Schweser Secret Sauce : CFA Level 1 2023

Schweser’s Secret Sauce®
	Level I CFA
Quantitative Methods
	The Time Value of Money
		Present and Future Value of an Annuity Due
	ORGANIZING, VISUALIZING, AND DESCRIBING DATA
		Displaying Data
		Measures of Central Tendency
		Measures of Dispersion
		Skewness and Kurtosis
	Probability Concepts
		Important Terms
		Odds For and Against
		Multiplication Rule for Joint Probability
		Addition Rule
		Total Probability Rule
		Covariance
		Correlation
		Expected Return and Variance of a Portfolio of Two Stocks
	Common Probability Distributions
		Uniform Distributions
		The Binomial Distribution
		Normal Distribution: Properties
		Calculating Probabilities Using the Standard Normal Distribution
		Confidence Intervals: Normal Distribution
		Student’s t-Distribution
		Shortfall Risk and Safety-First Ratio
		Lognormal Distribution
		Continuously Compounded Returns
		Chi-Square and F Distributions
		Simulation
	Sampling and Estimation
		Sample Biases
		Central Limit Theorem
	Hypothesis Testing
		Steps in Hypothesis Testing
		Null and Alternative Hypotheses
		Two-Tailed and One-Tailed Tests
		Test Statistic
		Type I and Type II Errors
		Significance Level (α)
		Economically Meaningful Results
		p-Values
		Other Hypothesis Tests
		Parametric and Nonparametric Tests
	Introduction to Linear Regression
		Assumptions of Simple Linear Regression
		Analysis of Variance (ANOVA)
		Hypothesis Test of the Slope Coefficient
		Predicted Values and Confidence Intervals
		Linear Regression with Transformed Variables
Economics
	Topics in Demand and Supply Analysis
		Elasticity
		Income and Substitution Effects
		Diminishing Marginal Returns
		Breakeven and Shutdown
		Economies and Diseconomies of Scale
	The Firm and Market Structures
		Characteristics of Market Structures
		Demand Characteristics
		Supply Curves and Market Structure
	Aggregate Output, Prices, and Economic Growth
	Understanding Business Cycles
		Credit Cycles
		Business Cycle Theories
		Leading, Coincident, and Lagging Indicators
		Unemployment
		Inflation
	Monetary and Fiscal Policy
	Introduction to Geopolitics
		Geopolitical Risk
	International Trade and Capital Flows
		Types of Trade Restrictions
		Balance of Payments Accounts
	Currency Exchange Rates
Financial Statement Analysis
	Introduction to Financial Statement Analysis
		Audit Reports
		Other Information Sources
	Financial Reporting Standards
		Qualitative Characteristics
		Constraints and Assumptions
		Required Financial Statements
	Understanding Income Statements
		Presentation Formats
		Revenue Recognition
		Expense Recognition
		Depreciation
		Inventory
		Intangible Assets
		Operating and Nonoperating Components of the Income Statement
		Discontinued Operations
		Accounting Changes
		Earnings Per Share
		Basic EPS
		Diluted EPS
		Treasury Stock Method
		Financial Ratios Based on the Income Statement
		Items Excluded from the Income Statement that Affect Owners’ Equity
	Understanding Balance Sheets
		Accrual Process
		Current and Noncurrent Assets and Liabilities
		Measurement Bases of Assets and Liabilities
		Tangible Assets
		Intangible Assets
		Accounting Treatments for Financial Instruments
		Components of Owners’ Equity
		Analysis of the Balance Sheet
	Understanding Cash Flow Statements
		Differences Between U.S. GAAP and IFRS
		Direct Method and Indirect Methods Calculating CFO
		Direct Method
		Indirect Method
		Disclosure Requirements
		Investing and Financing Cash Flows
		Analysis of the Cash Flow Statement
		Cash Flow Ratios That Measure Performance
		Cash Flow Ratios That Measure Coverage
	Financial Analysis Techniques
		Usefulness and Limitations of Ratio Analysis
		Pro Forma Financial Statements
	Inventories
		Inventory Cost Allocation Methods
		Inventory Values on the Balance Sheet
		Periodic and Perpetual Inventory Systems
		LIFO vs. FIFO
		LIFO Reserve
		LIFO Liquidation
		Ratios for Evaluating Inventory Management
		Ratios and Inventory Method
	Long-lived Assets
		Internally Created Intangible
		Depreciation
		Financial Statement Effects of Depreciation Methods
		Useful Lives and Salvage Values
		Intangible Assets
		Derecognition of Long-Lived Assets
		Impairments
		Asset Revaluations
		Analysis of Long-Lived Assets
		Investment Property
	Income Taxes
		Deferred Tax Liabilities
		Deferred Tax Assets
		DTL and DTA Calculations
		Permanent vs. Temporary Differences
		Valuation Allowance
	Non-current (Long-term) Liabilities
		Derecognition of Debt
		Leases
		Lessee Financial Reporting
		Lessor Financial Reporting
		Pension Plans
	Financial Reporting Quality
		Neutral Accounting vs. Conservative or Aggressive Accounting
		Motivations and Conditions for Low-Quality Financial Reporting
		Non-GAAP Measures
		Accounting Methods, Choices and Estimates, and Warning Signs
	Applications of Financial Statement Analysis
		Analysis Based on Ratios
		Forecasting Financial Performance for a Firm
		Role of Financial Statement Analysis in Assessing Credit Quality
		Screening for Potential Equity Investments
		Financial Statement Adjustments to Facilitate Comparisons
Corporate Issuers
	Corporate Structures and Ownership
		Claims of Lenders and Owners
	Introduction to Corporate Governance and Other ESG Considerations
		Stakeholder Groups
		Potential Conflicts Among Stakeholder Groups
		Managing Stakeholder Relationships
			Shareholder Mechanisms
			Board of Directors and Management Mechanisms
		Risks of Poor Governance
		Benefits of Effective Governance
		Environmental, Social, and Governance (ESG) Investment Considerations
			Approaches to Integrating ESG Factors Into Portfolio Management
		Business Models & Risks
		Pricing Strategies
		External Environment and Financing Needs
	CAPITAL INVESTMENTS
		Net Present Value
		Internal Rate of Return
		Return on Invested Capital
		Real Options
		Capital Allocation Pitfalls
	WORKING CAPITAL & LIQUIDITY
		Evaluating a Company’s Liquidity
		Choices of Short-Term Funding
	Cost of Capital—Foundational Topics
		Beta Estimation and Flotation Costs
	Capital Structure
		Modigliani-Miller Propositions
		Target Capital Structure
		Factors Affecting Target Capital Structure
		Competing Stakeholder Interests
	Measures of Leverage
		Business Risk vs. Financial Risk
		Breakeven Quantity of Sales
		Effects of Operating Leverage and Financial Leverage
Equity Investments
	Market Organization and Structure
		Assets and Markets
		Types of Securities
		Contracts
		Currencies, Commodities, and Real Assets
		Brokers, Dealers, and Exchanges
		Investment Positions
		Margin Transactions
		Bid and Ask Prices
		Execution Instructions
		Validity Instructions
		Primary and Secondary Markets
		Market Structures
		Characteristics of a Well-Functioning Financial System
	Security Market Indexes
		Index Weighting Methods
		Rebalancing and Reconstitution
		Index Types
	Market Efficiency
		Forms of the Efficient Markets Hypothesis
		Identified Market Pricing Anomalies
		Behavioral Finance
	Overview of Equity Securities
		Types of Equity Securities
		Private Equity
		Voting Rights
		Foreign Equity
		Methods for Investing in Foreign Companies
		Equity Risk and Return Characteristics
		Market and Book Value of Equity
	Introduction to Industry and Company Analysis
		Industry Classification Systems
		Other Classification Methods
		Peer Groups
		Elements of an Industry Analysis
		External Influences on Industries
		Industry Life Cycle
		Industry Concentration
		Ease of Entry
		Capacity
		Market Share Stability
		Five Forces that Determine Industry Competition
		Company Analysis
	Equity Valuation: Concepts and Basic Tools
		Categories of Equity Valuation Models
		Dividends
			Dividend Payment Chronology
			Stock Dividends, Stock Splits, and Reverse Stock Splits
			Share Repurchases
		Preferred Stock Valuation
		Dividend Discount Models (DDM)
		Estimating the Growth Rate in Dividends
		Using Price Multiples to Value Equity
		Enterprise Value Multiples
		Asset-Based Valuation Models
		Advantages and Disadvantages of Valuation Models
Fixed Income
	Fixed-Income Securities: Defining Elements
		How Fixed Income Cash Flows Are Structured
		Contingency Provisions in Bonds
	Fixed-Income Markets: Issuance, Trading, and Funding
		Primary Market for Bonds
		Secondary Market for Bonds
		Government and Agency Bonds
		Corporate Debt
		Structured Financial Instruments
		Funding Alternatives for Banks
		Repurchase Agreements
	Introduction to Fixed-Income Valuation
		Yield Measures
		Yield Curves, Spot Rates, and Forward Rates
		Yield Spreads
	Introduction to Asset-Backed Securities
		Parties to a Securitization Transaction and Their Functions
		Residential Mortgage Loans
		Residential Mortgage-backed Securities (RMBS)
		Non-Mortgage ABS
		Collateralized Debt Obligations
		Covered Bonds
	Understanding Fixed-Income Risk and Return
		Empirical and Analytical Duration
	Fundamentals of Credit Analysis
		Credit Ratings
		Credit Analysis
			Financial Ratios Used in Credit Analysis
		Yield Spreads
		High-Yield Debt
		Sovereign and Non-Sovereign Government Debt
Derivatives
	Derivative Instrument and Derivative Market Features
	Forward Commitment and Contingent Claim Features and Instruments
		Forward Contracts
		Futures Contracts
		Swap Contracts
		Options
		Call Option Payoff Diagrams
		Put Option Diagrams
	Derivative Benefits, Risks, and Issuer and Investor Uses
	Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
		Costs and Benefits of Holding an Underlying Asset
	Pricing and Valuation of Forward Contracts and for an Underlying With Varying Maturities
		Forward Rate Agreements
	Pricing and Valuation of Futures Contracts
		Interest Rate Futures and Forward Prices
	Pricing and Valuation of Interest Rates and Other Swaps
	Pricing and Valuation of Options
		Options: Moneyness, Intrinsic Value, Time Value
		Factors Determining European Option Values
			Price of the Underlying Asset
			The Exercise Price
			The Risk-Free Rate of Interest
			Volatility of the Underlying
			Time to Expiration
			Costs and Benefits of Holding the Asset
	Option Replication Using Put–Call Parity
		Put-Call Parity for European Options
		Put-Call Forward Parity for European Options
	Valuing a Derivative Using a One-Period Binomial Model
Alternative Investments
	CATEGORIES, CHARACTERISTICS, AND COMPENSATION STRUCTURES OF ALTERNATIVE INVESTMENTS
		Investment Methods
		Investment and Compensation Structures
		PERFORMANCE CALCULATION AND APPRAISAL OF ALTERNATIVE INVESTMENTS
	PRIVATE CAPITAL, REAL ESTATE, INFRASTRUCTURE, NATURAL RESOURCES, AND HEDGE FUNDS
		Private Equity
		Private Debt
		Commodities
		Farmland and Timberland
		Real Estate
		Infrastructure
		Hedge Funds
Portfolio Management
	Portfolio Management: An Overview
		The Portfolio Perspective
		Steps in the Portfolio Management Process
		Investment Management Clients
		The Asset Management Industry
	Portfolio Risk And Return: Part I
		Risk and Return of Major Asset Classes
		Variance and Standard Deviation
		Covariance and Correlation
		Risk Aversion
		Risk and Return for a Portfolio of Risky Assets
		Efficient Frontier
		An Investor’s Optimal Portfolio
		Security Market Line Systematic and Unsystematic Risk
		Return Generating Models
		Beta
		SML and Equilibrium
	Basics Of Portfolio Planning And Construction
		Importance of Investment Policy Statement
		Risk and Return Objectives
		Risk Tolerance
		Investment Objectives and Constraints
		Asset Allocation
		ESG Considerations in Portfolio Planning and Construction
	The Behavioral Biases of Individuals
		Cognitive Errors vs. Emotional Biases
		Cognitive Errors: Belief Perseverance Biases
		Cognitive Errors: Information Processing Biases
		Emotional Biases
		Behavioral Biases and Market Anomalies
	Introduction to Risk Management
	Technical Analysis
		Principles of Technical Analysis
		Technical Analysis and Behavioral Finance
		Technical Analysis and Fundamental Analysis
		Types of Charts
		Trend, Support, and Resistance
		Common Chart Patterns
		Price-Based Indicators
		Non–Price-Based Indicators
		Intermarket Analysis
		Technical Analysis and Portfolio Management
	Fintech in Investment Management
		Big Data
		Fintech Applications
		Distributed Ledger Technology (DLT)
Ethical and Professional Standards
	Ethics and Trust in the Investment Profession
		Ethical vs. Legal Standards
		Framework for Ethical Decision Making
	CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT
		Code and Standards
	GUIDANCE FOR STANDARDS I–VII
	Introduction to the Global Investment Performance Standards (GIPS®)
		Why GIPS Were Created
		Who GIPS Apply To
		GIPS Standards for Firms
		Composites
		Definition of the Firm
		Definition of Discretion
		Verification of GIPS Compliance
	Ethics Application
Essential Exam Strategies
	A Formidable Task
	The Big Picture
	Know the Main Concepts
	Topic Weighting
	Formulas
	“Characteristic” Lists
	Acronyms
	Know Your Strengths
	The Rules
	Final Preparation—The Week Before Your Exam
	Exam Windows and Computer-Based Testing
	Different Topic Areas in Each Session
	Exam Day
	What To Do With a Difficult Question
	Time Management
	Question Formats at Level I
	Specific Types of Questions You Should Expect
		Cause and Effect Problems
		Long Questions
		Tempting but Unnecessary Calculations
		Indirect or Confusing Wording
		“Distractor” Answers That Are True But Not Correct
		Answer Choices That Can Be Eliminated
Index