Contents 1. Welcome to the 2019 SchweserNotes™ 2. Learning Outcome Statements (LOS) 3. Study Session 1—Ethical and Professional Standards 1. Reading 1: Ethics and Trust in the Investment Profession 1. Exam Focus 2. Module 1.1: Ethics and Trust 3. Key Concepts 4. Answer Key for Module Quiz 2. Reading 2: Code of Ethics and Standards of Professional Conduct 1. Exam Focus 2. Module 2.1: Code and Standards 3. Answer Key for Module Quiz 3. Reading 3: Guidance for Standards I–VII 1. Exam Focus 2. Module 3.1: Guidance for Standards I(A) and I(B) 3. Module 3.2: Guidance for Standards I(C) and I(D) 4. Module 3.3: Guidance for Standard II 5. Module 3.4: Guidance for Standards III(A) and III(B) 6. Module 3.5: Guidance for Standards III(C), III(D), and III(E)
7. Module 3.6: Guidance for Standard IV 8. Module 3.7: Guidance for Standard V 9. Module 3.8: Guidance for Standard VI 10. Module 3.9: Guidance for Standard VII 11. Answer Key for Module Quizzes 4. Reading 4: Introduction to the Global Investment Performance Standards (GIPS®) 1. Exam Focus 2. Module 4.1: Introduction to GIPS 3. Key Concepts 4. Answer Key for Module Quiz 5. Reading 5: The GIPS Standards 1. Module 5.1: The GIPS Standards 2. Key Concepts 3. Answer Key for Module Quiz 4. Topic Assessment: Ethical and Professional Standards 5. Topic Assessment Answers: Ethical and Professional Standards 6. Study Session 2—Quantitative Methods (1) 1. Reading 6: The Time Value of Money 1. Exam Focus 2. Module 6.1: EAY and Compounding Frequency 3. Module 6.2: Calculating PV and FV 4. Module 6.3: Uneven Cash Flows
5. Key Concepts 6. Answer Key for Module Quizzes 2. Reading 7: Discounted Cash Flow Applications 1. Exam Focus 2. Module 7.1: NPV, IRR, and HPR 3. Module 7.2: Returns and Yields 4. Key Concepts 5. Answer Key for Module Quizzes 3. Reading 8: Statistical Concepts and Market Returns 1. Exam Focus 2. Module 8.1 Describing Data Sets 3. Module 8.2: Means and Variance 4. Module 8.3: Skew, Kurtosis, and Sharpe Ratio 5. Key Concepts 6. Answer Key for Module Quizzes
4. Reading 9: Probability Concepts 1. Exam Focus 2. Module 9.1: Conditional and Joint Probabilities 3. Module 9.2: Conditional Expectations, Correlation 4. Module 9.3: Portfolio Variance, Bayes, and Counting Problems 5. Key Concepts 6. Answer Key for Module Quizzes 7. Study Session 3—Quantitative Methods (2) 1. Reading 10: Common Probability Distributions 1. Exam Focus 2. Module 10.1: Uniform and Binomial Distributions 3. Module 10.2: Normal Distributions 4. Module 10.3: Lognormal Distribution, Simulations 5. Key Concepts 6. Answer Key for Module Quizzes 2. Reading 11: Sampling and Estimation 1. Exam Focus 2. Module 11.1: Central Limit Theorem and Standard Error 3. Module 11.2: Confidence Intervals and t-Distribution 4. Key Concepts 5. Answer Key for Module Quizzes 3. Reading 12: Hypothesis Testing 1. Exam Focus 2. Module 12.1: Hypothesis Tests and Types of Errors 3. Module 12.2: Tests of Means and p-Values 4. Module 12.3: Mean Differences, Difference in Means 5. Key Concepts 6. Answer Key for Module Quizzes 4. Reading 13: Technical Analysis 1. Exam Focus 2. Module 13.1: Technical Analysis 专业提供CFA/FRM/AQF视频课程资料 微信：fcayyh
8. 9. 10. 11.
3. Key Concepts 4. Answer Key for Module Quiz Topic Assessment: Quantitative Methods Topic Assessment Answers: Quantitative Methods Formulas Appendices 1. Appendix A: Areas Under The Normal Curve 2. Cumulative Z-Table 3. Appendix B: Student’s t-Distribution 4. Appendix C: F-Table at 5% (Upper Tail) 5. Appendix D: F-Table at 2.5% (Upper Tail) 6. Appendix E: Chi-Squared table
Kaplan Schweser’s Path to Success Level I CFA® Exam Welcome As the head of Advanced Designations at Kaplan Schweser, I am pleased to have the opportunity to help you prepare for the CFA® exam. Kaplan Schweser has decades of experience in delivering the most effective CFA exam prep products in the market and I know you will find them to be invaluable in your studies. 专业提供CFA/FRM/AQF视频课程资料 微信：fcayyh Our products are designed to be an integrated study solution across print and digital media to provide you the best learning experience, whether you are studying with a physical book, online, or on your mobile device. Our core product, the SchweserNotes™, addresses all of the Topics, Study Sessions, Readings, and LOS in the CFA curriculum. Each reading in the SchweserNotes has been broken into smaller, bite-sized modules with Module Quizzes interspersed throughout to help you continually assess your comprehension. Topic Assessments appear at the end of each Topic to help you assess your knowledge of the material before you move on to the next section. All purchasers of the SchweserNotes receive online access to the Kaplan Schweser online platform (our learning management system or LMS) at www.Schweser.com. In the LMS, you will see a dashboard that tracks your overall progress and performance and also includes an Activity Feed, which provides structure and organization to the tasks required to prepare for the CFA exam. You also have access to the SchweserNotes, Module Quizzes, and Topic Assessments content as well as the Video Lectures (if purchased), which contain a short video that complements each module in the SchweserNotes. Look for the icons indicating where video content, Module Quizzes, and Topic Assessments are available online. I strongly encourage you to enter your Module Quiz and Topic Assessment answers online and use the dashboard to track your progress and stay motivated. Again, thank you for trusting Kaplan Schweser with your CFA exam preparation. We’re here to help you throughout your journey to become a CFA charterholder. Regards,
Derek Burkett Derek Burkett, CFA, FRM, CAIA Vice President (Advanced Designations) Contact us for questions about your study package, upgrading your package, purchasing additional study materials, or for additional information: 888.325.5072 (U.S.) | +1 608.779.8327 (Int’l.) firstname.lastname@example.org | www.schweser.com/cfa
WELCOME TO THE 2019 SCHWESERNOTES™ Thank you for trusting Kaplan Schweser to help you pass the Level I CFA exam. You have made an exceptionally good decision, and we congratulate you for taking on the challenge of earning your CFA charter. Your first step should be to view the “How to Pass the Level I CFA Exam” video (available in your Resource Library), in which I explain the structure of the Level I exam, the format of exam questions, and topic area exam weights. We also provide advice on interpreting the (500+) Level I CFA Learning Outcome Statements (LOS), how to create an effective study plan, and study techniques based on research in learning science. Understanding the exact nature of the challenge you have taken on is an important first step in preparing to pass the Level I CFA exam. The next step is to study and learn the material required for the exam. The best time to begin that study is today (regardless of when you are reading this). Less than 40% of those who register for a Level I exam pass the exam (including re-takers). For many, passing the exam is a formidable challenge. One of reasons candidates give most frequently for failing is “not starting early enough.” Begin your study today with Study Session 2, Quantitative Methods, and progress through Study Session 19, Alternative Investments, over the coming months. Complete your initial study of the Level I CFA curriculum with Study Session 1, Ethical and Professional Standards. While the SchweserNotes provide an excellent summary of the required material for Study Session 1, we strongly recommend that, for this material, all candidates also study the CFA Institute Code of Ethics and Standards of Professional Conduct (Readings 2 and 3 in the Level I CFA Curriculum, Volume 1) at this point and again shortly before the exam. It is very important to finish your initial study of the entire curriculum at least one month (earlier if possible) prior to your exam date to allow sufficient time for practice and targeted review. During this period, you should take all the Schweser Practice Exams. Two weeks prior to the exam you should take the Schweser Mock Exam, which is offered by CFA Societies in well over 100 locations worldwide, as well as online for those who can’t make it to a live Schweser Mock. This final review period is when you will get a clear indication of how effective your study has been and which topic areas require significant additional review on your part. Practice answering exam-like questions across all topic areas and working on your exam timing will be important determinants of your success on exam day. Finally, I would like to thank my assistant, Craig Prochaska, CFA, who has been invaluable in the preparation of all our Level I study materials and candidate support for 13 years. Craig and I will be answering your questions and supporting your study throughout the exam season. Best regards,
Doug Van Eaton Doug Van Eaton, PhD, CFA SVP for CFA Education Kaplan Schweser
LEARNING OUTCOME STATEMENTS (LOS)
STUDY SESSION 1 This topical coverage corresponds with the following CFA Institute assigned reading: 1. Ethics and Trust in the Investment Profession The candidate should be able to: a. explain ethics. (page 1) b. describe the role of a code of ethics in defining a profession. (page 2) c. identify challenges to ethical behavior. (page 2) d. describe the need for high ethical standards in the investment industry. (page 2) e. distinguish between ethical and legal standards. (page 3) f. describe and apply a framework for ethical decision making. (page 4) This topical coverage corresponds with the following CFA Institute assigned reading: 2. Code of Ethics and Standards of Professional Conduct The candidate should be able to: a. describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards. (page 9) b. state the six components of the Code of Ethics and the seven Standards of Professional Conduct. (page 10) c. explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard. (page 11) This topical coverage corresponds with the following CFA Institute assigned reading: 3. Guidance for Standards I–VII The candidate should be able to: a. demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity. (page 17) b. distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards. (page 17) c. recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct. (page 17) This topical coverage corresponds with the following CFA Institute assigned reading: 4. Introduction to the Global Investment Performance Standards (GIPS®) The candidate should be able to: a. explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is served by the standards. (page 47) b. explain the construction and purpose of composites in performance reporting.(page 48)专业提供CFA/FRM/AQF视频课程资料 微信：fcayyh c. explain the requirements for verification. (page 48) This topical coverage corresponds with the following CFA Institute assigned reading: 5. The GIPS Standards The candidate should be able to:
a. describe the key features of the GIPS standards and the fundamentals of compliance. (page 53) b. describe the scope of the GIPS standards with respect to an investment firm’s definition and historical performance record. (page 55) c. explain how the GIPS standards are implemented in countries with existing standards for performance reporting and describe the appropriate response when the GIPS standards and local regulations conflict. (page 56) d. describe the nine major sections of the GIPS standards. (page 56)
STUDY SESSION 2 This topical coverage corresponds with the following CFA Institute assigned reading: 6. The Time Value of Money The candidate should be able to: a. interpret interest rates as required rates of return, discount rates, or opportunity costs. (page 73) b. explain an interest rate as the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk. (page 74) c. calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding. (page 74) d. solve time value of money problems for different frequencies of compounding. (page 76) e. calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows. (page 77) f. demonstrate the use of a time line in modeling and solving time value of money problems. (page 89) This topical coverage corresponds with the following CFA Institute assigned reading: 7. Discounted Cash Flow Applications The candidate should be able to: a. calculate and interpret the net present value (NPV) and the internal rate of return (IRR) of an investment. (page 99) b. contrast the NPV rule to the IRR rule, and identify problems associated with the IRR rule. (page 102) c. calculate and interpret a holding period return (total return). (page 103) d. calculate and compare the money-weighted and time-weighted rates of return of a portfolio and evaluate the performance of portfolios based on these measures. (page 105) e. calculate and interpret the bank discount yield, holding period yield, effective annual yield, and money market yield for US Treasury bills and other money market instruments. (page 108) f. convert among holding period yields, money market yields, effective annual yields, and bond equivalent yields. (page 110) This topical coverage corresponds with the following CFA Institute assigned reading: 8. Statistical Concepts and Market Returns The candidate should be able to: a. distinguish between descriptive statistics and inferential statistics, between a population and a sample, and among the types of measurement scales. (page 119) b. define a parameter, a sample statistic, and a frequency distribution. (page 121) c. calculate and interpret relative frequencies and cumulative relative frequencies, given a frequency distribution. (page 123)
d. describe the properties of a data set presented as a histogram or a frequency polygon. (page 124) e. calculate and interpret measures of central tendency, including the population mean, sample mean, arithmetic mean, weighted average or mean, geometric mean, harmonic mean, median, and mode. (page 127) f. calculate and interpret quartiles, quintiles, deciles, and percentiles. (page 131) g. calculate and interpret 1) a range and a mean absolute deviation and 2) the variance and standard deviation of a population and of a sample. (page 132) h. calculate and interpret the proportion of observations falling within a specified number of standard deviations of the mean using Chebyshev’s inequality. (page 137) i. calculate and interpret the coefficient of variation and the Sharpe ratio. (page 138) j. explain skewness and the meaning of a positively or negatively skewed return distribution. (page 140) k. describe the relative locations of the mean, median, and mode for a unimodal, nonsymmetrical distribution. (page 140) l. explain measures of sample skewness and kurtosis. (page 142) m. compare the use of arithmetic and geometric means when analyzing investment returns. (page 143) This topical coverage corresponds with the following CFA Institute assigned reading: 9. Probability Concepts The candidate should be able to: a. define a random variable, an outcome, an event, mutually exclusive events, and exhaustive events. (page 153) b. state the two defining properties of probability and distinguish among empirical, subjective, and a priori probabilities. (page 154) c. state the probability of an event in terms of odds for and against the event. (page 154) d. distinguish between unconditional and conditional probabilities. (page 155) e. explain the multiplication, addition, and total probability rules. (page 155) f. calculate and interpret 1) the joint probability of two events, 2) the probability that at least one of two events will occur, given the probability of each and the joint probability of the two events, and 3) a joint probability of any number of independent events. (page 156) g. distinguish between dependent and independent events. (page 159) h. calculate and interpret an unconditional probability using the total probability rule. (page 160) i. explain the use of conditional expectation in investment applications. (page 162) j. explain the use of a tree diagram to represent an investment problem. (page 162) k. calculate and interpret covariance and correlation. (page 163) l. calculate and interpret the expected value, variance, and standard deviation of a random variable and of returns on a portfolio. (page 166) m. calculate and interpret covariance given a joint probability function. (page 168) n. calculate and interpret an updated probability using Bayes’ formula. (page 168) o. identify the most appropriate method to solve a particular counting problem and solve counting problems using factorial, combination, and permutation concepts.
STUDY SESSION 3 This topical coverage corresponds with the following CFA Institute assigned reading: 10. Common Probability Distributions The candidate should be able to: a. define a probability distribution and distinguish between discrete and continuous random variables and their probability functions. (page 181) b. describe the set of possible outcomes of a specified discrete random variable. (page 181) c. interpret a cumulative distribution function. (page 183) d. calculate and interpret probabilities for a random variable, given its cumulative distribution function. (page 183) e. define a discrete uniform random variable, a Bernoulli random variable, and a binomial random variable. (page 185) f. calculate and interpret probabilities given the discrete uniform and the binomial distribution functions. (page 185) g. construct a binomial tree to describe stock price movement. (page 187) h. define the continuous uniform distribution and calculate and interpret probabilities, given a continuous uniform distribution. (page 189) i. explain the key properties of the normal distribution. (page 192) j. distinguish between a univariate and a multivariate distribution and explain the role of correlation in the multivariate normal distribution. (page 193) k. determine the probability that a normally distributed random variable lies inside a given interval. (page 194) l. define the standard normal distribution, explain how to standardize a random variable, and calculate and interpret probabilities using the standard normal distribution. (page 195) m. define shortfall risk, calculate the safety-first ratio, and select an optimal portfolio using Roy’s safety-first criterion. (page 199) n. explain the relationship between normal and lognormal distributions and why the lognormal distribution is used to model asset prices. (page 202) o. distinguish between discretely and continuously compounded rates of return and calculate and interpret a continuously compounded rate of return, given a specific holding period return. (page 203) p. explain Monte Carlo simulation and describe its applications and limitations. (page 204) q. compare Monte Carlo simulation and historical simulation. (page 205) This topical coverage corresponds with the following CFA Institute assigned reading: 11. Sampling and Estimation The candidate should be able to: a. define simple random sampling and a sampling distribution. (page 214) b. explain sampling error. (page 214) c. distinguish between simple random and stratified random sampling. (page 215) d. distinguish between time-series and cross-sectional data. (page 215)
e. explain the central limit theorem and its importance. (page 216) f. calculate and interpret the standard error of the sample mean. (page 216) g. identify and describe desirable properties of an estimator. (page 218) h. distinguish between a point estimate and a confidence interval estimate of a population parameter. (page 220) i. describe properties of Student’s t-distribution and calculate and interpret its degrees of freedom. (page 220) j. calculate and interpret a confidence interval for a population mean, given a normal distribution with 1) a known population variance, 2) an unknown population variance, or 3) an unknown population variance and a large sample size. (page 223) k. describe the issues regarding selection of the appropriate sample size, data-mining bias, sample selection bias, survivorship bias, look-ahead bias, and time-period bias. (page 227) This topical coverage corresponds with the following CFA Institute assigned reading: 12. Hypothesis Testing The candidate should be able to: a. define a hypothesis, describe the steps of hypothesis testing, and describe and interpret the choice of the null and alternative hypotheses. (page 236) b. distinguish between one-tailed and two-tailed tests of hypotheses. (page 237) c. explain a test statistic, Type I and Type II errors, a significance level, and how significance levels are used in hypothesis testing. (page 239) d. explain a decision rule, the power of a test, and the relation between confidence intervals and hypothesis tests. (page 241) e. distinguish between a statistical result and an economically meaningful result. (page 244) f. explain and interpret the p-value as it relates to hypothesis testing. (page 245) g. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the population mean of both large and small samples when the population is normally or approximately normally distributed and the variance is 1) known or 2) unknown. (page 245) h. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the equality of the population means of two at least approximately normally distributed populations, based on independent random samples with 1) equal or 2) unequal assumed variances. (page 250) i. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the mean difference of two normally distributed populations. (page 253) j. identify the appropriate test statistic and interpret the results for a hypothesis test concerning 1) the variance of a normally distributed population, and 2) the equality of the variances of two normally distributed populations based on two independent random samples. (page 256) k. distinguish between parametric and nonparametric tests and describe situations in which the use of nonparametric tests may be appropriate. (page 261) This topical coverage corresponds with the following CFA Institute assigned reading:
13. Technical Analysis The candidate should be able to: a. explain principles of technical analysis, its applications, and its underlying assumptions. (page 269) b. describe the construction of different types of technical analysis charts and interpret them. (page 270) c. explain uses of trend, support, resistance lines, and change in polarity. (page 273) d. describe common chart patterns. (page 274) e. describe common technical analysis indicators (price-based, momentum oscillators, sentiment, and flow of funds). (page 276) f. explain how technical analysts use cycles. (page 280) g. describe the key tenets of Elliott Wave Theory and the importance of Fibonacci numbers. (page 280) h. describe intermarket analysis as it relates to technical analysis and asset allocation. (page 281)
The following is a review of the Ethical and Professional Standards principles designed to address the learning outcome statements set forth by CFA Institute. Cross-Reference to CFA Institute Assigned Reading #1.
READING 1: ETHICS AND TRUST IN THE INVESTMENT PROFESSION Study Session 1
EXAM FOCUS From this reading, candidates should learn the definitions of ethics and ethical behavior presented by the authors and the arguments presented for having a code of ethics and following ethical principles. Additionally, the arguments for integrating ethics into the decision-making process include testable material.
MODULE 1.1: ETHICS AND TRUST LOS 1.a: Explain ethics.
Video covering this content is available online.
CFA® Program Curriculum, Volume 1, page 6 Ethics can be described as a set of shared beliefs about what is good or acceptable behavior and what is bad or unacceptable behavior. Ethics also refers to the study of good and bad behavior. Ethical conduct has been described as behavior that follows moral principles and is consistent with society’s ethical expectations. Ethical conduct has also been described as conduct that improves outcomes for stakeholders, who are people directly or indirectly affected by the conduct. Examples of stakeholders in the case of investment professionals include their clients, coworkers, employers, and the investment profession as a whole. Some decisions may bring positive results for you, but negative consequences for a stakeholder, such as a coworker. Ethical conduct is behavior that balances your self-interest with the impact on others. LOS 1.b: Describe the role of a code of ethics in defining a profession. CFA® Program Curriculum, Volume 1, page 9 A code of ethics is a written set of moral principles that can guide behavior by describing what is considered acceptable behavior. Having a code of ethics is a way to communicate the values, principles, and expectations of an organization or other group of people and provides a general guide to what constitutes acceptable behavior. Some codes of ethics include a set of rules or standards that require some minimum level of ethical behavior.
A profession refers to a group of people with specialized skills and knowledge who serve others and agree to behave in accordance with a code of ethics. A professional code of ethics is a way for a profession to communicate to the public that its members will use their knowledge and skills to serve their clients in an honest and ethical manner. LOS 1.c: Identify challenges to ethical behavior. CFA® Program Curriculum, Volume 1, page 11 One challenge to ethical behavior is that individuals tend to overrate the ethical quality of their behavior on a relative basis and overemphasize the importance of their own personal traits in determining the ethical quality of their behavior. It is claimed that external or situational influences are a more important determinant of the ethical quality of behavior than internal (personal) traits that influence behavior. One situational influence is social pressure from others. Loyalty to an employer, supervisor, organization, or coworkers can cause individuals to act in unethical ways as they place more importance on their self-interest and short-term results than on longerterm results and the ethical quality of their decisions and behavior. The prospect of acquiring more money or greater prestige can cause individuals to engage in unethical behavior. Firms with strict rules-based compliance procedures run the risk of fostering a culture that is so focused on adhering to compliance rules that individuals only ask themselves what they can do. The question of what behavior they should engage in, based on ethical principles and longer-term results, is often not addressed in such situations. LOS 1.d: Describe the need for high ethical standards in the investment industry. CFA® Program Curriculum, Volume 1, page 15 Investment professionals have a special responsibility because they are entrusted with their clients’ wealth. The responsibility to use their specialized knowledge and skills to both protect and grow client assets makes high ethical standards all the more important. Investment advice and management are intangible products, making quality and value received more difficult to evaluate than for tangible products such as a laptop computer or a restaurant meal. For this reason, trust in investment professionals takes on an even greater importance than in many other businesses. Failure to act in a highly ethical manner can damage not only client wealth but also impede the success of investment firms and investment professionals because potential investors will be less likely to use their services. Unethical behavior by financial services professionals can have negative effects for society as a whole. The financial services industry serves as an intermediary between savers and those seeking financing for their business activities. A lack of trust in financial advisors will reduce the funds entrusted to them and increase the cost of raising capital for business investment and growth. When investors cannot rely on the information they receive from financial services professionals, this adds another layer of risk on top of the investment risks that investors face. Even the perception of additional risk will reduce the amounts invested and increase the returns required to attract investor capital.