(R) = RFR + IP + RP Means A rithmetic mean: sum of all observation values in sample/population, divided by # of observations. Geometric mean: used when calculating investment returns over multiple periods or to measure compound growth rates. Geometric mean return: YN * —1 Rc = [(l + R1) x ...x ( l + R N)]/ harm onic mean = N N E i=l , x [ , Variance and Standard Deviation Variance: average of squared deviations from mean. N £ ( Xi— M)2 population variance = cr2=— -------------N n E (x i- x )2 sample variance = s2= i=l n —1 Standard deviation: square root of variance. Holding Period Return (HPR) R P r-P r-t+ D r or Pt-1 _! Pt-1 Coefficient of Variation C oefficient o f variation (C V): expresses how much dispersion exists relative to mean of a distribution; allows for direct comparison of dispersion across different data sets. CV is calculated by dividing standard deviation of a distribution by the mean or expected value of the distribution: CV = = X Sharpe Ratio Sharpe ratio: measures excess return per unit of risk. c, • =— rP------rf bnarpe ratio a„ Roy's safety-first ratio: Ex a m Expected return, variance o f 2-stock portfolio. E (R P) = w a E(Ra ) + w b E(Rb) v ar