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I-1

Level I Curriculum Index


A
AAII. see American Association of
Individual Investors
AAR. see average accounting rate of
return
Abbott Laboratories, 4:90, 91; 5:213, 602
Abercrombie & Fitch, 1:438
Abermarle Corporation, 1:438
ABG Gas Supply LLC, 3:608
abilities, board members, 4:200201
implications for investors, 4:200
information about, 4:201
investor considerations, 4:200201
ability to take risk, investors, 4:397399
abnormal profit, 2:98
abnormal returns, 5:124
ABP (pension fund), 4:414415
ABS. see asset-backed securities
absolute advantage, 2:433440
absolute dispersion, 1:402
absolute frequency, 1:367
absolute priority rule, 5:468
absolute return
in alpha-seeking strategies, 6:155156
of hedge funds, 6:166
absolute risk objectives, 4:396
absorption approach to trade balance,
2:535536
Abu Dhabi Investment Authority, 4:249
academic designations, order of, 1:176
accelerated book building, 5:50
accelerated methods of depreciation,
3:175177, 436
acceptance region, test statistic, 1:612
access, short-term borrowing strategy
and, 4:177
account information, regular statements
of, 1:77
accounting
accrual, 3:69, 598599
cash-basis, 3:598599
Accounting and Auditing Enforcement
Release (SEC), 3:599601
Accounting and Corporate Regulatory
Authority, 3:103, 115
accounting choices
aggressive
and bias in application of accounting
standards, 3:582583
conservative vs., 3:578583
defined, 3:570
biased, 3:570576, 578
conservative, 3:578583
aggressive vs., 3:578583
bias in application of accounting
standards, 3:582583
defined, 3:570
in extractive industries, 3:579580
losses in, 3:578579
and deferred-tax assets, 3:600601
earnings management with, 3:576
financial reporting issues, 3:596613

cash flow statements, 3:606609


earnings and balance sheets,
3:596606
accounting costs, 2:9798
accounting equation, 3:12
accounting estimates, 3:598599
accounting goodwill, 3:234
accounting loss, 2:97
accounting policies
changes in, 3:136138
disclosures relating to, 3:135138
accounting process, 3:5168
financial statements in, 3:6568
Investment Advisers Ltd. case study,
3:5168
records in, 3:5365
accounting profit, 2:9798, 100101
defined, 3:474
taxable income vs., 3:474479
and current tax assets/liabilities,
3:475476
and deferred tax assets/liabilities,
3:476479
taxable profit vs., 3:484489
and business combinations/deferred
taxes, 3:488
and investments in subsidiaries,
branches, associates, and
interests, 3:489
temporary differences, 3:484489
accounting records, 3:5365
Accounting Regulatory Committee,
3:111
accounting scandals, 3:566
accounting standards
biased application of, 3:582583
and ROE, 3:634636
Accounting Standards Board of Japan,
3:113
accounting standards boards, 3:104106
attributes of, 3:106
Financial Accounting Standards Board,
3:105106
International Accounting Standards
Board, 3:104105
Accounting Standards Codification
(FASB), 3:106
Accounting Standards Update, 3:137
Expenses: CompensationRetirement
Benefits, 3:635
General Electric disclosures, 3:137
Accounting Standards Update (ASU),
3:137
accounting systems, 3:7173
debits and credits, 3:7273, 7692
flow of information in, 3:72
Investment Advisers Ltd. case study,
3:7692
account reviews
firm policies on, 1:77
regular, 1:94
systematic, 1:86

accounts
balance of payments, 2:456457, 463465
with beneficial ownership, 1:158, 159
family, 1:80, 158, 160161
on financial statements
contra, 3:44, 219
defined, 3:44
doubtful, 3:173, 611
equations for, 3:4651, 4751
as financial statement elements,
3:4446
on income statements, 3:47, 48
T-accounts, 3:7692
tax asset valuation, 3:612
types of, 3:45
uncollectible, 3:599600
in FX market, 2:498499
in performance calculations, 1:100
accounts payable
in accrual accounting, 3:70
as current liability, 3:226
accounts payable management, 4:171174
cash disbursements, 4:174
evaluating, 4:174
trade discounts, 4:173174
accounts receivable
as current assets, 3:219221
defined, 3:46
and financial reporting quality, 3:614
accounts receivable aging schedule,
4:166167
accounts receivable management,
4:160167
customers receipts, 4:163165
evaluating, 4:165167
trade granting process, 4:162163
accounts receivable turnover, 4:146
accredited individuals, 4:264n.21
Accredited Investors, 6:158n.14
accrual accounting
cash-basis vs., 3:598599
defined, 1:236
Input Data (GIPS Section I.1), 1:209
revenue recording under, 3:69
accruals, reporting of, 3:6971
accrued expenses
as current liability, 3:226
reporting, 3:7071
accrued interest, 1:348; 5:401404
accrued revenue, 3:70
accumulated depreciation, 3:44
accumulated other comprehensive
income, 3:242243
Acer Inc., 3:323325; 5:209
ACH. see Automated Clearing House
acid-test ratio, 4:146
acquisition, of long-lived assets, 3:426435
accounting for, 3:426428
and financial reporting issues, 3:606
intangible assets, 3:431435
property, plant, and equipment,
3:428431

I-2

action lag, 2:402


actions
investment (see also Investment
Analysis, Recommendations, and
Actions [Standard of Professional
Conduct V])
fair dealing in, 1:8384
firm policies on, 1:77
impact of, 1:1213
unethical, 1:29
personal, 1:55
actions of other shareowners, rights
pertaining to, 4:228
active crawling peg currency regime,
2:525526
active investment strategies
industry analysis in, 5:188
information-acquisition costs for,
5:123124
and market efficiency, 5:117
actively managed funds, 4:260
active management, 6:150, 155
active portfolio management
information-motivated trading in,
5:10
manager performance, 5:129
manager selection, 5:116
security market indices in, 5:9495
active portfolios, capital market line for,
4:346
active returns, 5:116
active strategies
borrowing, 4:177
short-term investing, 4:157158
activist shareholders, 4:125
activist strategy, hedge fund, 6:163
activity ratio(s), 2:314; 3:339346
calculation of, 3:340342
in company analysis, 5:230231
defined, 3:340341
evaluation of, 3:343346
interpretation of, 3:342346
fixed asset turnover, 3:345
inventory turnover and DOH,
3:342343
payables turnover and number of
days of payables, 3:344
receivables turnover and DSO,
3:343344
total asset turnover, 3:345
working capital turnover, 3:345
AD. see aggregate demand
ADB. see Asian Developmental Bank
ADC Telecommunications, 4:237
AD curve. see aggregate demand curve
Additional Compensation Arrangements
[Standard IV(B)], 1:116117
application of the standard,
1:116117
compliance procedures, 1:116
guidance, 1:116
text of, 1:18, 116
additional information, 1:236
addition rule for probabilities,
1:465466
add-on rates, 5:416419
adequate compliance procedures,
1:120121
adjustable-rate mortgages (ARMs), 5:471

Level I Curriculum Index

adjusted consolidated segment operating


income (adjusted CSOI),
3:592595
adjusted EBITDA, 3:591592
adjusted funds from operations (AFFO),
6:192
ADM. see Archer Daniels Midland
administrative costs, 2:453454
administrative fee, 1:236
ADRs. see American Depository
Receipts
ADSs. see American Depository Shares
ADT Security Services, Inc., 5:199, 200
advanced economies, trade-to-GDP
ratio for, 2:426
Advanced Micro Devices, 5:209
advance notice provisions, 4:226
adverse audit opinion, 3:28
adverse selection, with insurance, 5:34
advertisements. see also GIPS
Advertising Guidelines (GIPS
Section III)
defined, 1:230
information included in, 1:230
advisers, selecting, 1:129
advisory proposals, shareowners, 4:226
Aegis Value Fund, 1:407
aerospace industry, governmental
influences on, 5:225226
AFDB. see African Development Bank
affirmative covenants, 3:525; 5:307, 606
AFFO. see adjusted funds from
operations
Afghanistan, 3:115
Africa
debt and equity outstanding, 5:344
and IFRS, 3:115
industrial comparative ratio analysis,
5:596597
institutionally owned real estate, 6:185
terms of trade for, 2:423, 424 (see also
specific regions and countries)
African Development Bank (AFDB),
2:499; 5:366
after-tax cost of debt, 4:43
after-tax nominal return, 4:282
agency bonds, 5:365366
agency problems, with market
regulation, 5:61
agency RMBS, 5:473474. see
also collateralized mortgage
obligations (CMOs); mortgage
pass-through securities
agent options, 1:154
agents, trustee, 5:464
aggregate demand (AD), 2:1719,
227238
and AD curve, 2:235238
and business cycle, 2:295297
defined, 2:227
and fiscal policy, 2:386387
and global recession (2007-2009),
2:256257
and imports/exports, 2:424425
and inflationary gap, 2:258
investment strategies for decrease in,
2:255
investment strategies for increase in,
2:258

IS curve, 2:227234
LM curve, 2:234235
and recessionary gap, 2:254257
shifts in, 2:240247
capacity utilization, 2:243
consumer and business expectations,
2:243
economic growth, 2:245246
exchange rate, 2:245
fiscal policy, 2:243
household wealth, 2:241243
monetary policy, 2:243245
shifts in supply and, 2:260263
aggregate demand curve (AD curve)
example, 2:237238
features of, 2:235236
interest rates and income effects,
2:236237
investment strategies based on,
2:261262
aggregate expenditures, 2:209
aggregate income, 2:208226
in economy, 2:209210
and expenditures, 2:227234
in gross domestic product, 2:210226
components of, 2:217221
external sector, 2:220221
government sector, 2:219220
household and business sectors, 2:218
measuring, 2:210213
nominal and real, 2:214217
and other income measures,
2:221226
values of goods and services,
2:213214
real personal, 2:330
aggregate indices, fixed-income,
5:99101, 104
aggregate output, 2:208226
in economy, 2:209210
in gross domestic product, 2:210226
components of, 2:217221
external sector, 2:220221
government sector, 2:219220
household and business sectors,
2:218
measuring, 2:210213
nominal and real, 2:214217
and other income measures,
2:221226
values of goods and services,
2:213214
aggregate price, supply of money and,
2:357358
aggregate real personal income, 2:330
aggregate supply (AS), 2:1720
and AS curve, 2:238240
defined, 2:227
and global recession, 2:256257
and imports/exports, 2:424425
investment strategies for shifts in,
2:259260
long-run, 2:239, 249251
in perfectly competitive market, 2:169
in real business cycle models, 2:310
shifts in, 2:240241, 247252
shifts in demand and, 2:260263
short-run, 2:238239, 247249
and stagflation, 2:259260

Level I Curriculum Index

aggregate supply curve (AS curve)


about, 2:238240
investment strategies based on,
2:261262
long-run, 2:238240
short-run, 2:238239, 247249
aggressive accounting choices
and biased application of standards,
3:582583
conservative vs., 3:578583
defined, 3:570
and non-GAAP measures in reports,
3:572573
aging schedule, 4:166167
Agnelli Industries, 5:469470
agriculture, 6:194
agriculture industry, 2:156157
AIFM Directive. see Directive on
Alternative Investment Fund
Managers
AIG. see American International Group
AIMR. see Association for Investment
Management and Research
AIMR Performance Presentation
Standards (AIMR-PPS), 1:200
Airbus
governmental influences on, 5:225226
in method of comparables, 5:268269
strategic analysis with, 5:207208, 218
Aircastle Limited, 5:27
aircraft manufacturing industry, strategic
analysis of, 5:207208, 218
airline industry
asset-based equity valuation for, 5:276
life-cycle stage and business cycle
sensitivity, 5:227228
Air Liquide, 1:397
Air Products and Chemicals, 5:209
AirTran Airways, 2:176
air transportation industry, 2:138, 153154
Akerlof, George A., 1:661
Alcatel-Lucent, 3:406412
Alcoa, 5:274
Alcon, 3:641
Algeria, 2:522
Allergan, Inc., 5:602
Allianz SE, 1:398; 5:164165
all-in fees, 1:237
allocationally efficient financial systems,
5:59
allocations
minimum lot, 1:8889
with safety-first rules, 1:537539
trade allocation procedures, 1:8586
transaction, 1:8788
allocative efficiency, 5:116n.2
all-or-nothing orders (AONs), 5:47
allowance
for bad debts, 3:44
for doubtful accounts, 3:611
for loan loss reserves, 3:611
alpha, 5:94; 6:155
Alpha Natural Resources, 4:362363
alpha-seeking strategies, 6:155156
alternative hypothesis, 1:608, 635
alternative inventory costing, 3:171172
alternative investments, 6:149211
categories of, 6:154155
collectibles, 6:199200

I-3

commodities, 6:193199
derivatives and indices, 6:194195
investment vehicles, 6:195196
performance and diversification
benefits, 6:196197
prices of, 6:197199
common characteristics, 6:150154
defined, 6:149
hedge funds, 6:159174
about, 6:159161
diversification benefits, 6:164165
due diligence, 6:173174
fees and returns, 6:166169
investment strategies for, 6:162164
and leverage, 6:170171
and redemptions, 6:170172
valuation issues, 6:172173
historical records of, 6:151
markets for, 5:1516
portfolio diversification with, 6:157158
practice problems, 6:208209
private equity, 6:175184
diversification benefits, 6:181183
due diligence, 6:184
investment strategies, 6:177181
portfolio company valuation,
6:183184
structure and fees, 6:176177
real estate, 6:184193
forms of investment, 6:186187
investment categories, 6:187189
performance and diversification
benefits, 6:189191
risks with, 6:193
valuation, 6:191192
returns from, 6:155157
risk management, 6:199205
due diligence with, 6:202205
process, 6:201202
riskreturn measures, 6:203
security market indices for, 5:101104
solutions to problems, 6:210211
and traditional investments, 6:157158
alternative trading systems (ATSs), 5:2930
Altria Group Inc., 3:452453
Amaranth Advisors LLC, 6:197
AMC. see Asset Manager Code of
Professional Conduct
Ameren, 5:252
American Association of Individual
Investors (AAII), 1:697
American call options, 1:527; 5:328
American Depository Receipts (ADRs),
1:664; 5:167168
American Depository Shares (ADSs),
5:167
American Express, 1:532n.18
American Institute of Certified Public
Accountants, 3:180
American International Group (AIG),
4:119; 6:32, 33
American options (American-style
options)
defined, 6:26, 85
pricing, 6:104107
American puts, 5:330
American Stock Exchange (AMEX),
4:207; 5:167
American-style contracts, 5:24

AmeriCredit Automobile Receivable


Trust 2013-4, 5:492493
AmeriGas, 5:210
AMEX. see American Stock Exchange
Amgen, 5:209
amortisation
of bonds, 3:516520
amortisation of discounts, 3:517519
amortisation of premiums, 3:519520
and interest expense/interest
payments, 3:516517
defined, 3:173
and expense recognition on income
statements, 3:177
of intangible assets, 3:173174, 231
of long-lived assets, 3:444445
amortised costs, 3:122, 218219, 237
amortization expenses, 3:444445
amortization provisions, 5:494
amortization schedule, residential
mortgage loan, 5:472
amortizing bonds, 5:316317
amortizing loans, 5:472, 490491
AMR Corporation, 3:663666
Amtrak, 2:192
analysis of variance (ANOVA), 1:616n.16
analyst adjustments
to debt, 3:666668
framework for, 3:654
for goodwill, 3:660662
for inventory, 3:655658
and current ratio, 3:657658
with LIFO accounting, 3:655657
for investments, 3:654655
for off-balance-sheet financing,
3:662669
for plant, property, and equipment,
3:659660
analysts
areas of concern about financial
reporting quality, 3:610613
estimates of value by, 4:6
judgment about financial statement
entries, 3:7374
nonpublic information from, 1:6566
Andrew W. Mellon Foundation, 4:247
Anglo American, 5:274
AngloGold Ashanti, 5:274
Anheuser-Busch, 3:434435
Anheuser-Busch InBev SA/NV, 1:398;
3:434435, 640642; 5:200
annual coupon rate, 5:392
annualized convexity, 5:543
annualized return(s), 1:263265;
4:279280
annualized yield measures, 5:407408
annual modified duration, 5:524526
annual percentage rate (APR), 1:287n.6
annual percentage yield (APY), 1:287n.6
annual reports, 3:109, 571; 4:201, 206,
209
annual share turnover, 1:400
Annual Statement Studies (Risk
Management Association), 3:330
annuities. see also ordinary annuities
defined, 1:288
future value of, 1:288290
lump sums to fund, 1:309310
size of annuity payments, 1:305309

I-4
annuity due, 1:288, 295297
anomalies, market. see market anomalies
ANOVA. see analysis of variance
Anson, Mark, 4:191n.5
anticipation stock, of inventory, 4:169
antidilutive securities, 3:192193
Antigua, 2:522
antitrust policies, 2:180, 193194
ANZSIC. see Australia and New Zealand
Standard Industrial Classification
AON Corporation, 1:434
AONs. see all-or-nothing orders
APs. see authorized participants
APC. see average propensity to consume
Apollo Group, 5:210
Appendices, IPS, 4:395
Apple Inc., 4:362363
accounts receivable, 3:219220
balance sheet components, 3:214
cash flow analysis of comparables,
3:305
change in accounting standards,
3:181183
cross-sectional common-size analysis,
3:252254
current assets, 3:218
current liabilities, 3:225
deferred revenue, 3:226228
deferred tax assets, 3:224
deferred tax liabilities, 3:241
earnings announcements, 3:89
equity, 3:244
financial assets, 3:239
goodwill, 3:236
and international trade, 2:430
inventory valuation, 3:221, 222
marketable securities, 3:219
non-current assets, 3:229
non-current liabilities, 3:240
and revenue recognition on income
statements, 3:167168
statement of changes in equity,
3:244246
strategy and financial performance,
3:321322, 629633
war chests, 3:633
Apple TV, 3:181182
applicable law
and Code/Standards, 1:2223
on confidentiality, 1:102
in firm policy, 1:77
global, 1:2425
and investment products, 1:2325
providing information on, 1:27
applications of financial statement
analysis, 3:627674
analyst adjustments
to debt, 3:666668
framework for, 3:654
for goodwill, 3:660662
for inventory, 3:655658
for investments, 3:654655
for off-balance-sheet financing,
3:662669
for plant, property, and equipment,
3:659660
credit risk assessments, 3:647650
Moodys rating factors, 3:648649
peer comparison ratios, 3:650

Level I Curriculum Index


equity screening, 3:650654
example, 3:651
ratio-based, 3:653654
financial performance evaluations,
3:629637
accounting standards and ROE,
3:634636
and changes in business strategy,
3:629633
and war chests, 3:633
financial performance projections,
3:637646
consistency of forecasts, 3:646
example, 3:644645
forecasting operating profit,
3:639640
issues with, 3:640643
with market-based valuation,
3:638643
for multiple periods, 3:643646
practice problems, 3:671673
solutions to problems, 3:674
Applied Materials, 5:209
appraisal indices (real estate), 6:189190
appreciation, currency, 2:506
approval, for outside compensation,
1:117
approximate modified duration,
5:524527
APR. see annual percentage rate
a priori probability, 1:460
APs. see authorized participants
APT. see arbitrage pricing theory
APY. see annual percentage yield
arbitrage, 1:63; 4:264
bounds of, 5:123
commodities, 6:198199
defined, 6:47
in derivatives pricing, 6:4752, 6672
executing, 6:67
with forward contracts, 6:50
frequency of arbitrage opportunities,
6:67
and hedge funds, 6:162164
limits to, 6:70
and market efficiency, 5:123
and putcall parity, 6:97
and relative valuation, 6:4849
and replication, 6:6869
risk, 6:50n.24
with stocks and risk-free bonds, 6:4849
triangular, 2:508
arbitrage-free pricing, 6:70
arbitrage pricing theory (APT), 4:381
arbitrageurs, 5:3436, 123
arc elasticity, 2:46
ArcelorMittal, 1:397; 5:603, 605
Archer Daniels Midland (ADM), 1:715,
719; 2:193
Argentina
discipline for financial reporting
quality in, 3:585
exchange rate regime, 2:522, 525
foreign direct investment, 2:427, 428
IFRS adoption, 3:114
inflation-linked bonds, 5:324, 363
MERCOSUR, 2:448
MSCI multi-market index, 5:96
municipal debt, 5:630

Ariane space program, 5:225


arithmetic mean, 1:378382
and coefficient of variation, 1:415416
as cross-sectional mean, 1:380381
defined, 1:372n.9, 378
and geometric, 1:391394
and median, 1:383385
as population mean, 1:378379
properties, 1:381382
sample mean, 1:379381
using, 1:429430
and weighted mean, 1:388n.19
arithmetic return, 4:273274
Armenia, 3:115
Armitage, Seth, 4:63
ARMs. see adjustable-rate mortgages
Arms index, 1:700702
Arngrove Group Holdings, 3:179
Arnott, Robert, 4:132n.28
Art Market Research, 6:200
AS. see aggregate supply
ASA, 3:609
Asahi Breweries, 3:633
ascending price auction, 2:27
ascending triangle pattern, 1:684
AS curve. see aggregate supply curve
ASEAN. see Association of Southeast
Asian Nations
Asia. see also specific countries
capitalization level and contributions
to global GDP, 5:151
current account imbalance, 2:466
debt and equity outstanding, 5:344
discipline for financial reporting
quality in, 3:585
effects of global recession, 2:256257
financial crisis (1997-1998), 2:378, 429
and IFRS, 3:115
institutionally owned real estate, 6:185
regular cash dividends, 4:113
reverse stock splits, 4:119
terms of trade, 2:423
trade-to-GDP ratio, 2:426
Asia 50 ADR Index Fund, 5:168
Asian call options, 1:546547
Asian Developmental Bank (ADB), 5:366
Asian Financial Crisis (1997-1998),
5:164
Asian-Pacific Aggregate Bond Index,
5:351
Asia Pacific Association for Fiduciary
Studies, 1:205
ask price(s), 5:44; 6:10n.3, 172
ask sizes, 5:44
ASML, 1:397
ASML Holdings NV, 5:200202
Asociacin Espaola de Presentacin de
Resultados de Gestin, 1:205
asset(s)
on balance sheets, 3:212, 236239
and classification of markets, 5:1416
as collateral, 5:606
in Conceptual Framework, 3:120
currencies, 5:1920
current
and accounting profit vs. taxable
income, 3:475476
on balance sheets, 3:215, 217224
defined, 3:46

Level I Curriculum Index


debt-to-assets ratio, 3:352, 353, 552
deferred tax
accounting choices about, 3:600601
accounting profit vs. taxable income
for, 3:476479
changes in tax rates, 3:483484
current assets, 3:224
defined, 3:475
and timing, 3:474
unused tax losses/credits, 3:489490
defined, 3:9, 43, 212
financial, 5:14
income tax bases of, 3:480481
intangible, 5:274276
acquisition of, 3:431435
on balance sheets, 3:231236
depreciation/amortisation, 3:173174
impairment of, 3:231, 450
on income statements, 3:177
internally-developed, 3:431434
long-lived, 3:426
investment characteristics of (see
investment characteristics of
assets)
liquid asset requirement, 3:370
liquidity and sales of, 5:619
long-lived (see long-lived assets)
market efficiency and prices of,
5:117120
in markets, 5:1420
non-current
on balance sheets, 3:215, 228239
defined, 3:46
personal use of company assets,
4:213214
quick, 4:146
real, 5:14, 2628
return on, 3:327, 356357
risk-free, 4:319322
and capital allocation line,
4:319320
and capital market line, 4:348349
combining risky assets with,
4:343346
and homogeneity of expectations
assumption, 4:345346
two-fund separation theorem,
4:320321
utility theory and selection of,
4:301304
risk of two-asset portfolio, 4:285286
risky
combining risk-free assets with,
4:343346
covariance and correlation of risks,
4:305307
efficient frontier of, 4:319
importance of correlation of risks in
portfolio, 4:310
portfolio return, 4:304
portfolio risk, 4:304310
risk and return relationship,
4:307309
utility theory and selection of,
4:301304
securities, 5:1619
equities, 5:1718
fixed-income, 5:17
pooled investments, 5:1819

I-5
securitized, 5:460
tradable, 4:347
underlying, 5:20
variance of return for single, 4:284
asset allocation, 5:93. see also strategic
asset allocation (SAA)
in portfolio management, 4:251
safety-first rules for, 1:537539
tactical, 4:419420
asset-backed securities (ABS), 5:459
508; 6:3335
about, 5:459460
auto loan receivable-backed securities,
5:491493
collateralized debt obligations,
5:494497
structure, 5:495
transaction example, 5:495497
commercial mortgage-backed
securities, 5:487490
balloon maturity provisions, 5:488
call protection, 5:488
credit risk, 5:487
structure, 5:487490
creation of, 5:3132
credit card receivable-backed
securities, 5:493494
defined, 5:459
economic benefits of securitization,
5:460462
non-mortgage asset-backed securities,
5:490494
auto loan receivable-backed
securities, 5:491493
credit card receivable-backed
securities, 5:493494
as pooled investments, 5:19
practice problems, 5:501503
residential mortgage-backed securities,
5:473487
collateralized mortgage obligations,
5:478484
mortgage pass-through securities,
5:474478
non-agency residential mortgagebacked securities, 5:484487
residential mortgage loans, 5:470473
amortization schedule, 5:472
interest rate, 5:471
lenders rights in foreclosure, 5:473
maturity, 5:471
prepayments and prepayment
penalties, 5:472
securitization, 5:462470
bonds issued, 5:465467
economic and market benefits,
5:460462
parties roles in transaction,
5:464465
special purpose vehicles, 5:467470
transaction example, 5:462464
solutions to problems, 5:504508
asset-based equity valuation models,
5:274278
for airline industry, 5:276
defined, 5:247
for family-owned laundry, 5:275
other models vs., 5:246248, 276278
for restaurant, 5:275276

asset-based loans, 4:178


asset-based valuation approach
for private equity, 6:184
for REITs, 6:192
asset beta, 4:5356
asset class(es)
adding, to investment opportunity set,
4:317
correlation matrix, 4:412413
correlation of risk among, 4:313
defining, 4:410
diversification with, 4:314
nominal returns, 4:287288, 290
real returns, 4:289290
returns by, 5:624625
risk and return of, 4:287288, 290291
security market indices as proxies for,
5:94
in strategic asset allocation, 4:411413
asset management company, sample
presentation of, 1:247248
Asset Manager Code of Professional
Conduct (AMC), 1:10, 27, 129
asset price(s)
artificial volatility in, 1:7072
capital flows and, 2:530
and head and shoulders patterns,
1:678681
normal distribution as model for, 1:533
and oscillators, 1:690
trends in, 1:661, 662
and volume, 1:671672
asset risk premium, 4:243
assets under management (AUM)
alternative investments, 6:150
global, 6:151
growth of, 6:159160
hedge funds, 6:159160
institutionally owned real estate, 6:185
by strategy, 6:162
asset swaps, 5:430
asset turnover
and financial reporting quality, 3:614
fixed, 3:341, 345
total, 3:341, 345
asset utilization ratios, 3:340. see also
activity ratio(s)
asset weighing, 1:99
Assicurazioni Generali, 1:397
assignments of accounts receivable,
4:178
Assirevi, 1:205
Associao Portuguesa de Analista
Financeiros, 1:205
associate businesses, investments in,
3:489
Association for Investment Management
and Research (AIMR), 1:200
Association for Savings and Investment,
South Africa, 1:205
Association Franaise de la Gestion
Financire, 1:204
Association of British Insurers, 1:205
Association of Hungarian Investment
Fund and Asset Management
Companies, 1:205
Association of Southeast Asian Nations
(ASEAN), 2:176
LAssociazione Bancaria Italiana, 1:205

I-6

LAssociazione Italiana degli Analisti


Finanziari, 1:205
Assogestioni, 1:205
assumed default rate, for collateral,
5:485
assumptions
CAPM, 4:363365, 376n.6
Cournot, 2:178179
for financial reports, 3:121
of Gordon growth model, 5:257
heterogeneous beliefs, 4:375, 378379
homogeneity of expectations, 4:345
346, 364365, 380
infinite divisibility, 4:365
of non-satiation, 2:6566
in technical analysis, 1:660662
transitivity, 2:65, 7172
Astra International, 1:543544
AstraZeneca PLC, 4:274
ASU. see Accounting Standards Update
asymptotic properties, estimators, 1:576
ATSs. see alternative trading systems
AT&T
breakup of monopolistic structure,
2:193
credit curves, 5:616617
industry classification of, 5:192
and industry structure, 5:217
restructuring charges, 3:591
at the money, 6:27, 87
attorneys, in securitization process,
5:464
auctions, 2:2730; 5:54, 354, 356358
audit committees (board of directors),
4:204207
implications for investors, 4:205
information about, 4:206
investor considerations, 4:205206
purpose, 4:205
auditors, financial reporting quality and,
3:586588
audits
adverse opinions, 3:28
auditors reports, 3:2730
qualified and unqualified opinions,
3:28
standards for, 3:27
AUM. see assets under management
Aussie exchange rate, 2:504
Australasia, 6:185
Australia
bonds outstanding, 5:348, 353
business investment, 2:267
commodities and economy of, 1:710
corporate governance codes, 4:201
current account imbalance, 2:466
cyclically adjusted budget deficit, 2:401
disclosures in annual reports, 4:206,
209, 210
disinflation, 2:318
domestic and international debt
securities, 5:312
equity risk premiums, 4:48
exchange rate regime, 2:523
export subsidies, 2:445
fixed price tender offers, 4:125
foreign bonds, 5:311
foreign investment, 5:164
as GIPS country sponsor, 1:204

Level I Curriculum Index


government liabilities/debt, 2:392
government revenues/expenditures,
2:387, 388
and IFRS, 3:115
inflation-linked bonds, 5:323, 324
inflation targeting, 2:371, 373
liquidity representations on balance
sheets, 3:15
mean and standard deviation of stock
returns, 1:415416
in MSCI EAFE, 1:380
in MSCI multi-market index, 5:96
natural resources, 2:268
net borrowing/lending, 2:389
real equity returns, 1:372
residential mortgage loans, 5:471, 472
returns
on bonds and bills, 5:152, 153
on equities, 5:152153
risk tolerance and equity ownership,
5:154155
Australia and New Zealand Standard
Industrial Classification
(ANZSIC), 5:196
Australian Bureau of Statistics, 5:196
Australian dollar
AUD/HKD exchange rate, 2:490492,
496498
exchange rate quotes with, 2:504,
505n.4
identification code, 2:487
international bonds outstanding in,
5:345
trade balance and exchange rate for,
2:536539
USD/AUD currency pair, 2:502
Australian Federal Reserve, 2:373
Australian Securities Exchange, 4:206,
209; 5:154
Austria
boards of directors in, 4:194
EU membership, 2:448n.18
exchange rate regime, 2:522
as GIPS country sponsor, 1:204
government debt, 2:346
in MSCI multi-market index, 5:96
public sector spending, 2:347
total returns, 1:380, 383, 396
Austrian school of economic thought,
2:305306
autarkic price, 2:424, 435
autarky, 2:424, 435
authorities, investment policy, 4:158
authorized participants (APs), 5:19
auto loan receivable-backed securities,
5:491493
Automated Clearing House (ACH),
4:163
automatic stabilizers, 2:231, 388,
401402
automobile industry, 2:138, 174, 188,
212213
available-for-sale securities
defined, 3:237
as financial assets, 3:237239
on income statements, 3:199
average accounting rate of return (AAR),
4:1516
average bank prime lending rate, 2:331

average costs
calculation of, 2:115
defined, 2:114
in perfectly competitive markets,
2:167168
profit maximization with, 2:110112,
114, 115
average daily rate, 3:371
Average Duration of Unemployment,
2:331
average fixed cost
calculation of, 2:115
defined, 2:102, 114
in profit maximization, 2:110112
average inventory period, 4:147
average life, mortgage pass-through
securities, 5:477478
average product
and average variable cost, 2:138139
defined, 2:134, 135
and productivity, 2:134137
average propensity to consume (APC),
2:229230
average quote, for hedge fund valuation,
6:172
average revenue
defined, 2:102, 104
in imperfect competition, 2:105107
in perfect competition, 2:104105
and profit maximization, 2:103107
average total cost
in breakeven analysis, 2:116
calculation of, 2:115
defined, 2:102, 114
in profit maximization, 2:110112
average variable cost
and average product, 2:138139
in breakeven analysis, 2:116
calculation of, 2:115
defined, 2:102, 114
in profit maximization, 2:110112
average weekly claims for
unemployment insurance, 2:329
average weekly hours, manufacturing,
2:329
Avon Products, Inc., 1:438
A.W. Jones & Co., 4:263
AXA, 1:397
Axcan Intermediate Holdings, Inc.,
5:602
axioms, consumer choice theory,
2:6566
Azerbaijan, 2:522; 3:115
B
Baby Boom, 5:223, 224
backfill bias, 6:151n.2
back simulation, 1:550551
back-testing, 3:652653
backup lines of credit, 5:369
backwardation, 6:199
bad debts, allowance for, 3:44
Bahamas, 2:378
Bahrain, 5:96
Baidu, 3:639640; 4:272
Baker, James, 2:526
Baker Hughes, 5:219221
balanced budget multipliers, 2:399400
balanced budgets, 2:388

Level I Curriculum Index


balanced funds, 4:257258, 260261
balance of payments (BOP) system,
2:455467
accounts in, 2:456457, 463465
components of, 2:457459
imbalances since 1996, 2:465467
paired transactions in, 2:460462
for United States, 2:458459
balance of trade deficit, 2:220, 424
balance sheet equation, 3:12
balance sheet ratios, 3:254256
balance sheets, 3:211263
about, 3:212
accounts on, 3:47, 48
analysis of, 3:1316, 246256
balance sheet ratios, 3:254256
common-size, 3:246254, 330331,
334335
and cash flow statements, 3:219,
280282
cash on, 5:597, 619
classified, 3:216
components of, 3:213215
current assets, 3:217224
Apple Inc., 3:218
cash and cash equivalents, 3:218219
inventories, 3:221223
marketable securities, 3:219
other, 3:223224
SAP Group, 3:217218
trade receivables, 3:219221
current liabilities, 3:224228
Apple Inc., 3:225
deferred revenue analysis, 3:226228
SAP Group, 3:224225
defined, 3:12, 46, 212
equity, 3:241246
components of, 3:242244
statement of changes in equity,
3:244246
financial assets on, 3:236239
format of, 3:215217
information provided by, 3:6768
inventories on, 3:221223
non-current assets, 3:215, 228239
Apple Inc., 3:229
financial assets, 3:236239
goodwill, 3:233236
intangible assets, 3:231236
investment property, 3:230231
property, plant, and equipment,
3:229230
SAP Group, 3:228229
non-current liabilities, 3:239241
Apple Inc., 3:240
deferred tax liabilities, 3:241
long-term financial liabilities,
3:240241
SAP Group, 3:239240
practice problems, 3:259261
quality of reporting on, 3:596606
solutions to problems, 3:262263
unclassified, 3:56
vertical common-size, 3:330332
balloon maturity provisions, 5:488
balloon payments, 5:316
balloon risk, 5:488
Bancel, Franck, 4:66
Banco Central del Uruguay, 3:107n.9

I-7
BancoFinansur, 5:491
Banco Santander, 5:303
bank certificates of deposit. see
certificates of deposit
bank discount basis, 1:347
bank discount yield, 1:347348, 350
bankers acceptances (BAs), 4:154, 175;
5:418
Bank for International Settlements (BIS),
2:501502; 5:462; 6:39
bank guarantees, 5:307
Banking and Finance Commission, 2:362
bank loans, 5:367368
Bank of Canada, 2:275, 373, 526
Bank of England
in FX market, 2:526
independence of, 2:372
monetary policy, 2:360, 363, 373, 521
quantitative easing, 2:382, 407
two-week repo rate, 2:368
Bank of International Settlement, 5:161
Bank of Italy, 2:334, 362
Bank of Japan
in FX market, 2:499, 526
monetary policy, 2:375376, 383385
and money measures in Japan, 2:354
Bank of Korea, 2:364
Bank of Montreal, 6:197
Bank of Netherlands, 2:362
Bank of New York Mellon, 5:166
bankruptcy
business risk and, 4:100102
priority of claims in, 5:578579
regulations for bankrupt traders, 5:63
and special purpose vehicles,
5:468470
technical analysis and, 1:664
banks
aggregate demand and reserves of,
2:243244, 246
benefits of securitization for, 5:461
as brokers, 5:29
capital adequacy ratios, 3:370
credit cycle assessments by, 5:577n.7
credit from, 4:175
depository, 5:166
as financial intermediaries, 5:32, 33
in FX market, 2:500501
portfolio management for, 4:248
regulation of, 3:103
short-term funding for, 5:375381
repurchase and reverse repurchase
agreements, 5:377379
retail deposits, 5:375
wholesale funds, 5:376377
bank sweep services, 4:154
Barbados, 2:378
bar charts, 1:665666
Barclays Capital
corporate yields, 5:609610
minimum issue size and bond holdings
in indices, 5:99
Barclays Capital Global Aggregate Bond
Index, 5:100101, 104, 351; 6:160,
161, 191
Barclays Capital US Aggregate Bond
Index, 5:99, 474n.10
Barclays plc, 1:714715, 719
Barrick Gold, 5:274

barriers to entry
in credit analysis, 5:591
market structure and, 2:154155, 185
in strategic industry analysis, 5:206
208, 219
barriers to exit, 5:208
barriers to success, 5:207
Barrons, 1:697
barter economy, 2:213, 349
barter transactions, revenue recognition
for, 3:165166, 613
BAs. see bankers acceptances
base currency, 2:487, 504
Basel Accords, 3:103
Basel Committee on Banking
Supervision, 3:103, 104, 107
Basel III global framework for bank
supervision, 5:580n.12
Baseline (database), 3:341
base metals, as commodities, 6:194
base prospectus, 5:464n.3
base rates, 2:368
BASF Group, 1:398; 2:193; 3:536537;
5:165
basic earnings per share, 3:185187,
367, 368
basic materials and processing sector,
5:193
basis point, 5:298, 406, 538539
basis point value (BPV), 5:538539
basis swaps, 6:23
baskets of listed depository receipts
(BLDRs), 5:168
BATS, 5:30
Bauer, Rob, 4:191n.7
Baxter-FX, 5:30
Bayer, 1:398
Bayes formula, 1:460, 488492
BBA. see British Bankers Association
BBVA, 1:398
BCO Santander, 1:398
bearer bonds, 5:311
bearish rectangles, 1:686
bear markets
Elliott waves in, 1:705
forecasting, 1:548550
Bear Stearns Companies, 4:189
Bebchuk, Lucian A., 4:203n.16
beer industry, 2:175, 176
behavior
consumer, 2:1213, 300302
external trade sector, 2:303304
housing sector, 2:302303
supplier, 2:16
behavioral biases, 5:137138
behavioral equations, 2:21
behavioral finance, market efficiency
and, 5:136139
behind the market (term), 5:45
Beige Book, 2:334
Belarus, 2:522
Belgian Asset Managers Association,
1:204
Belgium
banking supervision, 2:362
customs union, 2:448
equity risk premiums, 4:48
in EU, 2:448n.18
exchange rate regime, 2:522

I-8

Belgium (continued)
as GIPS country sponsor, 1:204
government debt, 2:346
in MSCI multi-market index, 5:96
public sector spending, 2:347
real equity returns, 1:372
returns on bonds, bills, and equities,
5:153
total returns, 1:380, 383
beliefs, investors, 4:364365, 375,
378379
Belize, 2:378
benchmark description
defined, 1:237
Disclosure (GIPS Section I.4), 1:212
GIPS Advertising Guidelines (GIPS
Section III), 1:231
benchmark issue, 5:361362
benchmark rate, 4:160; 5:406, 428431
benchmarks, 3:583
defined, 1:237
Disclosure (GIPS Section I.4), 1:213,
214
GIPS Advertising Guidelines (GIPS
Section III), 1:231
Presentation and Reporting (GIPS
Section I.5), 1:215, 216
Private Equity (GIPS Section I.7),
1:222, 223
PSA prepayment, 5:475
Real Estate (GIPS Section I.6), 1:220
security market indices as, 5:9495
spread over, 5:406
benchmark spread, 5:429
benchmark yield, 5:555
benchmark yield curve, 5:430432
beneficial ownership, 1:158, 159
Berkshire Hathaway, Inc., 1:438; 5:159
160, 175, 176
Bermuda-style calls, 5:328
Bermuda-style puts, 5:330
Bernanke, Ben, 2:382
Bernoulli, Jakob, 1:518
Bernoulli random variable(s), 1:518519
Bernoulli trials, 1:518
best bid, 5:44
best efforts offering, 5:5051, 354
best execution (term), 1:76
Bestfoods, Inc., 1:353, 357
best offer, 5:44
Best Practice Guidelines Governing
Analyst/Corporate Issuer Relations
(CFA Institute), 1:33
beta, 4:356363; 6:155
asset, 4:5356
calculation and interpretation,
4:359360
and CAPM, 4:360361, 380
estimating, 4:5258
with CAPM, 4:360361
inferring asset betas, 4:56
pure-play method, 4:5557
and expected return, 4:361363
levering and unlevering, 4:5354
return-generating models, 4:356357
and security characteristic line, 4:374
security market indices and, 5:94
Bhagat, Sanjai, 4:191n.4
B+H Ocean Carriers, 3:524525

Level I Curriculum Index


BHP Billiton, 3:639640; 5:274
biased accounting choices, 3:570576,
578
biases, 6:151
in accounting standard application,
3:582583
behavioral, 5:137138
in equity screening, 3:652653
price index, 2:320
sampling (see sampling biases)
bidask spread, 4:294; 5:44, 359
bidoffer spread, 5:359
bid prices, 5:44, 555; 6:10n.3, 172
bid sizes, 5:44
big bath accounting, 3:582
Big Mac index, 2:488
bilateral loans, 5:367368
bill-and-hold transactions, 3:610
Bill & Melinda Gates Foundation, 4:246
bill-to-bill terms, 4:163
binding shareowner proposals, 4:226
binomial distribution of discrete random
variables, 1:518527
evaluating block brokers with, 1:519
520, 522523
and expected defaults in bond
portfolio, 1:525526
mean and variance of, 1:525
and one-period stock price as Bernoulli
random variable, 1:518519
and tracking error objectives, 1:524
binomial formula, 1:494
binomial model
for bond defaults, 1:525526
for stock price, 1:526527
binomial tree (tree diagrams), 1:475
476, 526
binomial valuation of options,
6:100104
Biomet, 5:213
BIS. see Bank for International
Settlements
BJs Wholesale Club, 1:378, 379,
405406
blackout periods, 1:159
BlackRock, 5:210
BlackScholesMerton model,
6:121n.4
as continuous time finance model,
1:541n.33
for European call options, 1:551
lognormal distribution in, 1:539
volatility of, 1:543
BLDRs. see baskets of listed depository
receipts
block brokers, 1:519520, 522523; 5:28
blogs, confidential firm information on,
1:115
Bloomberg, 3:329, 341, 364
Bloomberg Fixed Income Electronic
Trading, 5:359
Bloomberg Fixed Income Relative Value
page, 5:431
Bloomberg risk statistic, 5:539
Bloomberg Yield and Spread Analysis
page, 5:529530, 541542
BLS. see US Bureau of Labor Statistics
blue-chip companies, 5:173
blue-chip shares, 5:121n.7

Blume, Marshall, 4:53n.26


BME Spanish Exchanges, 5:152
BMW, 1:397; 2:174; 5:218
BNP Paribas, 1:398
BNY Mellon, 5:209
board members
defined, 4:193194
qualifications and abilities of,
4:200201
shareowners nominations of,
4:224225
terms of, 4:202203
board of directors, 4:198211
committees, 4:204211
audit committees, 4:204207
nominations committee, 4:209210
other committees, 4:210211
remuneration/compensation
committees, 4:207209
communications with shareowners,
4:211
composition of, 4:202203
corporate governance for, 4:195196
defined, 4:194
external consultants for, 4:201202
independence of, 4:198200
related-party transactions by, 4:203204
size of, 4:203
Boeing
method of comparables for, 5:268269
strategic analysis with, 5:207208, 218
Bolivia, 2:522; 3:114
Bollinger, John, 1:689
Bollinger bands, 1:689690
Bolton, Brian J., 4:191n.4
bond classes, 5:464n.4
mezzanine, 5:495
subordinated and senior, 5:485
and tranching, 5:465467
bond convexity, 5:540548
bond equivalent yield, 4:156; 5:419
bond-equivalent yield, 1:351
bond ETFs, 4:262
bondholders
negotiation on covenants by, 5:607
shareholders vs., 5:590
bond indenture, 5:302310
collateral backing, 5:305306
covenants, 5:307308, 606
credit enhancement, 5:306307
legal identity of issuer/legal form of
bond, 5:303304
repayment proceeds, 5:304
bond indentures, 4:217n.27
bond indices, stratified sampling and,
1:568569
bond market. see also fixed-income
market
developed, 5:348349
emerging, 5:348349
primary, 5:353358
private placements, 5:354, 358
public offerings, 5:354358
secondary, 5:353, 358361
bond market vigilantes, 2:381
bond mutual funds, 4:258260
bond portfolios, duration of, 5:536538
bond premiums, amortisation of,
3:519520

Level I Curriculum Index

bonds. see also fixed-income securities;


specific types
amortisation, 3:516520
arbitrage with, 6:4849, 67
consol, 1:299
convertible, 6:172
correlation of T-bills/stocks with,
4:312, 313
credit ratings and prices of, 5:586587
credit ratings of issuers vs., 5:582584
default
binomial model for, 1:525526
recovery rates on, 1:626627
defined, 4:287; 5:302
at discount, 3:515519
downside frequencies of, 6:157
at face value, 3:512515
face value of, 1:478479
government, 4:412
historical risk and return, 4:287288
and interest expense/interest
payments, 3:516517
intrinsic value of, 5:119
investment grade, 4:412
issuance, 3:512516
legal form of, 5:303304
margin, 6:11
municipal, 4:405
nominal returns of, 4:290
notes vs., 5:17
performance of, 6:11, 161
at premium, 3:519520
puts vs. short sales and, 6:93
real returns of, 4:289290
returns, 6:152, 165, 196, 197
returns on equities and bills vs.,
5:152153
risk-free, 6:4849
in securitization process, 5:465467
Sharpe ratios and downside risk
measures, 6:156157
as short positions, 5:40
US Treasury, 1:709; 4:46, 49, 412
volatility, 6:152
with warrants, 3:529530
zero-coupon, 1:478479
bonds payable, 3:512530
and amortisation of bonds, 3:516520
debt covenants, 3:525527
derecognition of debt, 3:523525
disclosure of long-term debt, 3:527530
fair value reporting, 3:520523
and issuance of bonds, 3:512516
presentation of long-term debt,
3:527530
bond yield plus risk premium approach,
4:5152
Bon-Ton Stores Inc., 1:386
bonus compensation, 1:116117
bonuses, executive compensation and,
4:214
bonus issue of shares, 4:116
book building, 5:50
book runners, 5:50
book value
in asset-based valuation models, 5:247
intrinsic vs., 5:176
and market value, 5:171172
in ROE, 5:172173

I-9
book value per share (BVPS), 4:129
boom phase (business cycle), 2:293, 297
BOP system. see balance of payments
system
borrowers, size and short-term strategy
of, 4:177
borrowing
costs of, 4:172, 178180
and equilibrium interest rate, 5:12
as financial system function, 5:89
for share repurchases, 4:127128
short-term, 4:153, 177
borrowing costs, for property, plant, and
equipment, 3:430
borrowing rates, effects on leveraged
portfolios, 4:351354
Bosnia and Herzegovina, 2:522
Boston Scientific, 5:213
Botswana, 3:115; 5:96, 96n.4
bottom line, income statement, 3:153
bottom-up analysis, 3:650651
bottom-up approach to equity valuation,
5:244
bottom-up portfolio analysis, 4:251
bottom-up strategies, 6:162, 164
box size, point and figure charts, 1:669
BP, 5:209
BP/Amoco/Arco, 2:195
BPV. see basis point value
Brady bonds, 5:351
branches of businesses, investments in,
3:489
brand loyalty, 2:172, 186
Brave, Alon, 4:191n.8
Brazil
absolute and comparative advantage,
2:433434
business investment, 2:267
discipline for financial reporting
quality in, 3:585
domestic and international debt
securities, 5:312
effects of Asian financial crisis, 2:429
exchange rate regimes, 2:525
GDP vs. GNP, 2:423
IFRS adoption, 3:114
inflation-linked bonds, 5:323, 324, 363
inflation targeting, 2:371
MERCOSUR, 2:448
MSCI multi-market index, 5:96
natural resources, 2:268
as small country, 2:442
Brazilian Bovespa Index (BVSP), 1:666
Brazilian GAAP, 3:114, 634, 635
Brazilian real, 2:487
breakeven
for calls, 6:123, 129, 131
for puts, 6:127, 129, 134135
breakeven analysis, profit maximization
and, 2:115120
breakeven point(s), 2:115117, 123124
and leverage, 4:9899
operating, 4:98100
breakeven reinvestment rate, 5:426
breaking the buck, 4:259
break point, 4:61
Bretton Woods system, 2:520
bridge financing, 5:368
Brightman, Christopher J., 5:116n.1

Brinks Home Security, 5:199200


Bristol-Myers Squibb, 5:602
British American Tobacco, 5:209
British Bankers Association (BBA), 5:347
British pound
EUR/GBP exchange rate, 2:504, 505n.4
exchange rate quotes with, 2:504506
GBP/EUR exchange rate, 2:489, 494
gold standard for, 2:520
identification code, 2:487
international bonds outstanding in,
5:345
as reserve currency, 5:19
USD/GBP currency pair, 2:502
British Telecom, 5:322, 614615
broad-based equity ETFs, 4:262
broad market equity indices, 5:95
broad measure of liquidity, 2:354
broad money, 2:353
brokerage arrangements, 1:76, 79
brokerage commissions, 4:294
brokerdealers, 5:30
brokered markets, 5:55, 57
broker recruiting, 1:107
brokers, 6:170
clearinghouses for, 5:36
and dealers, 5:3031
dealers vs., 2:43
as financial intermediaries, 5:2829
lending by, 5:33
prime, 5:33, 49
broker-sponsored limited partnerships,
1:151
Brounen, Dirk, 4:66
Brown, Constance, 1:695
Brown, E. H. Phelps, 1:704
Brown, George Garvin, 5:260
Brown, Lawrence D., 4:191n.3
Brown-Forman Corporation, 5:260262
Bruce, Roger, 4:237
Bruce Fund, 1:406
Bruner, Robert F., 4:47n.16
bubbles, 6:42
budget constraints
and consumer equilibrium, 2:7981
defined, 2:64
demand curve from, 2:8384
and opportunity set, 2:7577
and price elasticity of demand, 2:159
budget deficit (fiscal deficit), 2:388
and business cycles, 2:219
and fiscal policy, 2:401402
and foreign capital, 2:228
and national debt, 2:391393
and Ricardian equivalence, 2:400
budgeting, capital, 1:332
budget surplus, 2:388
Buenos Aires, Argentina, 5:630
Buffett, Warren, 5:175
Bhner, Thomas, 4:63
building permits, 2:330, 332333
Bulgaria, 2:522; 5:96
bulldog bonds, 5:311
bullet bonds, 5:315318
bullet mortgages, 5:472
bullish rectangle, 1:686
bull markets
Elliott waves in, 1:706708
forecasting, 1:548550

I-10

Bundesanstalt fr
Finanzdienstleistungsaufsicht,
5:29
Bundesverband Investment und Asset
Management, 1:205
bundled fees
Calculation Methodology (GIPS
Section I.2), 1:210
defined, 1:237
Disclosure (GIPS Section I.4), 1:213
Presentation and Reporting (GIPS
Section I.5), 1:215
Wrap Fee/SMA Portfolios (GIPS
Section I.8), 1:224225
Bunds, 5:298, 610
Burlington Northern, 5:209
Burns, Wesley Clair, 2:290
business activities, classifying, 3:4243
business combinations
intangible assets from, 3:434435
intangible assets not from, 3:431
and quality of financial reporting,
3:591
taxable vs. accounting profit for, 3:488
business confidence, 2:243, 246
Business Cycle and Dating Committee,
2:293
business cycles, 2:289343
defined, 2:290
economic indicators, 2:328335
cyclical measures as, 2:334
diffusion index of, 2:333334
leading, lagging, and coincident,
2:328334
and external trade sector behavior,
2:303304
and GDP, 2:240241
and housing sector behavior,
2:302303
inflation, 2:317328
cost-push, 2:323325
deflation, hyperinflation, disinflation,
2:317319
demand-pull, 2:325326
expectations, 2:326327
price indices, 2:319323
types of, 2:323326
phases of, 2:290294
practice problems, 2:338341
resource use, 2:294302
capital spending, 2:297299
consumer behavior, 2:300302
inventory levels, 2:299300
as short-term movements in economy,
2:289
solutions to problems, 2:342343
unemployment, 2:313317
analyzing, 2:316317
indicators, 2:315316
rate of, 2:315
business-cycle sensitivities, 5:190191,
227228
business cycle theories, 2:305313
Austrian school, 2:305306
Keynesian school, 2:306308
Monetarist school, 2:308309
Neoclassical school, 2:305, 306
New Classical school, 2:309313
business entities, distinct, 1:208, 239

Level I Curriculum Index

business environment, in industry


analysis, 5:188
business expectations, aggregate demand
and, 2:243
business relationships, conflicts of
interest and, 1:152, 156
business risk
components of, 4:84
for creditors and owners, 4:100102
defined, 4:53
and leverage, 4:8491
operating risk, 4:8591
sales risk, 4:8485
business sector, in GDP, 2:218
business segments, financial analysis for,
3:375378
business spending, 2:243, 292
business strategy, financial performance
and, 3:629633
business taxes, SRAS and, 2:249, 251
buy-and-hold investors, market timers
vs., 1:548550
buy-and-hold strategies, 4:274n.2
buyback, 4:123. see also share
repurchases
buyers. see also consumer(s)
demand function for, 2:89
derivatives, 6:7
per-unit tax on, 2:40
power of, 5:591
buying stock (as strategy), 6:121123
buyout funds, 4:265
buy-side clients, 1:31
buy-side firms, 4:253
buy-side participants, FX market,
2:498500
BVPS. see book value per share
BVSP. see Brazilian Bovespa Index
Bylaws and Rules of Procedure
for Proceedings Related to
Professional Conduct, 1:9
C
CAC 40 Index, 4:346
Cadbury, 5:209, 219221
CAIA Association. see Chartered
Alternative Investment Analyst
Association
Caisse de dpt et placement du
Qubec, 2:499
calculated statistical indices, 1:697700
Calculation Methodology (GIPS Section
I.2), 1:209210
about, 1:206
recommendations
general, 1:210
for private equity, 1:224
for real estate closed-end fund
composites, 1:220
requirements
general, 1:209210
for private equity, 1:221
for real estate, 1:217218
for real estate closed-end fund
composites, 1:219
calendar anomalies, 5:130132
California, 5:630, 631
California Public Employees Retirement
System (CalPERS), 4:191

callable bonds, 5:327329


and contingency provisions, 5:373
effective convexity of, 5:547548
effective duration of, 5:527528
and embedded options, 5:412
interest rate risk with, 5:534535
callable common shares, 5:158159, 171
callable preference shares, 5:159160,
171, 252
call markets, 5:54
call money rate, 5:41
call options (calls)
American, 1:527; 5:328; 6:105107
Asian, 1:546547
Bermuda-style, 5:328
covered, 6:130133
defined, 5:24; 6:25, 85
down-and-out, 1:555
as embedded options (see callable
bonds)
in equity portfolios, 6:123126
European (see European call options)
fiduciary, 6:9596, 99
make-whole, 5:328
margin transactions vs., 6:9192
payoff from, 6:2628
profits from, 6:2728, 129
standard long and short positions,
6:123126
value for, 6:129
call premium, 5:328
call price, 5:328
call protection, 5:488
call protection period, 5:328, 412
call provisions, 5:319
calls. see call options
Cambodia, 2:522
Cameco Corporation, 5:272273
Cameroon, 3:115
Canada
ACH system, 4:163
auctions in, 5:356
banking supervision, 2:362
bank regulation, 3:103
bonds outstanding, 5:348, 353
business investment, 2:267
capitalization level and contributions
to global GDP, 5:151
code of ethics, 4:213n.24
commodities in economy, 1:710
consumption expenditures, 2:229
credit rating services, 5:581
disclosures in annual reports, 4:201,
206, 209
disinflation, 2:318
domestic and international debt
securities, 5:312
equity risk premiums, 4:48
exchange rate regime, 2:523
expected inflation, 2:366
foreign bonds, 5:311
in FX market, 2:499
as GIPS country sponsor, 1:204
government spending, 2:219
gross domestic product, 2:211,
221226
forecasts of, 2:274275
GNP vs., 2:423
potential, 2:273, 274

Level I Curriculum Index


IFRS adoption, 3:114
income trusts, 5:225
inflation-linked bonds, 5:323, 324
inflation targeting, 2:371, 373
international investments, 5:165
labor productivity, 2:271
liquidity representations on balance
sheets, 3:15
MSCI multi-market index, 5:96
NAFTA, 2:448
NAICS system, 5:196197
national debt, 2:393
proxy statements, 4:204, 211, 216, 222
real equity returns, 1:372
regular cash dividends, 4:112, 113
residential mortgage loans, 5:471
retractable term preferred shares,
5:253254
returns
on bonds and bills, 5:152, 153
on equities, 5:153
risk tolerance and equity ownership,
5:154
shareowner-sponsored board
nominations, 4:225
share repurchases, 4:123, 125
trade balance with US, 2:220, 221
Treasury bills, 1:279n.3, 349n.16
underground economy, 2:214
Canadayen exchange rate, 2:505, 508
Canadian Broadcasting Corporation,
1:389390
Canadian dollar
CAD/USD currency pair, 2:502
in cross-rate calculations, 2:507508
exchange rate quotes with, 2:505
identification code, 2:487
international bonds outstanding in,
5:345
Canadian GAAP, 3:114
Canadian Investment Performance
Committee, 1:204
candidacy in CFA program, referring to,
1:171172
Candidate Pledge, 1:167
candidates, CFA. see Responsibilities of
CFA Members and Candidates
[Standard of Professional Conduct
VII]
candlestick charts, 1:666668
cannibalization, 4:9
Canon Inc., 5:269270
capacity, 5:590605
and company fundamentals,
5:592597
and industry fundamentals, 5:592
and industry structure, 5:591592
and issuer liquidity, 5:597
in strategic industry analysis, 5:211
212, 219
of Watson Pharmaceuticals, Inc.,
5:597605
capacity utilization, aggregate demand
and, 2:243, 246
capital
capital structure vs., 3:248
committed, 6:176
cost of (see cost of capital)
debt/capital ratio, 5:595

I-11
debt-to-capital ratio, 3:352, 353, 552
development, 6:175
financial
in HeckscherOhlin model,
2:440441
and international trade, 2:422
in long-term economic growth, 2:265
human, 2:250, 266
net working, 5:597
physical
aggregate supply, 2:251
and business cycle, 2:295, 296
defined, 2:230
and economic growth, 2:266267
as factor of production, 2:108
and labor productivity, 2:270
and long-term aggregate supply,
2:250
and private equity valuation, 6:184
proportions of, 4:3940
raising equity, 5:9
requirements, 5:6162
return on, 3:356, 357, 373
ROIC, 5:204
total invested, 3:637n.4
venture, 5:15, 161
WACC, 5:177, 204
working, 3:216, 345, 645n.7; 5:597,
619
capital account, BOP, 2:458, 530
capital adequacy ratios, for banks,
3:370
capital allocation, efficiency of, 5:1314
capital allocation line. see also capital
market line
defined, 4:301, 342
of optimal portfolio, 4:322323
and optimal risky portfolio, 4:319320
and portfolio selection, 4:301304
for risk-free assets in portfolios of risky
assets, 4:344
SML vs., 4:365367
capital asset pricing model (CAPM),
4:363382
applications, 4:368379
capital budgeting, 4:368369
estimate of expected return,
4:368369
portfolio construction, 4:376379
portfolio performance evaluation,
4:369374
security characteristic line,
4:374375
security selection, 4:375376
assumptions of, 4:363365
and beta/expected return, 4:361363
cost of common equity, 4:4650,
6566
for cost of equity, 5:177
extensions, 4:381382
Fama and French three-factor model
vs., 5:133
limitations, 4:379380
and portfolio construction, 4:376379
required rate of return from, 5:251
security market indices as proxy, 5:94
security market line, 4:365368
and expected return, 4:366367
portfolio beta, 4:367368

capital budget, planning of, 4:6


capital budgeting, 1:332; 4:533; 5:177
CAPM for, 4:368369
and cost of capital, 4:4042
importance of, 4:56
investment decision criteria, 4:1026
average accounting rate of return,
4:1516
internal rate of return, 4:1112,
1824
net present value, 4:1011, 1621
payback period, 4:1215
popularity and use of capital
budgeting methods, 4:2426
profitability index, 4:16
popularity and use of, 4:2426
practice problems, 4:2830
principles, 4:810
process, 4:67
solutions to problems, 4:3133
capital consumption allowance (CCA),
2:223224
capital deepening investments, 2:265
capital employed (term), 1:237
capital expenditures
fiscal policy and, 2:395
and issuer liquidity, 5:597
net cash flow to, 3:374
property, plant, and equipment as,
3:428431
capital flows
and international trade, 2:442455
and trade balance, 2:529531
capital gains, 5:313, 515, 550; 6:167
capital gains taxes, 4:114, 282
capital goods, 2:218
capital-indexed bonds, 5:324
capitalization
and financial reporting issues, 3:605
606, 615
of intangibles, 3:611
of interest, 3:608609
capitalization rate (cap rate), 6:192
capitalizing on dividends, 4:122123
capital leases. see finance leases
capital losses, 5:313, 515, 516, 550
capital market expectations, 4:411
capital market line (CML), 4:346354
defined, 4:348349
and definition of market, 4:347
of leveraged portfolios, 4:350354
with different lending/borrowing
rates, 4:351354
with equal lending/borrowing rates,
4:351
passive and active portfolios, 4:346
risk and return on, 4:349350
and single-index model of beta, 4:357,
358
SML vs., 4:365367
capital markets, 2:8; 5:15. see also
Integrity of Capital Markets
[Standard of Professional Conduct
II]
and benefit of ethics to society, 1:12
and FX markets, 2:492493
IMF analysis of, 2:469
regulation of, 3:111
sustainability of, 1:1213

I-12
capital market securities, 5:298
capital market theory, 4:342354
capital market line, 4:346354
portfolio of risk-free and risky assets,
4:342346
combining risk-free asset with risky
assets, 4:343346
homogeneity of expectations
assumption, 4:345346
capital rationing, 4:10
capital restrictions, 2:442, 452455
capital returns, 1:218, 237
capital spending
cyclical use of resources, 2:297299
and fiscal policy, 2:398
capital stock, 2:266267
capital structure, 1:332
capital vs., 3:248
in credit analysis, 5:574575
marginal cost of capital structure,
4:6063
simple vs. complex, 3:184185
target, 4:38
capital-to-labor ratio, 2:265
capital transfers sub-account, BOP,
2:458
CAPM. see capital asset pricing model
caps, floating-rate note, 5:321
captive finance subsidiaries, 4:161
carbon credits, 5:10
cardinal rankings, 2:67
care. see Loyalty, Prudence, and Care
[Standard III(A)]
Carhart, Mark, 4:357
Carnegie, Andrew, 2:184
Carpenter Technology Corporation,
3:655657
Carrefour Group, 1:397; 5:210
carried interest, 1:221, 237
carry, 6:65
carrying amount, 3:445448, 475
carrying costs, 4:170
carrying value, 5:247, 515. see also book
value
cartels, 2:181, 184
carve-out
Composite Construction (GIPS
Section I.3), 1:211
defined, 1:237
Disclosure (GIPS Section I.4), 1:213
Presentation and Reporting (GIPS
Section I.5), 1:215
CAS. see Chinese accounting standards
case studies
Investment Advisers Ltd., 3:5168,
7692
Watson Pharmaceuticals Inc.,
5:597605
cash
on balance sheets, 3:218219; 5:597,
619
from customers, 3:283284
defined, 3:46
to employees, 3:286
generation of, 3:607608
for income taxes, 3:287
for interest, 3:287
interim, 1:281282
minimum balances, 4:151

Level I Curriculum Index

monitoring uses and levels of,


4:152153
mutual fund cash position indicator,
1:702703
for other operating expenses,
3:286287
from sale of equipment, 3:288289
sources and uses of, 3:295298
to suppliers, 3:284286
cash-basis accounting, 3:598599
cash before delivery (CBD), 4:162
cash collections systems, 4:163165
cash concentration, 4:165
cash conversion cycle, 3:347349; 4:149
cash disbursements, 4:174
cash dividends
equivalence of share repurchases and,
4:130131
growth of share repurchases vs.,
4:123124
in returns, 4:273
stock vs., 4:117
cash equivalents
on balance sheets, 3:218219
defined, 3:46
cash flow(s), 4:150153
in capital budgeting, 4:89
on cash flow statements, 3:267269
conventional, 4:9
in credit analysis, 5:594595, 597
DCF valuation approach, 6:183184,
192
discounted (see discounted cash flows)
discounting of, 5:246
discretionary cash flow to debt, 3:374
external, 1:209210, 239
and financial reporting issues, 3:615
financing, 3:269
free cash flow to equity, 3:302303;
4:42n.7; 6:183184
free cash flow to the firm, 3:302303;
4:42n.6
future value of (see future value [FV])
geometric and arithmetic mean of
future cash flows, 1:430
government, 2:387390
incremental, 1:332n.1; 4:9
IRR vs. NPV and patterns in, 4:1819
large, 1:209, 240
monitoring cash uses and levels,
4:152153
for mortgage pass-through securities,
5:474477
net, 3:268, 374
net income and, 3:615
nonconventional, 4:9
operating, 3:269280; 5:250, 597, 619
direct-format statement under IFRS,
3:274276
financing vs., 3:269
free operating cash flow to debt,
3:374
indirect-format statement under
IFRS, 3:271274
under US GAAP, 3:276280
for plain vanilla bonds, 5:300, 315
present value of (see present value
[PV])
price-to-cash flow ratio, 3:367, 368

profits vs., 3:78


retained, 3:647
short-term, 4:151152
cash forecasting systems, 4:152
identifying typical cash flows,
4:151152
and minimum cash balances, 4:151
significant, 1:211, 214, 243
in swaps, 6:82
typical, 4:151152
cash flow additivity principle, 1:306, 311
cash flow from operations (CFO), 5:250,
597, 619
cash flow per share, 3:367
cash flow ratios, 3:304
cash flow statements, 3:265315
about, 3:266
analysis of, 3:2224, 294305
cash flow ratios, 3:304
common-size, 3:298302
for comparables, 3:305
free cash flow to equity, 3:302303
free cash flow to the firm, 3:302303
sources and uses of cash, 3:295298
and balance sheets, 3:219, 280282
components and format, 3:267280
cash flows and non-cash activities,
3:267269
cash flows from operating activities,
3:270280
and IFRS vs. US GAAP, 3:269270
defined, 3:12
effects of reporting quality on,
3:606609
financing activities on, 3:289
and income statements, 3:280282
information provided by, 3:68
investing activities on, 3:267, 287289
operating activities on, 3:267, 283287
cash for income taxes, 3:287
cash for interest, 3:287
cash for other operating expenses,
3:286287
cash from customers, 3:283284
cash to employees, 3:286
cash to suppliers, 3:284286
overall statement of cash flows,
3:289294
direct method, 3:23, 270271,
289290
indirect method, 3:23, 270271,
290293
practice problems, 3:308312
preparation of, 3:280294
financing activities, 3:289
investing activities, 3:287289
operating activities, 3:283287
overall statement of cash flows,
3:289294
solutions to problems, 3:313315
cash flow structures, 5:315327
coupon payment, 5:320327
principal repayment, 5:315320
cash flow yield, 5:536
cash inflows, in forecasts, 4:152
cash management, 4:150153
cash markets, 6:5
cash market securities, 5:424
cash on delivery (COD), 4:162

Level I Curriculum Index


cash outflows, in forecasts, 4:152
cash position, 4:150153
cash prices. see spot prices
cash ratio, 3:347, 348
cash reserve ratio, 3:370
cash-settled forwards. see nondeliverable
forwards (NDFs)
cash settlement
of contracts, 5:20
of futures, 6:20
of options, 6:26
Catalent, 5:602
Caterpillar Inc., 1:384; 5:198, 209, 219
Cathay Pacific Airways, 4:238241
Caylor, Marcus, 4:191n.3
CBD. see cash before delivery
CBOE Volatility index (VIX), 1:698
CBOs. see collateralized bond
obligations
CBOT. see Chicago Board of Trade
CBS. see currency board system
CBS Records, 3:617
CCA. see capital consumption allowance
CCR. see corporate credit rating
CD equivalent yield, 1:349. see also
money market yields
CDOs. see collateralized debt obligations
CDs. see certificates of deposit
CDSs. see credit default swaps
cell (term), 1:568
Center for Research in Security Prices
(CRSP), 1:588
Central African Republic, 2:450
Central America, 3:114. see also specific
countries
central bank funds market, 5:376
central bank funds rates, 5:376
Central Bank of Brazil, 2:364
central banks
countercyclical policies of, 2:292
credibility of, 2:372
and credit cycle, 5:577n.7
currency purchases by foreign,
2:461462
exchange rate regime switching by,
2:526
in FX market, 2:499500
independence of, 2:372, 406
and inflation, 2:258, 317, 365, 371377
monetary policy by, 2:347n.1, 363; 5:352
monetary transmission mechanism of,
2:369371, 381382
objectives of, 2:364
open market operations by, 5:352
policy rate of, 2:367368
price index use by, 2:321322
reserve requirements of, 2:352, 368
roles and responsibilities of, 2:361363
technical analysis by, 1:663
transparency of, 2:373
Central Europe. see also specific
countries
current account imbalance, 2:466
debt and equity outstanding, 5:344
trade-to-GDP ratio, 2:426
centralization, of financial organization,
4:172
central limit theorem, 1:572575, 580,
610n.7

I-13

central tendency. see measures of central


tendency
Centre for Economic Policy Research
(CEPR), 2:334
century bonds, 5:371, 429
CEOs. see chief executive officers
CEPR. see Centre for Economic Policy
Research
certainty, theory of the firm and, 2:96
Certificate in Investment Performance
Measurement (CIPM), 1:9
certificates of deposit (CDs), 4:154;
5:376377
CESR. see Committee of European
Securities Regulators
ceteris paribus, 2:10
CFA Association of Pakistan, 1:205
CFA charterholders, 1:171
CFA Denmark, 1:204
CFA designation, 1:171. see also
Reference to CFA Institute,
Designation and Program
[Standard VII(B)]
guidance on using, 1:171
order of professional and academic
designations with, 1:176
right to use, 1:175
stating facts about, 1:176
CFA examinations, 1:5
bringing written material into exam
room, 1:167
confidential information in, 1:165166
expressing opinions about, 1:166
grading guidelines and results for,
1:169
passing, in consecutive years,
1:174175
sharing content of, 1:168169
sharing questions from, 1:167169
writing after exam period, 1:168
CFA Institute, 1:205; 4:395. see also
specific committees and programs
clarifications of GIPS by, 1:202, 207,
208, 233
compromising integrity of, 1:169
ethical commitment of, 1:1415
GIPS standards, 1:199, 200
mission of, 1:7
monitoring of financial reporting
standards, 3:133134
performance standards of, 5:61
referring to, 1:171 (see also Reference
to CFA Institute, Designation and
Program [Standard VII(B)])
standards for communicating
recommendations, 3:3435
Standards of Professional Conduct,
5:49, 51
values of, 1:15
vote disclosure for pooled investment
funds, 4:222n.32
website, 1:15, 129
CFA Institute Centre for Financial
Market Integrity, 4:190
CFA logo, 1:172173, 175176
CFA marks, use of, 1:172173
CFA members and candidates
knowledge of the law [Standard I(A)],
1:2627

responsibilities of (see Responsibilities


of CFA Members and Candidates
[Standard of Professional Conduct
VII])
CFA Program. see also Reference to
CFA Institute, Designation and
Program [Standard VII(B)]
conduct restrictions for candidates and
members, 1:165
confidential information about,
1:165166
stating facts about, 1:176
testing policies for, 1:167
CFA Society of Hungary, 1:205
CFA Society of New Zealand, 1:205
CFA Sri Lanka, 1:205
CFDs. see contracts for differences
CFNAI. see Chicago Fed National
Activity Index
CFO. see cash flow from operations
CFOs. see chief financial officers
CFR. see corporate family rating
CGM Focus Fund, 1:406
chairman of board, 4:199
Chamberlin, Edward H., 2:153
change-in-control provisions, 4:228
change in polarity principle, 1:675
change of control covenant, 5:606n.26
change of control put option, 5:623
changes
fund mandate, 1:142
to investment process, 1:142144
channel stuffing, 3:610
Chapter 7 bankruptcy, 4:101n.8, 102
Chapter 11 bankruptcy, 4:101102
character, in four Cs framework,
5:590591, 607608
charitable foundations, endowments for,
4:246248
charities, strategic asset allocation for,
4:421423
Charles Schwab Corporation, 3:661662
Chartered Alternative Investment
Analyst (CAIA) Association,
6:162n.18
Chartered Financial Analyst. see entries
beginning with CFA
Chartered Financial Analyst Program,
5:61
chart of accounts, for financial
statements, 3:44
chart patterns, 1:676687
continuation patterns, 1:683687
flags and pennants, 1:686687
rectangles, 1:686
triangles, 1:684686
reversal patterns, 1:677683
double tops and bottoms, 1:681683
head and shoulders, 1:677681
triple tops and bottoms, 1:682683
charts, 1:664673
bar, 1:665666
candlestick, 1:666668
line, 1:664665
point and figure, 1:668670
relative strength analysis of, 1:672673
scale of, 1:670671
time intervals of, 1:672
volume on, 1:671672

I-14
Chebyshev, Pafnuty, 1:412413
Chebyshevs inequality, 1:412414
Chevron/Texaco, 2:195
Chicago, Illinois, 6:39
Chicago Board of Trade (CBOT), 6:37,
3940
Chicago Board Options Exchange,
1:698
Chicago Fed National Activity Index
(CFNAI), 2:334
Chicago Mercantile Exchange (CME),
2:494; 5:29
chief executive officers (CEOs), 4:199
chief financial officers (CFOs), 4:6566
Chile
discipline for financial reporting
quality in, 3:585
exchange rate regimes, 2:523, 525
IFRS adoption, 3:114
inflation-linked bonds, 5:323, 324
inflation targeting, 2:371
in MSCI multi-market index, 5:96
China
approval for dividends, 4:111, 120
business investment, 2:267
capital goods expenditures, 2:218
capital restrictions, 2:453
central bank reserves, 2:499
comparative advantage, 2:433434,
438
CPI, 2:320321
current account, 2:463, 466
debt and equity outstanding, 5:344
discipline for financial reporting
quality in, 3:585
domestic and international debt
securities, 5:312
economic growth, 2:269
economic indicators, 2:334
effects of global recession, 2:256, 257
exchange rate regime, 2:522, 523, 527
exports from, 2:423, 428, 440
foreign bonds, 5:311
foreign investment in, 5:164
GDP, 2:211, 245
globalization of production, 2:428
as growth country, 5:190n.2
housing sector, 2:303
and IFRS, 3:115
industrialization, 5:211
labor supply, 2:266
market efficiency, 5:121
in MSCI multi-market index, 5:96
Multi Fiber Agreement, 2:431
regular cash dividends, 4:113
reserve requirements, 2:368
securitization pilot program, 5:461
stock dividends, 4:117
trade balance with US, 2:220, 221
underground economy, 2:214
China Aviation Oil Corp., 6:197
China Construction Bank, 3:216217
China Investment Corporation, 4:249
China Mobile Ltd., 1:674675, 687;
5:192
China Securities Regulatory
Commission, 3:107n.9
Chinese accounting standards (CAS),
3:115

Level I Curriculum Index

Chinese yuan
CNY/USD exchange rate, 2:489490
exchange rate regime, 2:523
identification code, 2:487
chi-square test
for value of population variance tests,
1:632
values of chi square, 1:725
Chi-X Europe, 5:30
CIPM. see Certificate in Investment
Performance Measurement
Cisco Systems, 3:222223; 5:209
Citibank Inc., 4:49
Citigroup, Inc., 2:498, 500; 3:608;
4:5152, 119120
Citigroup Commercial Mortgage Trust
2013-GCJ11, 5:489490
classes of shares, companies with
multiple, 4:221
classical gold standard, 2:520
classified balance sheet, 3:216
classified boards of directors, 4:202203
clawback, private equity, 6:177
claw-back provisions, 4:216
clearing (term), 6:11
clearinghouse(s), 5:22, 36
daily settlement by, 6:1819
in exchange-traded derivatives market,
6:11
clearing instructions, 5:44, 4950
Clearstream, 5:359360
CLI. see Composite Leading Indicators
client commission practices, 1:7880
clientplan participants, identifying,
1:78
clients
approval from, 1:77
buy-side, 1:31
communication with (see
Communication with Clients and
Prospective Clients [Standard
V(B)])
disclosure to, 1:150151
duties to (see Duties to Clients
[Standard of Professional Conduct
III])
fair dealing between, 1:90
gathering information from, 4:407410
gifts and entertainment from, 1:39
identifying, 1:75, 8081, 93
individual investors as, 4:244
informing, of investment process,
1:138139
institutional investors as, 4:244250
interests of, 1:78
loyalty to, 1:81
maintaining lists of, 1:85
priority of personal trading vs. trading
for, 1:157
risk profile of, 1:91
select, additional services for, 1:88
soliciting former, 1:109114
status of, 1:102
client updates, 1:131132
CLOs. see collateralized loan obligations
closed economy, 2:424, 463464
closed-end funds, 5:1819
defined, 1:237; 4:256
discounts with, 5:133134

Real Estate (GIPS Section I.6),


1:219220
real estate presentations with,
1:251253
CMBS. see commercial mortgage-backed
securities
CME. see Chicago Mercantile Exchange
CML. see capital market line
CMOs. see collateralized mortgage
obligations
coal mining industry, 2:138
Coates, John C., IV, 4:203n.16
Coca-Cola, 2:153, 159, 533, 534; 5:176,
209, 211
CoCos. see contingent convertible bonds
COD. see cash on delivery
Code of Corporate Governance, 4:201
Code of Ethics (CFA Institute), 1:516
adoption of, 1:10
and applicable law, 1:2223
evolution of, 1:6
notification of, 1:114
and Professional Conduct Program,
1:910
and Standards of Practice Council,
1:1011
in Standards of Practice Handbook,
1:3, 59, 14
text of, 1:16
and values of CFA Institute, 1:15
codes of ethics (in general), 4:212213
adopting, 1:120
commitment to, 1:14
developing, 1:2627, 54
Codification. see Accounting Standards
Codification (FASB)
coefficient of variation (CV), 1:414416
coefficient of variation of net income,
3:370
coefficient of variation of operating
income, 3:370
coefficient of variation of revenues, 3:370
coils, 1:684
coincident economic indicators, 2:328
331, 333335
Coinstar, Inc., 5:199
collateral
assumed default rate for, 5:485
for bond indenture, 5:302
in four Cs framework, 5:590591,
605606
for hedge funds, 6:170
real estate as, 6:184
and repo margin, 5:379
and repo rate, 5:378
collateral backing, 5:305306, 372373
collateralized bond obligations (CBOs),
5:494; 6:34
collateralized debt obligations (CDOs),
5:494497
defined, 6:34
ethical issues, 1:114
motivation for creating, 5:497
structure, 5:495
transaction example, 5:495497
underlying for, 6:3738
valuation of, 6:172
collateralized loan obligations (CLOs),
5:494; 6:34

Level I Curriculum Index


collateralized loans, 4:175, 176
collateralized mortgage obligations
(CMOs), 5:478484; 6:34
defined, 5:479
floating-rate tranches, 5:483484
mortgage pass-through securities vs.,
5:483
planned amortization class tranches,
5:481483
sequential-pay tranches, 5:479481
support tranches, 5:481483
collateral managers, 5:495
collateral trust bonds, 5:305
collateral yield, 6:199
collectibles, 6:199200
Colombia
exchange rate regime, 2:522
IFRS adoption, 3:114
inflation-linked bonds, 5:323, 324
inflation targeting, 2:371
in MSCI multi-market index, 5:96
Columbia Pictures, 3:617
Columbia University, 4:246
combination (term), 1:494
combination formula, 1:494
combined ratio, 3:327
commercial banking industry, 2:138
commercial banks, 5:32, 33
commercial industry classification
systems, 5:192196
example, 5:194196
GICS standard, 5:192
ICB system, 5:192193
representative sectors in, 5:193
RGS system, 5:192
commercial loans, 2:331
commercial mortgage-backed securities
(CMBS), 5:487490; 6:189
balloon maturity provisions, 5:488
call protection, 5:488
credit risk, 5:487
structure, 5:487490
commercial paper (CP), 4:176; 5:368
371, 619n.34
credit quality, 5:368369
issuers, 5:368
maturities, features, and risks, 4:155
US vs. Euro markets, 5:369371
commercial real estate investments
direct and indirect investing in, 6:188
global assets under management,
6:151
institutionally owned, 6:185
commercial receivables, 3:46
Commission Bancaire, 2:362
commissions, 1:7880; 4:294
commitment fees, 4:178n.10
committed capital
defined, 1:238
for private equity, 6:176
Private Equity (GIPS Section I.7), 1:223
Real Estate (GIPS Section I.6), 1:220
committed lines of credit, 4:176
Committee of European Securities
Regulators (CESR), 3:111
committees of boards of directors,
4:204211
audit committees, 4:204207
nominations committee, 4:209210

I-15
other committees, 4:210211
remuneration/compensation
committees, 4:207209
committee system, of unitary boards,
4:195
commodities, 5:14, 21, 2526;
6:193199
benefits and costs of holding, 6:6465
correlation with other asset classes,
4:412
defined, 6:155
derivatives and indices, 6:194195
downside frequencies, 6:157
global assets under management,
6:151
growth in, 6:153
investment vehicles, 6:195196
performance and diversification
benefits, 6:196197
prices of, 6:197199
returns on, 6:152, 157, 193, 196197
riskreturn tradeoffs for, 6:157
Sharpe ratios and downside risk
measures, 6:157
as underlying, 6:5, 37
volatility, 6:152
commodity exchange traded funds,
6:155
commodity futures, 6:37
pricing of, 6:198199
risk management with, 6:201
commodity indices, 5:101102;
6:194195
bias in, 6:151
growth in trading, 6:153
commodity inventories, 3:581
Commodity Research Bureau (CRB)
Index, 5:101
commodity swaps, 5:24
common equity, cost of. see cost of
common equity
common markets, 2:448452
common shares, 3:185, 289; 4:112;
5:155159
callable, 5:158159, 171
defined, 5:155
and fixed-income securities, 5:296
at Ford Motor Company, 5:157158
and preference shares, 5:160
preferred vs., 5:1718
putable, 5:159, 171
at Viacom Corporation, 5:156157
common-size analysis
for balance sheets, 3:246254
analysis of ratios, 3:330331,
334335
cross-sectional, 3:252254
for S&P 500, 3:250251
of cash flow statements, 3:298302
horizontal, 3:194n.50, 331, 334335
for income statements, 3:194196,
331332
of ratios, 3:330336
vertical, 3:194n.50, 246, 330332
common stock, 3:185, 289; 4:112
for commodities investing, 6:195
elasticity of demand for, 2:4748
common stock portfolio, probabilities
for, 1:536

common value auction, 2:27


Commonwealth of Independent States,
2:426; 5:344
communication(s)
of boards of directors and
shareowners, 4:211
different forms of, 1:140
elasticity of demand and, 2:5152,
161
to employees of material nonpublic
information, 1:63
interdepartmental, 1:61
of management and shareowners,
4:218219
Communication with Clients and
Prospective Clients [Standard
V(B)]
application of the standard,
1:141146
compliance procedures, 1:140141
eleventh edition revision, 1:8
guidance, 1:138140
different forms of communication,
1:139
facts vs. opinions in reports, 1:140
identifying risks and limitations,
1:139140
informing clients of investment
process, 1:138139
report presentation, 1:140
text of, 1:18, 137138
co-movement patterns, 4:241243
Companhia Vale do Rio Doce, 1:667
company(-ies)
as bond issuers, 5:297
borrowing by, 5:8
comparable, 4:53
cyclical, 5:190191, 221, 592
definition of, 4:195
fundamentals of, 5:592597
non-cyclical, 5:190191, 592
similar, 5:189191
value of, 5:171177, 204
variability of recovery rates for,
5:578
company analysis, 5:228232
defined, 5:188
elements of, 5:229232
and industry analysis, 5:593594
spreadsheet modeling in, 5:232
company assets, personal use of,
4:213214
company promotion, 1:69
company value, cost of capital and,
4:36
comparability, of accounting choices,
3:24
comparable company, 4:53
comparables, 3:305. see also method of
comparables
comparable sales approach to real estate
valuation, 6:191
comparable store sales ratio, 3:370
comparative advantage, 2:433441
absolute advantage vs., 2:433440
defined, 2:422n.1
Ricardian and HeckscherOhlin
models, 2:440441
comparative growth information, 3:336

I-16
compensation, 3:583584. see also
Additional Compensation
Arrangements [Standard IV(B)]
bonus, 1:116117
and conflict of interest, 1:153154
disclosure of, 1:77
executive (see executive compensation)
externally compensated assignments,
1:113
as form of payment, 2:209
in GDP, 2:223
notification of, 1:116117
outside, 1:117
and research independence, 1:40
compensation committees, 4:207209
competence, 1:54
competition
in credit analysis, 5:591592
imperfect
breakeven analysis, 2:118119
output optimization, 2:123124
profit maximization, 2:103
revenue in, 2:105107
monopolistic, 2:171175
benefits of, 2:430
characteristics of, 2:155
defined, 2:153
demand analysis, 2:172173
long-run equilibrium, 2:174175
optimal price and output, 2:173
supply analysis, 2:173
non-price, 2:155
perfect, 2:156171
breakeven analysis, 2:116117
characteristics of, 2:155
defined, 2:153
demand analysis, 2:157164
and innovation, 2:171
long-run equilibrium, 2:169170
and LRATC/SRATC, 2:126127,
129131
and oligopoly, 2:184
optimal price, 2:165169
output optimization, 2:121124,
165169
profit maximization, 2:103
revenue in, 2:104105
supply analysis, 2:164165
and price collusion, 2:181
in strategic analysis, 5:205
competitive position, as fundamental,
5:592593
competitive strategy
and capacity, 5:591592
in company analysis, 5:228
Competitive Strategy (Porter), 2:156
complacency, passive investment
strategies and, 4:157
complements, of event, 1:470
completed contract method of revenue
recognition, 3:161, 163164
complete markets, 5:58
completeness, axiom of, 2:65
complete preference, 2:65
complex capital structures, 3:185
complexity, of derivatives, 6:44
compliance
Fundamentals of Compliance (GIPS
Section I.0), 1:207208

Level I Curriculum Index


about, 1:206
recommendations, 1:208
requirements, 1:207208
with GIPS
benefits of, 1:196197
claiming, 1:196, 203
GIPS-compliant historical
performance, 1:202203
compliance officers, 1:36
compliance procedures
adequate, 1:120121
adoption of, 1:120
education and training
implementation, 1:121
inadequate, 1:119, 124
and incentive structure, 1:122
as responsibility of supervisors,
1:120121
compliant presentations
Composite Construction (GIPS
Section I.3), 1:211
defined, 1:238
Disclosure (GIPS Section I.4),
1:211213
Fundamentals of Compliance (GIPS
Section I.0), 1:208
GIPS Advertising Guidelines (GIPS
Section III), 1:230231
GIPS Valuation Principles (GIPS
Section II), 1:227228
Input Data (GIPS Section I.1), 1:209
Presentation and Reporting (GIPS
Section I.5), 1:216
Private Equity (GIPS Section I.7),
1:221, 222
Real Estate (GIPS Section I.6),
1:218220
Verification (GIPS Section IV), 1:232,
236
Wrap Fee/SMA Portfolios (GIPS
Section I.8), 1:224226
component cost of capital, 4:36
component method of depreciation for
long-lived assets, 3:442443
Composite Construction (GIPS Section
I.3), 1:210211
about, 1:206
recommendations
general, 1:211
for private equity, 1:224
requirements
general, 1:210211
for private equity, 1:222
for real estate closed-end fund
composites, 1:219
for wrap fee/SMA portfolios, 1:225
composite construction,
misrepresenting, 1:52
composite creation date, 1:212, 238
composite definition
Composite Construction (GIPS
Section I.3), 1:211
defined, 1:238
Private Equity (GIPS Section I.7), 1:222
Real Estate (GIPS Section I.6), 1:219
Verification (GIPS Section IV), 1:235
composite description
defined, 1:238
Disclosure (GIPS Section I.4), 1:212, 213

Fundamentals of Compliance (GIPS


Section I.0), 1:208
GIPS Advertising Guidelines (GIPS
Section III), 1:231
Verification (GIPS Section IV), 1:234
composite inception date
defined, 1:238
GIPS Advertising Guidelines (GIPS
Section III), 1:231
Presentation and Reporting (GIPS
Section I.5), 1:214215
Private Equity (GIPS Section I.7), 1:222
Real Estate (GIPS Section I.6),
1:219220
Composite Leading Indicators (CLI),
2:329
composites
Calculation Methodology (GIPS
Section I.2), 1:209, 210
Composite Construction (GIPS
Section I.3), 1:210, 211
defined, 1:238
Disclosure (GIPS Section I.4), 1:212,
213
Fundamentals of Compliance (GIPS
Section I.0), 1:208
GIPS, 1:197
GIPS Advertising Guidelines (GIPS
Section III), 1:230232
GIPS Valuation Principles (GIPS
Section II), 1:227228
Input Data (GIPS Section I.1), 1:209
investment firm balanced growth
composite (sample), 1:246247
List of Composite Descriptions (GIPS
Section V.0.1), 1:266269
Presentation and Reporting (GIPS
Section I.5), 1:214216
Private Equity (GIPS Section I.7),
1:222, 224, 225
Real Estate (GIPS Section I.6), 1:219
Verification (GIPS Section IV),
1:232236
Wrap Fee/SMA Portfolios (GIPS
Section I.8), 1:225226
composite since inception distributions,
1:219220, 223
composite since inception paid-in
capital, 1:219220, 223
composite termination date
defined, 1:238
Fundamentals of Compliance (GIPS
Section I.0), 1:208
Presentation and Reporting (GIPS
Section I.5), 1:215
composition, board of directors,
4:202203
compounded yield measures, 5:408
compounding
continuous, 1:286287
defined, 1:280281
frequency of, 1:284286, 293294
future value of lump sum with,
1:285286
solving TMV problems for number of
compounding periods, 1:305
compounding conversions, 5:408410
A Comprehensive Business Reporting
Model (CFA Institute), 3:134

Level I Curriculum Index

comprehensive income
defined, 3:47n.4, 243n.22
on income statements, 3:198201
other
accumulated, 3:242243
defined, 3:47n.4, 198
on income statements, 3:200201
on statement of comprehensive
income, 3:1920
statement of, 3:12, 1620
total, 3:198
US GAAP on, 3:198
Compustat, 3:329
computations, financial analysis vs.,
3:320322
computer hardware industry, 5:222223
ConAgra Foods, Inc., 3:599
concentrated portfolio strategies, 6:156
concentration, industry, 5:208211,
219
concentration ratio, 2:194196
Conceptual Framework for Financial
Reporting (Concepts Statement
8), 3:568n.2
Conceptual Framework for Financial
Reporting 2010 (IFRS), 3:116128
and barriers to single standards
framework, 3:129130
conservatism in, 3:579
constraints on financial reports,
3:119120
convergence of US GAAP and,
3:127128
and effective standards frameworks,
3:129
elements of financial reports,
3:120122
objective of financial reporting,
3:100102
objective of financial reports,
3:117118
qualitative characteristics of financial
reports, 3:118119
and quality of financial reporting,
3:568569
requirements of Presentation of
Financial Statements (IAS No. 1),
3:122126
conclusions, from financial statement
analysis, 3:3435
conditional expected values, 1:474
conditional prepayment rate (CPR),
5:475
conditional probability, 1:462465,
468469
conditional variances, 1:476479
Conduct as Participants in CFA Institute
Programs [Standard VII(A)], 1:19,
165169
application of the standard, 1:167169
eleventh edition revision, 1:89
guidance, 1:165167
additional CFA restrictions, 1:165
confidential program information,
1:165166
expressing opinions, 1:166
text of, 1:19, 165
confections industry, 5:219221
Conference Board, 2:329, 333

I-17

confidence
business and consumer, 2:243, 246
investor, 1:201
confidence intervals, 1:577582
construction of, 1:577578
definition, 1:577
for hypothesis testing, 1:607
and hypothesis tests, 1:613614
for population mean, 1:577582
with normally distributed population
with known variance, 1:578
t-distribution, 1:581582
z-alternative, 1:579581
reliability factors for, 1:578580
and sample size, 1:583585
confidence limits, 1:577
confidential information
about CFA program, 1:165166
accidental disclosure of, 1:104105
of firm, 1:115
possessing, 1:103
confidentiality, 1:77. see also
Preservation of Confidentiality
[Standard III(E)]
confidential voting, by shareowners, 4:222
confirmations of transactions, duplicate,
1:160
conflicts of interest
and business relationships, 1:152, 156
and business stock ownership, 1:152
and compensation arrangement,
1:153154
and directorship, 1:154155
disclosure of, 1:77 (see also Disclosure
of Conflicts [Standard VI(A)])
and personal stock ownership, 1:153
and personal trading, 1:155
and priority of transactions, 1:157
for remuneration/compensation
committee, 4:209
and requested favors, 1:155
Conflicts of Interest [Standard of
Professional Conduct VI],
1:149164
Disclosure of Conflicts [Standard
VI(A)], 1:149156
application of the standard,
1:152156
compliance procedures, 1:152
guidance, 1:149152
text of, 1:18, 149
Priority of Transactions [Standard
VI(B)], 1:157162
application of the standard,
1:160162
compliance procedures, 1:158160
guidance, 1:157158
text of, 1:1819, 157
Referral Fees [Standard VI(C)],
1:162164
application of the standard,
1:162164
compliance procedures, 1:162
guidance, 1:162
text of, 1:19, 162
conforming loans, 5:475
Conroy, Robert M., 4:47n.16
Consensus Bullish Sentiment Index,
1:697

conservatism, 5:137
conservative accounting choices
(conservatism)
aggressive vs., 3:578583
benefits of, 3:581582
biased application of standards,
3:582583
defined, 3:570
in extractive industries, 3:579580
losses in, 3:578579
conservatorship, 5:474n.9
consistency
estimator, 1:576577
of financial performance forecasts,
3:646
consistent probabilities, 1:462
consol bonds (consols), 1:299; 5:531
conspicuous consumption, 2:90
constant-cost industry, 2:132
constant returns to scale, 2:128
constant-yield price trajectory, 5:398,
399
constituent securities, 5:78, 92
constraints, investor, 1:93
construction industry, 5:225
consultants, external, 4:201202, 215
consumer(s)
behavior of, 2:300302
demand curve for, 2:1213
expectations of, 2:243
preference of
and consumer choice theory, 2:64
and demand curve, 2:8384
graphical representation, 2:6770
and utility theory, 2:6474
theory of the consumer, 2:6, 96
consumer choice theory, 2:6466
consumer confidence, 2:243, 246
consumer demand, 2:6394
and consumer choice theory, 2:6466
in demand and supply analysis,
2:6394
demand function, 2:8390
and demand curve, 2:8384
substitution and income effects,
2:8490
equilibrium in, 2:7982
opportunity set, 2:7479
and budget constraint, 2:7477
investment, 2:7879
production, 2:7778
practice problems, 2:9293
solutions to problems, 2:94
utility theory for, 2:6474
and axioms of consumer choice
theory, 2:6566
gains from voluntary exchange,
2:7274
indifference curves, 2:6772
representation of consumer
preference, 2:6667
consumer discretionary sector, 5:193
consumer goods, arbitrage opportunity
with, 6:47
consumer installment debt, income and,
2:331
Consumer Price Index for All Urban
Consumers (CPI-U), 2:321, 322;
5:364

I-18

consumer spending
and business cycles, 2:300302
and expectations, 2:243
in phases of business cycle, 2:292
consumer surplus, 2:3032
and alternative trade policies, 2:443,
446
in monopoly, 2:190192
in perfect competition, 2:162164
and tariffs, 2:443
consumption, 2:6
and aggregate demand, 2:229
and alternative trade policies, 2:446
in autarky, 2:435
average propensity to consume,
2:229230
conspicuous, 2:90
marginal propensity to consume,
2:229, 398400
wealth effect on, 2:242243
consumption bundle (consumption
basket)
in consumer choice theory, 2:65
equilibrium, 2:7981
and price indices, 2:319320
consumption spending, 2:229
contango, 6:199
contingency provisions, 5:296, 327333
callable bonds, 5:327329
convertible bonds, 5:330333
with corporate notes/bonds, 5:373
putable bonds, 5:329330
contingent claims, 6:2535. see also
options
asset-backed securities, 6:3335
credit derivatives, 6:3033
defined, 6:7, 61
forward commitments vs., 6:3536
options, 6:2530, 33
contingent convertible bonds (CoCos),
5:331332
contingent liabilities, 5:627, 628
continuation patterns, 1:676, 683687
flags and pennants, 1:686687
rectangles, 1:686
triangles, 1:684686
continuing education, board members,
4:201
continuous compounding, 1:286287,
541542
continuous random variables,
1:527545
continuous uniform distribution,
1:527531
defined, 1:515
lognormal distribution, 1:539545
normal distribution, 1:531539
applications of, 1:537539
and probabilities for common stock
portfolio, 1:536
safety-first optimal portfolio,
1:537539
continuous time finance models,
1:541n.33
continuous trading markets, 5:5457
continuous uniform distribution,
1:527531
contra accounts, 3:44, 219
contractionary fiscal policy, 2:388, 401

Level I Curriculum Index

contractionary monetary policy,


2:380381
contraction phase (business cycle),
2:290294. see also recession
contraction risk, 5:478
contract markets, 5:2025, 5457
contracts for difference, 5:2021
execution mechanisms, 5:5457
forwards, 5:2122
futures, 5:2223
insurance contracts, 5:25
market information systems, 5:58
options, 5:2425
swaps, 5:2325
trading sessions on, 5:54
contract rates, mortgage, 5:471
contracts
American- vs. European-style, 5:24
defined, 5:14
derivative, 5:15
and discipline for financial reporting
quality, 3:588
insurance, 5:25
revenue recognition for, 3:160164
short positions in, 5:3941
sides of, 5:39
spot, 5:20
contracts for differences (CFDs),
5:2021; 6:17
contrarian effect, 5:91
contrarian trading strategies, 1:689690
contribution margin, 4:87
control, market structure and, 2:154, 155
control deficiency disclosures,
1:621623
convenience yield. see roll yield
conventional bonds, 5:298. see also plain
vanilla bonds
conventional cash flow, 4:9
convergence
income, 2:265
oscillator and price, 1:690
conversion premium, 5:331
conversion price, 5:330
conversion ratio, 5:330
conversion value, 5:331
convertible arbitrage, 4:264
convertible bonds, 5:330333, 373;
6:172
convertible debt, 3:188189
convertible mortgages, 5:471
convertible preference shares, 5:160161
convexity
of credit risk/return, 5:613614
effective, 5:547548
money, 5:545547
and return, 5:512
convexity adjustment, 5:541
convexity assumption, of indifference
curve, 2:6970
convexity effect, 5:395397, 548
cookie jar reserve accounting,
3:582583
copies, maintaining, 1:47
copyright laws, 2:185
core inflation, 2:322
coresatellite approach, 4:423424
Corning, 4:237
corporate accounts, in FX market, 2:498

corporate auditors system, 4:194


corporate bond mutual funds, 4:259
corporate bonds, 5:371374
earnings surprise for, 5:135n.43
legal issuers of, 5:303
sources of repayment for, 5:304
corporate changes, shareowner input on,
4:223224
corporate credit rating (CCR), 5:582
corporate culture, financial reporting
issues and, 3:617618
corporate debt, 5:367375
bank and syndicated loans, 5:367368
commercial paper, 5:368371
corporate notes and bonds, 5:371374
corporate debt securities, 5:589608
corporate family rating (CFR), 5:582
Corporate Finance (CFA Institute),
4:200n.14
corporate governance, 4:189230
about, 4:189190
boards of directors, 4:198211
committees, 4:204211
communications with shareowners,
4:211
external consultants, 4:201202
independence, 4:198200
member qualifications and abilities,
4:200201
member terms and board
composition, 4:202203
related-party transactions, 4:203204
importance of, 4:190192
key terms, 4:192195
management, 4:212219
code of ethics, 4:212213
corporate transparency, 4:214219
personal use of company assets,
4:213214
practice problems, 4:229
for private equity firms, 5:163
shareowner rights, 4:219228
actions of other shareowners, 4:228
legal rights, 4:226227
shareowner proposals, 4:224226
takeover defenses, 4:227228
voting rights, 4:220224
solutions to problems, 4:230
summary of investor/shareowner
responsibilities, 4:195198
corporate notes, 5:371374
corporate profile, in company analysis,
5:229
corporate sector, 5:343
corporate structure, in high-yield credit
analysis, 5:622623
corporate transparency
and corporate governance of
management, 4:214219
executive compensation, 4:214216
management communications with
shareowners, 4:218219
share-repurchase and pricestabilization programs, 4:216218
corporate treasurers, 5:6
Corporation Law, 4:119
corporations, real assets of, 5:26
correction, of unintentional errors, 1:48
corrective waves, 1:706707

Level I Curriculum Index

correlation
of asset classes, 4:313, 412413
defined, 1:484485; 4:305
and historical risk, 4:312
hypothesis tests with, 1:639641
and investment opportunity set,
4:316317
and portfolio risk, 4:305307, 310
properties of, 1:485
and risk diversification, 4:312
of risk-free asset in portfolio of risky
assets, 4:343
correlation coefficient, 4:305
correlation matrix, 1:485
COSCO Pacific, 4:238241
cost(s)
accounting, 2:9798
administrative, 2:453454
amortised, 3:122, 218219, 237
average, 2:110112, 114116
calculation, 2:115
defined, 2:114
in profit maximization, 2:110112,
114
average fixed, 2:110112, 114, 115
average total, 2:110112, 114116
average variable, 2:110112, 114116,
138139
borrowing, 3:430
in breakeven analysis, 2:115120
calculation of, 2:115
of capital, 4:8
carrying, 4:170
current, 3:122
deferred, 3:615
and demand/supply for firms, 2:96,
101102
economic, 2:98, 165
explicit, 2:97
financing, 4:8
fixed, 2:109115, 119; 3:351; 5:592
and breakeven points, 4:100
and degree of operating leverage,
4:8890
and degree of total leverage, 4:9798
and leverage, 4:8184
flotation, 4:6365
historical, 3:122
of holding assets, 6:6466
of inflation, 2:365367
information-acquisition, 5:123124
interactions of, 2:109112
of international trade, 2:429433
inventory, 3:169171, 395396; 4:170
labor, 2:248, 250
line, 3:606
long-run average, 2:125131, 190
long-run marginal, 2:190
marginal, 2:111112, 114115
in breakeven analysis, 2:116
calculation of, 2:115
defined, 2:114115
and marginal product, 2:138139
in monopolies, 2:190
and other costs in profit
maximization, 2:111112
and output optimization, 2:120124
menu, 2:311, 365366
opportunity, 2:78, 165; 4:8, 9; 6:63, 65

I-19
ordering, 4:170
period, 3:169
policy, 4:170
and profit maximization, 2:109120
quasi-fixed, 2:112113
rebuilding, 6:192
research, 3:581
search, 2:43
shoe leather, 2:365366
short-run average, 2:125126,
129131
soft, 6:192
software development, 3:432433
stock-out, 4:170
sunk, 4:9
total, 2:109120
in breakeven analysis, 2:116120
calculation of, 2:115
defined, 2:112113
and other costs in profit
maximization, 2:109112
and output optimization, 2:120124
and shutdown analysis, 2:120
total fixed, 2:102, 111113, 115, 119,
120
total variable, 2:111113, 115, 117,
119, 120
transaction, 4:364, 376n.6; 5:9, 123;
6:41, 70
types of, 2:112115
unit labor, 2:324, 331
variable, 2:109117, 119, 120; 3:351;
4:8284, 8890
in breakeven analysis, 2:116, 119
calculation of, 2:115
defined, 2:113, 114
and other costs in profit
maximization, 2:109112
cost approach to real estate valuation,
6:192
Costa Rica, 3:114
exchange rate regime, 2:522
exports from, 2:428
government spending, 2:220
underground economy, 2:214
cost arrangements, restricting, 1:36
cost averaging, 1:394
Costco Wholesale Corporation, 1:378,
379, 405406
cost flow assumptions, 3:596598
cost of capital, 4:3579
about, 4:3637
for capital budgeting and security
valuation, 4:4042
and company value, 4:36
cost of common equity, 4:4652
bond yield plus risk premium
approach, 4:5152
CAPM approach, 4:4650
dividend discount model approach,
4:5051
and equity risk premium, 4:4750
cost of debt, 4:4244
debt-rating approach, 4:43
estimating, 4:44
yield-to-maturity approach, 4:4243
cost of preferred stock, 4:4546
best estimate, 4:46
calculating, 4:45

and country risk, 4:5860


defined, 4:36
estimating, 4:5266
with beta and project beta,
4:5258
with weighted average cost of capital,
4:5758
flotation costs, 4:6365
in investment decision-making by
CFOs, 4:6566
marginal cost of capital schedule,
4:6063
and minimum required rate of return,
5:177
practice problems, 4:6975
solutions to problems, 4:7679
and taxes, 4:3738
weights for, 4:3840
cost of carry
and price of European options,
6:9091
and price of forward contracts, 6:77
and storage, 6:46
for underlying assets, 6:65
cost of common equity, 4:4652
bond yield plus risk premium
approach, 4:5152
CAPM approach, 4:4650
dividend discount model approach,
4:5051
and equity risk premium, 4:4750
cost of debt, 4:4244; 5:177
after-tax, 4:43
for capital budgeting, 4:8
companys, 4:51n.23
debt-rating approach, 4:43
defined, 4:42
estimating, 4:44
and taxes, 4:37
yield-to-maturity approach, 4:4243
cost of equity, 5:177178; 6:183184
cost of goods sold
and activity ratio, 3:342
on balance sheet, 3:61
in inventory valuation, 3:222
cost of preferred stock, 4:4546
cost of sales, 3:398400
cost-push inflation, 2:323325
cost recovery method of revenue
recognition, 3:164, 165
cost structure(s)
leverage and, 4:8284
in monopolies, 2:187188
and price collusion, 2:181
Cote DIvoire, 3:115
Council of the European Union,
3:111
counterparties, futures, 6:18
counterparty risk, 5:22, 36
countervailing duties, 2:445
counting, 1:492495
combination formula, 1:494
multinomial formula, 1:493494
multiplication rule of, 1:492493
permutation formula, 1:494495
country risk, cost of capital and,
4:5860
country sponsors, GIPS, 1:204205
coupon effect, 5:395, 397

I-20
coupon payment structures, 5:320327
corporate notes/bonds, 5:371372
credit-linked coupon bonds, 5:322
deferred coupon bonds, 5:322323
floating-rate notes, 5:320321
index-linked bonds, 5:323327
payment-in-kind coupon bonds, 5:322
step-up coupon bonds, 5:321322
coupon rate (nominal rate), 3:513; 4:155;
5:298299, 392, 532
coupon-type classification for fixedincome markets, 5:346347
Cournot, Augustin, 2:178
Cournot assumption, 2:178179
Cournot equilibrium, 2:179, 181, 182
covariance, 1:481484, 486487
and correlation of risks in portfolio,
4:305307
of return, 4:284285
of risk-free asset in portfolio of risky
assets, 4:343
and strategic asset allocation, 4:416
covariance matrix, 1:483484, 486
covenant(s), 5:307308
affirmative, 5:307, 606
for bond indenture, 5:302
change of control covenant, 5:606n.26
debt, 3:525527
in four Cs framework, 5:590591,
606607
in high-yield credit analysis, 5:623624
with leveraged loans, 6:177178
limitations on liens, 5:624
maintenance, 5:624
negative, 5:307308, 606
probability of breaching, 1:530531
restricted payments, 5:624
Covenant Review, 5:607
coverage, prior, 1:38
coverage ratios, 3:353; 5:596, 631
for capitalized interest, 3:430431
fixed charge, 3:353354
interest, 3:353, 373
for operating lease adjustment,
3:668669
and solvency ratios, 3:551555
covered bonds, 5:306
covered calls, 6:130133
covering, of positions, 5:40
CP. see commercial paper
CPI. see French consumer prince index;
US Consumer Price Index
CPI-U. see Consumer Price Index for All
Urban Consumers
CPR. see conditional prepayment rate
CRA International Inc., 3:155
crashes, 6:42
crawling band currency regimes, 2:522,
526
crawling peg currency regimes, 2:522,
525526
Crazy Eddies, 3:577
CRB Index. see Commodity Research
Bureau Index
creative destruction theory, 2:306
credibility
of central banks, 2:372
of monetary and fiscal policy mix,
2:407

Level I Curriculum Index

credit
and accounts receivable management,
4:161
as drag on liquidity, 4:144
for short-term financing, 4:175176
trade, 4:171, 172
as underlying, 6:3738
credit accounts, 4:162163
credit analysis, 3:372375; 5:571641
capital structure in, 5:574575
for corporate debt securities,
5:589608
credit rating process, 3:372374
credit risk
defined, 5:572574
return vs., 5:609617
defined, 3:647
four Cs framework, 5:590608
capacity, 5:590605
character, 5:607608
collateral, 5:605606
covenants, 5:606607
Watson Pharmaceuticals Inc. case
study, 5:597605
functions of, 5:571572
high-yield, 5:618625
debt structure and leverage in,
5:620622
and non-investment grade ratings,
5:618
special considerations, 5:618, 622625
for municipal debt, 5:630631
practice problems, 5:636639
by ratings agencies, 5:580589
credit ratings, 5:581582
issuer vs. issue ratings, 5:582584
risks of relying on ratings, 5:584589
use of ratings, 5:580581
recovery rates in, 5:576579
research on ratios in, 3:374375
seniority ranking in, 5:575576
solutions to problems, 5:640641
for sovereign debt, 5:625629
framework, 5:626628
in Portugal, 5:628629
sovereign debt defaults, 5:625626
credit analysts, 3:31
credit card networks, barriers to entry
for, 5:206207
credit card receivable-backed securities,
5:493494
credit crisis (2007-2009), 2:387, 391,
392; 5:159, 306. see also global
financial crisis (2007-2009)
credit curve, 5:616617
credit cycle, 5:577578, 611
credit default swaps (CDSs), 5:25, 34;
6:3133, 37
credit derivatives, 6:3033
credit duration, 5:528, 555
credit enhancement
for auto loan receivable-backed
securities, 5:491
and bond indenture, 5:306307
defined, 5:302
external, 5:307, 486
internal, 5:306307, 485486
non-agency residential mortgagebacked securities, 5:485487

credit insurance, 4:161


credit limits, 4:145
credit lines
restrictions on, 4:145
for short-term financing, 4:175176
credit-linked coupon bonds, 5:322
credit-linked notes, 6:31
Credit Lyonnais Securities Asia Group,
4:191192
credit migration, 5:573
creditors, business risk for, 4:100102
credit quality
classifying fixed-income markets by,
5:344345
of commercial paper, 5:368369
and repo margin, 5:379
of sovereign bonds, 5:362363
credit rating agencies, 5:580589
basis for ratings, 5:581582
fallibility of, 5:586
opinions of, 1:3334
risks of relying on, 5:584589
in securitization process, 5:464
use of, 5:580581
credit ratings
basis for, 5:581582
country risk and, 4:60
for issuer vs. issue, 5:582584
non-investment grade, 5:618
risks of relying on, 5:584589
and special purpose vehicles, 5:467
use of, 5:580581
credit risk, 5:572574
assessing, 3:647650
attributes and safety measures, 4:157
with commercial mortgage-backed
securities, 5:487
with corporate notes/bonds, 5:372
and credit default swaps, 6:32
and credit derivatives, 6:30
defined, 3:372, 647
with fixed-income securities, 5:297,
555556
with non-agency RMBS, 5:485
with repurchase agreements, 5:379
return vs., 5:609617
and yield-to-maturity, 5:421
Credit Roundtable, 5:607
credits
in accounting systems, 3:7273, 7692
BOP system, 2:456457
unused tax, 3:489490
credit sales, revenues and, 3:598599
credit scoring model, 4:163
credit services, financial institutions,
5:3233
credit spread options, 6:3031
credit spreads
and credit ratings, 5:586, 587
defined, 5:467
term structure of, 5:406
Credit Suisse, 5:210
credit tranching, 5:466
credit-worthiness, 4:145, 163, 177
CRH, 1:397
Critical Accounting Estimates
(MD&A), 3:582583
critical value, 1:612614
Croatia, 2:522; 5:96

Level I Curriculum Index


crop types (farmland investments), 6:189
cross-border real estate investments,
6:185
cross-default provisions, 5:583
cross-departmental conflicts, 1:151
crossing networks, derivatives pricing
rule for, 5:57
cross-price elasticity of demand,
2:5152
calculating, 2:53
in perfect competition, 2:161
cross-rates, currency, 2:505, 507511
cross-sectional common-size analysis,
3:252254
cross-sectional data, 1:379, 569, 571
cross-sectional mean, 1:380381
cross-sectional pricing anomalies, 5:130,
132133
cross-sectional ratio analysis, 3:332333,
340
cross-sectional regression analysis, 2:194
crowding out, 2:393
CRSP. see Center for Research in
Security Prices
culture, corporate, 3:617618
cumulative distribution function,
1:516517, 529
cumulative frequency, 1:368372
cumulative frequency distributions,
1:376377
cumulative preference shares, 5:160, 171
cumulative probabilities, 1:722723
cumulative relative frequency,
1:368369
cumulative voting, 4:222223; 5:156
currency(-ies), 5:14
in business cycles, 2:304
classifying fixed-income markets by,
5:345
for fixed-income securities, 5:299300
foreign central bank purchases of,
2:461462
FX conventions for, 2:487488
in markets, 5:1920
for sovereign bonds, 5:362363
in sovereign credit analysis, 5:627
as underlying, 6:5, 37 (see also specific
currencies)
and yield-to-maturity, 5:421
currency board system (CBS), 2:522,
524525
currency codes, FX market, 2:487
currency contracts, 5:39
currency exchange rates, 2:485548
and aggregate demand, 2:245, 246
calculations, 2:504518
cross-rate, 2:507511
and exchange rate quotations,
2:504507
forward, 2:511518
currency regimes, 2:518529
active and passive crawling pegs,
2:525526
arrangements with no separate legal
tender, 2:523524
CBS, 2:524525
fixed parity, 2:525
fixed parity with crawling bands,
2:526

I-21
free-floating, 2:526527
historical perspective on, 2:520522
ideal, 2:519
managed float, 2:526
target zone, 2:525
taxonomy of, 2:522529
foreign exchange market, 2:485548
about, 2:485486
currency conventions, 2:487488
functions, 2:492498
nominal vs. real exchange rates,
2:488492
participants in, 2:498501
size and composition of, 2:501504
and international trade, 2:529539
absorption approach to trade balance,
2:535536
elasticities approach to trade balance,
2:531535
practice problems, 2:543545
quotations, 2:504507
and short-run aggregate supply, 2:249,
251
solutions to problems, 2:546548
currency option bonds, 5:299
currency quotes, 2:504507
currency regimes, 2:518529
arrangements with no separate legal
tender, 2:523524
CBS, 2:524525
with crawling bands/pegs, 2:525526
fixed parity, 2:525
free-floating, 2:526527
historical perspective on, 2:520522
ideal, 2:519
managed float, 2:526
target zone, 2:525
currency reserves
foreign, 2:363, 378
requirements, 2:351, 352, 368, 453
currency swaps, 5:24; 6:23n.12, 37
current account, BOP, 2:457, 463467
current assets
and accounting profit vs. taxable
income, 3:475476
on balance sheets, 3:215, 217224
Apple Inc., 3:218
cash and cash equivalents, 3:218219
inventories, 3:221223
marketable securities, 3:219
other, 3:223224
SAP Group, 3:217218
trade receivables, 3:219221
defined, 3:46
current cost, 3:122
current government spending, 2:395
current liabilities
of Apple Inc., 3:225
on balance sheets, 3:215216, 224228
deferred revenue analysis, 3:226228
of SAP Group, 3:224225
current ratio, 3:347, 348, 657658; 4:146
current tax, 3:490493
tax charged to equity, 3:491493
and valuation allowance, 3:491
current tax liabilities, 3:475476
current yield, 5:302, 410
curve duration, 5:520, 527, 543
custodial relationships, 1:32

custodial services, by financial


intermediaries, 5:3638
custody fees, 1:238
custody of client assets, 1:74
customers
alignment of board members and,
4:199
cash from, 3:283284
power of, 5:205, 591
receipts of, 4:163165
segregation of, 2:191
The Customers Afternoon Letter, 5:78
customs union, 2:448
CV. see coefficient of variation
CVS Corporation, 4:53
cyclical companies, 2:255; 5:190191,
221, 592
cyclical economic indicators, 2:334
cyclically adjusted budget deficit, 2:401
Cyprus, 2:448n.18, 522
Czech Republic, 2:371; 3:114; 5:96
D
%D (stochastic oscillator), 1:694695
Daejan Holdings PLC, 3:460462
Daily Sentiment Index, 1:697
daily settlement, 6:1819
Daimler AG, 1:398; 3:357359; 5:209,
267
DaimlerChrysler, 3:158159; 5:168
Damodaran, Aswath, 4:59n.35
Danish Society of Financial Analysts,
1:204
Danone. see Groupe Danone
dark pools, 5:29
data, financial statement
analysis, 3:34
collection, 3:33
interpretation, 3:34
manipulation, 3:7374
misrepresentation, 3:74
processing, 3:3334
data mining, 1:585587; 5:130
data-mining bias, 1:585587
data snooping, 1:585n.20, 586n.23; 5:130
data-snooping bias, 3:652653
date of book closure, 4:121
date of record, 4:121
Daves, Phillip R., 4:52n.25
David and Lucile Packard Foundation,
4:247
day-of-the-week effect, 5:131
day order, 5:48
days in receivables, 4:146, 167
days of inventory on hand (DOH)
and activity ratios, 3:340342
as inventory ratio, 3:405406
and inventory turnover, 3:342343
days of sales outstanding (DSO)
in activity ratio definition, 3:340
and quality of financial reporting,
3:614
and receivables turnover, 3:343344
days sales outstanding, 4:146
DB pension plans. see defined-benefit
pension plans
DBRS. see Dominion Bond Rating
Service
DBS Bank, 5:161

I-22
DBS Group Holdings, 5:161
DCF valuation approach. see discounted
cash flows
DC pension plans. see defined
contribution pension plans
DDM. see dividend discount model
dead cross pattern, 1:688
deadweight loss, 2:3740, 442, 443
dealer markets. see over-the-counter
(OTC) derivatives market; quotedriven markets
dealers, 5:3031
arbitrageurs vs., 5:3536
brokers vs., 2:43
in OTC derivatives market, 6:1112
primary, 5:30, 358
dealing securities, 3:267
De Beers Consolidated Mines Limited,
2:185
debentures, 5:305, 575
debits
accounting system, 3:7273, 7692
BOP system, 2:456457
DeBondt, Werner, 5:132
debt. see also collateralized debt
obligations (CDOs)
amount of debt coming due, 5:597
analyst adjustments to, 3:666668
bad, 3:44
collateralized debt obligations, 1:114
convertible, 3:188189
corporate, 5:367375
bank and syndicated loans,
5:367368
commercial paper, 5:368371
corporate notes and bonds,
5:371374
cost of (see cost of debt)
in credit ratios, 3:374
defined, 5:295
derecognition of, 3:523525
discretionary cash flow to, 3:374
distressed, 6:172
external, 5:626, 627
extinguishment of, 3:523525
FFO/debt ratio, 5:596
fixed-rate, 5:346
fixed- vs. floating-rate, 4:44
floating-rate, 5:346
forgiveness of, 3:179
government, 2:346, 400
in high-yield credit analysis, 5:620622
internal, 5:626
leveraging role of, 4:9495
lien, 5:576
local, 5:626
long-term
on cash flow statement, 3:289
disclosure of, 3:527530
and lease disclosure, 3:538543
presentation of, 3:527530
margin, 1:698699, 702
market value of, 5:272273
mortgage, 5:575576
municipal, 5:630631
national, 2:391393
net, 5:595
nonrated, 4:44
with optionlike features, 4:44

Level I Curriculum Index

ratio of consumer installment debt to


income, 2:331
secured, 5:575576
segment debt ratio, 3:376
seniority rankings of, 5:575578
share repurchases using, 4:127128
sovereign, 5:625629
credit analysis for, 5:625629
framework, 5:626628
in Portugal, 5:628629
sovereign debt defaults, 5:625626
subordinated, 5:576
Treasury, 1:279
unsecured, 5:575, 576
debt burden, 2:392
debt/capital ratio, 5:595
debt covenants, 3:525527, 584
debt/EBITDA ratio, 5:596
debt financing, for real estate, 6:187
188. see also mortgage loans
debt incurrence test, 4:60
debt instruments, 5:15
debt markets, credit analysis in,
5:571572
debt-rating approach, for cost of debt,
4:43
debt ratios, 3:352, 353
debt securities. see also fixed-income
securities
corporate, 5:589608
equity vs., 5:155
and preference shares, 5:159
debt service coverage ratio (DSCR),
5:631
debt-to-assets ratio, 3:352, 353, 552
debt-to-capital ratio, 3:352, 353, 552
debt-to-EBITDA ratio, 3:374
debt-to-equity ratio, 3:352, 353, 552;
4:3940
debt-to-service-coverage (DSC) ratio,
5:487
deceit, 1:55
decennial pattern, 1:705
deciles, 1:395
decision making
ethical framework for, 1:1314
group, 1:129
in hypothesis testing, 1:615
time frame for dissemination and,
1:8485
decisions
capital budgeting, investment decision
criteria for, 4:1026
average accounting rate of return,
4:1516
internal rate of return, 4:1112
net present value, 4:1011
payback period, 4:1215
popularity and use of capital
budgeting methods, 4:2426
profitability index, 4:16
CFOs, investment decision-making by,
4:6566
decision-useful information, in financial
reports, 3:568570
declaration date, dividend, 4:120, 122
decline stage (industry life-cycle), 5:215
declining balance depreciation method,
3:436

decomposition, of ROE, 3:361366


decomposition of total risk, 4:358
decreasing-cost industry, 2:132
decreasing returns to scale, 2:126
dedicated short bias strategies, 4:264
deductible temporary differences,
in taxable/accounting profit,
3:485488
default(s)
in forward contracts, 6:15
price reaction to, 5:118119
recovery rates for, 5:576579
sovereign debt, 5:625626
strategic, 5:473
in swaps, 6:23
default bonds
binomial model for, 1:525526
recovery rates on, 1:626627
default interest rate, 5:488
default rates
assumed, 5:485
by credit rating, 5:584585
and credit risk/return, 5:615616
default risk, 4:157; 5:572, 573
default risk premium, 1:279
defeasance, 5:488
defensive companies, 2:255
defensive industries, 5:190, 191, 221
defensive internal ratio, 3:347, 348
deferred costs, 3:615
deferred coupon bonds, 5:322323
deferred income, 3:226
deferred method of tax recognition,
3:484n.4
deferred revenue (unearned revenue)
accrual accounting, 3:70
analysis of, 3:226228
balance sheet, 3:5758
as current liability, 3:226
on income statements, 3:156
deferred tax, 3:490493
IFRS vs. US GAAP on, 3:499502
and taxable vs. accounting profit, 3:488
tax charged to equity, 3:491493
and valuation allowance, 3:491
deferred tax assets
accounting choices about, 3:600601
accounting profit vs. taxable income
for, 3:476479
changes in tax rates, 3:483484
current assets as, 3:224
defined, 3:475
and timing, 3:474
unused tax losses/credits, 3:489490
deferred tax liabilities
accounting profit vs. taxable income
for, 3:476479
on balance sheets, 3:241
changes in tax rates, 3:483484
defined, 3:475
deficit
budget (fiscal), 2:388
and business cycles, 2:219
and fiscal policy, 2:401402
and foreign capital, 2:228
and national debt, 2:391393
and Ricardian equivalence, 2:400
in current account, 2:463467
trade, 2:220, 424

Level I Curriculum Index

defined-benefit (DB) pension plans,


1:545; 3:548, 549; 4:245;
5:528529
defined contribution (DC) pension
plans, 3:548549; 4:244
deflation
defined, 2:317
and inflation targeting, 2:373374
and liquidity traps, 2:382
and quantitative easing, 2:382
degree of confidence, 1:577
degree of financial leverage (DFL)
defined, 4:9293
and degree of total leverage, 4:9798
degree of operating leverage (DOL)
calculating, 4:90
defined, 4:86
and degree of total leverage, 4:9798
and operating risk, 4:8690
degree of total leverage (DTL), 4:9698
degrees of freedom (df ), 1:580, 581, 626
de Jong, Abe, 4:66
Delafield Fund, 1:407
delisted companies, 1:588
delivery
of futures, 6:20
of options, 6:26
and repo rate, 5:378
in spot market trading, 5:10
Dell Corporation
business strategy and financial
performance, 3:321322
cash flow analysis of comparables, 3:305
common-size cash flow statement,
3:300302
cross-sectional common-size analysis,
3:252254
evaluation of liquidity measures, 3:349
industry concentration and pricing
power, 5:209
inventory management, 4:169n.8
Delta Air Lines, 2:176
demand, 5:230, 346, 611
aggregate (see aggregate demand [AD])
changes in, 2:1112
consumer (see consumer demand)
defined, 2:8
derived, 2:441
elastic, 2:4547, 159
excess, 2:2324, 425
inelastic, 2:4547, 159
law of demand, 2:9, 8485, 163
for money, 2:355358
in monopolistic competition,
2:172173
in monopoly, 2:186187
in oligopoly, 2:176182
in perfect competition, 2:157164
and price of Veblen goods, 2:90
demand and supply analysis (generally),
2:562
about, 2:89
consumer demand in, 2:6394
defined, 2:6
demand curve, 2:913
demand functions
aggregating, 2:1719
and demand curves, 2:911
elasticities of demand from, 2:5253

I-23
elasticities of demand, 2:4353
cross-price, 2:5152
from demand functions, 2:5253
income, 2:5051
own-price, 2:4350
market equilibrium, 2:2030
about, 2:2021
and auctions, 2:2730
finding, 2:22
mechanism for, 2:2226
market interference, 2:3643
for markets, 2:78
in microeconomics, 2:67
for money, 2:356358
practice problems, 2:5659
solutions to problems, 2:6062
supply curve, 2:1316
changes in supply vs. movements
along, 2:15
representing seller behavior with,
2:16
and supply function, 2:1314
supply functions
aggregating, 2:1720
and supply curves, 2:1314
surpluses, 2:3043
consumer, 2:3032
producer, 2:3234
total, 2:3443
demand and supply analysis (for firms),
2:95150
costs
and profit maximization, 2:109120
and revenue/profit, 2:101102
economies/diseconomies of scale,
2:125129
and factors of production, 2:108109
and output optimization, 2:120125
practice problems, 2:144148
productivity, 2:133142
and marginal returns, 2:136142
total, average, and marginal product,
2:134137
profit, 2:96101
as firm objective, 2:9697
long-run, 2:129133
maximization of, 2:101133
measures of, 2:97101
and revenue/costs, 2:101102
revenue
and costs/profit, 2:101102
in profit maximization, 2:101102
solutions to problems, 2:149150
theory of the firm, 2:96
demand curves, 2:913
aggregate, 2:235238
changes in demand vs. movements on,
2:1112
and consumer behavior, 2:1213
defined, 2:1011
and demand function, 2:911, 8384
elasticity of, 2:4547
kinked, 2:177178, 183
of leaders in oligopoly, 2:183
as marginal value curve, 2:31, 163
and market equilibrium, 2:20
in monopolies, 2:186187
in monopolistic competition,
2:172173

in oligopolies, 2:176178, 183


in perfect competition, 2:165166
and total surplus, 2:3435
demand functions, 2:8390
aggregating, 2:1719
and demand curves, 2:911, 8384
elasticities from, 2:5253
inverse, 2:1011
substitution and income effects,
2:8490
for Giffen goods, 2:8890
for inferior goods, 2:8788
for normal goods, 2:8487
of price decrease, 2:8990
and two-part tariff pricing, 2:8687
for Veblen goods, 2:90
demand-pull inflation, 2:323, 325326
demand schedules, 2:159161
demand shock to inflation rate, 2:381
demographic influences
in industry analysis, 5:203, 223224
and industry life-cycle, 5:217
in sovereign credit analysis, 5:627
in strategic analysis, 5:220
demographics, housing sector and,
2:302303
De Moivre, Abraham, 1:531
Denmark
domestic and international debt
securities, 5:312
equity risk premiums, 4:48
exchange rate regime, 2:522, 527
as GIPS country sponsor, 1:204
MSCI multi-market index, 5:96
real equity returns, 1:372
residential mortgage loans, 5:471, 472
returns on bonds, bills, and equities,
5:153
share repurchases, 4:123
total returns, 1:380, 383, 396
two-tiered boards, 4:194
departments, physical separation of,
1:61
dependent events, 1:467
dependent samples, hypothesis tests for,
1:628631
depletion (term), 3:435n.11
depositary receipts (DRs), 5:18,
166168
depositories, 5:19, 37
depositors, in securitization process,
5:464
depository banks, 5:166
depository institutions, 5:3233
deposits, retail, 5:375
depreciation
in absorption approach, 2:536
accelerated, 3:175177, 436
accumulated, 3:44
component method, 3:442443
currency, 2:506
declining balance, 3:436
defined, 3:25, 57, 173
diminishing balance, 3:175176
double declining balance, 3:175
in elasticities approach,
2:531535
and expense recognition on income
statements, 3:175177

I-24

depreciation (continued)
of long-lived assets, 3:436443
calculation of depreciation expense,
3:441442
financial reporting quality issues,
3:601605, 611
methods, 3:435443
plant, property, and equipment,
3:230, 659660
and quality of financial reporting,
3:615
straight-line
bond premium/discount
amortisation, 3:517
calculation, 3:436
defined, 3:436
depreciation/amortisation, 3:174175
units-of-production, 3:436
useful life and residual value in,
3:174176
depreciation expenses, 3:441442
depressions, 2:290291
derecognition
of debt, 3:523525
of long-lived assets, 3:451453
derivative contracts, 5:15
derivative expiration days, 1:636637
derivative legal actions, 4:226227
derivatives, 3:236; 6:558
benefits of, 6:4142
characteristics of, 6:89
contingent claims, 6:2535
asset-backed securities, 6:3335
credit derivatives, 6:3033
forward commitments vs., 6:3536
options, 6:2530, 33
criticisms of, 6:4245
defined, 6:5, 6, 6062
forward commitments, 6:1425
contingent claims vs., 6:3536
forward contracts, 6:1417, 24, 7380
futures contracts, 6:1721, 24, 8082
pricing, 6:7385
swaps, 6:2125, 8285
hedging with, 6:6768
hybrid, 6:3536
markets for, 6:914, 3839
practice problems, 6:5455
pricing, 6:4552, 59117
about, 6:60
arbitrage and, 6:4752, 6672
definition of derivatives, 6:6062
forward commitments, 6:7385
options, 6:85100, 104107
practice problems, 6:109113
pricing underlying assets, 6:6266
solutions to problems, 6:114117
storage in, 6:4647
valuation vs. pricing, 6:7273
purposes of, 6:3941, 4445
solutions to problems, 6:5658
types of, 6:1439
underlyings for, 6:3639
uses of, 6:69
valuation of, 6:4552
binomial valuation of options,
6:100104
forward commitments, 6:7385
pricing vs. valuation, 6:7273

Level I Curriculum Index


derivatives market, 6:914
exchange-traded, 6:1011, 1314
over-the-counter, 6:1114
size of, 6:3839
derivatives pricing rule, 5:57
derived demand, 2:441
descending price auction, 2:27, 28
descending triangle pattern, 1:684685
descriptions of securities, 1:141142
descriptive statistics, 1:363
destabilization, economic, 6:4344
detection of financial reporting issues,
3:590618
accounting choices and estimates,
3:596613
cash flow statement effects,
3:606609
earnings and balance sheet effects,
3:596606
areas of choice/estimate and analyst
concerns, 3:610613
presentation choices, 3:591595
warning signs, 3:613618
capitalization policies, 3:615
cash flow and net income
relationship, 3:615
company culture, 3:617618
context for judging signs, 3:616617
deferred costs, 3:615
inventories, 3:614615
revenue, 3:613614
detection procedures, 1:119120
Detroit Big Three automakers, 2:188
Deutsche Bank, 1:397; 2:498, 500
Deutsche Brse Group, 5:29, 152, 209;
6:9
Deutsche Bundesbank, 2:362, 521
Deutsche Securities, 5:30
Deutsche Telekom AG, 1:397;
5:270271
Deutsche Vereinigung fr Finanzanalyse
und Asset Management, 1:204
developed bond markets, 5:348349
developed countries
business investment by, 2:267
foreign exchange reserves, 2:500
international trade and unemployment,
2:430
developing countries
business investment by, 2:267
exchange rate targeting, 2:377378
foreign exchange reserves, 2:500
labor supply, 2:266
monetary policy of, 2:376
reserve requirements, 2:368
terms of trade for, 2:423424
trade-to-GDP ratio, 2:426
development capital, 6:175
development phase (intangible assets),
3:232
deviation. see also standard deviation
mean absolute deviation, 1:403405
semideviation, 1:411412
de Villiers, Victor, 1:668
DeVry University, 5:210
df. see degrees of freedom
DFL. see degree of financial leverage
DHL International, 5:209
Diageo, 5:209

differentiation strategy, for companies,


5:228
diffuse priors, 1:492
diffusion index, 2:331n.a, 333334
diligence, 1:127, 135
Diligence and Reasonable Basis
[Standard V(A)], 1:126137
application of the standard,
1:130137
compliance procedures, 1:130
guidance, 1:126129
diligence and reasonable basis
defined, 1:127
group research and decision making,
1:129
quantitatively oriented research,
1:128129
quantitatively oriented techniques,
1:129
secondary or third-party research,
1:127128
selecting external advisers and
subadvisers, 1:129
text of, 1:18, 126
Dillards, Inc., 1:386
diluted earnings per share, 3:187193
with antidilutive securities, 3:192193
defined, 3:185
if-converted method, 3:187188
for stock options, 3:192
treasury stock method, 3:190191
in valuation ratios, 3:367369
diluted shares, 3:18
diminishing balance depreciation,
3:175176
diminishing marginal product, law of,
2:33
diminishing marginal productivity,
2:264265
diminishing returns, law of, 2:136, 167
Dimson, Elroy, 4:48
direct capitalization approach to real
estate valuation, 6:191192
direct currency quote, 2:504
direct debit programs, 4:164
directed brokerage, 1:76
direct exchange rate, 2:504
direct financing leases, 3:543, 544
direct-format statements
defined, 3:66
under IFRS, 3:274276
for Telefnica Group, 3:274276
direct investing
in non-domestic equity securities,
5:165
in real assets, 5:26
direct investments, 1:224, 238
Directive on Alternative Investment
Fund Managers (AIFM Directive),
6:171
direct method for cash flow from
operating activities, 3:606
direct method for overall statement of
cash flows, 3:289290
adjustments to net income, 3:289290
converting indirect and, 3:293294
defined, 3:23, 270
direct negotiation, for share repurchases,
4:125

Level I Curriculum Index


directors, 1:151152, 154155; 4:193
194. see also board members
direct ownership, of real estate,
6:186188
direct taxes, 2:395, 398
direct write-off method, 3:173
dirty floating, 2:526
disbursement float, 4:172
Disciplinary Review Committee (DRC),
1:910
disciplining mechanisms for financial
reporting quality, 3:584590
auditors, 3:586588
market regulatory authorities,
3:584586
and motivation for manipulation,
3:588590
private contracts, 3:588
disclaimer of opinion, 3:28
disclosure(s)
in annual reports, 4:201, 206, 209
of bonds with warrants, 3:529530
confidential information, 1:104105
conflicts of interest, 1:77
control deficiency, 1:621623
of debt and financial instruments,
3:521523
of debt covenants, 3:526527
of debt extinguishment, 3:523525
and financial reporting quality, 3:617
and financial reporting standards,
3:134138
disclosures relating to accounting
policies, 3:135136
disclosures relating to changes in
accounting policies, 3:136138
at General Electric, 3:137138
at Volkswagen, 3:135136
by hedge funds, 6:173
of income tax information,
3:493499
and financial analysis, 3:498499
Micron Technology, Inc., 3:493498
interdepartmental referral
arrangements, 1:163
of inventory information, 3:404405
investment system, 1:141, 143
issuer-paid research, 1:48
of leases, 3:536543
level of service, 1:86
of long-term debt, 3:527530
and market efficiency, 5:122
market regulators requirements of,
3:586
material information, 1:6061, 64
and monitoring of financial reporting
standards, 3:134138
in notes to financial statements, 3:126
of pension plans, 3:550551
performance calculation methodology,
1:100101
personal investing policies, 1:159
personal trading, 1:160, 161
possible illegal activity, 1:104
and presentation of long-lived assets,
3:453460
Daejan Holdings PLC, 3:460462
Vodafone Group Plc, 3:454459
for price-stabilization programs, 4:217

I-25
in proxy statements, 4:204, 206207,
209, 211, 216, 222, 226
referral arrangements, 1:162164
of revaluation model for long-lived
assets, 3:447448
selective, 1:64, 86, 88
on social media, 1:89
of software development costs,
3:433434
standards for exchanges, 5:29
trade allocation procedures, 1:8586
Disclosure (GIPS Section I.4),
1:211214
about, 1:206
recommendations
general, 1:214
for private equity, 1:224
for real estate, 1:220
requirements
general, 1:211214
for private equity, 1:222
for real estate, 1:218
for real estate closed-end fund
composites, 1:219
for wrap fee/SMA portfolios, 1:225
disclosure management, 3:576n.7
Disclosure of Conflicts [Standard VI(A)],
1:149156
application of the standard, 1:152156
compliance procedures, 1:152
guidance, 1:149152
conflicts as a director, 1:151152
cross-departmental conflicts, 1:151
disclosure to clients, 1:150151
disclosure to employers, 1:150
stock ownership conflicts, 1:151
text of, 1:18, 149
discontinued operations, on income
statements, 3:178179
discount(s)
bonds issued at, 3:515519
bonds trading at, 5:391393
and closed-end investment funds,
5:134
forward, 2:511
and T-bills, 1:346
and time value of money, 1:278
trade, 4:173174
discount bonds, 3:515519; 5:391393
duration of, 5:532
returns on, 5:513
discounted cash flows, 1:331360;
4:25n.5; 5:246. see also internal
rate of return (IRR); present value
models
internal rate of return, 1:334339
evaluating programs with IRR rule,
1:335336
NPV and IRR rules, 1:336339
problems with IRR rule, 1:337339
money market yields, 1:346351
bank discount yield, 1:347348
discount rate, 1:350
net present value, 1:332334; 2:99;
4:1621
in capital-budgeting decisions, 4:41
defined, 4:1011
and IRR, 4:1112
NPV profile, 4:1618

ranking conflicts between IRR and,


4:1821
and stock prices, 4:2526
portfolio return measurement,
1:339346
money-weighted rate of return,
1:340341, 344346
time-weighted rate of return,
1:341346
practice problems, 1:353355
for private equity, 6:183184
for real estate, 6:192
solutions to problems, 1:356360
and time value of money, 1:331
discounted payback period, 4:1415
discounted receivables, 4:175
discounted securities, yields of,
4:155156
discounting
in alternative investment markets, 5:16
of cash flows, 5:246
discount interest, 4:155
discount margin, 5:414
discount rate(s), 1:350; 2:368; 5:416417
discount securities, return for,
1:348349
discount yield, bank, 1:347348, 350
discouraged worker, 2:314
discrete random variables, 1:515527
binomial distribution, 1:518527
evaluating block brokers with,
1:519520, 522523
and expected defaults in bond
portfolio, 1:525526
and one-period stock price as
Bernoulli random variable,
1:518519
and tracking error objectives, 1:524
discrete uniform distribution,
1:516518
discretionary cash flow to debt, 3:374
discretionary goods, elasticity of demand
for, 2:48
discretionary portfolios, 1:210
discriminatory pricing rule, 5:56
diseconomies of scale, 2:125129
disinflation, 2:317319
disintermediation, 5:461
dispersion, 1:402419
Chebyshevs inequality, 1:412414
coefficient of variation, 1:414416
mean absolute deviation, 1:403405
population variance and standard
deviation, 1:405408
range, 1:403
relative, 1:414
sample variance and standard
deviation, 1:408411
semivariance and semideviation,
1:411412
Sharpe ratio, 1:416419
displayed orders, 5:4748
display size, of orders, 5:47
disposable income
and balance of payments, 2:464
defined, 2:301
and MPC, 2:399
personal, 2:224
disposal, of long-lived assets, 3:452453

I-26
disposition effect, 5:138
dissemination of information, 1:60,
8485, 161162
dissociation, 1:2628
distinct business entities, 1:208, 239
distressed debt, valuation of, 6:172
distressed investing (private equity),
6:175, 180
distressed property investments, 6:193
distressed/restructuring strategy, for
hedge funds, 6:162163
distributional characteristics of assets,
4:292294
kurtosis, 4:293294
skewness, 4:292293
distribution area laws, 1:26
distribution-free tests, 1:638n.27
distributions
probability (see probability
distributions)
sampling, 1:567568, 576
stock, 1:221, 239
divergence, 1:678, 690
diversification
with alternative investments, 6:151,
153, 157158
with commodities, 6:196197
as credit analysis factor, 3:647
and employee stock options, 4:236
238, 314, 407
with hedge funds, 6:164165
and investing in portfolios vs. single
equities, 4:236238
and Loyalty, Prudence, and Care
[Standard III(A)], 1:77
and portfolio risk, 4:306
of portfolio risk, 4:310315
with private equity, 6:181183
with real estate, 6:185, 189191
and Suitability [Standard III(C)],
1:92
diversification ratio, 4:240
divest (term), 5:8
dividend discount model (DDM)
for cost of equity, 5:177
defined, 5:246
Gordon growth model vs., 5:257
as present value model for equity
valuation, 5:248249
three-stage, 5:259
two-stage, 5:258262
dividend discount model approach
for cost of common equity, 4:5051
for cost of equity, 4:4950
in decision-making by CFOs, 4:65
dividend income, taxes on, 4:282
dividend-payout ratio, 3:367, 369; 4:115,
118n.8
dividend per share (DPS), 5:276278
dividend reinvestment plans (DRPs),
4:113114; 5:52
dividend repurchase plans, 4:114n.5
dividends, 4:111123
about, 4:111112
calculating, from DDM, 5:259
on cash flow statement, 3:289
defined, 4:111
extra/special cash, 4:114116
and free cash flow, 5:595

Level I Curriculum Index


and Gordon growth model, 5:254255,
257
information in dividend initiations,
4:132
liquidating, 4:116
payment chronology, 4:120123
capitalizing on, 4:122123
declaration date, 4:120
ex-dividend date, 4:120122
holder-of-record date, 4:121
interval between dates, 4:121123
NYSE Euronext time line, 4:121122
payment date, 4:121
payments-in-lieu of, 5:40
on preference shares, 5:159160
regular cash, 4:112114
reinvested, 5:169170
stock, 4:116117
and stock splits, 4:118120
types of, 4:112120
valuation equivalence of share
repurchases and, 4:130131
dividends per share, 3:367
dividend yield, 4:118
divisor, price return index, 5:79
DJIA. see Dow Jones Industrial Average
documentary credit accounts, 4:162
documentation
of executive compensation, 4:208
of trade allocation procedures, 1:8586
documents, former employers, 1:110
Dodd, David, 4:190191
DoddFrank Act. see Wall Street Reform
and Consumer Protection Act
(2010)
Dogs of the Dow Strategy, 1:586n.25
DOH. see days of inventory on hand
doji, 1:667668
DOL. see degree of operating leverage
dollar (Australian)
AUD/HKD exchange rate, 2:490492,
496498
exchange rate quotes with, 2:504,
505n.4
identification code, 2:487
international bonds outstanding in,
5:345
trade balance and exchange rate for,
2:536539
USD/AUD currency pair, 2:502
dollar (Canadian)
CAD/USD currency pair, 2:502
in cross-rate calculations, 2:507508
exchange rate quotes with, 2:505
identification code, 2:487
international bonds outstanding in,
5:345
dollar (Hong Kong)
AUD/HKD exchange rate, 2:490492,
496498
exchange rate regime for, 2:524
identification code, 2:487
international bonds outstanding in,
5:345
dollar (New Zealand), 2:487, 504, 505n.4
dollar (Singapore), 2:487
dollar (US)
CAD/USD currency pair, 2:502
CNY/USD exchange rate, 2:489490

cross-rate calculations with, 2:507508


as currency anchor, 2:522, 525, 526
exchange rate quotes with, 2:504507
as exchange rate target, 2:378
foreign exchange gains, 5:169
foreign exchange reserves, 2:499500
forward calculations with, 2:511513
gold standard for, 2:520
identification code, 2:487
international bonds outstanding in,
5:345
JPN/USD currency pair, 2:502
as reserve currency, 5:19
USD/AUD currency pair, 2:502
USD/EUR currency pair, 2:502
USD/EUR exchange rate, 2:495
USD/GBP currency pair, 2:502
dollarCanada exchange rate, 2:504,
507508
dollar duration, 5:538
Dollar General Corporation, 1:557, 562
dollarization, 2:523524
dollar-weighted return, 1:340n.9
dollaryen exchange rate, 2:504, 508
domestic bonds, 5:311, 347348
domestic content provisions, 2:442
Dominion Bond Rating Service (DBRS),
5:581
double bottoms, 1:682
double coincidence of wants, 2:349
double declining balance depreciation,
3:175, 602605
double-entry accounting, 3:49
double tops, 1:681682
doubtful accounts, 3:173, 611
Douglas, Roger, 2:371
Dow, Charles H., 1:661663, 705; 5:78, 83
Dow Chemical, 1:532n.18
Dow Dividend Strategy, 1:586n.25
Dow Jones 30 Index, 4:360
Dow Jones Average, 5:78
Dow Jones & Company
company classifications, 5:192
formulation of Nikkei Stock Average,
5:103
ICB development, 5:192
Dow Jones Industrial Average (DJIA)
and correlations, 4:312
creation of, 1:663; 5:78
decennial pattern, 1:705
features of, 5:103
as gauge of market sentiment, 5:94
with inverse head and shoulders
patterns, 1:681
on linear vs. logarithmic scale,
1:670671
presidential cycle, 1:705
price weighting of, 5:83
quadruple witching days, 1:636
support and resistance, 1:675676
Dow Jones Railroad Average, 1:663
Dow Jones Transportation Average, 5:78
down-and-out call option, 1:555
downgrade risk, 5:573
downside risk, 4:241243
measures of, 6:203
and returns, 6:157
and Sharpe ratios, 6:156157
down transition probability, 1:526

Level I Curriculum Index


downtrends, 1:674
downturn, 2:293
capital spending in, 2:297
housing sector in, 2:302
inventorysales ratio in, 2:299
resource use in, 2:295297
Dow Theory, 1:705, 708
DPI. see realization multiple
DPS. see dividend per share
DRs. see depositary receipts
drag on liquidity, 4:144145
DRAM, 5:209, 210
drawdown, hedge funds, 6:170172
DRC. see Disciplinary Review
Committee
Dreyers Grand Ice Cream Holdings,
Inc., 5:159
DRPs. see dividend reinvestment plans
DRs. see depositary receipts
dry-bulk shipping industry, 5:211212
DSCR. see debt service coverage ratio
DSC ratio. see debt-to-service-coverage
ratio
DSO. see days of sales outstanding
DTL. see degree of total leverage
dual-currency bonds, 5:299
dual listing, of shares, 5:164
Dubai International Financial Exchange,
5:167
due diligence
and failed investments, 1:135
in financial research and analysis, 1:33
for hedge fund investing, 6:173174
and misconduct, 1:54
for private equity investments, 6:184
and risk management for alternative
investments, 6:202205
in submanager selection, 1:132133
sufficient, 1:130, 133134
Dun & Bradstreet, 3:330
duopoly markets, 2:178181
DuPont, 2:161
DuPont analysis, 3:361366
durable goods, 2:300301
Duracell, 2:152
duration
approximate modified, 5:524527
of bond portfolio, 5:536538
credit, 5:528, 555
and credit risk/return, 5:614615
curve, 5:520, 527, 543
defined, 5:519520
dollar, 5:538
effective
calculating, 5:527530
of callable bonds, 5:534535
of putable bonds, 5:535
inflation, 5:555
key rate, 5:530
liquidity, 5:555
Macaulay
calculating, 5:520523
and effective duration, 5:530532
and interest rate risk/investment
horizon, 5:550554
of portfolio, 5:536537
modified
annual, 5:524526
calculating, 5:523524

I-27
and credit risk/return, 5:613614
and effective duration, 5:529, 530,
532
of portfolio, 5:536537
money, 5:538540, 553
OAS, 5:529
partial, 5:530
properties of, 5:530535
and return, 5:512
yield, 5:520, 527, 543
DURATION financial function
(Microsoft Excel), 5:523n.2
duration gap, 5:554
Durbin-Watson statistic, 1:730
Dutch auctions, 2:2729; 4:125
Dutch Book Theorem, 1:462
Duties to Clients [Standard of
Professional Conduct III],
1:73105
Fair Dealing [Standard III(B)],
1:8290
application of the standard, 1:8690
compliance procedures, 1:8486
guidance, 1:8284
text of, 1:17, 82
Loyalty, Prudence, and Care [Standard
III(A)], 1:7381
application of the standard, 1:7881
compliance procedures, 1:7778
guidance, 1:7376
text of, 1:17, 73
Performance Presentation [Standard
III(D)], 1:97101
application of the standard, 1:98101
compliance procedures, 1:98
guidance, 1:9798
text of, 1:17, 97
Preservation of Confidentiality
[Standard III(E)], 1:101105
application of the standard,
1:103105
compliance procedures, 1:103
guidance, 1:101102
text of, 1:17, 101
Suitability [Standard III(C)], 1:9097
application of the standard, 1:9497
compliance procedures, 1:9394
guidance, 1:9093
text of, 1:17, 90
Duties to Employers [Standard of
Professional Conduct IV],
1:105126
additional compensation arrangements
[Standard IV(B)], 1:116117
application of the standard,
1:116117
compliance procedures, 1:116
guidance, 1:116
text of, 1:18, 116
Loyalty [Standard IV(A)], 1:105115
application of the standard,
1:109115
compliance procedures, 1:109
guidance, 1:105109
text of, 1:1718, 105
Responsibilities of Supervisors
[Standard IV(C)], 1:118126
application of the standard,
1:122126

compliance procedures, 1:120122


eleventh edition revision, 1:8
guidance, 1:118120
text of, 1:18, 118
Dynegy Inc., 3:608
E
EADS. see European Aeronautic Defense
and Space Company
EAFE Index. see MSCI Europe,
Australasia, and Far East Index
EAR. see effective annual rate
early amortization provisions, 5:494
early exercise, of American options,
6:104, 106
early expansion phase (business cycle),
2:291292
early repayment option, 5:472
earnings
accounting choices/estimates and,
3:596606
announcements of, 3:811
quality of, 3:566, 567, 576
retained, 3:4849, 68, 242
earnings announcements, 5:134135
earnings before interest, taxes,
depreciation, and amortization
(EBITDA). see also entries
beginning with EBITDA
adjusted, 3:591592
in credit analysis, 5:594595
debt/EBITDA ratio, 5:596
EBITDA/interest expense ratio, 1:530;
5:596
enterprise value/EBITDA ratio, 5:625
in enterprise value multiples, 5:272
on financial reports, 3:572
and interest coverage ratio, 1:530
for leveraged buyouts, 6:177
for private equity, 6:183
earnings before interest and taxes
(EBIT)
in credit analysis, 5:594
EBIT/interest expense ratio, 5:596
and operating profit, 3:18, 154
earnings management, 3:576
earnings per share (EPS), 1:362; 4:126
129; 5:276278
basic, 3:185187, 367, 368
changes in, 3:193
defined, 3:18
diluted, 3:187193
with antidilutive securities,
3:192193
if-converted method, 3:187188
for stock options, 3:192
treasury stock method, 3:190191
in valuation ratios, 3:367369
EBITDA per share, 3:367
forecasting, 1:467468, 470478
on income statements, 3:151n.5,
184193
interpretation of, 3:368369
mean and median, 1:383385
and simple vs. complex capital
structure, 3:184185
earnings reports, 3:617
earnings smoothing, 3:570
earnings statements, 3:4849, 68, 152

I-28
earnings surprises, 5:134135
East Asian Financial Crisis (1990s),
2:470
Eastern Europe. see also specific
countries
current account imbalance, 2:466
debt and equity outstanding, 5:344
trade-to-GDP ratio, 2:426
East Timor, 2:523
easy fiscal policy, 2:405
easy monetary policy, 2:405
EAY. see effective annual yield
eBay, 2:186
EBIT. see earnings before interest and
taxes
EBITDA. see earnings before interest,
taxes, depreciation, and
amortization
EBITDA interest coverage, 3:373
EBITDA/interest expense ratio, 5:596
EBITDA per share, 3:367
EBIT interest coverage, 3:373
EBIT/interest expense ratio, 5:596
ECB. see European Central Bank
Echo Boomers, 5:224
ECNs. see electronic communications
networks
e-commerce, 4:172
econometric approach, in market
structure identification, 2:194
economic activity, in business cycle,
2:290292
economic conditions, yield spread and,
5:611
economic costs, 2:98, 165
Economic Cycle Research Institute
(ECRI), 2:329
economic destabilization, 6:4344
economic goodwill, 3:234
economic growth, 2:263275
and aggregate demand, 2:245246
in China, 2:269
in Mexico, 2:272
production function and potential
GDP, 2:264265
and real GDP, 2:263
RTAs and spillovers of, 2:450
sources of, 2:266269
sustainable, 2:263, 269275
and trade, 2:426427
economic indicators, 2:328335
cyclical measures as, 2:334
defined, 2:328
diffusion index of, 2:333334
leading, lagging, and coincident,
2:328334
economic loss, 2:98, 116118
economic moat, 2:156
economic order quantityreorder point
(EOQ-ROP) approach, 4:169
economic profit(s), 2:97101, 165, 173,
174; 5:204
economic rent, 2:99100
economics, 2:6
economic sectors. see also specific
sectors, e.g.: telecommunications
sector
external trade, 2:220221, 303304
financial, 2:469

Level I Curriculum Index


in GDP, 2:217221
government, 2:219220
household, 2:209210, 218
housing, 2:302303
information technology, 2:268
public sector spending, 2:347
Economic sentiment index, 2:331
economic stabilization, fiscal policy and,
2:388
economic structure, in sovereign credit
analysis, 5:627
economic unions, 2:448452
economies of scale
from international trade, 2:429, 430
and LRATC, 2:127129
and monopolies, 2:185
and profit maximization, 2:125129
economy
aggregate output and income in,
2:209210
barter, 2:213, 349
business cycles as short-term
movements, 2:289
closed, 2:424, 463464
and government debt, 2:346
IMF monitoring of, 2:468
influence of fiscal and monetary policy
on, 2:346348
open, 2:424, 429, 463, 464
securitization and, 5:460462
underground, 2:213214
ECP market. see Eurocommercial paper
market
ECRI. see Economic Cycle Research
Institute
Ecuador, 2:120, 522, 523; 3:114
EDGAR. see Electronic Data Gathering,
Analysis, and Retrieval System
EDI. see electronic data interchange
EDRs. see European Depositary
Receipts; Gazprom SP European
Depositary Receipts
education
compliance, 1:121
human capital and, 2:266
effective annual rate (EAR), 1:287288;
5:408
effective annual yield (EAY), 1:349, 350
effective convexity, 5:547548
effective date, GIPS, 1:203
effective duration
calculating, 5:527530
of callable bonds, 5:534535
of putable bonds, 5:535
effective interest rate, 3:513, 517
efficiency
of capital allocation, 5:1314
estimator, 1:576
of financial systems, 5:5859
market (see market efficiency)
of tax policy, 2:395
efficient frontier, 4:316327
indifference curve, 4:322323
investment opportunity set, 4:316317
investor preferences and optimal
portfolio, 4:327
Markowitz, 4:319, 348
minimum-variance portfolios,
4:317319

portfolio selection example,


4:322327
for risk-free assets, 4:319322
and strategic asset allocation,
4:416417
efficient market hypothesis, 5:124,
128129
efficient markets, 6:42, 50, 165
description of, 5:117118
intrinsic value in, 5:119120
semi-strong-form, 5:125127
strong-form, 5:128
weak-form, 5:125, 128, 129
EFSF. see European Financial Stability
Facility
EFT. see electronic funds transfer
Egypt
currency regimes, 2:522
and IFRS, 3:115
in MSCI multi-market index, 5:96
Egyptian Financial Supervisory
Authority, 3:107n.9
Ehrhardt, Michael C., 4:52n.25
EIB. see European Investment Bank
8-A, Form, 4:223
18-year cycle, 1:704
elastic demand, 2:45, 159
elasticities approach to trade balance,
2:531535
elasticity(-ies)
defined, 2:44; 4:85
of demand, 2:4353
and budget constraints, 2:159
calculating, 2:5253
cross-price, 2:5152, 161
from demand functions, 2:5253
income, 2:5051, 160161
long-run, 2:48
in oligopolies, 2:176
own-price, 2:4350
in perfect competition, 2:158162
short-run, 2:48
and trade balance, 2:531535
and operating risk, 4:8586
of supply, 2:100
electric utilities, 2:127, 154, 185
electronic communications networks
(ECNs), 5:2930
Electronic Data Gathering, Analysis,
and Retrieval System (EDGAR),
3:108
electronic data interchange (EDI), 4:172
electronic funds transfer (EFT),
4:163165
electronic information, confidentiality
of, 1:102
Eli Lilly and Company, 5:602
Elliott, R. N., 1:705707
Elliott Wave Theory, 1:705708
ELNs. see equity-linked notes
El Salvador, 2:522, 523; 3:114
embedded options, 5:327, 412. see also
callable bonds; putable bonds
EMBI Global. see J.P. Morgan Emerging
Market Bond Index Global
embryonic stage (industry life-cycle),
5:214
EMC, 5:209
emerging bond markets, 5:348349

Level I Curriculum Index


emerging markets, 4:264
capitalization level and contributions
to global GDP, 5:151
fixed-income securities for, 6:172
sovereign debt of, 5:626
technical analysis for, 5:125
World Bank definition of, 5:626n.42
empirical probability, 1:459460
employed (term), 2:314
employees
cash to, 3:286
checking references of, 1:54
classifications of, 1:109
independent contractors vs.,
1:108109
net income/revenue per employee,
3:371
on non-agricultural payrolls, 2:330
employee stock options, diversification
and, 4:236238, 314, 407
employer(s)
competing with current, 1:112
disclosure of conflicts to, 1:150, 156
duties to (see Duties to Employers
[Standard of Professional Conduct
IV])
leaving, 1:106107
misrepresentation of work for, 1:46
prior (see prior employer)
responsibilities of, 1:106
Employers Accounting for Defined
Benefit Pension and Other
Postretirement Plans (SFAS 158),
3:635
employment
business cycle and, 2:292, 295297
nature of, 1:108109
EMU. see European Economic and
Monetary Union
ending inventory, 3:398400
endogeneity, problem of, 2:194
endogenous variables, 2:21
endowments, 4:245248; 6:152153
Enel, 1:397
Energizer, 2:152
energy
as commodity, 6:194
in mutual funds and unit trusts, 6:196
speculators on, 6:43n.20
energy sector, 5:193
enforcement, by market regulators,
3:586
English auction, 2:27
ENI, 1:398
Enron Corporation, 1:664; 3:577, 584;
4:189, 191, 236237; 5:586
enterprise, NAICS definition, 5:197
enterprise value (EV), 5:625
enterprise value multiples, 5:247
enterprise value/EBITDA ratio, 5:625
in models for equity valuation,
5:272274
entertainment, gifts from clients and,
1:39
entry fee, 2:192
environmental, social, governance (ESG)
considerations, 4:406407
environmental projects, capital
budgeting for, 4:7

I-29
E.ON, 1:397
EOQ-ROP approach. see economic
order quantityreorder point
approach
EPRA. see European Real Estate
Association
EPS. see earnings per share
equal cash flows
future value of series with, 1:288290
future value of series without, 1:290
infinite series of, 1:298299
present value of series with,
1:294299
present value of series without,
1:301302
equality
point of, 1:608
of two variances, 1:634637
equal weighting, of security market
indices, 5:83, 86, 87
Equatorial Guinea, 3:115
equilibrium
consumer demand, 2:7982
Cournot, 2:179, 181, 182
defined, 2:21
general equilibrium analysis, 2:21
long-run
macroeconomic, 2:253254
in monopolistic competition,
2:174175
in monopoly, 2:192193
in oligopoly, 2:184
in perfect competition, 2:169170
market, 2:2030
about, 2:2021
and auctions, 2:2730
finding, 2:22
mechanism for, 2:2226
in money market, 2:234235
Nash, 2:180181, 184
partial equilibrium analysis, 2:21
stable, 2:2526
and total surplus, 2:3536
unstable, 2:26
equilibrium GDP, 2:253263
inflationary gap, 2:257258
long-run equilibrium, 2:253254
recessionary gap, 2:254257
stagflation, 2:259260
equilibrium interest rate, 5:1213
equilibrium prices
for money, 2:356357
in perfectly competitive markets,
2:165166
equipment trust certificates, 5:305
equities. see equity securities
equity. see also return on equity (ROE)
on balance sheets, 3:212, 241246
components of, 3:242244
statement of changes in equity,
3:244246
Conceptual Framework on, 3:120
cost of, 5:177178
debt-to-equity ratio, 3:352, 353, 552
defined, 3:212
and financial position, 3:10
free cash flow to equity, 3:302303;
6:183184
minority equity investing, 6:180

owners
accounting equation, 3:4647
defined, 3:12, 44, 212
statement of, 3:68
in residential properties, 6:187
return on equity, 3:357
decomposition of, 3:361366
defined, 3:356
and ratio analysis, 3:328
ROE and, 5:174
shareholders, 3:212; 5:174
statement of changes in equity,
3:244246
Apple Inc., 3:245246
defined, 3:12
for financial statement analysis,
3:2022
statement of owners equity, 3:68
tax charged to, 3:491493
total debt to total debt plus equity
ratio, 3:374
equity analysis, of corporate debt
securities, 5:590
equity analysts, 3:31
equity award vesting schedules, 4:216
equity capital, raising, 5:9
equity derivatives, 5:15
Equity Funding Corp., 3:577
equity hedge strategies, 6:162, 164
equity indices, 5:9598
equity investments
analysis, 3:366372
actions based on, 3:34
industry-specific ratios, 3:369371
research on ratios in, 3:371372
valuation ratios, 3:367369
screening, 3:650654
example, 3:651
ratio-based, 3:653654
equity IPOs, 1:158159
equity-like approach to high-yield
analysis, 5:624625
equity-linked notes (ELNs), 5:325
equity market neutral strategies, 4:264
equity markets
efficiency of, 6:42
OTC derivatives market vs., 6:910
equity options, 6:36n.15
equity portfolios. see options strategies
for equity portfolios
equity real estate investment trusts,
6:188
equity-related bonds, 5:332
equity returns, frequency distribution of,
1:372373
equity risk premium (ERP), 4:4750
equity securities (equities), 5:1718,
149185. see also stock
and company value, 5:171177
accounting return on equity,
5:172176
cost of equity and investors required
rates of return, 5:177178
correlation of, 4:412413
debt securities vs., 5:155
defined, 5:15
global assets under management, 6:151
in global finance markets, 5:150155
importance of, 5:149

I-30

equity securities (equities) (continued)


investing in portfolios vs., 4:235236
and diversification, 4:236238
and downside risk, 4:241243
and modern portfolio theory,
4:243244
and portfolio composition,
4:240241
and riskreturn tradeoff, 4:238240
liquidity and issuance of, 5:619
non-domestic, 5:163168
depositary receipts, 5:166168
direct investing in, 5:165
practice problems, 5:180183
private vs. public, 5:161163
return characteristics, 5:169170
returns on, 5:152153
returns on hedge funds vs., 6:165
risk characteristics, 5:170171
solutions to problems, 5:184185
types of, 5:155161
common shares, 5:155159
preference shares, 5:159161
as underlying, 6:5, 36
volatility of, 5:153154
equity swaps, 5:24; 6:36
equity tranches, 5:487; 6:34
equity valuation, 5:243289
asset-based, 5:274278
for airline, 5:276
for family-owned laundry, 5:275
other models vs., 5:246248,
276278
for restaurant, 5:275276
estimated value and market price in,
5:244246
multiplier models, 5:263274
enterprise values in, 5:272274
example, 5:270271
fundamentals in, 5:264265
method of comparables, 5:267270
other models vs., 5:246248,
276278
price multiples in, 5:264267
practice problems, 5:280285
present value models, 5:248262
examples, 5:250251
Gordon growth model, 5:254258
multistage, 5:258262
other models vs., 5:246248, 276278
preferred stock valuation with,
5:251254
share value for three-year investment
horizon, 5:249
purpose, 5:244
solutions to problems, 5:286289
equivalence, 1:309310
Erb, Claude, 4:60n.36
Ericsson Telephone Company,
3:553555
ERM. see European Exchange Rate
Mechanism
Ernst & Young, 3:566; 6:153
ERP. see equity risk premium
errors
known, 1:48
notification of, 1:144
sampling, 1:567
standard, 1:572573, 578, 583, 609

Level I Curriculum Index


tracking, 1:524
Type I and II, 1:610611
unintentional, 1:48
ESC. see European Securities Committee
ESG considerations. see environmental,
social, governance considerations
ESMA. see European Securities and
Market Authority
Espey, Molly, 2:45n.11
Essay on the Principle of Population
(Malthus), 2:264
Essilor International, 1:397
establishment, NAICS definition, 5:197
estimates
of alternative investment values, 6:151
defined, 1:575
and earnings/balance sheets,
3:598599
of enterprise value and market value of
debt, 5:272274
of equity value and market price,
5:244246
in financial reporting, 3:101102
in financial statements, 3:7374
of intrinsic value, 5:119
point, 1:577
pooled, 1:623624
of population mean, 1:575585
confidence intervals, 1:577582
point estimators, 1:575577
sample size, 1:583585
estimation, 1:575, 607
of beta, 4:5258
inferring asset beta, 4:56
market model, 4:360361
pure-play method, 4:5557
of cost of capital, 4:5266
with beta and project beta, 4:5258
and country risk, 4:5860
and decision-making by CFOs,
4:6566
and flotation costs, 4:6365
and marginal cost of capital
structure, 4:6063
with weighted average cost of capital,
4:5758
of cost of debt, 4:44
of cost of equity, 4:4652
of cost of preferred equity, 4:46
of expected returns, 4:368369
of value by analysts, 4:6
of weighted average cost of capital,
4:5758
estimation period, beta, 4:52
estimators, 1:575577, 578n.13
Estonia, 2:448n.18; 5:96
ETFs. see exchange-traded funds
ethical decision-making framework,
1:1314
ethics. see also Code of Ethics (CFA
Institute); codes of ethics (in
general); Standards of Professional
Conduct
firms commitment to, 1:14
and investment industry, 1:1115
and regulations, 1:13
societal benefit of, 1:12
Ethiopia, 2:256
ETNs. see exchange-traded notes

EU. see European Union


Eurex, 5:29; 6:9
Euribor. see Euro interbank offered rate
euro, 2:521522; 5:19, 345
cross-rate calculations with, 2:507508
as currency anchor, 2:522
EUR/GBP exchange rates, 2:504,
505n.4
exchange rate quotes with, 2:504506
forward calculations with, 2:511512
GBP/EUR exchange rate, 2:489, 494
identification code, 2:487
intervention in FX market to support,
2:526
USD/EUR currency pair, 2:502
USD/EUR exchange rate, 2:495
Eurobonds, 5:311, 348, 374
euroCanada exchange rate, 2:505,
507508
Euroclear, 5:359360
EuroCoin statistic, 2:334
Eurocommercial paper (ECP) market,
5:369371
Eurocopter, 5:225
eurodollar exchange rate, 2:507508,
511512
Eurodollar futures, 1:681682
Eurodollar rate, 4:176
Eurodollar time deposits, 4:154
euro exchange rate, 2:504
Euro Interbank Offered Rate (Euribor),
5:299, 347; 6:78n.11
Europe. see also specific regions and
countries
approval for dividends, 4:111, 120
capitalization level and contributions
to global GDP, 5:151
capital market regulation, 3:111
correlation of equities, 4:412413
economic indicators, 2:334
Giro system, 4:163
hybrid/balanced funds, 4:260261
IFRS adoption, 3:114
industrial comparative ratio analysis,
5:596597
institutionally owned real estate,
6:185
labor supply, 2:266
maturity of mortgages, 5:471
money market funds, 4:258259
mutual fund assets, 4:258
open market repurchase transactions,
4:124
performance and corporate
governance, 4:191
regular cash dividends, 4:112, 113
residential mortgage loans, 5:472
returns on bonds, bills, and equities,
5:153
rights offerings, 4:63
securities ranked lower than
subordinated debt, 5:576
stagflation, 2:327
terms of trade, 2:423, 424
trade balance with US, 2:220221
use of enterprise value, 5:272
European Aeronautic Defense and Space
Company (EADS), 1:397; 5:225
226, 268269

Level I Curriculum Index


European call options, 5:328
and American call options, 6:105
binomial option pricing with,
6:101103
Black-Scholes-Merton pricing model
for, 1:551
exercise price of, 6:87, 88
at expiration, 6:86
minimum prices for, 6:9193
payments on underlying and carrying
costs for, 6:9091
and risk-free rate of interest, 6:89
time to expiration for, 6:88
and value of underlying, 6:87
volatility of underlying for, 6:90
European Central Bank (ECB)
CPI used by, 2:321
and currency regime of EMU, 2:524
and European Union, 2:448n.18
independence of, 2:372
inflation targeting, 2:371, 373
intervention in FX market, 2:526
monetary policy of, 2:275
money measures of, 2:354
objectives of, 2:364
European Commission, 2:193; 3:104,
111; 4:201
European Community, 2:448, 522;
5:122n.11
European Depositary Receipts (EDRs),
1:688689, 688n.5
European Economic and Monetary
Union (EMU), 2:469470, 522,
524. see also Eurozone
European Exchange Rate Mechanism
(ERM), 2:378, 521
European Financial Reporting Advisory
Group, 3:111
European Financial Stability Facility
(EFSF), 2:452
European Investment Bank (EIB), 5:366
European Model Covenant Initiative,
5:607
European options (European-style
options)
call options (see European call options)
defined, 1:546n.43; 6:26, 85
Monte Carlo simulation for valuing,
1:546547
pricing, 6:85100
and exercise price, 6:8788
at expiration, 6:86
minimum prices of calls and puts,
6:9193
and payments on underlying/cost of
carry, 6:9091
putcall forward parity, 6:9899
putcall parity, 6:9498
and risk-free rate of interest, 6:89
and time to expiration, 6:8889
and value of underlying, 6:87
and volatility of underlying, 6:8990
put options (see European put options)
European Parliament, 3:111
European put options, 1:554; 5:330
and American put options, 6:105
binomial option pricing with, 6:103
exercise price of, 6:8788
at expiration, 6:86

I-31
minimum prices for, 6:9193
payments on underlying and carrying
costs for, 6:9091
and risk-free rate of interest, 6:89
time to expiration for, 6:88, 89
value of underlying for, 6:87
volatility of underlying for, 6:90
European Real Estate Association
(EPRA), 5:102
European Securities and Market
Authority (ESMA), 3:111, 585
European Securities Committee (ESC),
3:111
European-style contracts, 5:24
European-style options. see European
options
European Union (EU)
audit committees, 4:206
capitalization level and contributions
to global GDP, 5:151
capital market regulation, 3:111
and convergence of GAAP, 3:131
corporate governance codes, 4:201
economic indicators for, 2:329
EFSF of, 2:452
ERM of, 2:378, 521
export subsidies, 2:445
hedge fund regulation, 6:171
imports in, 2:423
inflation targeting, 2:373
price index, 2:321
quotas from, 2:445
RTAs for, 2:448
share-repurchase and pricestabilization programs, 4:218
and sovereign defaults, 5:626
SPV rules, 5:469n.5
Eurostat, 2:321
euroSterling exchange rate, 2:505
EURO STOXX 50 Index, 1:397399;
2:331
euroSwiss exchange rate, 2:505, 506
euroyen exchange rate, 2:505
Eurozone
economic indicators, 2:329, 331332
and EU, 2:448n.18
inflation-linked bonds, 5:364
money measures, 2:354
Eurozone Manufacturing Purchasing
Managers Index, 2:332
Eurozone Service Sector Future Business
Activity Expectations Index, 2:332
EV. see enterprise value
evaluation
of fiscal policy, 2:403404
of monetary policy, 2:385386
Evaluation and Review, IPS, 4:395
event-driven strategies, 4:264;
6:162163
event risk, 5:586
events
defined, 1:458
dependent, 1:467
independent, 1:467470
event studies, in semi-strong efficient
markets, 5:126
Everest Re Group Ltd, 1:438
evergreen funds, 1:221, 239
Evian, 3:378

ex-ante (term), 1:211, 239


ex ante models, 4:380
ex ante Sharpe ratio, 1:417n.37
excess demand, 2:2324, 425
excessive trading, 1:80, 89
excess kurtosis, 1:426429
excess spread, 5:307, 486
excess supply, 2:2224, 425
exchange, money as medium of, 2:349
exchange rate quotations, 2:504507
exchange rate regimes, 2:518519. see
also currency regimes
exchange rates. see currency exchange
rates
exchange rate targeting, 2:377379
exchanges, 5:29
exchange-traded derivatives market,
6:1011
OTC vs., 6:1314
size of, 6:38
exchange-traded funds (ETFs), 4:261
263; 5:19, 95
as alternative investments, 6:150
and beta exposure, 6:155
BLDRs, 5:168
for commodities investing, 6:195
derivatives vs., 6:6
exchange-traded notes (ETNs), 5:19
exchange-traded options, 6:25
ex-dividend date, 4:120122
execution instructions
for orders, 5:4548
for secondary security markets,
5:5457
execution-only responsibilities, 1:81
execution step (portfolio management),
4:251253
asset allocation, 4:251
portfolio construction, 4:251253
security analysis, 4:251
executive board members, 4:193
executive compensation, 4:214216
implications for shareowners, 4:214
information about, 4:216
investor considerations, 4:215216
reasons for reviewing, 4:214
and remuneration/compensation
committee, 4:208
exercise price
of covered calls, 6:132
of options, 6:26, 8788
of warrants, 5:18
exercise value, of European options, 6:86
exhaustive (term), 1:459
exit strategies, for private equity
investments, 6:180181
exogenous policy tools, aggregate
demand and, 2:230
exogenous variables, 2:21
expansionary fiscal policy, 2:386388,
401
expansionary monetary policy, 2:244
245, 380381
expansion phase (business cycle),
2:290293. see also recovery
housing sector in, 2:302
inventorysales ratio in, 2:299
investor preferences, 2:293
resource use in, 2:297

I-32

expansion projects, capital budgeting


for, 4:7
expansion risk, 5:478
expansion venture capital, 6:179
expectations
about future prices, 2:248249, 251
about inflation, 2:326327
and aggregate demand, 2:243
capital market, 4:411
in economic indicators, 2:330, 332
homogeneity of expectations
assumption, 4:345346, 364365,
380
in probability, 1:458
expected defaults, in bond portfolio,
1:525526
expected inflation, 2:365, 367
expected inflation rate, 4:287
expected loss, credit risk and, 5:572573
expected return(s)
and beta, 4:361363
calculation of, 1:480481
CAPM estimation of, 4:368369
and historical mean return, 4:287288
and SML, 4:366367
and strategic asset allocation,
4:416417
and variance of return, 1:485486
expected risk premium, 4:287
expected value, 1:471478
of bonds and T-bills, 1:478479
conditional, 1:474
defined, 1:471472
of product of uncorrelated random
variables, 1:488
properties of, 1:480
standard deviation, 1:473474
total probability rule for, 1:474475
tree diagrams, 1:475476
and weighted mean, 1:390
expenditure(s)
aggregate, 2:209
capital, 2:395; 3:374, 428431; 5:8, 9,
597
and consumer surplus, 2:3032,
162164
government, 2:313, 387390
personal consumption, 2:321
and price elasticity of demand,
2:531534
R&D, 2:268
total
and aggregate income, 2:227234
and consumer surplus, 2:3132, 163
and own-price elasticity of demand,
2:4850
and trade balance, 2:530531
expenditure approach to GDP, 2:210
212, 217, 218, 221223
expense recognition on income
statements, 3:16, 152153,
168178
and amortisation, 3:177
applications, 3:172177
for doubtful accounts, 3:173
and financial analysis, 3:177178
general principles, 3:169172
and inventory costs, 3:169171
for warranties, 3:173

Level I Curriculum Index

expenses
accrued, 3:70, 226
amortization, 3:444445
Conceptual Framework on, 3:121,
168169
defined, 3:16, 44, 168
depreciation, 3:441442
on income statements (see expense
recognition on income
statements)
interest, 3:516517; 5:596, 628
other operating, 3:286287
prepaid, 3:70, 223224
tax, 3:475
Expenses: CompensationRetirement
Benefits (ASC 715), 3:635
experience, board members, 4:198
experience curve, 5:203
expertise, board members, 4:198
expert networks, 1:67
experts, 1:5960
expiration
of calls, 6:123124, 130
of forward contracts, 6:7374
of options, 6:2630, 86
of puts, 6:126128
time to, 6:8889
expiration days, derivative, 1:636637
explicit costs, 2:97
exports
in balance of trade, 2:460
in business cycles, 2:303304
defined, 2:423
exchange rate and prices of, 2:245
net, 2:231, 424
terms of trade for, 2:423424
voluntary export restraints,
2:442, 445
export subsidies, 2:442, 445447
ex-post (term), 1:239
ex post models, 4:380
ex-post Sharpe ratio, 1:417n.37
ex-post standard deviation, 1:214216
exposure instructions, for orders, 5:47
eXtensible Business Reporting Language
(XBRL), 3:330
external advisers, selecting, 1:129
external cash flows
Calculation Methodology (GIPS
Section I.2), 1:209210
defined, 1:239
Input Data (GIPS Section I.1), 1:209
external competition, price collusion
and, 2:181
external consultants, 4:201202, 215
external credit enhancement
and bond indenture, 5:307
for non-agency RMBS, 5:486
external debt, 5:626, 627
external influences on industry analysis,
5:222228
demographic, 5:223224
governmental, 5:224226
macroeconomic, 5:222
social, 5:226227
technological, 5:222223
externality(-ies), 2:35; 4:9
external liquidity, in sovereign credit
analysis, 5:627

externally compensated assignments,


1:113
external manager, travel expenses from,
1:3940
external sources of information, for
financial statement analysis, 3:30
external trade sector
cyclical behavior of, 2:303304
in GDP, 2:220221
external valuation
defined, 1:239
GIPS Valuation Principles (GIPS
Section II), 1:227228
Real Estate (GIPS Section I.6),
1:217219
extra cash dividends, 4:114116
extractive industries, 3:579580
extraordinary items, on income
statements, 3:179180
ExxonMobil, 1:696697; 2:195;
4:131n.27; 5:209
Ezzell, John R., 4:41n.3, 64n.41
F
Fabozzi, Frank, 4:44n.10, 45n.13
Facebook, 2:186
face value. see par value
factorials, 1:493
factoring, 4:175, 178
factor markets, 2:7, 218
factor-proportions theory, 2:440441
facts, opinions and, 1:140, 141
FactSet, 3:329
factual presentations, misrepresentation
and, 1:4647
failed investments, due diligence and,
1:135
fair dealing, 1:8688, 90
Fair Dealing [Standard III(B)], 1:8290
application of the standard, 1:8690
compliance procedures, 1:8486
developing firm policies, 1:8486
disclosure of level of service, 1:86
disclosure of trade allocation
procedures, 1:86
systematic account reviews, 1:86
guidance, 1:8284
investment action, 1:8384
investment recommendations,
1:8283
text of, 1:17, 82
fairly valued (term), 5:244
fairness, of tax policy, 2:396
fair value
and asset-based approach to company
valuation, 6:184
of bonds payable, 3:520523
Conceptual Framework on, 3:122
defined, 1:239; 3:212n.1, 218219,
426n.2
financial assets at, 3:237
of financial liabilities, 3:520521
Fundamentals of Compliance (GIPS
Section I.0), 1:208
GIPS Valuation Principles (GIPS
Section II), 1:226227
Input Data (GIPS Section I.1), 1:208
and long-term asset acquisition,
3:426428

Level I Curriculum Index

Private Equity (GIPS Section I.7),


1:221
Real Estate (GIPS Section I.6), 1:217
fair value reporting, for bonds payable,
3:520521
fallibility, of rating agencies, 5:586
Fama, Eugene, 4:47n.15, 47n.16, 357;
5:124, 133
Fama and French three-factor model,
5:133
family accounts, 1:80, 158, 160161
Fannie Mae, 2:382; 5:473, 474
farmland, investing in, 6:185, 189
FASB. see Financial Accounting
Standards Board
Fastenal, 5:210
fast money, 6:168
Fastow, Andrew, 3:584
favors, requested, 1:155
FCA. see Financial Conduct Authority
FCFE. see free cash flow to equity
FCFE model. see free-cash-flow-toequity model
FCFF. see free cash flow to the firm
FCMs. see futures commission
merchants
F&C Stewardship Growth Fund,
4:406407
FDI. see foreign direct investment
F-distribution, 1:726729
federal agency securities, 4:154
Federal Banking Supervisory Office,
2:362
Federal Commission, 2:362
Federal Deposit Insurance Corporation,
2:363, 523
Federal Financial Supervisory Authority,
3:103
federal funds rate (fed funds rate), 2:330,
368
Federal Home Loan Mortgage
Corporation, 5:473
Federal National Mortgage Association,
5:473
Federal Open Market Committee
(FOMC), 2:368
Federal Reserve
funds and fund rate of, 5:376
initial margin requirement of, 5:41
Regulation T, 5:41
Federal Reserve Act, 2:376
Federal Reserve Bank of Chicago, 2:334
Federal Reserve Bank of New York,
5:358
FedEx, 5:209
Fed funds, 5:376
Fed funds rate, 5:376
feedback step (portfolio management),
4:253254
performance measurement and
reporting, 4:254
portfolio monitoring and rebalancing,
4:253
fees. see also Referral Fees [Standard
VI(C)]
all-in, 1:237
bundled fees
Calculation Methodology (GIPS
Section I.2), 1:210

I-33
defined, 1:237
Disclosure (GIPS Section I.4), 1:213
Presentation and Reporting (GIPS
Section I.5), 1:215
Wrap Fee/SMA Portfolios (GIPS
Section I.8), 1:225
and conflicts of interest, 1:150151
custody, 1:238
fund, 6:158
gross-of-fees, 1:240
for hedge funds, 6:159, 160n.15,
166169
incentive
for fund investments, 6:158
hedge funds, 6:166168
private equity, 6:177
investment management fees
defined, 1:240
Disclosure (GIPS Section I.4), 1:212
Input Data (GIPS Section I.1), 1:209
Private Equity (GIPS Section I.7),
1:221224
Real Estate (GIPS Section I.6), 1:218
management
for fund investments, 6:158
hedge funds, 6:166, 167
private equity, 6:177
net-of-fees returns, 6:160, 168
1 and 10 fee structure, 6:166
performance, 6:158, 202
performance-based, 1:212, 241
with private equity investments,
6:176177
for REITs and real estate partnerships,
6:187
service, 1:40
2 and 20 fee structure, 6:166
unearned, 3:5758
fee schedule, 1:212, 239
Ferrellgas, 5:210
FFO. see funds from operations
FFO/debt ratio. see funds from
operations to debt (FFO/debt)
ratio
FFO interest coverage. see funds from
operations interest coverage
Fiat, 2:188
fiat money, 2:361
Fibonacci, Leonardo, 1:706
Fibonacci sequence, 1:706
fictitious name, 1:173, 174, 176
Fideicomiso Financiero Autos VI, 5:491
Fidelity, 4:369; 5:210
fiduciary calls, 6:9596, 99
FIFO method. see first-in, first-out method
files
current, maintaining, 1:26
of former employers, 1:110
fill or kill orders, 5:48
final goods, 2:211
final liquidation date
defined, 1:239
Private Equity (GIPS Section I.7),
1:222, 223
Real Estate (GIPS Section I.6), 1:219
final sales, 2:299
finance leases
accounting/reporting by lessee,
3:532543

accounting/reporting by lessor,
3:543548
direct financing leases, 3:543, 544
financial statement impact of,
3:546548
operating leases vs., 3:531548;
4:44n.11
recognition and measurement of,
3:533535, 544546
sales-type, 3:543546
financial account, BOP, 2:458
Financial Accounting Foundation, 3:105
Financial Accounting Standards
Advisory Council, 3:105
Financial Accounting Standards Board
(FASB), 3:105106; 5:61
and convergence of global reporting
standards, 3:112
development of standards, 3:101, 102
evolving standards, 3:133134
and GIPS Valuation Principles, 1:226
revenue recognition standards,
3:159n.17
as standard-setting body, 3:103
financial analysis, 3:317389
about, 3:317318
for business/geographic segments,
3:375378
reporting requirements, 3:375376
segment ratios, 3:376378
common ratios, 3:338366
activity ratios, 3:340346
categories, 3:339
integrated analysis with, 3:359366
interpretation and context,
3:339340
liquidity ratios, 3:346351
profitability ratios, 3:355359
solvency ratios, 3:351355
computations vs., 3:320322
credit analysis, 3:372375
credit rating process, 3:372374
research on ratios in, 3:374375
disclosure of income tax information,
3:498499
equity analysis, 3:366372
industry-specific ratios, 3:369371
research on ratios in, 3:371372
valuation ratios, 3:367369
and expense recognition on income
statements, 3:177178
framework for, 3:319320
inventory management in, 3:406412
model building and forecasting with,
3:378379
objectives of, 3:319320
practice problems, 3:381386
process, 3:318322
solutions to problems, 3:387389
strategy and financial performance,
3:320322
tools and techniques, 3:322338
graphs, 3:336338
regression analysis, 3:338
financial analysts
decisions of, 5:6
industry analysis by, 5:202203
market efficiency and number of, 5:121
financial assets, 3:236239; 5:14

I-34

financial assets abroad sub-account,


BOP, 2:458
financial capital
in HeckscherOhlin model, 2:441
and international trade, 2:422
in long-term economic growth, 2:265
financial condition, statements of, 3:212.
see also balance sheets
Financial Conduct Authority (FCA),
3:585, 586
financial corporations, as intermediaries,
5:3233
financial crisis (2007-2009). see global
financial crisis (2007-2009)
financial disclosure, market efficiency
and, 5:122
financial expert, 4:205n.18
financial flexibility, 3:22
financial industry, governmental
influences on, 5:225
financial institutions, 5:3233
financial intermediaries, 5:2838
arbitrageurs, 5:3436
brokers, exchanges, and alternative
trading systems, 5:2830
dealers, 5:3031, 3536
defined, 5:6
depository institutions and financial
corporations, 5:3233
insurance companies, 5:3334
securitization of real assets by, 5:26
securitizers, 5:3132
for settlement and custodial services,
5:3638
transactions facilitated by, 5:3839
in well-functioning financial systems,
5:5859
financial leverage, 4:9295; 5:41
degree of, 4:9293, 9798
leveraging role of debt, 4:9495
and solvency ratios, 3:351352
financial leverage ratio, 3:352, 353,
552553
financial markets. see markets
financial performance
evaluating, 3:629637
accounting standards and ROE,
3:634636
and changes in business strategy,
3:629633
and war chests, 3:633
integrated analysis of, 3:360361
projecting, 3:637646
consistency of forecasts, 3:646
example, 3:644645
forecasting operating profit,
3:639640
issues with, 3:640643
with market-based valuation,
3:638643
for multiple periods, 3:643646
financial position, statements of, 3:12,
212. see also balance sheets
financial projections, in high-yield credit
analysis, 5:619620
financial ratios, 3:325330; 5:230232
financial reporting, 3:4197
accounting process, 3:5168
financial statements in, 3:6568

Level I Curriculum Index

Investment Advisers Ltd. case study,


3:5168
records in, 3:5365
accounting systems for, 3:7173
debits and credits, 3:7273, 7692
flow of information in accounting
systems, 3:72
Investment Advisers Ltd. case study,
3:7692
accounts on financial statements
equations for, 3:4651
as financial statement elements,
3:4446
types of, 3:45
of accruals, 3:6971
for business segments, 3:375376
classifying business activities for,
3:4243
and financial statements in security
analysis, 3:7374
estimates and analyst judgment about
entries, 3:7374
manipulation of data, 3:7374
misrepresentation of data, 3:74
practice problems, 3:9395
and purpose of financial statements,
3:42
regulations on, 5:61
solutions to problems, 3:9697
of valuation adjustments, 3:71
financial reporting quality, 3:565625
about, 3:565566
assessing, 3:583590
conditions conducive to low-quality
reports, 3:584
disciplining mechanism, 3:584590
motivations for issuing low-quality
reports, 3:583584
conservative vs. aggressive accounting,
3:578583
bias in application of accounting
standards, 3:582583
in extractive industries, 3:579580
detection of issues, 3:590618
accounting choices and estimates,
3:596613
areas of choice/estimate and analyst
concerns, 3:610613
presentation choices, 3:591595
warning signs, 3:613618
disciplining mechanisms,
3:584590
auditors, 3:586588
market regulatory authorities,
3:584586
and motivation for manipulation,
3:588590
private contracts, 3:588
and earnings quality, 3:567, 576
practice problems, 3:621622
solutions to problems, 3:623625
spectrum of quality for financial
reports, 3:568578
and aggressive presentation, 3:573
and biased accounting choices,
3:570576
departures from GAAP, 3:577578
GAAP, decision-useful, but
sustainable? level, 3:569570

GAAP, decision-useful, sustainable,


and adequate returns level,
3:568569
presentation of non-GAAP financial
measures, 3:573576
Within GAAP, but biased choices
level, 3:570576
Within GAAP, but earnings
management level, 3:576
financial reporting standards,
3:99145
about, 3:100
Conceptual Framework for Financial
Reporting 2010, 3:116128
and barriers to single standards
framework, 3:129130
constraints on financial reports,
3:119120
convergence of US GAAP and,
3:127128
and effective standards frameworks,
3:129
elements of financial reports,
3:120122
objective of financial reports,
3:117118
qualitative characteristics of financial
reports, 3:118119
requirements for financial
statements, 3:122126
global, 3:112115
of IFRS vs. US GAAP, 3:131132
monitoring developments in,
3:132138
by CFA Institute, 3:133134
with company disclosures,
3:134138
for new products/types of
transactions, 3:133
and objectives of financial reporting,
3:100102
practice problems, 3:141143
reports based on, 3:565
solutions to problems, 3:144145
standard-setting bodies, 3:103111
accounting standards boards,
3:104106
for industry-specific regulation,
3:103104
regulatory authorities, 3:106111
financial reports
constraints, 3:119120
elements, 3:120122
high-quality, 3:567570
low-quality
conditions conducive to, 3:584
and earnings quality, 3:567, 576
motivations for, 3:583584
on spectrum of quality, 3:576578
manipulation of
motivation for, 3:588590
prevalence of, 3:566
objectives, 3:117118
qualitative characteristics, 3:118119
spectrum of quality, 3:568578
and aggressive presentation, 3:573
and biased accounting choices,
3:570576
departures from GAAP, 3:577578

Level I Curriculum Index

GAAP, decision-useful, but


sustainable? level, 3:569570
GAAP, decision-useful, sustainable,
and adequate returns level,
3:568569
presentation of non-GAAP financial
measures, 3:573576
Within GAAP, but biased choices
level, 3:570576
Within GAAP, but earnings
management level, 3:576
financial risk, 1:539n.28; 4:53
financial risk management, normal
distribution in, 1:539
financial sector, IMF analysis of, 2:469
Financial Services Agency (Japan), 2:362;
3:103, 104, 113; 5:29
Financial Services Authority (FSA)
(United Kingdom), 3:103; 5:29
and BBA Libor scandal, 5:347
hedge fund registration, 6:171
IPS regulations, 4:394
and Northern Rock crisis, 2:361, 363
financial services sector, 5:193
Financial Stability Board (FSB), 5:462
financial statement analysis, 3:539.
see also applications of financial
statement analysis
about, 3:6
framework, 3:3135
conclusions and recommendations,
3:3435
data analysis and interpretation, 3:34
data collection, 3:33
data processing, 3:3334
follow-up, 3:35
purpose and context of analysis,
3:32
information sources, 3:1130
auditors reports, 3:2730
balance sheet, 3:1316
cash flow statement, 3:2224
financial notes, 3:2426
financial statements, 3:1130
internal and external sources of
information, 3:30
management commentary/MD&A,
3:2627
statement of changes in equity,
3:2022
statement of comprehensive income,
3:1620
supplementary information, 3:1112
supplementary schedules, 3:2426
practice problems, 3:38
scope of, 3:611
and earnings announcements, 3:811
and profit vs. cash flow, 3:78
solutions to problems, 3:39
financial statements. see also specific
statements
in accounting process, 3:6568
business activities on, 3:43
effects of share repurchases on,
4:126129
elements of, 3:4446
leases on, 3:546548
purpose of, 3:42
relationships of, 3:335336

I-35

requirements of IFRS framework,


3:122126
for disclosures in notes, 3:126
from IAS No. 1, 3:125126
required statements, 3:123124
statement features, 3:124
for structure and content, 3:125126
and revenue recognition on income
statements, 3:167168
in security analysis, 3:7374
estimates and analyst judgment about
entries, 3:7374
manipulation of data, 3:7374
misrepresentation of data, 3:74
financial statistics, in company analysis,
5:231232
financial system
efficiency of, 5:5859
functions of, 5:614
capital allocation efficiency, 5:1314
determining rates of return, 5:1213
for individuals, 5:712
well-functioning, 5:5860
Financial Times Stock Exchange. see
entries beginning with FTSE
financing
of leveraged buyouts, 6:177178
of real estate investments, 6:187188
(see also mortgage loans)
for share-repurchase and pricestabilization programs, 4:217
short-term, 4:174180
asset-based loans, 4:178
borrowing approaches, 4:177
costs of borrowing for, 4:178180
sources of, 4:175176
venture capital, 6:179180
financing activities
cash flow from, 3:269
on cash flow statements, 3:267268,
289
defined, 3:22, 42
financing cash flow, 3:269
financing costs, 4:8
finished goods inventory, 3:394
finite lives, intangible assets with, 3:450
Finland
disinflation, 2:319
EU membership, 2:448n.18
exchange rate regime, 2:522
IFRS adoption, 3:114
inflation targeting, 2:371
in MSCI multi-market index, 5:96
real equity returns, 1:372
residential mortgage loans, 5:472
total returns, 1:380, 383
firearms industry, governmental
influences on, 5:225
firewalls, 1:32, 61
firm commitment offerings. see
underwritten offerings
firm policies
for fair dealing, 1:8486
on loyalty, prudence, and care, 1:7778
firms. see also demand and supply
analysis (for firms)
benefits of GIPS compliance for,
1:196197
commitment to ethics by, 1:14

compliance with Code of Standards,


1:10
defined, 1:239
informing, of referral arrangements,
1:163
knowledge of the law, 1:2627
and market structure, 2:154
monopolist, 2:103, 188189
objectives of, 2:9697
overemphasis of results from, 1:53
records as property of, 1:147, 148
role in markets, 2:78
starting new, 1:112
theory of the firm, 2:6, 96
first-degree price discrimination,
2:190191
first-in, first-out (FIFO) method
analyst adjustments related to,
3:655658
and earnings/balance sheets,
3:596598
of inventory valuation, 3:171, 222,
397400
first lien debt, 5:576
first loss piece, 5:487
first mortgage debt, 5:575576
first price sealed bid auctions, 2:27
First Section, in TOPIX, 5:82
fiscal deficit. see budget deficit
fiscal multiplier, 2:398399
fiscal performance, in sovereign credit
analysis, 5:627628
fiscal policy, 2:386404
and aggregate demand, 2:243, 386387
balanced budget multipliers,
2:399400
and deficits/national debt, 2:391393
defined, 2:347
evaluating, 2:403404
fiscal multiplier, 2:398399
and government receipts/expenditures,
2:387390
implementation of, 2:400403
and inflation, 2:258
influence on economy, 2:346348
of Keynesian school, 2:307
and monetary policy, 2:404408
and Ricardian equivalence, 2:400
roles and objectives, 2:386394
and tax policy, 2:396
tools, 2:394400
types of, 2:394
Fisher, Irving, 2:358; 4:40n.2
Fisher effect, 2:358359
Fisher index, 2:320
Fitch Ratings
commercial paper ratings, 5:368
investment-grade ratings, 5:297n.2,
344
long-term ratings matrix, 5:581582
municipal debt ratings, 5:631
role in credit markets, 5:580, 581
five forces framework for strategic
industry analysis, 5:205
five-way decomposition of ROE,
3:364366
fixed asset turnover, 3:341, 345
fixed charge coverage ratio, 3:353354,
552

I-36
fixed costs, 2:109115, 119, 120
in breakeven analysis, 2:119
and breakeven points, 4:100
calculation of, 2:115
capacity and, 5:592
defined, 2:112114
and degree of operating leverage,
4:8890
and degree of total leverage, 4:9798
and leverage, 4:8184
leverage and, 3:351352
and other costs in profit maximization,
2:109112
fixed-for-floating interest rate swaps,
6:22
fixed income analysts, 5:6
fixed-income arbitrage, 4:264
fixed income asset backed strategies, for
hedge funds, 6:163
fixed income convertible arbitrage
strategy, for hedge funds, 6:163
fixed-income derivatives, 5:15
fixed income general strategies, for
hedge funds, 6:163
fixed-income indices, 5:98101, 104, 351
fixed-income instruments, 5:15, 17
fixed-income investments. see also
bonds
as assets under management, 6:151
and GDP forecasts, 2:274275
as underlying, 6:5, 3637
fixed-income market, 5:341388
classification of, 5:342351
corporate debt, 5:367375
bank and syndicated loans,
5:367368
commercial paper, 5:368371
corporate notes and bonds,
5:371374
function of, 5:341342
indices, 5:351
investors in, 5:351353
non-sovereign bonds, 5:365, 366
practice problems, 5:383385
primary, 5:353358
private placements, 5:358
public offerings, 5:354358
quasi-government bonds, 5:365366
secondary, 5:358361
short-term funding for banks,
5:375381
repurchase and reverse repurchase
agreements, 5:377379
retail deposits, 5:375
wholesale funds, 5:376377
solutions to problems, 5:386388
sovereign bonds, 5:361364
credit quality, 5:362363
names of, 5:361
types, 5:363364
supranational bonds, 5:366
fixed-income securities, 5:295340
bond indenture, 5:302310
collateral backing, 5:305306
covenants, 5:307308
credit enhancement, 5:306307
legal identity of issuer/legal form of
bond, 5:303304
repayment proceeds, 5:304

Level I Curriculum Index


cash flow structures, 5:315327
coupon payment, 5:320327
principal repayment, 5:315320
with contingency provisions, 5:296,
327333
callable bonds, 5:327329
convertible bonds, 5:330333
putable bonds, 5:329330
coupon rate, 5:298299
credit risk with, 5:297, 555556
currency denomination for, 5:299300
interest rate risk with, 5:519555
approximate modified duration,
5:524527
bond convexity, 5:540548
duration of bond portfolio,
5:536538
effective duration, 5:527530
and investment horizon, 5:550555
key rate duration, 5:530
Macaulay duration, 5:520523
modified duration, 5:523524
money duration, 5:538540
price value of a basis point,
5:538539
properties of bond duration,
5:530535
yield volatility, 5:549550
investing in, 5:296
issuers of, 5:297
legal and regulatory considerations,
5:310313
liquidity risk with, 5:555556
maturity, 5:298
par value, 5:298
in portfolio management, 5:295296
practice problems, 5:336337
return on, 5:512519
solutions to problems, 5:338340
tax considerations, 5:313315
yield measures, 5:302
fixed-income valuation, 5:389457
about, 5:389390
flat price, 5:401404
full price, 5:401404
matrix pricing, 5:405407
maturity structure of interest rates,
5:421428
practice problems, 5:436444
solutions to problems, 5:445457
and time value of money, 5:390401
market discount rate, 5:390393,
395399
spot rates, 5:399401
yield-to-maturity, 5:394395
yield measures, 5:407420
for fixed-rate bonds, 5:407413
for floating-rate bonds, 5:413416
for money market instruments,
5:416420
yield spreads, 5:428432
fixed parity currency regimes, 2:522,
525
fixed price tender offer, 4:125
fixed-rate bonds
sovereign, 5:363
yield measures for, 5:407413
fixed-rate debt, 4:44; 5:346
fixed-rate mortgage(s), 1:306; 5:471

fixed rate perpetual preferred stock,


4:45
flag patterns, 1:686687
Flaherty, James, 5:225
Flash Product, 5:209
flash reports, 1:85
flat price, 5:401404
flexibility, of short-term borrowing
strategy, 4:177
flexible exchange rates, 2:521
float, 4:164
float-adjusted market-capitalization
weighting, 5:8991
floaters. see floating-rate notes (FRNs)
float factor, 4:164
floating exchange rates, 2:519
floating-rate bonds
outstanding, 5:332
sovereign, 5:363
yield measures for, 5:413416
floating-rate debt, 4:44; 5:346
floating-rate notes (FRNs), 5:298299,
320321
floating-rate tranches, 5:483484
floors, floating-rate note, 5:321
flotation costs, 4:6365
flow-of-funds indicators, 1:700704
Arms index, 1:700702
margin debt, 1:702
and market indicators, 1:703
mutual fund cash position, 1:702703
new equity issuance, 1:703704
secondary offerings, 1:704
FOB shipping. see free on board
shipping
FOFs. see funds of funds
follow-up, financial statement analysis,
3:35
FOMC. see Federal Open Market
Committee
Foolish Four investment strategy,
1:586587
Forbes, 1:406408
Ford Foundation, 4:246
Ford Motor Company
credit ratings, 5:586587
dividends, 4:114
EPS and P/E for, 1:384, 385
P/S value of, 5:267
revenue recognition, 3:159
RSI of, 1:692694
share class arrangements, 5:157158
forecasting, of short-term cash flows,
4:151152
forecasts
consistency of, 3:646
and financial analysis, 3:378379
of financial performance, 3:637646
of operating profit, 3:639640
and quality of financial reports, 3:583
foreclosures, 5:470, 473
foreign bonds, 5:311, 347348
foreign countries, diversification of
investment in, 4:314
foreign currency reserves, at central
banks, 2:363, 378
foreign direct investment (FDI),
2:427428
foreign exchange gains, 5:169

Level I Curriculum Index

foreign exchange market (FX market),


2:485548
about, 2:485486
currency conventions, 2:487488
functions, 2:492498
nominal vs. real exchange rates,
2:488492
participants in, 2:498501
size and composition of, 2:501504
foreign exchange risk, 4:157
foreign investments
direct, 2:427428
income from, 2:462
portfolio, 2:427
foreign-owned financial assets subaccount, BOP, 2:458
foreign portfolio investment (FPI), 2:427
ForgeHouse, Inc., 3:179
Form 3 (SEC), 3:110111
Form 4 (SEC), 3:110111
Form 5 (SEC), 3:110111
Form 6-K (SEC), 3:109
Form 8-K (SEC), 3:110
Form 10-K (SEC), 3:109
Form 10-Q (SEC), 3:109
Form 11-K (SEC), 3:111
Form 20-F (SEC), 3:109
Form 40-F (SEC), 3:109
Form 144 (SEC), 3:110
format
of balance sheets, 3:215217
of cash flow statements, 3:267280
cash flows and non-cash activities,
3:267269
cash flows from operating activities,
3:270280
and IFRS vs. US GAAP, 3:269270
of income statements, 3:151155
formative-stage financing (venture
capital), 6:179
Form DEF-14A (SEC), 3:109
former clients, soliciting, 1:109114
former employers
documents and files of, 1:110
in performance presentation, 1:99100
former executive, as chairman of board,
4:199
Fortune magazine, 6:159
forward commitments, 6:1425, 7385
contingent claims vs., 6:3536
defined, 6:7, 61
forward contracts, 6:1417, 24, 7380
futures contracts, 6:1721, 24, 8082
options vs., 6:30
pricing of, 6:7385
swaps, 6:2125, 8285
valuation of, 6:7385
forward curves, 5:425428
forward discounts, 2:511
forward exchange rates, 2:494, 511518
and spot rates, 2:496498, 514516
and swap/interest rates, 2:512515
forward markets, 5:424
forward points, 2:511, 515516
forward premiums, 2:511
forward price, 6:14, 26
forward rate agreements (FRAs),
6:7779
forward rates, 5:424428

I-37
forwards (forward contracts), 6:1417
arbitrage with, 6:50
for commodities, 6:194195
in contract markets, 5:2122
defined, 6:1415, 61
futures vs., 5:23; 6:21, 24, 8081
in FX market, 2:494
on interest rates, 6:7779
off-market, 6:83
options vs., 5:25; 6:119
pricing and valuation of, 6:7380
putcall parity for, 6:9899
swap contracts vs., 5:24
swaps and, 6:24, 8283
forward yields, 5:425
foundations, portfolio management for,
4:246248
401(k) plans, 4:236238
four Cs framework for corporate debt
securities, 5:590608
capacity, 5:590605
character, 5:607608
collateral, 5:605606
covenants, 5:606607
four-factor models for beta, 4:357,
381382
fourth-quarter surprises, 3:616
FPI. see foreign portfolio investment
FPL Group, Inc., 1:438
fractile, 1:395
fractional reserve banking, 2:350352
Framework for the Preparation and
Presentation of Financial
Statements (IASB)
expense recognition, 3:168169
objective of financial reporting, 3:101
franc (Switzerland), 2:487, 504, 506;
5:19, 345
France
banking supervision, 2:362
boards of directors, 4:194
bonds outstanding, 5:348, 353
business investment, 2:267
consumption expenditures, 2:229230
disinflation, 2:319
domestic and international debt
securities, 5:312
equity risk premiums, 4:48
EU membership, 2:448n.18
exchange rate regime, 2:522
expected inflation, 2:366
exports of goods, 2:423
frequency of capital budgeting, 4:25
as GIPS country sponsor, 1:204
government debt, 2:346
government spending, 2:219
growth of share repurchases, 4:123
inflation-linked bonds, 5:323, 324, 364
labor productivity, 2:271
MSCI multi-market index, 5:96
public sector spending, 2:347
real equity returns, 1:372
residential mortgage loans, 5:472
returns on bonds, bills, and equities,
5:153
total returns, 1:380, 383, 396
trade balance with US, 2:220
Treasury bills, 1:279n.3, 349n.16
underground economy, 2:214

France Telecom, 1:397


Frankfurt Stock Exchange, 1:688; 5:165
FRAs. see forward rate agreements
fraud, 1:55, 664; 5:34, 6061
Freddie Mac, 2:382; 5:473, 474
free cash flow after dividends, 5:595
free cash flow before dividends, 5:595
free cash flow to equity (FCFE), 3:302
303; 4:42n.7; 6:183184
free-cash-flow-to-equity (FCFE) model,
5:246, 250250
free cash flow to the firm (FCFF),
3:302303; 4:42n.6; 5:595n.25
free float, 5:165n.24
free float adjusted, 1:380n.13
free-float-adjusted marketcapitalization-weighted indices,
5:8991
free-floating currency regimes, 2:526527
Freeman Spogli & Co., 5:162
free on board (FOB) shipping, 3:596
free operating cash flow to debt, 3:374
Freeport-McMoRan Copper & Gold, 5:274
Freescale Semiconductor, 5:620622
free trade, 2:424, 429430
free trade areas (FTAs), 2:448
French, Kenneth R., 4:47n.15, 47n.16,
357; 5:133
French consumer prince index (CPI),
5:364
frequency
absolute, 1:367
of compounding, 1:284286, 293294
cumulative, 1:368372
relative, 1:368372
frequency distributions, 1:365373
construction of, 1:366368, 372373
cumulative, 1:376377
defined, 1:365
and holding period formula, 1:366
and relative frequency, 1:368372
frequency polygons, 1:375376
frictionally unemployed (term), 2:314
frictionless markets, 4:364
Friedman, Milton, 2:308, 324, 521
Friedman, Thomas, 2:152
FRNs. see floating-rate notes
Frontiers of Finance Survey, 5:136
Frontline, 5:210
front-running, 1:159
FSA. see Financial Services Authority
(United Kingdom)
FSB. see Financial Stability Board
FTAs. see free trade areas
FTC. see US Federal Trade Commission
F-test
for differences between variances,
1:634635
F-distribution, 1:726729
FTSE (Financial Times Stock Exchange),
5:192
FTSE 100 Index
line chart, 1:664665
as relative return objective benchmark,
4:401
as relative risk objective benchmark,
4:396
relative strength analysis, 1:672
target market for, 5:82

I-38
FTSE All Share Index, 1:589590
FTSE EPRA/NAREIT Global Real Estate
Index Series, 5:102, 104
FTSE Eurotop 100, 1:379
FTSE Global All Cap Index, 1:630
FTSE Global Bond Index Series, 5:351
FTSE Global Small Cap Index, 5:94
Fujifilm, 5:223
full employment, 2:254255
full employment equilibrium GDP,
2:253254
full employment level of output,
2:240
full price, 1:348n.14; 5:401404
full-replication approach, 1:568
fully amortized bonds, 5:316318
fully amortizing loans, 5:472
fundamental analysis, 1:660n.1, 662
664; 5:128129
fundamental factor models, 4:357
fundamental growth strategies, for
hedge funds, 6:164
fundamentals
company, 5:592597
industry, 5:592
in multiplier models, 5:264265
Fundamentals of Compliance (GIPS
Section I.0), 1:207208
about, 1:206
recommendations, 1:208
requirements, 1:207208
fundamental value, 5:119, 244. see also
intrinsic value
fundamental value strategies, for hedge
funds, 6:164
fundamental weighting
in multi-market equity indices, 5:97
of security market indices, 5:91
funding
short-term (see short-term funding)
travel, 1:35
fund manager relationships, 1:32, 42
fund mandate, change in, 1:142
funds
for commodities investing,
6:195, 196
fair dealing between, 1:8687
structure of, 6:158
funds from operations (FFO), 5:595;
6:192
funds from operations (FFO) interest
coverage, 3:373
funds from operations to debt (FFO/
debt) ratio, 3:374; 5:596
funds of funds (FOFs)
benefits of, 6:173
composites for, 1:223224
defined, 1:240; 6:159
fee structures for, 6:166, 168
multi-strategy hedge funds vs., 6:164
performance of, 6:161
Private Equity (GIPS Section I.7),
1:221, 222
returns on, 6:165, 168, 169
sample presentations of, 1:253258
future cash flows, geometric and
arithmetic mean of, 1:430
future prices, short-run aggregate supply
and, 2:248249, 251

Level I Curriculum Index


futures (futures contracts), 6:1721
commodities, 6:37, 194195, 198199
in commodities, 5:25, 26
in contracts market, 5:2223
defined, 6:17, 61
forwards vs., 5:23; 6:21, 24
in FX market, 2:494
options vs., 6:119
price discovery with, 6:4041
pricing and valuation of, 6:8082
rollover of, 5:102
swaps vs., 6:24
futures commission merchants (FCMs),
1:123
futures markets, regulation of, 6:21
futures price, 6:18, 4041
future value (FV)
defined, 1:280
future value of series of cash flows,
1:288290
with equal cash flows, 1:288290
with unequal cash flows, 1:290
future value of single cash flow,
1:280288
with continuous compounding,
1:286287
frequency of compounding,
1:285286
with interim cash reinvested at same
rate, 1:281282
for lump sum, 1:283284
stated and effective rates for, 1:287288
without interim cash, 1:282
present and, 1:281, 309310
FV. see future value
FX market. see foreign exchange market
FX swaps, 2:495496
G
G-7, 2:329, 430
G-10, 2:362363
G-20, 5:462
GAAP. see generally accepted accounting
principles
GAAP, decision-useful, but
sustainable? financial reports,
3:569570
GAAP, decision-useful, sustainable,
and adequate returns financial
reports, 3:568569
GAAS. see generally accepted auditing
standards
gains
capital, 5:313, 515, 550
on debt forgiveness, 3:179
extraordinary, 3:179
foreign exchange, 5:169
on income statement, 3:153
on marketable securities, 3:238
from market timing, 1:548550
from trade, 2:435438
from voluntary exchange, 2:7274, 429
Galileo space program, 5:225
gamblers fallacy, 5:137
gambling, speculation vs., 6:43
game theory, 2:180182
Gary, Elbert, 2:184
Gascon, Henri (case study), 4:399402,
408410

Gascon, Jacques (case study), 4:400401


gasoline market, concentration in, 2:195
GATS. see General Agreement on Trade
in Services
GATT. see General Agreement on Tariffs
and Trade
Gazprom SP European Depositary
Receipts (EDRs), 1:688689
GDF Suez, 1:397
GDP. see gross domestic product
GDP deflator, 2:215217
GDRs. see global depository receipts
GE. see General Electric
GE Capital Bank, 5:494
GE Capital Credit Card Master Note
Trust Series 2013-1, 5:494
General Agreement on Tariffs and Trade
(GATT), 2:468, 471
General Agreement on Trade in Services
(GATS), 2:471
General Dynamics, 1:384; 5:209
General Electric (GE), 2:193; 3:137138,
617618
general equilibrium analysis, 2:21
generally accepted accounting principles
(GAAP). see also entries for
specific countries, e.g.: US GAAP
and audit committees, 4:205
convergence of IFRS and, 3:113115
for equity REITs, 6:188
financial reports with departures from,
3:577578
GAAP, decision-useful, but
sustainable? financial reports,
3:569570
GAAP, decision-useful, sustainable,
and adequate returns financial
reports, 3:568569
non-GAAP measures in financial
reports, 3:573576, 591594
Within GAAP, but biased choices
financial reports, 3:570576
Within GAAP, but earnings
management financial reports,
3:576
generally accepted auditing standards
(GAAS), 4:205
general meetings, timing of, 4:221
General Motors (GM), 2:127; 4:114;
5:209, 267268
general obligation (GO) bonds, 5:630
general partners (GPs), 1:240
funds as, 6:158
in private equity investments, 6:176,
177, 184
Genomic Solutions, 5:158159
Genzyme, 5:209
geographic classifications for fixedincome markets, 5:347349
geographic segments, financial analysis
for, 3:375378
geometric average of forward rates, 5:428
geometric mean, 1:390394
and arithmetic, 1:391394
formula, 1:390391
using, 1:429430
geometric mean return, 4:274275
arithmetic and, 1:391394
formula for, 1:391

Level I Curriculum Index


Georgia, 3:114
Georgia State University, 4:191
German Asset Management Standards
Committee, 1:204
German CFA Society, 1:204
Germany
auctions in, 5:356
automobile industry, 2:174
banking supervision, 2:362
bank regulation, 3:103
bonds outstanding, 5:348, 353
BOP paired transactions, 2:460462
business investment, 2:267
conservatism in, 3:582
consumption expenditures, 2:229230
CPI, 2:320321
currency regime, 2:521
current account imbalance, 2:463, 466
cyclically adjusted budget deficit, 2:401
disinflation, 2:319
domestic and international debt
securities, 5:312
effects of global recession, 2:256
equity risk premiums, 4:48
EU membership, 2:448n.18
exchange rate regime, 2:522, 526
flotation costs, 4:63
foreign direct investment, 2:427, 428
frequency of capital budgeting, 4:25
as GIPS country sponsor, 1:204
government liabilities/debt, 2:392
government revenues/expenditures,
2:387, 388
government spending, 2:220
gross domestic product
forecasts, 2:274275
potential, 2:273
hyperinflation, 2:318
IFRS adoption, 3:114
inflation-linked bonds, 5:323, 324
investments in BASF, 5:165
investment spending, 2:230
labor productivity, 2:271
leading economic indicator, 2:332333
management reporting requirements,
3:26
MSCI multi-market index, 5:96
net borrowing/lending, 2:389
non-sovereign government bonds,
5:365
real equity returns, 1:372
residential mortgage loans, 5:471, 472
returns on bonds, bills, and equities,
5:153
risk tolerance and equity ownership,
5:154
share repurchases, 4:123
sovereign bonds, 5:362
total returns, 1:380, 383
trade balance with US, 2:221
Treasury paper, 1:279n.3, 349n.16
two-tiered boards, 4:194
underground economy, 2:214
Ghana, 2:371; 3:115; 5:96, 96n.4
GICs. see Guaranteed Investment
Contracts
GICS. see Global Industry Classification
Standard
Giffen, Robert, 2:89

I-39
Giffen goods, 2:8890
gifts
from clients, 1:39
limiting, 1:36
from related parties, 1:3839
Gill, Amar, 4:191192
Gillette, 5:176
gilts, 2:382
Ginnie Mae. see Government National
Mortgage Association
GIPS. see Global Investment
Performance Standards
GIPS Advertising Guidelines (GIPS
Section III), 1:230231
purpose, 1:230
advertisement defined, 1:230
and GIPS regulatory requirements,
1:230
information included in
advertisement, 1:230231
requirements, 1:230231
sample advertisements, 1:263265
with annualized returns, 1:263265
with five years of annual returns,
1:264265
with period-to-date and annualized
returns, 1:264265
GIPS Council, 1:200, 204
GIPS Executive Committee, 1:200
clarifications by, 1:202, 207, 208, 233
implementation recommendations of,
1:203204
objectives of, 1:201
GIPS Handbook, 1:202, 207, 208, 233
GIPS Valuation Principles (GIPS Section
II), 1:226229
fair value, 1:226227
and input data, 1:206, 208
for private equity, 1:228, 229
Private Equity (GIPS Section I.7),
1:221, 222
for real estate, 1:228, 229
recommendations, 1:228229
requirements, 1:227228
Giro system, 4:163
Gitman, Lawrence, 4:65n.43
GlaxoSmithKline
auditors report excerpt, 3:587
CAPM applications, 4:368369
in pharmaceutical industry, 5:189
ROE for, 5:173175
strategic analysis, 5:219221
global bond mutual funds, 4:259
global bonds, 5:311
Global Corporate Governance Task
Force, 4:190
global debt markets, 5:343344
global depository receipts (GDRs),
5:167
global economic developments, IMF
analysis of, 2:469
Global Equity Composite, 1:197
global equity markets, 5:343344
global ETFs, 4:262
global finance markets
and depository receipts, 5:166168
direct investing, 5:165
equity securities in, 5:150155
integration and growth in, 5:163165

global financial crisis (2007-2009)


bond defaults, 5:580n.11
credit default swaps and, 6:4344
credit ratings agencies contribution, 5:581
deflation during, 2:318
and household savings, 2:302
IMF changes in response to, 2:469
and international reporting standards,
3:112
and kurtosis, 4:293
liquidity issues in, 5:573, 619
and money supply, 2:326
and risk-free rate, 5:625626
securities ranked lower than
subordinated debt, 5:576
and securitization, 5:461
and variance of returns on the KOSPI
Index, 1:635636
and yield spread, 5:611
global financial reporting standards,
3:112115. see also International
Financial Reporting Standards
(IFRS)
Global Industry Classification Standard
(GICS), 3:195196, 249; 5:189
190, 192193
Global Integrated Monetary and Fiscal
Model, 2:406
Global Investment Performance
Standards (GIPS), 1:98, 129,
195271; 5:61
compliance
benefits of, 1:196197
claiming, 1:196, 203
GIPS-compliant historical
performance, 1:202203
composites, 1:197
country sponsors, 1:204205
effective date, 1:203
GIPS Advertising Guidelines (GIPS
Section III), 1:230231
purpose, 1:230
requirements, 1:230231
GIPS Valuation Principles (GIPS
Section II), 1:226229
fair value, 1:226227
recommendations, 1:228229
requirements, 1:227228
glossary of terms, 1:236245
historical background, 1:200
implementation of, 1:203204
List of Composite Descriptions
(Section V.0.1), 1:266269
need for, 1:195196, 201
objectives, 1:201
overview, 1:202
practice problems, 1:270
provisions, 1:205226
Calculation Methodology (Section
I.2), 1:209210
Composite Construction (Section
I.3), 1:210211
Disclosure (Section I.4), 1:211214
Fundamentals of Compliance
(Section I.0), 1:207208
Input Data (Section I.1), 1:209
overview, 1:205207
Presentation and Reporting (Section
I.5), 1:214216

I-40

Global Investment (continued)


Private Equity (Section I.7),
1:221224
Real Estate (Section I.6), 1:216220
Wrap Fee/SMA Portfolios (Section
I.8), 1:224226
purpose, 1:199
sample advertisements, 1:263265
with five years of annual returns,
1:264265
with one-, three-, and five-year
annualized returns, 1:263
with period-to-date and one-, three-,
and five-year annualized returns,
1:264
sample presentations, 1:246262
asset management company,
1:247248
investment firm balanced growth
composite, 1:246247
large-cap SMA composite, 1:260262
private equity with fund of funds by
strategy, 1:253256
private equity with fund of funds by
vintage year, 1:256258
private equity with primary fund
vehicle, 1:258260
real estate with closed-end funds,
1:251253
real estate with open-end funds,
1:249251
solutions to problems, 1:271
structure, 1:198
Verification (GIPS Section IV),
1:197198, 232236
and performance examinations, 1:236
required procedures, 1:233236
scope and purpose, 1:232233
globalization, 2:424425, 428429
global macro strategies, 4:264
global minimum-variance portfolios,
4:318
global registered shares (GRSs), 5:168
global supply chains, 2:429
GM. see General Motors
GNP. see gross national product
GO bonds. see general obligation bonds
gold
correlation with other asset classes,
4:412
forward contracts on, 5:2122
investment in, 2:100
Goldcorp, 5:274
golden cross pattern, 1:688
Goldman Sachs
callable preference shares, 5:159160
as dealers, 5:30
financial liability reporting by, 3:521
industry concentration and pricing
power, 5:209
QUIDS at, 5:298
short interest ratio for, 1:700
gold standard, 2:361, 520
Gompers, Paul, 4:191, 219n.29
good-on-close orders, 5:48
good-on-open orders, 5:48
goods
capital, 2:218
discretionary, 2:48

Level I Curriculum Index


durable, 2:300301
final, 2:211
Giffen, 2:8890
inferior
and consumer response to income
changes, 2:8182
Giffen goods, 2:8890
and income elasticity of demand,
2:5051
and substitution/income effects,
2:8788
intermediate, 2:7, 211
manufacturers new orders for, 2:330
nondiscretionary, 2:48
nondurable, 2:300, 301
normal
and consumer response to income
changes, 2:81
and income elasticity of demand,
2:5051
and substitution/income effects,
2:8487
value of, 2:213214
Veblen, 2:90
goods markets, 2:7, 218
good-till-cancelled orders (GTCs), 5:48
goodwill
analyst adjustments for, 3:660662
on balance sheets, 3:233236
defined, 3:46n.3, 431
economic, 3:234
and financial reporting issues, 3:606
financial reporting issues with, 3:612
on income statements, 3:177
ratio comparisons for, 3:661662
valuation of, 3:231232
goodwill impairment, 3:235236
Google, 2:152; 4:272
Gootkind, Christopher L., 5:587n.21
Gordon, Myron J., 4:50n.22
Gordon growth model, 5:254258
applying, 5:255257
for estimating equity risk premium,
4:4950
justified value of price multiple from,
5:264
with no current dividend, 5:257258
Gosset, W. S., 1:579n.16
governance, corporate. see corporate
governance
government(s)
in FX market, 2:499
market interference from, 2:3643
regulation of monopolies, 2:193194
revenue from alternative trade policies,
2:446
governmental debt. see sovereign debt
governmental industry classification
systems, 5:196197
ANZSIC system, 5:196
ISIC system, 5:196
NACE system, 5:196
NAICS system, 5:197
governmental influences
in industry analysis, 5:203, 224226
in strategic analysis, 5:220
government and government-related
sector, 5:343
government bond mutual funds, 4:259

government bonds, 4:412


government-controlled authorization,
2:185, 192
government debt, 2:346, 391393, 400
government equivalent yield, 5:410
government expenditures
and business cycle theories, 2:313
and fiscal policy, 2:387390
Government National Mortgage
Association (Ginnie Mae), 5:473
Government of Singapore Investment
Corporation, 4:249
government receipts, fiscal policy and,
2:387390
government sector, in GDP, 2:219220
government services, in GDP, 2:213
government spending
and aggregate demand, 2:227228,
246
current, 2:395
and fiscal policy, 2:243
and GDP, 2:219220
and taxes, 2:398399
government-sponsored enterprises
(GSEs), 5:365, 473, 474
GPs. see general partners
Graham, Benjamin, 1:663; 4:190191
Graham, John, 4:65
grand supercycle, Elliott wave, 1:706
graphic presentations of data, 1:373377
frequency polygons and cumulative
frequency distributions,
1:375377
histograms, 1:374375
graphs, for financial analysis,
3:336338
Great Depression, 2:305, 318, 467468
greater than alternative hypothesis,
1:635
GreatWall Information Industry Co.,
Ltd., 1:714, 718
Greece
EU membership, 2:448n.18
exchange rate regime, 2:522
exports of service, 2:423
fiscal crisis (2010), 2:451452,
469470, 472474
as GIPS country sponsor, 1:204
government debt, 2:346
government spending, 2:220
labor productivity, 2:271
in MSCI multi-market index, 5:96
national debt, 2:391
public sector spending, 2:347
residential mortgage loans, 5:472
total returns, 1:380, 383
underground economy, 2:214
greenfields, constructing, 5:211
greenmail, 4:125n.22, 227n.33
Green Mountain Coffee Roasters, 1:384
Greenspan, Alan, 2:308
grey market, 5:355
gross domestic product (GDP),
2:210226
in business cycles, 2:304
components of, 2:217221
contributions to global, 5:150151
and cyclically adjusted budget deficit,
2:401

Level I Curriculum Index


equilibrium, 2:253263
inflationary gap, 2:257258
long-run equilibrium, 2:253254
recessionary gap, 2:254257
stagflation, 2:259260
external sector, 2:220221
and foreign direct investment,
2:427428
GNP vs., 2:422423
and governmental debt, 5:627, 628
and government liabilities/debt,
2:392393
and government revenues/
expenditures, 2:387388
government sector, 2:219220
household and business sectors, 2:218
long-run growth rate vs. fluctuations
in, 2:240241
measuring, 2:210213
and net borrowing/lending, 2:389
nominal, 2:214217
and other income measures, 2:221226
potential, 2:249
and demand-pull inflation, 2:325
and long-run equilibrium GDP, 2:253
measuring growth of, 2:269271,
273274
production function of, 2:264265
and price indices, 2:322
and production function, 2:264265
real, 2:214217
and economic growth, 2:263
identifying recession with, 2:293294
and international trade, 2:430
in Japan, 2:262263
and shifts in aggregate supply/
demand, 2:260263
and sales projections, 3:638
in sovereign credit analysis, 5:627
sustainable growth in, 2:273274
trade-to-GDP ratio, 2:425428
values of goods and services,
2:213214
gross investment, aggregate demand
and, 2:230
gross margin, financial reporting quality
and, 3:616
gross national product (GNP), 2:210n.2,
422423
gross-of-fees, 1:240
gross-of-fees returns
Calculation Methodology (GIPS
Section I.2), 1:210
defined, 1:240
Disclosure (GIPS Section I.4), 1:212
GIPS Advertising Guidelines (GIPS
Section III), 1:231
Presentation and Reporting (GIPS
Section I.5), 1:215, 216
Private Equity (GIPS Section I.7), 1:222
Real Estate (GIPS Section I.6), 1:218,
220
gross-of-fees SI-IRR, 1:219, 223
gross profit, 3:154, 398400
gross profit margin, 3:355, 356
defined, 3:356
and income statement ratios,
3:196197
on income statements, 3:154

I-41
in inventory ratios, 3:405, 406
in ratio analysis, 3:325
gross reporting of revenue, 3:166167
gross return, 4:281
group decision making, 1:129
Groupe Danone
cash flow statement, 3:296298
income statement, 3:151154, 184
market capitalization, 1:398
segment ratio evaluation, 3:377378
Groupe Eurotunnel, 4:132
grouping by function (term), 3:154
grouping by nature (term), 3:154
Groupon, 3:592595
group research, 1:129, 132
growth
economic (see economic growth)
industry, 5:592
growth cyclical companies, 5:191n.3
growth industries, 5:190, 191, 221
growth investors, 3:652
growth rate(s)
solving TMV problems for, 1:302305
sustainable, 3:367, 369; 4:51
growth stage (industry life-cycle),
5:214215
growth stocks, 5:98
growth strategies, for hedge funds, 6:164
growth theory, 2:264265
GRSs. see global registered shares
GSEs. see government-sponsored
enterprises
G-spread, 5:429, 432
GTCs. see good-till-cancelled orders
Guaranteed Investment Contracts
(GICs), 1:291294
guarantors, in securitization process,
5:465
Guatemala, 2:371; 3:114
Guenster, Nadja, 4:191n.7
Guggenheim Mid Cap Value Fund Class
A, 1:407
Guidance Statements, GIPS, 1:202, 207,
208, 233
Gupta, Parveen, P., 1:622
H
haircuts, 5:379; 6:172
Hall, Martin, 4:161n.6
Halliburton, 5:219221
Hamada, Robert S., 4:53n.28
Hang Seng Index, 1:415416;
4:241243
hard hurdle rate, 6:166
Harley-Davidson Credit Corp., 5:465
Harley-Davidson Motor Company,
1:673; 2:172; 5:465, 467
Harley-Davidson Motorcycle Trust
2005-2, 5:465
harmonic mean, 1:394395
harmonic series, 1:394n.25
Harmonised Index of Consumer Prices
(HICP), 2:321; 5:364
Harvard University, 4:246
Harvey, Campbell R., 4:58n.32, 60n.36,
65
head and shoulders patterns, 1:677681
about, 1:677678
determining price targets from, 1:680

inverse, 1:679, 681


setting price targets with, 1:678681
headline inflation, 2:322
health care sector, 5:193
healthy corrections, 1:683
HeckscherOhlin model, 2:429, 440441
hedge fund indices, 5:103; 6:151, 168
Hedge Fund Research, Inc. (HFRI),
6:160, 162
hedge funds, 4:263264; 5:103;
6:159174
about, 6:159161
as alternative investments, 5:15; 6:150
classifying, 6:162
defined, 6:154
distinguishing characteristics, 5:19
diversification benefits, 6:164165
downside frequencies, 6:157
due diligence, 6:173174, 202
fees, 6:166169
global assets under management, 6:151
historical returns and volatility, 6:152
investment strategies for, 6:162164
equity hedge strategies, 6:164
event-driven strategies, 6:162163
macro strategies, 6:163
relative value strategies, 6:163
and leverage, 6:170171
and redemptions, 6:170172
registration of, 6:171
returns, 6:157, 166169, 202
risks of, 6:157, 202
Sharpe ratios, 6:157
valuation issues, 6:172173
hedge portfolios, 6:46
hedgers, 5:910, 21, 39
hedging
with credit default swaps, 6:32
with derivatives, 6:6768
with forward contracts, 6:17
with futures, 6:21
in FX markets, 2:493
inflation hedges, 6:185, 197
in OTC derivatives market, 6:12
hedging pressure hypothesis, 6:199
held for trading (term), 3:237
held-to-maturity (term), 3:236
Hellenic CFA Society, 1:204
herding behavior, 5:138
HERE, 3:573
Herfindahl, O. C., 2:195
Herfindahl-Hirschman Index (HHI),
2:195196
Hershey, 5:219221
heterogeneous beliefs assumption, 4:375,
378379
heuristics, 6:183n.29
Hewlett-Packard Company
cash flow analysis of comparables,
3:305
cross-sectional common-size analysis,
3:252254
evaluation of liquidity measures, 3:349
industry classification, 5:200
in two-factor industry analysis, 5:209
HFRI. see Hedge Fund Research, Inc.
HFRI Fund of Funds Index, 6:160
HFRI Fund Weighted Composite Index,
6:160

I-42
HFRI Hedge Fund of Funds Index, 6:161
HFRX Equal Weighted Strategies EUR
Index, 5:104
HFRX Global Hedge Fund Index, 5:104
hhgregg, 5:162
HHI. see Herfindahl-Hirschman Index
Hibor. see Hong Kong interbank offered
rate
HICP. see Harmonised Index of
Consumer Prices
hidden orders, 5:47, 48
highest requirement, following, 1:28
high net worth investors
alternative investments of, 6:151,
153154
commercial property investment by,
6:188
high-quality financial reports
and earnings quality, 3:567
on spectrum of quality, 3:568570
high status goods, 2:90
high water marks
for fund investments, 6:158
hedge funds, 6:166168
high-yield bond mutual funds, 4:259
high yield bonds. see non-investmentgrade bonds
high-yield credit analysis, 5:618625
debt structure and leverage in,
5:620622
and non-investment grade ratings,
5:618
special considerations, 5:618, 622625
high-yield indices, 5:99
Hillenbrand, Inc., 5:199
Hirschleifer, John, 4:40n.2
Hirschman, A. O., 2:195
histograms, 1:374375
historical cost, 3:122
historical equity risk premium approach,
4:4749
historical mean return, 4:287288
historical performance, GIPS-compliant,
1:202203
historical returns, 4:287291
of alternative investments, 6:151
of commodities, 6:196197
estimating cost of equity with,
4:4749
historical mean return and expected
return, 4:287288
of investment classes, 6:151152
nominal and real returns of asset
classes in other countries, 4:290
nominal returns of major US asset
classes, 4:287288
of private equity investments,
6:181182
real returns of major US asset classes,
4:289290
riskreturn tradeoff for, 4:291
historical risk
risk of major asset classes, 4:290291
riskreturn tradeoff, 4:291
historical simulation, 1:550551
HKMA. see Hong Kong Monetary
Authority
HKSE. see Hong Kong Stock Exchange
HM Treasury, 5:303

Level I Curriculum Index


Ho, Ho, 4:191n.5
holder-of-record date, 4:121, 122
Holding Bank of Scotland, 5:321
holding companies
as bond issuers, 5:303
credit analysis for, 5:622623
holding period return (HPR), 4:273
defined, 1:339, 366
finding ending value of investment
with, 1:542
formula, 1:366
and time-weighted rate of return,
1:341342
holding periods
CAPM assumptions about, 4:364
for private equity investments, 5:163
holding period yield (HPY), 1:348, 350
holiday effect, 5:132
Home Depot, 5:208, 216217
Homestead Small Company Stock Fund,
1:407
homogeneity of expectations
assumption, 4:345346, 364365,
380
Honda Motor Company, 2:174; 5:268
Honduras, 3:114
Honeywell, 2:193
Hong Kong
Asian financial crisis, 2:429
effects of global recession, 2:256
exchange rate regime, 2:522, 524
exchange rate targeting, 2:378
ex-dividend date, 4:120
external trade sector, 2:303
as GIPS country sponsor, 1:205
growth of share repurchases, 4:123
and IFRS, 3:115
margin requirements of, 5:41
mean and standard deviation of stock
returns, 1:415416
in MSCI EAFE, 1:380
in MSCI multi-market index, 5:96
regulatory authorities in, 3:585
related-party transactions, 4:203n.17
risk tolerance and equity ownership,
5:154
Hong Kong dollar
AUD/HKD exchange rate, 2:490492,
496498
exchange rate regime for, 2:524
identification code, 2:487
international bonds outstanding in,
5:345
Hong Kong interbank offered rate
(Hibor), 5:299, 347
Hong Kong Monetary Authority
(HKMA), 2:524
Hong Kong Monetary Authority
Investment Portfolio, 4:249
Hong Kong Society of Financial
Analysts, 1:205
Hong Kong Stock Exchange (HKSE)
GDRs on, 5:167
HSBC Holdings on, 4:345346
T + 2 settlement, 4:120n.11
total market capitalization in, 5:152
volatility of returns, 4:238241
Honus Wagner baseball card, 6:200n.34
Hopkins, Sheila, 1:704

horizontal common-size analysis,


3:194n.50, 331, 334335
horizontal demand schedule, 2:159160
horizontal equity, 2:396
horizon yield, 5:514519, 552
host country, for FDI, 2:427
Hotchkis and Wiley Mid Cap Value A
Fund, 1:407
Hotchkis and Wiley Small Cap Value A
Fund, 1:406
hot issue securities, 1:84
hours worked, 2:316
household saving rate, 2:224, 242243, 301
household sector, 2:7, 209210, 218
household wealth, aggregate demand
and, 2:241243
housing industry, demographic
influences in, 5:224
housing prices, 2:242243, 246
housing sector, cyclical behavior of,
2:302303
HPR. see holding period return
HPY. see holding period yield
H&R Block, Inc., 5:199
HSBC Bank, 2:500
HSBC Holdings, 4:345346
Hudson, Julie, 4:192n.12
human capital, 2:250, 251, 266
human-capital based companies,
collateral of, 5:606
Hungary
exchange rate regime, 2:523
as GIPS country sponsor, 1:205
government debt, 2:346
hyperinflation, 2:318
inflation targeting, 2:371
in MSCI multi-market index, 5:96
public sector spending, 2:347
hurdle rate, 1:335; 6:166, 167
Hurricane Katrina, 3:180; 5:212
Hurricane Rita, 3:180
Hutchison Whampoa, 4:238241
hybrid derivatives, 6:3536
hybrid ETFs, 4:262
hybrid funds, 4:257258, 260261
hybrid mortgages, 5:471
hybrid securities, 5:576n.4
Hynix, 5:209
hyperinflation, 2:317, 318
hypothesis(-es)
alternative, 1:608, 609, 635
defined, 1:607
formulations of, 1:608609
null, 1:608609
hypothesis testing, 1:575, 605657
with correlation, 1:639641
in data mining, 1:585587
nonparametric inference, 1:637642
and parametric tests, 1:637638,
641642
and tests with correlation, 1:639641
use of, 1:638
practice problems, 1:645650
p-value approach, 1:615616
solutions to problems, 1:651657
steps in, 1:607615
tests with means, 1:616631
mean differences, 1:623631
single mean, 1:616623

Level I Curriculum Index


tests with variance, 1:632637
equality of two variances, 1:634637
single variance, 1:632634
uses of, 1:606
Hyundai Steel, 1:303
I
IAS. see International Accounting
Standards; International Financial
Reporting Standards (IFRS)
IAS 7. see Statement of Cash Flows
IASB. see International Accounting
Standards Board
Ibbotson, Roger G., 1:400402; 4:53n.27
Iberdrola, 1:397
IBM (International Business Machines),
2:430; 3:591; 4:420; 5:430, 431
IBRD. see International Bank for
Reconstruction and Development
ICB. see Industry Classification
Benchmark
iceberg orders, 5:47
Iceland, 2:371, 523
ICMA. see International Capital Market
Association
IDA. see International Development
Association
ideal currency regime, 2:519
identifiable intangible assets, 3:232233
idle cash, share repurchases using, 4:127
if-converted method for diluted earnings
per share, 3:187188
IFRS. see International Financial
Reporting Standards
IFRS Foundation, 3:104105
IG Group plc, 5:30
IID returns. see independently and
identically distributed returns
IKEA, 5:164
illegal activity, disclosure of, 1:104
illiquid asset investments
due diligence, 6:202
and historical returns, 6:152
risk issues with, 6:202
valuation of, 6:172
ILO. see International Labour
Organization
IMF. see International Monetary Fund
IMF Germany MMI. see International
Monetary Fund Germany Money
Market Index
IMM. see International Monetary
Market
immediate or cancel orders (IOCs),
5:48
impact lag, 2:402
impairments
financial reporting quality and, 3:618
of goodwill, 3:235236
of intangible assets, 3:231, 450
of long-lived assets, 3:448450, 581
of PPE, 3:230
imperfect competition. see also
monopolistic competition
breakeven analysis in, 2:118119
and output optimization, 2:123124
and profit maximization, 2:103
revenue in, 2:105107
implementation, fiscal policy, 2:400403

I-43

implicit price deflator for GDP,


2:215217
implied forward rates, 5:425
implied volatility, 6:41
import license, 2:445
imports
in balance of trade, 2:460
in business cycles, 2:303, 304
defined, 2:423
exchange rate and prices of, 2:245
terms of trade for, 2:423424
import-substitution policy, 2:438n.10
impulse wave, 1:705707
inadequate compliance procedures,
1:119, 124
inadequate supervision, 1:124125
InBev, 3:434435
incentive fees
for fund investments, 6:158
for hedge funds, 6:166168
for private equity, 6:177
incentives
for low-quality financial reports,
3:583584
for monopolist firms, 2:188189
in tax policy, 2:396
incentive structures, 1:122
incident-reporting procedures, 1:109
income
aggregate (see aggregate income)
comprehensive
defined, 3:47n.4, 243n.22
on income statements, 3:198201
on statement of comprehensive
income, 3:1920
US GAAP on, 3:198
Conceptual Framework on, 3:121
and consumer demand equilibrium,
2:8182
and consumer installment debt, 2:331
and consumer spending, 2:301
convergence of, 2:265
deferred, 3:226
and demand curve, 2:1112
disposable, 2:224, 301, 399, 464
from foreign investments, 2:462
and GDP, 2:221226
on income statements, 3:156
interest, 5:518
national, 2:223, 463
net, 3:290293; 5:172174
coefficient of variation of, 3:370
defined, 3:47, 153154
and direct method for overall
statement of cash flows, 3:289290
on income statement, 3:153154
and indirect method for overall
statement of cash flows,
3:290293
per employee, 3:371
relationship of cash flow and, 3:615
net operating, 5:487; 6:191192
operating, 3:370; 5:274
other comprehensive
accumulated, 3:242243
defined, 3:47n.4, 198
on income statements, 3:200201
on statement of comprehensive
income, 3:1920

personal, 2:224
real, 2:85, 89
taxable, 3:474479
total comprehensive, 3:198
income approach to GDP, 2:210,
221223
income approach to real estate valuation,
6:191192
income constraints, 2:75. see also budget
constraints
income effects for demand, 2:8490
Giffen goods, 2:8890
inferior goods, 2:8788
normal goods, 2:8487
in perfectly competitive markets, 2:157
price decrease, 2:8990
and two-part tariff pricing, 2:8687
Veblen goods, 2:90
income elasticity of demand
about, 2:5051
calculating, 2:53
in perfect competition, 2:160161
income inequality, 2:430
income needs, in portfolio management,
4:250
income per capita measure, 5:627
income returns
defined, 1:240
Real Estate (GIPS Section I.6), 1:218
income statement method of tax
recognition, 3:484n.4
income statement ratios, 3:196198
income statements, 3:149209
accounts on, 3:47, 48
analysis of, 3:1619, 193198
common-size, 3:194196, 331332
income statement ratios, 3:196198
and cash flow statements, 3:280282
common-size analysis of, 3:194196,
331332
components and format, 3:151155
for CRA International Inc., 3:155
for Groupe Danone, 3:151154
for Kraft Foods, 3:152
comprehensive income on, 3:198201
defined, 3:47
earnings per share, 3:151n.5, 184193
basic, 3:185187
changes in, 3:193
diluted, 3:187193
and simple vs. complex capital
structure, 3:184185
expense recognition, 3:168178
and amortisation, 3:177
applications, 3:172177
and depreciation/amortisation,
3:173177
for doubtful accounts, 3:173
and financial analysis, 3:177178
general principles, 3:169172
for warranties, 3:173
function, 3:150151
information provided by, 3:68
non-operating items, 3:183184
non-recurring items, 3:178183
and changes in accounting policies,
3:181183
discontinued operations, 3:178179
extraordinary items, 3:179180

I-44

income statements (continued)


unusual and infrequent items,
3:180181
practice problems, 3:204207
revenue recognition, 3:155168
for barter transactions, 3:165166
and financial statements, 3:167168
general principles, 3:156159
and gross vs. net reporting of
revenues, 3:166167
for installment sales, 3:164165
for long-term contracts, 3:160164
in special cases, 3:160167
solutions to problems, 3:208209
income sub-account, BOP, 2:457
income taxes, 3:473510
and accounting profit vs. taxable
income, 3:474479
cash for, 3:287
current and deferred tax, 3:490493
disclosure of tax information,
3:493499
IFRS vs. US GAAP, 3:474, 499502
practice problems, 3:504508
presentation, 3:493494
solutions to problems, 3:509510
and taxable vs. accounting profit,
3:484489
tax bases, 3:479484
of assets, 3:480481
and changes in tax rates, 3:483484
of liabilities, 3:481483
unused tax losses and credits,
3:489490
income tax paid, 3:475
income tax payable, 3:224, 226, 475
income trusts, 5:224225
increasing-cost industry, 2:132, 133
increasing marginal returns, 2:136
increasing returns to scale, 2:126
incremental cash flow(s), 1:332n.1; 4:9
indefinite lives, intangible assets with,
3:450
indenture. see bond indenture
independence
of boards of directors, 4:198200
of central banks, 2:372, 407
defined, 4:193
in probability, 1:458
for random variables, 1:488
Independence and Objectivity [Standard
I(B)]
application of the standard, 1:3642
compliance procedures, 1:3536
guidance, 1:3035
buy-side clients, 1:31
credit rating agency opinions,
1:3334
fund manager relationships, 1:32
investment banking relationships,
1:3233
issuer-paid research, 1:3435
manager selection/procurement
process, 1:34
performance measurement and
attribution, 1:33
public companies, 1:33
travel funding, 1:35
text of, 1:16, 30

Level I Curriculum Index


independence policies, 1:36
independent analysis, 1:69
independent board members, 4:194
independent contractors, employees vs.,
1:108109
independent events, 1:467470
independent float currency regimes,
2:523
independently and identically
distributed (IID) returns, 1:542
independent practice, 1:106
independent projects, 4:9
independent samples, hypothesis tests
for, 1:623627
index(es). see indices
indexed-annuity bonds, 5:324
index funds
actively managed funds vs., 4:260
diversification with, 4:314
ETFs vs., 4:261, 263
indexing, 1:568
index-linked bonds, 5:323327
Index of Consumer Expectations, 2:330
Index of Leading Economic Indicators
(LEI), 1:662; 2:329, 331
index swaps, 6:36
index weighting of security market
indices, 5:8391
equal weighting, 5:83, 86, 87
fundamental weighting, 5:91
market-capitalization weighting, 5:86,
8891
price weighting, 5:8385
India, 3:585; 5:190n.2, 312, 344
business investment, 2:267
comparative advantage, 2:434438,
440, 441
CPI, 2:320321
effects of global recession, 2:256
exchange rate regime, 2:522
exports from, 2:423, 440
foreign direct investment, 2:427, 428
globalization of production, 2:428
and IFRS, 3:115
labor supply, 2:266
in MSCI multi-market index, 5:96
reserve requirements, 2:368
share repurchases, 4:123
trade balance with US, 2:221
underground economy, 2:214
Indian rupee, 2:487
indicators, economic. see economic
indicators
indices, 5:78. see also security market
indices; specific indices
bond, 1:568569
for collectibles investments, 6:200
commodity, 6:194195
bias in, 6:151
growth in trading, 6:153
hedge fund, 6:151, 168
managing to, 1:93
of real estate returns, 6:189191
relative strength, 1:692694
short-term trading, 1:700702
indifference curve maps, 2:7072
indifference curves
in consumer equilibrium, 2:7981
and consumer preferences, 2:6770

of optimal investor portfolio,


4:322323
in portfolio selection, 4:302304
and risk aversion, 4:297299
and strategic asset allocation,
4:416417
and voluntary exchange, 2:7274
indirect currency quote, 2:504
indirect exchange rate, 2:504
indirect-format statements, 3:66,
271274
indirect investment
in commercial real estate, 6:188
in real assets, 5:26
indirect method for cash flow from
operating activities, 3:606607
indirect method for overall statement of
cash flows, 3:290293
adjustments to net income,
3:290293
converting direct method and,
3:293294
defined, 3:23, 270271
indirect taxes, 2:395, 397
Inditex, 1:397
individual investors, portfolio
management for, 4:244
individually managed accounts, 4:263;
6:196
individuals
borrowing by, 5:8
financial system functions for, 5:712
information-motivated trading by,
5:1012
raising of equity capital by, 5:9
risk management by, 5:910
savings of, 5:78
spot market trading by, 5:10
Indonesia
Asian financial crisis, 2:429
business investment, 2:267
exchange rate regime, 2:522
foreign investment, 5:164
and IFRS, 3:115
inflation targeting, 2:371
in MSCI multi-market index, 5:96
industrial countries, terms of trade for,
2:423
industrial loans, 2:331
industrial/producer durables sector,
5:193
Industrial Production Index, 2:330
industry(-ies)
in company analysis, 5:229230
defined, 5:189
describing, 5:202203
diversification according to, 4:407
fundamentals of, 5:592
ICB definition, 5:192
peer group vs., 5:200
performance of, 5:202203
recovery rate variation by, 5:577
statistics on fundamentals for, 5:592
structure of, 5:591592
industry analysis, 5:187242
and company analysis, 5:228232
in credit analysis, 5:593594
elements of, 5:229232
spreadsheet modeling in, 5:232

Level I Curriculum Index


defined, 5:188
describing industries for, 5:202203
external influences, 5:222228
demographic, 5:223224
governmental, 5:224226
macroeconomic, 5:222
social, 5:226227
technological, 5:222223
industry classification systems,
5:192202
commercial, 5:192196
governmental, 5:196197
and peer groups construction,
5:198202
strengths and weakness, 5:197
practice problems, 5:237240
with similar companies, 5:189191
solutions to problems, 5:241242
strategic, 5:204222
barriers to entry in, 5:206208
capacity in, 5:211212
example, 5:219222
five forces framework, 5:205
industry concentration in, 5:208211
industry life-cycle model in,
5:213218
market share stability in, 5:212213
price competition in, 5:218219
uses, 5:188189
industry capacity. see capacity
Industry Classification Benchmark
(ICB), 5:189190, 192193
industry classification systems,
5:192202
commercial, 5:192196
example, 5:194196
GICS standard, 5:192193
ICB system, 5:192193
representative sectors in, 5:193
RGS system, 5:192
governmental, 5:196197
ANZSIC system, 5:196
ISIC system, 5:196
NACE system, 5:196
NAICS system, 5:197
and peer group construction,
5:198202
for Brinks Home Security, 5:199200
for semiconductor industry,
5:200202
strengths and weakness, 5:197
industry concentration, 5:208211, 219
industry experts, 1:5960
industry life-cycle model, 5:213218
airline industry in, 5:227
example, 5:217218
industry classifications based on, 5:203
limitations of, 5:217
stages of industry life cycle, 5:213215
in strategic analysis, 5:220
using, 5:216217
industry-specific ratios, for equity
analysis, 3:369371
industry-specific regulation, of financial
statements, 3:103104
inefficient markets, intrinsic value in,
5:119
inelastic demand, 2:45, 159
inelastic supply, 2:100

I-45
infant industry argument, 2:442
inferior goods
and consumer response to income
changes, 2:8182
Giffen goods, 2:8890
and income elasticity of demand,
2:5051
and substitution/income effects,
2:8788
infinite divisibility assumption, 4:365
inflation
and business cycles, 2:297, 317328
core, 2:322
cost-push (wage-push), 2:323325
costs of, 2:365367
defined, 2:257, 317
deflation, hyperinflation, disinflation,
2:317319
demand-pull, 2:325326
expectations about, 2:326327
expected, 2:365, 367
expected rate of, 4:287
and GDP deflator, 2:215217
headline, 2:322
monetary policy and inflation rate,
2:380381
and New Classical school, 2:311
and nominal interest rates, 2:358360
in phases of business cycle, 2:293
price indices
constructing, 2:319320
usage of, 2:320323
in stagflation, 2:259260
targets for, 2:373374
types of, 2:323326
and unemployment, 2:313314
unexpected, 2:365367
inflationary gap, 2:257258
inflation duration, 5:555
inflation hedges
commodities as, 6:197
real estate as, 6:185
inflation-linked bonds (linkers), 5:323
325, 363364
inflation premium, 1:279
inflation-protected bond mutual funds,
4:259
inflation rate, 2:257n.18, 317, 380381
Inflation Reports, 2:373
inflation targeting, 2:371377
credibility of, 2:372
exceptions to, 2:375376
and independence of central banks,
2:372
and monetary policy in developing
countries, 2:376
transparency of, 2:373375
by US Federal Reserve system, 2:376
inflation uncertainty, 2:366
inflows, 1:334, 583584
information
account, 1:77
in accounting systems, 3:72
in advertisements, 1:230231
on applicable laws, 1:27
comparative growth, 3:336
confidential, 1:103105, 115, 165166
considering, before taking action, 1:77
decision-useful, 3:568570

dissemination of, 1:60, 8485,


161162
for financial statement analysis,
3:1130
auditors reports, 3:2730
balance sheet, 3:1316
cash flow statement, 3:2224
financial notes, 3:2426
internal and external sources of
information, 3:30
management commentary/MD&A,
3:2627
statement of changes in equity,
3:2022
statement of comprehensive income,
3:1620
supplementary information, 3:1112
supplementary schedules, 3:2426
from financial statements, 3:6768
flow of, in accounting systems, 3:72
income tax, 3:493499
inventory, 3:404405
market efficiency and availability of,
5:122
material, 1:57, 6466
material nonpublic (see material
nonpublic information)
misrepresentation of (see
misrepresentation)
nonpublic, 1:58, 63, 6566, 158
acting on, 1:63, 66
analyst recommendations as,
1:6566
controlling, 1:64
defined, 1:58
standards for priority of transactions
with, 1:158
nonpublic (private), 5:128
out-of-date, 1:5253
public, 5:125127
retention of, 1:147
from SEC forms, 3:108111
supplementary, 3:1112
verification of outside, 1:47
information-acquisition costs,
5:123124
informationally efficient financial
systems, 5:5859
informationally efficient markets,
4:346; 5:58, 117. see also efficient
markets
information-based manipulation, 1:68,
73
information cascades, 5:138
information discovery, 6:4041
information-motivated trading, 5:1012,
26
information ratio, 4:378
information technology (IT) sector,
2:268
infrastructure exchange traded funds,
6:155
infrequent items, 3:180181
ING, 1:397
initial margin requirement(s), 5:22, 41;
6:18
initial PAC collar (initial PAC band),
5:481
initial period fixed-rate mortgages, 5:471

I-46
initial public offerings (IPOs), 1:87,
158159, 704; 6:181
defined, 5:50
in markets, 5:5052
and pricing anomalies, 5:135
and venture capital, 5:161
initial recognition, taxable and
accounting profit at, 3:488
initiation date, forward contracts at,
6:7476
in-kind benefits, board members,
4:204
innovation
and international trade, 2:430
and perfect competition, 2:171
input, productivity in terms of,
2:138142
Input Data (GIPS Section I.1), 1:209
about, 1:206
recommendations
general, 1:209
for private equity, 1:224
for real estate, 1:220
requirements
general, 1:209
for private equity, 1:221
for real estate, 1:217
input prices, short-run aggregate supply
and, 2:248, 251
inputs, model, 1:72
INSEAD, 6:153
insider trading, 1:661; 5:61, 122
Insider Trading Directive, 5:122n.11
insider transactions, 4:213214
installment credit accounts, 4:162
installment method of revenue
recognition, 3:164165
installment sales, revenue recognition
for, 3:164165
Institute of Supply Management (ISM),
2:334
institutional investors, 5:352
alternative investments of, 6:151
commercial property investment by,
6:188
portfolio management for, 4:244250
banks, 4:248
defined-benefit pension plans, 4:245
endowments and foundations,
4:245248
insurance companies, 4:248
investment companies, 4:248249
sovereign wealth funds, 4:249
relative risk objectives of, 4:396
Institutional Shareholder Services (ISS),
4:191
insurance
credit, 4:161
and credit default swaps, 6:31, 32
and derivatives, 6:67
for risky portfolios, 4:315
insurance companies
as financial intermediaries, 5:3334
monoline, 5:486
portfolio management for, 4:248
regulation of, 5:62
insurance contracts, 5:25
Insurance Medical Group, Ltd., 3:179
insurance recoverables, 3:581

Level I Curriculum Index

intangible assets
acquisition of, 3:431435
as alternative investments, 6:155
in asset-based valuation, 5:274276
on balance sheets, 3:231236
capitalization of, 3:605606, 611
depreciation/amortisation of, 3:173
174, 231
identifiable, 3:232233
impairment of, 3:231, 450
on income statements, 3:177
internally-developed, 3:431434
long-lived, 3:426
and research, 3:232, 432
integrated analysis with ratios,
3:359366
DuPont analysis, 3:361366
liquidity of company, 3:359360
performance of company, 3:360361
ROE decomposition, 3:361366
integrity, 1:55, 169
Integrity of Capital Markets [Standard of
Professional Conduct II], 1:1617,
5673
Market Manipulation [Standard II(B)],
1:17, 6873
application of the standard, 1:6973
guidance, 1:6869
text of, 1:17, 68
Material Nonpublic Information
[Standard II(A)], 1:1617, 5667
application of the standard, 1:6367
compliance procedures, 1:6063
guidance, 1:5660
text of, 1:1617, 56
Intel Corporation, 2:428
industry concentration and pricing
power, 5:209
share price and FTC investigation,
5:127, 128n.21
sub-industry classification, 5:200, 201
technological influences, 5:222223
intellectual-capital based companies,
collateral of, 5:606
interbank FX market, 2:501502
interbank market, 5:346, 376
interbank money market, 5:346
interdepartmental communications, 1:61
interdepartmental referral arrangements,
disclosure of, 1:163
interest
accrued, 1:348; 5:401404
and amortisation of bonds, 3:516517
capitalization of, 3:429431, 608609
carried, 1:221, 237
cash for, 3:287
discount, 4:155
as form of payment, 2:209
neutral rate of, 2:380
open, 6:20
shifting interest mechanism, 5:485
short, 1:699700
simple, 1:280
in USCP vs. ECP markets, 5:369371
interest coverage ratio, 3:353, 552, 553
interest expenses, 3:516517; 5:596, 628
interest income, 5:518
interest-indexed bonds, 5:324
interest-only mortgages, 5:472

interest-only tranches, structured,


5:479n.12
interest rate(s)
and AD curve, 2:236237
default, 5:488
effective, 3:513, 517
equilibrium, 5:1213
and equilibrium price for money,
2:356357
forwards on, 6:7779
and housing sector behavior, 2:302
market, 3:513
maturity structure of, 5:421428
in monetary policy, 2:243244
and monetary transmission
mechanism, 2:369371
and money, 2:359
and money duration, 5:553
and mutual fund cash position
indicator, 1:702703
neutral, 2:380
nominal, 2:358360
nominal risk-free, 1:279
official, 2:367368
and private equity valuation, 6:184
quoted, 1:284
real, 2:230
real risk-free, 1:279
and repo rate, 5:378
of residential mortgage loans, 5:471
and returns on fixed-income securities,
5:513519
risk-free, 4:51n.23, 287; 6:89
solving TMV problems for, 1:302305
stated annual, 1:284
and swap rates/foreign exchange rates,
2:512515
term structure of, 5:549; 6:7879
and time value of money, 1:278279
as underlying, 6:3637
interest rate risk, 4:157; 5:519555
approximate modified duration,
5:524527
bond convexity, 5:540548
defined, 5:513
duration of bond portfolio, 5:536538
effective duration, 5:527530
and floating-rate notes, 5:321
and investment horizon, 5:548555
key rate duration, 5:530
Macaulay duration, 5:520523,
550554
modified duration, 5:523524
money duration, 5:538540
price value of a basis point, 5:538539
properties of bond duration,
5:530535
yield volatility, 5:549550
interest rate sensitivity, 1:568
interest rate swaps, 5:2324; 6:22
interests (in businesses)
as investments, 3:489
minority/noncontrolling, 3:17, 243
interests, client, 1:78
intergenerational data mining, 1:586
interim cash, 1:281282
intermarket analysis, 1:708710
Intermarket Technical Analysis
(Murphy), 1:708

Level I Curriculum Index


intermediate goods, 2:7, 211
intermediate services, 2:7
internal control systems, 3:2930
internal credit enhancement
and bond indenture, 5:306307
for non-agency RMBS, 5:485486
internal debt, 5:626
internal dispersion
defined, 1:240
Disclosure (GIPS Section I.4), 1:212
Presentation and Reporting (GIPS
Section I.5), 1:215
Real Estate (GIPS Section I.6), 1:219
Verification (GIPS Section IV), 1:235
internally-developed intangible assets,
3:431434
internal rate of return (IRR)
for capital budgeting, 4:1112
multiple IRR problem, 4:2224
no IRR problem, 4:2224
defined, 4:276
discounted cash flows, 1:334339
evaluating programs with IRR rule,
1:335336
NPV and IRR rules, 1:336339
problems with IRR rule, 1:337339
ranking conflicts of NPV and IRR,
4:1821
due to cash flow patterns, 4:1819
due to project scale, 4:2021
SI-IRR
defined, 1:243
gross-of-fees, 1:219, 223
net-of-fees, 1:219, 223
Private Equity (GIPS Section I.7),
1:221, 224
Real Estate (GIPS Section I.6),
1:219
Internal Revenue Service (IRS), 3:405
internal sources of information, for
financial statement analysis, 3:30
internal valuation
defined, 1:240
Real Estate (GIPS Section I.6), 1:218,
219, 227, 228
International Accounting Standards
(IAS), 4:205. see also International
Financial Reporting Standards
(IFRS)
International Accounting Standards
Board (IASB), 1:226; 3:104105;
5:61
development of standards, 3:101, 102,
133134
Framework for the Preparation
and Presentation of Financial
Statements, 3:101, 168169
and GAAP, 3:127128
and global reporting standards,
3:112113
on income, 3:155156
income statement standards, 3:150n.1
management reporting framework of,
3:26
on objective of financial reporting,
3:100
revenue recognition standards,
3:159n.17
as standard-setting body, 3:103

I-47

International Bank for Reconstruction


and Development (IBRD),
2:470471
definition of emerging markets,
5:626n.42
supranational bonds from, 5:366
use of ISIC system, 5:196
International Business Machines (IBM).
see IBM
International Capital Market Association
(ICMA), 5:359
International Development Association
(IDA), 2:470471
international ETFs, 4:262
International Federation of Accountants,
3:27
International Financial Reporting
Standards (IFRS), 3:150n.1; 4:215;
5:189n.1. see also Conceptual
Framework for Financial Reporting
2010
adoption of, 3:114115
on amortisation, 3:174, 516, 517
for balance sheets, 3:1415
on barter transactions, 3:165
on bond cost reporting, 3:521
on borrowed funds, 3:429
for cash flow statements, 3:22, 268
on comprehensive income, 3:19, 201
on debt issuance costs, 3:523
on decision-useful information,
3:568n.2
on deferred tax assets/liabilities, 3:476,
477, 491
on depreciation, 3:174, 442
on diluted earnings per share,
3:191192
on direct-format statements,
3:274276
disclosure of operating segment, 5:200
disclosure requirements, 3:135136,
453
for EU capital markets, 3:111
fair value definition, 3:426n.2
on financial statement ratios,
3:633634
general requirements for financial
statements, 3:122126
and global reporting standards,
3:112114
on impairments, 3:230231, 448450,
454
income definition, 3:43n.1, 156
for income statements, 3:150, 154
for indirect-format statements,
3:271274
for intangible assets, 3:431, 432, 434
on interest, 3:287, 430, 520
on inventory valuation, 3:395, 403405
on investment property, 3:460
and IOSCO, 3:107
on leases, 3:531, 535, 537538,
543544
non-IFRS measures in financial
reports, 3:592
on pension plans, 3:549
on percentage-of-completion method,
3:160
on residual value, 3:174

on revaluation, 3:435, 445, 447448


on revenue recognition, 3:157, 580
on ROE, 5:173n.29
on segment reporting, 3:375
and Swiss financial statements, 3:106
on taxable profit vs. accounting profit,
3:484486
on tax issues, 3:481
and US GAAP
conservatism in, 3:580583
on financial reporting standards,
3:131132
frameworks of, 3:127128
on income taxes, 3:474, 499502
International Labour Organization
(ILO), 2:315
International Monetary Fund (IMF),
5:196, 366, 626
bailouts by, 2:469470
capital restrictions study, 2:454
exchange rate regime classification,
2:522
founding of, 2:468
and globalization, 2:425
Greek bailout, 2:452, 472474
mandates of, 2:469
monetary and fiscal policy model,
2:406
International Monetary Fund Germany
Money Market Index (IMF
Germany MMI), 1:436437, 452
International Monetary Market (IMM),
2:494
International Organization for
Standardization (ISO), 2:487
International Organization of Securities
Commissions (IOSCO), 3:26, 104,
106107, 585
International Private Equity and Venture
Capital Valuation Guidelines,
6:182
International Standard Industrial
Classification of All Economic
Activities (ISIC), 5:196
international standards for auditing
(ISAs), 3:27
International Swaps and Derivatives
Association (ISDA), 6:11
international trade, 2:421484
and aggregate demand, 2:245, 246
balance of payments, 2:455467
BOP accounts, 2:456457, 463465
components of, 2:457459
imbalances since 1996, 2:465467
paired transactions, 2:460462
for United States, 2:458459
benefits and costs, 2:429433
and capital flows, 2:442455
comparative advantage, 2:433441
absolute vs., 2:433440
Ricardian and HeckscherOhlin
models, 2:440441
and currency exchange rates,
2:529539
absorption approach to trade balance,
2:535536
elasticities approach to trade balance,
2:531535
global investors concerns, 2:421422

I-48

international trade (continued)


patterns and trends, 2:425429
practice problems, 2:478481
solutions to problems, 2:482484
terminology, 2:422425
trade organizations, 2:467474
function and objectives, 2:472474
International Monetary Fund,
2:468470
World Bank Group, 2:470471
World Trade Organization,
2:471472
trade restrictions/agreements,
2:442455
capital restrictions, 2:452455
export subsidies, 2:445447
quotas, 2:445
tariffs, 2:442447
trading blocs, common markets, and
economic unions, 2:448452
International Trade Organization (ITO),
2:468
interpolated spread (I-spread), 5:430
interquartile range (IQR), 1:403n.27
inter-temporal trade, 2:463, 464
intervals, 1:367368. see also confidence
intervals
between dates for dividends, 4:121123
modal, 1:385
time, 1:672
interval scales, 1:364
Intesa Sanpaolo, 1:397
in the money, 6:26, 87
intrafirm pressure, 1:37, 42
intra-industry trade, 2:429
intrinsic value
book vs., 5:176
deviations from, 1:662
from dividend discount model,
5:248249
in equity valuation, 5:244
of European options, 6:86
market vs., 5:119120
Introduction, IPS, 4:395
introductory paragraph, audit report, 3:28
inventory(-ies), 3:393423
analyst adjustments for, 3:655658
anticipation stock, 4:169
average inventory period, 4:147
on balance sheets, 3:221223
and business cycle, 2:295297
commodity, 3:581
cost of, 3:395396
cyclical levels of, 2:299300
defined, 3:46
as drag on liquidity, 4:144
ending, 3:398400
and financial reporting issues,
3:614615
finished goods, 3:394
and GDP, 2:217
growth in, 3:614615
inventory management, 3:405412
in financial analysis, 3:406412
inventory ratios, 3:405406
of manufacturing and merchandising
companies, 3:394
measurement of inventory value,
3:402404

Level I Curriculum Index


number of days of, 4:147, 171
practice problems, 3:414420
precautionary stocks, 4:168
presentation and disclosure of,
3:404405
purchasinginventorypayables
process, 4:172
raw materials, 3:394
safety stock, 4:169
solutions to problems, 3:421423
valuation, 3:171172, 222, 396402
changes in, 3:404405
comparison of, 3:402
cost of sales, gross profit, and ending
inventory, 3:398400
first-in, first-out, 3:171, 222, 397400
last-in, first-out, 3:171172, 222,
397400
periodic vs. perpetual inventory
systems, 3:400401
retail method, 3:221
specific identification, 3:171, 397400
weighted average cost, 3:397, 399
work-in-progress, 3:394
inventory blanket liens, 4:178
inventory costing, alternative methods,
3:171172, 612
inventory costs, 3:169171, 395396;
4:170
inventory management, 3:405412;
4:167171
and accounts payable management,
4:172
approaches, 4:168169
evaluating, 4:170171
financial impact of inventory methods,
4:171
and inventory costs, 4:170
inventory ratios, 3:405406
inventory revenues, 3:169171
inventorysales ratio, 2:299300, 331
inventory turnover, 3:341343; 4:146,
170171
and activity ratio, 3:341342
activity ratio definition, 3:340
and DOH, 3:342343
inventory ratios, 3:405406, 615
inverse demand function, 2:1011
inverse effect, 5:395, 396
inverse floating-rate notes, 5:321
inverse head and shoulders patterns,
1:677, 679, 681
inverted yield curve, 5:422
invest (term), 5:8
investing activities
on cash flow statement, 3:267,
287289
defined, 3:22, 42
net cash flow from, 3:268
investment(s)
analyst adjustments for, 3:654655
in business subsidiaries, branches,
associates, or interests, 3:489
and economic growth, 2:266267
failed, 1:135
in gold, 2:100
net, 2:230
restricting, 1:36
savinginvestment differential, 2:231

investment actions. see also Investment


Analysis, Recommendations, and
Actions [Standard of Professional
Conduct V]
fair dealing in, 1:8384
firm policies on, 1:77
impact of, 1:1213
unethical, 1:29
Investment Advisers Ltd. case study,
3:5168, 7692
investment analysis
due diligence in, 1:33
independent, 1:69
limitations of, 1:139140
Investment Analysis, Recommendations,
and Actions [Standard of
Professional Conduct V],
1:126148
Communication with Clients and
Prospective Clients [Standard
V(B)]
application of the standard,
1:141146
compliance procedures, 1:140141
eleventh edition revision, 1:8
guidance, 1:138140, 236
text of, 1:18, 137138
Diligence and Reasonable Basis
[Standard V(A)], 1:126137
application of the standard,
1:130137
compliance procedures, 1:130
guidance, 1:126129
text of, 1:18, 126
Record Retention [Standard V(C)],
1:146148
application of the standard, 1:148
compliance procedures, 1:147
guidance, 1:146147
text of, 1:18, 146
Investment and Financial Services
Association LimitedPerformance
Analyst Group, 1:204
investment banking, 1:3233; 5:29
investment characteristics of assets,
4:272295
distributional characteristics,
4:292294
market characteristics, 4:294295
return characteristics, 4:272286
covariance of return, 4:284285
historical returns, 4:287291
types, 4:272273
variance of returns, 4:284285
risk characteristics, 4:285286
investment companies, portfolio
management for, 4:248249
Investment Company Act (1940),
4:263264; 6:158n.14
Investment Company Institute, 4:255
Investment Constraints, IPS, 4:395
investment decision, in hypothesis
testing, 1:615
investment decision criteria for capital
budgeting, 4:1026
average accounting rate of return,
4:1516
internal rate of return, 4:1112
net present value, 4:1011

Level I Curriculum Index


payback period, 4:1215
popularity and use of capital budgeting
methods, 4:2426
profitability index, 4:16
investment decision-making
by CFOs, 4:6566
economic rent and, 2:100
investment firm balanced growth
composite, 1:246247
investment-grade bonds, 4:412
and classification of bond market,
5:344
credit ratings of, 5:581, 582
credit risk with, 5:297
yield spreads of, 5:612, 613
investment-grade indices, 5:99100
Investment Guidelines, IPS, 4:395
investment horizon
for fixed-income securities, 5:518
and interest rate risk, 5:548555
share value for three-year, 5:249
investment ideas, in capital budgeting
process, 4:6
investment industry, ethics in, 1:1115
investment instruments, for short-term
funds management, 4:154157.
see also specific types
Investment Management Association,
1:205
Investment Management Association of
Singapore, 1:205
investment management fees
Calculation Methodology (GIPS
Section I.2), 1:210
defined, 1:240
Disclosure (GIPS Section I.4), 1:212
Input Data (GIPS Section I.1), 1:209
Private Equity (GIPS Section I.7),
1:221, 222, 224
Real Estate (GIPS Section I.6), 1:218
investment managers, selection of, 4:423
investment multiple (TVPI)
defined, 1:240, 245
Private Equity (GIPS Section I.7), 1:223
Real Estate (GIPS Section I.6), 1:219
investment objectives
establishing, 1:77
in IPSs, 1:93, 148
Investment Objectives, IPS, 4:395
investment opportunity schedule (IOS),
4:40
investment opportunity set (investment
opportunity frontier), 2:7879;
4:316317
investment performance
corporate governance and, 4:190192
standardized, 1:201
Investment Performance Council (IPC),
1:200
investment personnel. see personnel
investment policies
components, 4:158159
evaluating, 4:159160
short-term funds management in,
4:157160
investment policy statements (IPSs),
4:394407
in compliance procedures, 1:93
components of, 4:395

I-49
defined, 4:250
developing, 1:91
and investor constraints, 4:402407
legal and regulatory factors,
4:405406
liquidity, 4:402404
tax concerns, 4:405
time horizon, 4:404405
unique circumstances, 4:406407
in planning step of portfolio
management, 4:250251
and portfolio construction, 4:415417
record retention of objectives/
recommendations in, 1:148
requirements and limitations of,
1:9596
return objectives, 4:401402
reviews of, 1:96
risk objectives, 4:396401
trades not aligned with, 1:9293
updating, 1:92, 95
investment pools, 5:1819, 32
investment process
changes to, 1:142144
informing clients of, 1:138139
investment products, applicable laws for,
1:2325
investment property, 3:230231,
460462
investment risks, short-term funds
management and, 4:156157
investment spending, aggregate demand
and, 2:230, 236237
investment strategies
AD and AS curves as basis for,
2:261262
during decreases in aggregate demand,
2:255
for hedge funds, 6:162164
for inflationary gaps, 2:258
for private equity, 6:177181
for shifts in aggregate supply,
2:259260
investment strategy, in portfolio
construction, 4:419423
investment system, disclosure of, 1:141,
143
investor confidence, 1:201
investor pay model, 5:581n.13
investor psychology
and margin debt as indicator, 1:698
and technical analysis, 1:660
investors
beliefs of, 4:364365, 375, 378379
benefits of securitization for,
5:460461
buy-and-hold, 1:548550
capital market expectations of, 4:411
CAPM assumptions about, 4:364
constraints of, 1:93
constraints on
legal and regulatory factors,
4:405406
liquidity, 4:402404
and portfolio planning, 4:402407
tax concerns, 4:405
time horizon, 4:404405
unique circumstances, 4:406407
in debt vs. equity securities, 5:155

defined, 4:195; 5:8


in fixed-income markets, 5:351353
high net worth
alternative investments of, 6:151,
153154
commercial property investment by,
6:188
and information-motivated traders,
5:1011
institutional, 5:352
alternative investments of, 6:151
commercial property investment by,
6:188
market efficiency and number of,
5:121
objectives of, 4:271272
preferences of, 4:327
required rates of return for equities,
5:177178
responsibility of, for corporate
governance, 4:195198
board of directors, 4:195196
management, 4:196197
and shareowner rights, 4:197198
retail, 5:352
risk aversion of, 6:6364, 6970
vulture, 6:180
willingness and ability to take risk,
4:397399
Investors Intelligence Advisors
Sentiment reports, 1:697
IOCs. see immediate or cancel orders
IOS. see investment opportunity
schedule
IOSCO. see International Organization
of Securities Commissions
iPad, 3:9, 630632
IPC. see Investment Performance
Council
iPhone, 3:9, 181183, 321, 630632
iPhone 3G, 3:630
iPod, 2:152; 3:630632
IPOs. see initial public offerings
IPSs. see investment policy statements
IQR. see interquartile range
Iran, 2:522
Iraq, 2:522
Ireland
budget deficit, 2:465
business investment, 2:267
debt crisis, 5:626
effects of Greek fiscal crisis, 2:452
equity risk premiums, 4:48
EU membership, 2:448n.18
exchange rate regime, 2:522
exports from, 2:428
as GIPS country sponsor, 1:205
IFRS adoption, 3:114
international investments in BASF,
5:165
labor productivity, 2:271
MSCI multi-market index, 5:96
real equity returns, 1:372
residential mortgage loans, 5:471, 472
returns on bonds, bills, and equities,
5:153
sovereign bonds, 5:362
total returns, 1:380, 383
wealth effect, 2:242

I-50

Irish Association of Investment


Managers, 1:205
IRR. see internal rate of return
IRR rule, 1:334339
evaluating programs, 1:335336
NPV rule and, 1:336339
problems with, 1:337339
IRS. see Internal Revenue Service
Irving, Bryan, 3:179
ISAs. see international standards for
auditing
IS curve, 2:227234
ISDA. see International Swaps and
Derivatives Association
iShares Russell 2000 Index, 1:417418
Ishii, Joy L., 4:191n.6, 219n.29
ISIC. see International Standard
Industrial Classification of All
Economic Activities
ISM. see Institute of Supply
Management
ISO. see International Organization for
Standardization
I-spread. see interpolated spread
Israel
exchange rate regime, 2:523
and IFRS, 3:115
inflation-linked bonds, 5:324, 363
inflation targeting, 2:371
in MSCI multi-market index, 5:96
total returns, 1:380
ISS. see Institutional Shareholder
Services
ISS Corporate Governance Quotient,
4:191
issuance, bond, 3:512516
issuer-paid research, 1:3435, 48
issuer pay model, 5:581n.13
issuer relationship pressure, 1:3738
issuers
of commercial paper, 5:368
credit ratings of issues vs., 5:582584
of fixed-income securities, 5:297
and classification of market,
5:343344
legal identity, 5:303304
in securitization process, 5:464
Italian CFA Society, 1:205
Italian Investment Performance
Committee, 1:205
Italy
banking supervision, 2:362
bonds outstanding, 5:348, 353
business investment, 2:267
capital goods expenditures, 2:218
consumption expenditures, 2:229
disinflation, 2:319
domestic and international debt
securities, 5:312
equity risk premiums, 4:48
EU membership, 2:448n.18
exchange rate regime, 2:522
expected inflation, 2:366
as GIPS country sponsor, 1:205
globalization of production, 2:428
government debt, 2:346
government spending, 2:219, 220
housing sector, 2:303
inflation-linked bonds, 5:324

Level I Curriculum Index


investment spending, 2:230
labor productivity, 2:271
MSCI multi-market index, 5:96
municipal debt, 5:96
national debt, 2:393
public sector spending, 2:347
real equity returns, 1:373
returns on bonds, bills, and equities,
5:153
total returns, 1:380, 383
trade balance with US, 2:221
underground economy, 2:214
ITO. see International Trade
Organization
IT sector. see information technology
sector
iTunes, 3:321, 630
Izumiya, Naoki, 3:633
J
J. Paul Getty Trust, 4:246
Jamaica, 5:96
Jankowitsch, Ranier, 1:626
January effect, 5:131
Japan
aggregate demand and supply in,
2:262263
approval for dividends, 4:120
banking supervision, 2:362
benchmark rate, 5:429
benefits of conservatism in, 3:582
board member elections, 4:203,
209n.23
boards, 4:194
bonds outstanding, 5:348, 353
budget deficit, 2:401
business investment, 2:267
capitalization level and contributions
to global GDP, 5:151
companies and derivatives in, 1:638639
comparative advantage, 2:441
consumption expenditures, 2:229
CPI, 2:320321
credit rating services, 5:581
current account imbalance, 2:463, 466
debt and equity outstanding, 5:344
deflation, 2:318, 382
demographic influences, 5:223224
discipline for financial reporting
quality in, 3:585
disinflation, 2:319
domestic and international debt
securities, 5:312
economic indicators, 2:332, 334
effects of global recession, 2:256
equity risk premiums, 4:48
exchange rate regime, 2:523, 526
foreign bonds, 5:311
fundamental analysis, 1:663
as GIPS country sponsor, 1:205
globalization of production, 2:428
government debt, 2:346, 392
government liabilities, 2:392
government revenues/expenditures,
2:387, 388
government spending, 2:219
gross domestic product, 2:245
forecasts of, 2:274275
potential, 2:273274

housing sector, 2:303


inflation-linked bonds, 5:324
and inflation targeting, 2:375376
labor productivity, 2:271
labor supply, 2:266
maturity of mortgages, 5:471
monetary policy, 2:383385
money measures, 2:354
in MSCI EAFE, 1:380
MSCI multi-market index, 5:96
municipal debt, 5:630
national debt, 2:393
net borrowing/lending, 2:389
proxy for market portfolio, 5:94
public sector spending, 2:347
real equity returns, 1:373
regular cash dividends, 4:112, 113
regulatory body of, 3:103
residential mortgage loans, 5:471
returns on bonds, bills, and equities,
5:153
reverse stock splits, 4:119
share repurchases, 4:123
tax considerations with bonds, 5:314
trade balance with US, 2:221
Treasury bills, 1:279n.3
underground economy, 2:214
use of IFRS vs. GAAP in, 3:115
VERs on exports, 2:445
Japan Airlines Group, 5:166167
Japan Bank for International
Cooperation (JBIC),
5:365, 473
Japanese Business Accounting Council,
3:113
Japanese GAAP, 3:113, 115
Japanese yen
cross-rate calculations with, 2:508
exchange rate quotes with, 2:505
foreign exchange gains, 5:169
identification code, 2:487
international bonds outstanding in,
5:345
JPN/USD currency pair, 2:502
as reserve currency, 5:19
Jarque-Bera (JB) statistical test of
normality, 1:429n.49
JBIC. see Japan Bank for International
Cooperation
JB statistical test of normality. see
Jarque-Bera statistical test of
normality
JC Penney Company, Inc., 1:386
J-curve effect, 2:535
Jensen, Michael C., 4:52n.24
Jensens alpha
defined, 4:371372
and security characteristic line,
4:374
and security selection, 4:375
Jensens inequality, 1:393n.21
JetBlue Airways, 1:460
Jiang, Wei, 4:191n.8
JIT method. see just-in-time method
Jobs, Steve, 3:9
John D. and Catherine T. MacArthur
Foundation, 4:247
John Deere, 5:198, 219
Johnson Controls, Inc., 1:438

Level I Curriculum Index

Johnson & Johnson


credit ratios, 5:602, 604, 605
long-term debt disclosures, 3:527529
market share stability, 5:213
operating profit forecasts, 3:639640
joint normal distribution, 1:532
joint probability, 1:463
joint probability function, 1:486488
Jones, Alfred Winslow, 6:159
Jones, Edward D., 5:78
Jordan, 2:378; 5:96
J.P. Morgan Emerging Market Bond
Index (EMBI) Global, 5:351
J.P. Morgan Germany five- to seven-year
government bond index (JPM 5-7
Year GBI), 1:436437, 452
junior bond classes, 5:485
junior tranche, 6:34
junk bonds. see non-investment-grade
bonds
justified values of price multiples,
5:264266
just-in-time (JIT) method, 4:169
K
%K (stochastic oscillator), 1:694695
Kahn, Robert L., 1:606
kangaroo bonds, 5:311
Kaplan, Paul D., 4:53n.27
Kaserer, Christoph, 4:63
Kaul, Aditya, 2:47n.12
Kazakhstan
as GIPS country sponsor, 1:205
and IFRS, 3:115
in MSCI multi-market index, 5:96
steel import quotas, 2:445
Kazakhstan Association of Financial and
Investment Analysts, 1:205
Kenya, 2:256; 3:115; 5:96
Keynes, John Maynard, 2:306307, 358,
520
Keynesian school, 2:306308, 387
key rate duration, 5:530
Khaitan, Aditya, 3:633
Kidder Peabody, 3:617
kimchi bonds, 5:311
Kingdom of Saudi Arabia Capital Market
Authority, 3:107n.9
King Pharmaceuticals, Inc., 5:602
kinked demand curve analysis, 2:177
178, 183
KIT digital, 4:119
Kiwi exchange rate, 2:504
Knight Securities, 5:30
knowingly (term), 1:43
knowledge of the law, failure to
maintain, 1:29
Knowledge of the Law [Standard I(A)]
application of the standard, 1:2729
compliance procedures, 1:2627
CFA members and candidates,
1:2627
dissociation, 1:26
distribution area laws, 1:26
firms, 1:2627
legal counsel, 1:26
guidance, 1:2125
Code/Standards and applicable law,
1:2223

I-51

investment products and applicable


law, 1:2325
violations by others, participation or
association with, 1:23
text of, 1:16, 21
known errors, noncorrection of, 1:48
Kodak, 5:223
Koedijk, Kees, 4:66
Kohls Corporation, 1:386; 4:148149
Komatsu, 5:209, 219
Kondratieff, Nikolai, 1:704
Kondratieff Wave, 1:704
Koninklijke KPN, 3:447448
Koninklijke Philips Electronics, 5:209
Korea. see South Korea
Korea GIPS Committee, 1:205
Korea interbank offered rate (Koribor),
5:347
Korean won, 2:487
KOSPI Composite Index
arithmetic mean and standard
deviation of returns, 1:415416
volatility of, 1:635636
KPMG SA, 3:588
Kraft Foods
derecognition of long-lived assets,
3:452453
income statement, 3:152154
income statement ratios, 3:196198
statement of earnings, 3:152
krona (Sweden), 2:487; 5:345
krone (Norway), 2:487; 5:345
Kunkel, Robert A., 4:52n.25
kurtosis, 1:425429; 4:293294
calculating, 1:427429
defined, 1:425
sample, 1:426429
of S&P 500, 1:423
Kuwait, 2:522; 5:96
Kuwait Investment Authority, 4:249
Kydland, Finn E., 2:309
Kyrgyz Republic, 3:115
L
LabCorp, 5:209
labeling problems, 1:493494
labor
as factor of production, 2:108
in HeckscherOhlin model, 2:440
in long-term economic growth, 2:265
productivity of, 2:250, 251, 270274
in Ricardian model, 2:440
supply of, 2:250, 251, 266
total, average, and marginal product of,
2:134136
labor costs
and aggregate supply, 2:248, 250
unit, 2:324, 331
labor force, 2:266, 314
labor markets, 2:7, 310
laddering strategies, 4:158
Laffer, Arthur, 2:396
lagging economic indicators, 2:328329,
331, 333335
Lam Research Corporation, 5:200202
land, as factor of production, 2:108
large-cap SMA composite, 1:260262
large cash flows, 1:209, 240
large country (term), 2:442

large-denomination negotiable CDs,


5:376377
Larker, David F., 4:191n.9
Laspeyres index, 2:320
last-in, first-out (LIFO) method
analyst adjustments related to,
3:655657
financial reporting issues with, 3:612,
615
of inventory valuation, 3:171172, 222,
397399
late buying, in housing sector, 2:302
late expansion phase (business cycle),
2:291293
later-stage financing (venture capital),
6:179180
Latin America. see also specific countries
currency regimes, 2:522
debt and equity outstanding, 5:344
exchange rate regimes, 2:525526
institutionally owned real estate,
6:185
trade-to-GDP ratio, 2:426
laundry business, asset-based equity
valuation, 5:275
law(s). see also applicable law
distribution area, 1:26
knowledge of (see Knowledge of the
Law [Standard I(A)])
more strict law, 1:22
religious tenets as basis for, 1:2829
law of demand, 2:9, 8485, 163
law of diminishing marginal product,
2:33
law of diminishing returns, 2:136, 167
law of one price, 5:267; 6:47, 67
law of supply, 2:15
lawyers, in securitization process,
5:464
layoffs, 2:315
LBOs. see leveraged buyouts
leading economic indicators,
2:328334
lead underwriter, 5:50
leases, 3:530548; 4:44
advantages of, 3:530531
analyst adjustments for, 3:663669
direct financing, 3:543, 544
finance, 4:44n.11
accounting/reporting by lessee,
3:532543
accounting/reporting by lessor,
3:543548
direct financing leases, 3:543, 544
financial statement impact of,
3:546548
impact of, 3:546548
operating vs., 3:531548
recognition and measurement of,
3:533535, 544546
sales-type, 3:543546
multiple-year, 6:185
operating
accounting/reporting by lessee,
3:532543
accounting/reporting by lessor,
3:543548
analyst adjustments related to,
3:663669

I-52

leases (continued)
and analyst adjustments to debt,
3:666668
coverage ratio for analyst adjustment,
3:668669
finance vs., 3:531548
financial statement impact of,
3:546548
sales-type, 3:543546
synthetic, 3:531
leaving an employer, 1:106107, 115
Lebanon, 2:378, 522; 3:115; 5:96
Lee, Inmoo, 4:63
Lee, Rafaelina M., 4:59n.34
legal considerations, with fixed-income
securities, 5:310313
legal counsel, 1:26
legal factors, in IPSs, 4:405406
legal form of bonds, 5:303304
legal identity, bond issuer, 5:303304
legal maturity, mortgage-backed
security, 5:477
legal rights, shareowners, 4:226227
legal tender, 2:361, 522, 523
Lehman Brothers, 5:619
Lehman Brothers Aggregate Bond Index,
5:99
Lehman Brothers Global Aggregate
Bond Index, 5:104
Lehman Brothers Government Index,
1:568
Lehman Brothers Holdings, 4:189
LEI. see Index of Leading Economic
Indicators
lenders of last resort, 2:361
lenders rights, in foreclosures, 5:473
lending, 5:89, 3233
lending facility(-ies)
covenant breach for, 1:530531
IMF, 2:469
lending portfolios, 4:350
lending rates, effects on leveraged
portfolios, 4:351354
Lenovo Group Limited
activity ratios, 3:342344
industry concentration and pricing
power, 5:209
liquidity measures, 3:349
ratio analysis, 3:323325
leptokurtic, 1:425
lessee, 3:530, 532543
lessor, 3:530, 543548
less strict (LS) countries, 1:2425
less than alternative hypothesis,
1:635
letters of credit, 5:307
Level I ADRs, 5:167168
Level II ADRs, 5:167168
Level III ADRs, 5:167168
level of service, disclosure of, 1:86
level of significance, 1:611
leverage, 3:351352; 4:81109
about, 4:8284
breakeven points, 4:98100
business risk, 4:8491
components of business risk, 4:84
for creditors and owners, 4:100102
operating risk, 4:8591
sales risk, 4:8485

Level I Curriculum Index


and debt structure, 5:620622
defined, 4:81
and derivatives, 6:44
financial, 4:9295; 5:4142
degree of financial leverage, 4:9293
leveraging role of debt, 4:9495
fixed costs as, 4:81
and hedge funds, 6:170171
and historical returns, 6:152
operating, 5:592
practice problems, 4:104107
in real estate investing, 6:193
risk associated with, 6:202
solutions to problems, 4:108109
total, 4:9598
leveraged accounts, in FX market, 2:498
leveraged buyouts (LBOs), 4:265;
6:177179
covenants for, 5:607
defined, 6:154, 175
financing of, 6:177179
as private equity investments, 5:162,
163
target companies for, 6:178179
leveraged loans, covenants with,
6:177178
leveraged ownership, of real estate,
6:186
leveraged portfolios
capital market line for, 4:350354
with different lending and borrowing
rates, 4:351354
with equal lending and borrowing
rates, 4:351
leveraged positions, 4:282283, 351;
5:4144
leveraged returns, 4:282283
leveraged transactions, call options vs.,
6:9192
leverage ratios, 3:353, 551555; 5:4142,
595596
Levitt, Arthur, 3:582
Lexmark, 5:209
Li, Wei, 4:47n.16
liabilities. see also non-current liabilities
on balance sheets, 3:212, 215216,
224228, 240241
Conceptual Framework on, 3:120
contingent, 5:627, 628
current
of Apple Inc., 3:225
on balance sheets, 3:215216,
224228
deferred revenue analysis, 3:226228
of SAP Group, 3:224225
deferred tax
accounting profit vs. taxable income
for, 3:476479
on balance sheets, 3:241
changes in tax rates, 3:483484
defined, 3:475
defined, 3:4344, 212
and financial position, 3:9
income tax bases of, 3:481483
long-term, 3:240241
Liber Abaci (Fibonacci), 1:706
Liberia, 2:522
LIBOR. see London Interbank Offered
Rate

Libya, 2:522
Liechtenstein, 1:205
Liechtenstein Bankers Association,
1:205
liens, 5:576, 624
life of contract, pricing/valuation over,
6:7677
LIFO method. see last-in, first-out
method
Li & Fung, 4:238241
Light Sweet Crude Oil futures contract,
5:23
likelihood, 1:489490
Lilly Endowment, 4:247
limitations, investment policy, 4:158
limitations on liens covenant, 5:624
limit down, 6:19
limited partners (LPs), 1:241
investors as, 6:158
in private equity, 6:176177, 184
in real estate, 6:187
limited partnerships, 1:151, 241; 5:18, 26
limit order book, 5:4546
limit orders, 1:466; 5:4449
limits, on private placements, 1:159
limit up, 6:19
Lindsay, Don, 3:1011
linear interpolation, 1:396
linear scale, 1:670671
line charts, 1:664665
line costs, 3:606
line graphs, 3:338
lines of credit, 4:145, 175176; 5:369,
597, 619
linked performance
Disclosure (GIPS Section I.4), 1:214
Presentation and Reporting (GIPS
Section I.5), 1:216
Real Estate (GIPS Section I.6), 1:218
Wrap Fee/SMA Portfolios (GIPS
Section I.8), 1:224226
linked time-weighted rates of return,
1:218
linkers. see inflation-linked bonds
links, 1:241
Lintner, John, 4:243, 363
liquid asset requirement, 3:370
liquidating dividends, 4:116
liquidation, 4:101, 102
absolute priority rule in, 5:468
priority of claims in, 5:578579
priority of preference shares in,
5:159n.15
private equity, 6:181, 184
liquidation value, of private equity, 6:184
liquidity, 4:142150
of alternative investments, 6:200201
on balance sheet, 3:15, 215217
broad measure of, 2:354
in credit analysis, 5:597
from dealers, 5:30
defined, 3:8, 214215, 246; 4:142143
of derivatives, 6:41, 42
drags and pulls on, 4:144145
evaluation of measures, 3:349
of exchange-traded derivatives market,
6:10
external, 5:627
and forward contracts, 5:22

Level I Curriculum Index

in high-yield credit analysis,


5:618619
integrated analysis of, 3:359360
as investor constraints, 4:402404
liquidity management, 4:143145
as market characteristic, 4:294295
measuring, 4:145150
and operating cash flow, 5:619
of OTC derivatives market, 6:12
and portfolio management, 4:250
primary sources, 4:143
returns and, 1:400402
and secondary bond markets, 5:359
secondary sources, 4:143144
and securitization, 5:461
in sovereign credit analysis, 5:627
and valuation, 6:172
and yield-to-maturity, 5:421
liquidity duration, 5:555
liquidity enhancement, 5:369
liquidity management, 4:143145
liquidity premium, 1:279
liquidity ratios, 3:346351; 4:145146;
5:231
bounds and context of, 3:350351
calculations, 3:347
defined, 3:254, 339, 347
evaluation, 3:349
interpretation, 3:348349
cash conversion cycle, 3:349
cash ratio, 3:348
current ratio, 3:348
defensive internal ratio, 3:348
quick ratio, 3:348
liquidity risk, 4:157
with fixed-income securities,
5:555556
market, 5:573
liquidity traps, 2:382
liquid markets
information-motivated trading in,
5:12
raising capital in, 5:9
risk management in, 5:10
secondary, 5:53
Liquidnet, 5:30
List of Composite Descriptions (GIPS
Section V.0.1), 1:266269
Lithuania, 3:114; 5:96
litigation losses, 3:581
Lleras, Miguel Palacios, 4:47n.16
LM curve, 2:234235
LM Ericsson Telephone Company,
3:553555
load funds, 4:256
loan covenants, 3:592
loan loss reserves, allowances for, 3:611
loans
amortizing, 5:472, 490491
asset-based, 4:178
auto loan receivable-backed securities,
5:491493
bank, 5:367368
bilateral, 5:367368
to borrowers abroad, 2:460
collateralized, 4:175, 176
commercial and industrial, 2:331
conforming, 5:475
leveraged, 6:177178

I-53
margin, 5:41
mortgage, 5:470
non-amortizing, 5:490, 491
non-conforming, 5:475
non-recourse, 5:473
prime, 5:485
recourse, 5:473
residential mortgage, 5:470473
amortization schedule, 5:472
interest rate, 5:471
lenders rights in foreclosures, 5:473
maturity, 5:471
prepayments and prepayment
penalties, 5:472
stand-alone mortgage, 6:186187
subprime, 5:485
syndicated, 5:358, 367368
loan-to-value ratio (LTV), 5:470; 6:188
local debt, 5:626
local requirements, for record retention,
1:147
location, measures of, 1:378
Lochhead, Scott, 4:63
lockbox systems, 4:164
locked limit, 6:19
lockout period, 5:491
lockup period, hedge fund, 6:159, 171
logarithmic scale, 1:670671
Logitech, 2:430
lognormal distribution
approximation of, 1:527
of continuous random variables,
1:539545
Lombardy region, Italy, 5:630
London Interbank Offered Rate
(LIBOR), 2:516
asset returns vs., 6:165, 196197
as benchmark for returns, 4:401
and coupon rate, 5:299
defined, 4:176; 6:22n.11
floating-rate debt, 4:44
in forward rate agreements, 6:78
historical returns and volatility, 6:152
interest rate swaps, 5:2324
and I-spread, 5:430
marginal cost of capital structure,
4:62
performance of, 6:161
as reference rate, 5:346, 347
setting, 5:347
swaps based on, 6:2223
and TED spread, 6:23
as underlying, 6:37
London School of Economics and
Political Science, 6:153
London Stock Exchange, 1:434
GDRs on, 5:167
information availability, 5:122
intermarket analysis, 1:708
total market capitalization in, 5:151,
152
long (term), 6:7
long hedge fund strategies, 4:264
longitudinal data, 1:571n.3
long-lived assets, 3:425471
acquisition of, 3:426435
and financial reporting issues,
3:606
intangible assets, 3:431435

property, plant, and equipment,


3:428431
amortization of, 3:444445
defined, 3:173, 426
depreciation of, 3:435443, 601605,
611
derecognition of, 3:451453
disclosures for, 3:453460
Daejan Holdings PLC, 3:460462
Vodafone Group Plc, 3:454459
impairment of, 3:448450, 581
investment property as, 3:460462
practice problems, 3:465469
presentation of, 3:453460
Daejan Holdings PLC, 3:460462
Vodafone Group Plc, 3:454459
revaluation model for, 3:445448
solutions to problems, 3:470471
long positions, 5:39
long-run aggregate supply, 2:249251
defined, 2:238239
and human capital, 2:250, 251
and labor, 2:250
and natural resources, 2:250, 251
and physical capital, 2:250, 251
and productivity/technology, 2:250,
251
long-run aggregate supply (LRAS) curve,
2:238240
long-run average cost (LRAC), 2:125n.3,
190
long-run average total cost curve
(LRATC), 2:125131
defined, 2:125
and economies/diseconomies of scale,
2:125129
financial analysis with, 2:128129
and long-run industry supply curve,
2:131133
and profit maximization, 2:130131
and SRATC, 2:129131
types of, 2:128
long-run elasticity of demand, 2:48
long-run equilibrium
macroeconomic, 2:253254
in monopolies, 2:192193
in monopolistic competition,
2:174175
in oligopolies, 2:184
in perfect competition, 2:169170
long-run industry supply curve,
2:131133
long-run marginal costs, in monopolies,
2:190
long sales, clearing instructions on, 5:50
Long-Term Capital Management, 6:43
long-term contracts, revenue
recognition for, 3:160164
long-term debt
on cash flow statement, 3:289
disclosure of, 3:527530
and lease disclosure, 3:538543
presentation of, 3:527530
long-term financial liabilities,
3:240241
long-term incentive plans (LTIP), 4:214
long-term unemployed (term), 2:314
look-ahead bias, 1:589; 3:652
LOreal, 1:397

I-54

loss(es)
accounting, 2:97
capital, 5:313, 515, 516, 550
on commodities, 6:197
in conservative accounting choices,
3:578579
deadweight, 2:3740, 442, 443
economic, 2:98, 116118
on equity securities, 5:153, 154
expected, 5:572573
on income statement, 3:154
litigation, 3:581
on marketable securities, 3:238
net, 3:47
stop-loss orders, 5:4849
tax loss carry forward, 3:475
tax-loss selling hypothesis, 5:131
unused tax, 3:489490
loss aversion, 5:137
lot allocations, minimum, 1:8889
low-cost strategy, for companies, 5:228
lower bound, 1:573
lower Tier 2 securities, 5:576n.4
Lowes, 5:208
low liquidity positions, 4:145
low-quality financial reports
conditions conducive to, 3:584
and earnings quality, 3:567, 576
motivations for, 3:583584
on spectrum of quality, 3:576578
Loyalty, Prudence, and Care [Standard
III(A)], 1:7381
application of the standard, 1:7881
compliance procedures, 1:7778
client approval, 1:77
firm policies, 1:7778
regular account information, 1:77
guidance, 1:7376
clients portfolio, developing, 1:7576
identifying the client, 1:75
proxy voting policies, 1:76
soft commission policies, 1:76
understanding application of
standard, 1:7475
text of, 1:17, 73
Loyalty [Standard IV(A)], 1:105115
application of the standard, 1:109115
compliance procedures, 1:109
competition policy, 1:109
employee classification, 1:109
incident-reporting procedures, 1:109
termination policy, 1:109
guidance, 1:105109
employer responsibilities, 1:106
independent practice, 1:106
leaving employers, 1:106107
nature of employment, 1:108109
social media, 1:108
whistleblowing, 1:108
text of, 1:1718, 105
loyalty to clients, 1:81
LPs. see limited partners
LRAC. see long-run average cost
LRAS curve. see long-run aggregate
supply curve
LRATC. see long-run average total cost
curve
LS countries. see less strict countries
LTIP. see long-term incentive plans

Level I Curriculum Index

LTV. see loan-to-value ratio


lump sum
funding annuity with, 1:309310
future, 1:292293
future value of, 1:283284
present value of, 1:292294
Lund, Susan, 5:342n.1
Luxembourg
customs union, 2:448
EU membership, 2:448n.18
exchange rate regime, 2:522
Luxembourg Stock Exchange, 5:167
LVMH Mot Hennessy, 1:398
M
M0 money measure, 2:354
M1 money measure, 2:353, 354
M2 (M-squared), 4:370371
M2 money measure, 2:353, 354
M2 money supply, 2:330332
M3H money measure, 2:354
M3 money measure, 2:354
M4 money measure, 2:354
Macaulay, Frederick, 5:520
Macaulay duration
calculating, 5:520523
and effective duration, 5:530532
and interest rate risk/investment
horizon, 5:550554
of portfolio, 5:536537
MACD line, 1:696697
McDonalds, 5:216217
McDonalds Corporation, 1:384
MACD oscillator. see moving-average
convergence/divergence oscillator
Macedonia, 3:114
Macintosh computers, 3:9
McLeavy, Dennis, 4:41n.5, 42n.7
McLeod Russel India Ltd., 3:633
macroeconomic factor models,
4:356357
macroeconomic influences, on industry
analysis, 5:203, 222
macroeconomics, 2:207287
aggregate demand, 2:227238
AD curve, 2:235238
defined, 2:227
IS curve, 2:227234
LM curve, 2:234235
shifts in, 2:240247
aggregate output and income,
2:208226
in economy, 2:209210
in gross domestic product, 2:210226
aggregate supply
about, 2:238240
defined, 2:227
shifts in, 2:240241, 247252
defined, 2:6
economic growth, 2:263275
production function and potential
GDP, 2:264265
sources, 2:266269
sustainable growth, 2:269275
equilibrium GDP and prices,
2:253263
inflationary gap, 2:257258
long-run equilibrium, 2:253254
recessionary gap, 2:254257

microeconomics vs., 2:208


new classical, 2:309
practice problems, 2:280284
solutions to problems, 2:285287
macro strategies, with hedge funds,
6:162, 163
Macys Inc., 1:386
MAD. see mean absolute deviation
Maersk Line, 5:210
maintenance covenants, 5:624
maintenance margin requirement, 5:22,
4344; 6:18
maintenance of records, 1:236
make-whole calls, 5:328
make-whole charge, 5:488
making a market, 5:4547, 611
Malawi, 3:115
Malaysia
Asian financial crisis, 2:429
capital restrictions, 2:454455
exchange rate regime, 2:522
and IFRS, 3:115
in MSCI multi-market index, 5:96
Maldives, 2:378
Malta, 2:448n.18, 522
Malthus, Thomas, 2:264
managed accounts, 4:263
managed float currency regimes, 2:522,
526
managed futures funds, 6:195
management, 4:212219
book value and, 5:171172
code of ethics, 4:212213
corporate governance for, 4:196197
and corporate transparency,
4:214219
communications with shareowners,
4:218219
executive compensation, 4:214216
share-repurchase and pricestabilization programs, 4:216218
personal use of company assets by,
4:213214
share ownership by, 4:216
management board, 4:194
management buy-ins (MBIs), 6:177
management buyouts (MBOs), 5:162;
6:177
management commentary, 3:2627, 586
Management Commentary (IFRS
Practice Statement), 3:573
management discussion and analysis
(MD&A), 3:12
Critical Accounting Estimates,
3:582583
on derecognition, 3:523
in financial statement analysis, 3:2627
of PACCAR, 3:571572
policy disclosure requirements, 3:135
management fees
for fund investments, 6:158
for hedge funds, 6:166, 167
for private equity investments, 6:177
management strategy, as company
fundamental, 5:593
managers
financial reporting quality and
disclosure by, 3:617
fixation on earnings reports by, 3:617

Level I Curriculum Index

merger and acquisition orientation of,


3:618
motivations for issuing low-quality
reports by, 3:583584
manager selection, 1:34, 4142, 136
mandates
following, 1:95
managing to, 1:93
notification of change in, 1:142
manipulation, of financial reports, 3:566,
588590
Mann-Whitney U test, 1:638
manufacturers, new orders of, 2:330
manufacturing companies, inventories
of, 3:394
manufacturing resource planning (MRP)
systems, 4:169
manufacturing sales, 2:330
maple bonds, 5:311
Marathon Oil, 5:209
margin
discount, 5:414
for futures, 6:1819
for hedge funds, 6:170
initial margin requirements, 5:22, 41
maintenance margin requirements,
5:22, 4344
quoted, 5:413
repo, 5:379
required, 5:413414
variation margin payments, 5:22
marginal analysis, 2:122n.2
marginal cost of capital (MCC),
4:4041
marginal cost of capital (MCC) schedule,
4:6063
marginal costs
in breakeven analysis, 2:116
calculation of, 2:115
defined, 2:102, 114115
long-run, 2:190
and marginal product, 2:138139
in monopolies, 2:190
and output optimization, 2:120125
in perfectly competitive markets,
2:167168
and producer surplus, 2:33
profit maximization, 2:111112,
114115
marginal probabilities, 1:462
marginal product
defined, 2:135
and marginal cost, 2:138139
and productivity, 2:134137
marginal propensity to consume (MPC),
2:229, 398400
marginal propensity to save (MPS),
2:229, 399
marginal rate of substitution, 2:6970,
7374, 80
marginal returns, 2:136142
marginal revenue
defined, 2:102, 104
in imperfect competition, 2:105107
in monopolies, 2:186190
in monopolistic competition,
2:173175
in oligopolies, 2:178, 179, 182, 184
and output optimization, 2:120125

I-55
in perfect competition, 2:104105,
158, 166167
and price elasticity, 2:161162
in profit maximization, 2:103107
marginal revenue product, 2:141142
marginal value curve, 2:31, 163
margin bond, 6:11
margin calls, 5:43; 6:1819, 170
margin debt, 1:698699, 702
margin loans, 5:41
margin stability, 3:647
margin transactions, 6:9192
Mariscal, Jorge O., 4:59n.34
marketable limit orders, 5:45
marketable securities, 3:219, 238
Market Abuse Directive, 4:218
market anomalies, 5:129136
and closed-end investment fund
discounts, 5:133134
cross-sectional, 5:132133
and earnings surprises, 5:134135
for initial public offerings, 5:135
investment strategies using, 5:136
and predictability of returns,
5:135136
time-series, 5:130132
market-based valuation, 3:638643
market bidask spread, 5:44
market capitalization
of equity markets, 5:150152
style indices based on, 5:98
market-capitalization weighting, of
indices, 5:86, 8891
market characteristics of assets,
4:294295
market concentration, 2:193194
market cycles, 1:704705
decennial pattern, 1:705
18-year cycle, 1:704
Kondratieff Wave, 1:704
presidential cycle, 1:705
market discount rate
bond price and, 5:395399
calculating, 5:390393
market efficiency, 5:115146; 6:42, 50,
165
and active manager selection, 5:116
anomalies, 5:129136
and closed-end investment fund
discounts, 5:133134
cross-sectional, 5:132133
and earnings surprises, 5:134135
for initial public offerings, 5:135
investment strategies using, 5:136
and predictability of returns,
5:135136
time-series, 5:130132
in behavioral finance, 5:136139
contributing factors, 5:120123
description of efficient market,
5:117118
forms of, 5:124129
and market vs. intrinsic value,
5:119120
and portfolio management, 5:129
practice problems, 5:142144
semi-strong-form efficient markets,
5:125127
solutions to problems, 5:145146

strong-form efficient markets, 5:128


and transaction/informationacquisition costs, 5:123124
weak-form efficient markets, 5:125
market equilibrium, 2:2030
about, 2:2021
and auctions, 2:2730
finding, 2:22
mechanism for, 2:2226
market float, securities, 5:8991
market functions, in FX markets,
2:492498
market index, for beta, 4:52
market indicators, 1:703
market information systems, 5:58
market interference, 2:3643
and deadweight loss from price floor,
2:3839
per-unit tax on sellers, 2:4042
market liquidity risk, 5:573
market makers, 6:10
market making, 1:63
Market Manipulation [Standard II(B)],
1:17, 6873
application of the standard, 1:6973
guidance, 1:6869
text of, 1:17, 68
market mechanism, 2:2226
market model, 4:52n.24, 358361
market multiple models, 5:246. see
also multiplier models for equity
valuation
market neutral strategies, for hedge
funds, 6:164
market-on-close orders, 5:48
market or comparables valuation
approach, for private equity, 6:183
market orders, 5:44, 4748
market-oriented investors, 3:652
market participants
fair treatment of, 5:122
and market efficiency, 5:120122
technical analysis and, 1:660662
market portfolio, in CAPM, 4:380
market power, 2:185, 193
market price, estimated value and,
5:244246
market price of risk, 4:301
market rate of interest, 3:513
market rates, for bonds payable,
3:520521
market risk, 4:157; 6:155
markets, 5:576. see also fixed-income
market
assets in, 5:1420
and classification of markets, 5:1416
currencies, 5:1920
real assets, 5:2628
securities, 5:1619
benefits of securitization for,
5:460462
call, 5:54
capital, 2:8, 469, 492493; 5:15
CAPM assumptions about, 4:364
cash, 6:5
central bank funds, 5:376
commodities in, 5:2526
common, 2:448452
complete, 5:58

I-56

markets (continued)
continuous trading, 5:5457
contract, 5:2025, 2728, 5457
contracts for difference, 5:2021
execution mechanisms, 5:5457
forwards, 5:2122
futures, 5:2223
insurance contracts, 5:25
market information systems, 5:58
options, 5:2425
swaps, 5:2325
trading sessions on, 5:54
debt, 5:571572
defined, 4:347
in demand and supply analysis, 2:78
derivatives, 6:914, 3839
efficient, 6:42, 50, 165
description of, 5:117118
intrinsic value in, 5:119120
semi-strong-form, 5:125127
strong-form, 5:128
weak-form, 5:125
emerging
bonds in, 5:348349
capitalization level and contributions
to global GDP, 5:151
sovereign debt of, 5:626
technical analysis for, 5:125
World Bank definition of, 5:626n.42
equity, 6:910, 42
Eurocommercial paper, 5:369371
factor, 2:7, 218
financial, 2:218
and financial analyst decisions, 5:6
financial intermediaries, 5:2838
arbitrageurs, 5:3436
brokers, exchanges, and alternative
trading systems, 5:2830
dealers, 5:3031, 3536
depository institutions and financial
corporations, 5:3233
insurance companies, 5:3334
securitizers, 5:3132
for settlement and custodial services,
5:3638
transactions facilitated by, 5:3839
foreign exchange, 2:485548
about, 2:485486
currency conventions, 2:487488
functions, 2:492498
nominal vs. real exchange rates,
2:488492
participants in, 2:498501
size and composition of, 2:501504
forward, 5:424
and functions of financial system,
5:614
capital allocation efficiency, 5:1314
determining rates of return,
5:1213
for individuals, 5:712
geographic limitations of, 2:152
global debt, 5:343344
global equity, 5:343344
global finance
and depository receipts, 5:166168
direct investing, 5:165
equity securities in, 5:150155
integration and growth in, 5:163165

Level I Curriculum Index


goods, 2:7, 218
inefficient, 5:119
informationally efficient, 4:346
interbank, 5:346, 376
labor, 2:7, 310
liquid
information-motivated trading in, 5:12
raising capital in, 5:9
risk management in, 5:10
secondary, 5:53
making, 5:4547, 611
maximization of total surplus by,
2:3536
orders in, 5:4450
over-the-counter, 2:494; 5:55, 167168,
359
positions in, 5:3844
practice problems, 5:6672
primary security, 5:5053
regulation of, 5:6063
secondary security, 5:5358
solutions to problems, 5:7376
spot, 6:5
taking, 5:4547
target, for security indices, 5:82
US commercial paper, 5:369371
in well-functioning financial systems,
5:5860
yield spread and performance of, 5:611
market segmentation, 6:156
market sentiment
gauges of, 5:94
indicators of, 1:697700
and technical analysis, 1:660661
market share
and industry concentration, 5:208
stability of, 5:212213, 219221
Markets in Financial Instruments
Directive (MiFID), 4:394
market structures, 2:151203
analysis of, 2:152156
defined, 2:103
determining factors for, 2:154156
identification of, 2:193196
importance of, 2:151152
monopolistic competition, 2:171175
demand analysis, 2:172173
long-run equilibrium, 2:174175
optimal price and output, 2:173
supply analysis, 2:173
monopoly, 2:185193
about, 2:185186
demand analysis, 2:186187
long-run equilibrium, 2:192193
optimal price and output, 2:189190
price discrimination and consumer
surplus, 2:190192
supply analysis, 2:187188
oligopoly, 2:175184
demand analysis and pricing
strategies, 2:176182
long-run equilibrium, 2:184
optimal price and output, 2:183184
supply analysis, 2:182183
perfect competition, 2:156171
demand analysis, 2:157164
long-run equilibrium, 2:169170
optimal price and output, 2:165169
supply analysis, 2:164165

practice problems, 2:198201


solutions to problems, 2:202203
types of, 2:152154
Market Technicians Association, 1:663
market timing, 1:548550
market-to-book ratio, 5:175
market value
and asset-based valuation, 5:274275
and book value, 5:171172
of debt, 5:272273
defined, 1:241
derivatives market, 6:3839
GIPS Valuation Principles (GIPS
Section II), 1:226
Input Data (GIPS Section I.1), 1:209n.2
intrinsic vs., 5:119120
and portfolio company valuation, 6:184
Real Estate (GIPS Section I.6), 1:217n.6
total, 5:174
market value to book value (MV/BV)
ratio, 3:661662
Market Vane Bullish Consensus, 1:697
Market Vectors Vietnam ETF, 5:95
marking to market, for futures, 6:18, 80
Markit iBoxx, 5:99
Markit iBoxx Euro High-Yield Bond
Indices, 5:104
Markowitz, Harry, 1:402; 4:243, 363
Markowitz efficient frontier, 4:319, 348
mark-to-market, 3:237
mark-to-market value, 6:73n.7
Marsh, Paul, 4:48
Marshall-Lerner condition, 2:531535
Marsh & McLennan Companies, Inc.,
1:434
Mars/Wrigley, 5:209, 219221
Marvell Technology Group, 1:677678,
680
Mason, Andrew, 3:592
Massachusetts Institute of Technology,
4:246
Massachusetts Mutual Life Insurance
Company, 4:252253
MasterCard, 5:206, 209
master limited partnerships (MLPs),
5:26
matador bonds, 5:311
matching principle, 3:169
matching strategies, 4:157158, 177
material information, 1:57, 6466
materiality, determining, 1:64, 67
material nonpublic information
adopting compliance procedures for,
1:60
analyst recommendations as, 1:6566
Material Nonpublic Information
[Standard II(A)]
application of the standard, 1:6367
compliance procedures
achieving public dissemination, 1:60
adopting, 1:60
adopting disclosure procedures,
1:6061
appropriate interdepartmental
communications, 1:61
communication to employees, 1:63
firewall elements, 1:61
issuing press releases, 1:61
personal trading limitations, 1:62

Level I Curriculum Index

physical separation of departments,


1:61
preventing personnel overlap, 1:62
proprietary trading procedures, 1:63
record maintenance, 1:62
reporting systems, 1:62
guidance
industry experts, 1:5960
investment research reports, 1:60
material information defined, 1:57
mosaic theory, 1:5859
nonpublic information defined, 1:58
social media, 1:59
text of, 1:1617, 56
materials, as factor of production, 2:108
Mathews International Corporation,
5:199
matrioshka bonds, 5:311
matrix pricing, 4:43; 5:405407
mature stage (industry life-cycle), 5:215
maturity
balloon maturity provisions, 5:488
classifying fixed-income markets by,
5:345
of corporate notes/bonds, 5:371
of fixed-income securities, 5:298
of forward contracts, 2:512n.5
and forward points, 2:515
legal, 5:477
of residential mortgage loans, 5:471
weighted average, 5:474, 475
maturity effect, 5:395, 397
maturity premium, 1:279
maturity structure of interest rates,
5:421428
maturity value. see par value
Mauritius, 3:115; 5:96
MBIs. see management buy-ins
MBOs. see management buyouts
MBSs. see mortgage-backed securities
MCC. see marginal cost of capital
MCC schedule. see marginal cost of
capital schedule
MD&A. see management discussion and
analysis
MDURATION financial function,
5:524n.4
mean(s)
arithmetic, 1:378382
and coefficient of variation,
1:415416
cross-sectional mean, 1:380381
defined, 1:378
and median, 1:383385
population mean, 1:378379
properties, 1:381382
sample mean, 1:379381
using, 1:429430
and weighted mean, 1:388n.19
of binomial random variables, 1:525
geometric, 1:390394
and arithmetic mean, 1:391394
formula, 1:390391
using, 1:429430
harmonic, 1:394395
hypothesis testing with, 1:616631
tests with mean differences,
1:623631
tests with single mean, 1:616623

I-57
of lognormal distribution, 1:541,
544545
of normal distribution, 1:531, 534
population, 1:378379
estimates of, 1:575585
test static for single, 1:617, 620
sample, 1:379381, 572n.4
distribution of, 1:572575
as point estimator, 1:575, 577
standard error of, 1:572573
of standard normal distribution, 1:532
trimmed, 1:382n.14
weighted, 1:387390
Winsorized, 1:382n.14
mean absolute deviation (MAD),
1:403405
mean differences, 1:623631
in tests with dependent samples,
1:628631
in tests with independent samples,
1:623627
mean returns on S&P 500, 1:624625
recovery rates on defaulted bonds,
1:626627
mean excess return, 1:417
mean return, 4:273274
meanvariance analysis, 1:480n.10, 537
measurement scales, 1:363365
identifying, 1:365
types of scales, 1:364
measures of central tendency, 1:378395
arithmetic mean, 1:378382
cross-sectional mean, 1:380381
defined, 1:378
population mean, 1:378379
properties, 1:381382
sample mean, 1:379381
geometric mean, 1:390394
and arithmetic mean, 1:391394
using, 1:429430
harmonic mean, 1:394395
median, 1:382385
and arithmetic mean, 1:383385
defined, 1:382
mode, 1:385387
weighted mean, 1:387390
measures of location, 1:378
measuring implication, triangle patterns,
1:685686
median, 1:382385
median quote, for hedge fund valuation,
6:172
Medical Equipment Trust (MET),
5:463468
Mediquip, 5:462468
Medium Term Financial Strategy
(MTFS), 2:360
medium-term notes (MTNs), 5:371
Medtronic, 5:213
Mehrotra, Vikas, 2:47n.12
members, CFA. see Responsibilities of
CFA Members and Candidates
[Standard of Professional Conduct
VII]
members, exchange, 6:10n.4
membership status, CFA Institute, 1:171,
175
mental accounting, 5:137
menu costs, 2:311, 365366

Mercedes, 2:174; 5:218


merchandise stores, productivity of,
2:138
merchandise trade sub-account, BOP,
2:457
merchandising companies, inventories
of, 3:394
Merck & Co.
credit ratios for, 5:602
industry concentration and pricing
power of, 5:209
in strategic analysis, 5:219221
MERCOSUR. see Southern Cone
Common Market
Mercurio, V., 4:65n.43
merger and acquisition orientation, 3:618
merger arbitrage strategy, for hedge
funds, 6:162
mergers, market concentration and,
2:193194
MES. see minimum efficient scale
mesokurtic, 1:425
MET. see Medical Equipment Trust
MetaCarta, 3:575
method of comparables
analysis of cash flow statements for,
3:305
and multiplier models for equity
valuation, 5:267270
price multiples in, 5:264
Metrick, Andrew, 4:191n.6, 219n.29
Metropolitan Life Insurance Company,
4:253
Mexican Comisin Nacional Bancaria y
de Valores, 5:29
Mexican peso, 2:487, 507; 5:10
Mexico
accounting standards and ROE
comparisons, 3:634636
business investment, 2:267
consumption expenditures, 2:229230
economic growth in, 2:272
effect of global recession, 2:256
exchange rate regime, 2:523
government spending, 2:219
IFRS adoption, 3:114
inflation-linked bonds, 5:324
inflation targeting, 2:371
labor productivity, 2:271
labor supply, 2:266
in MSCI multi-market index, 5:96
NAFTA, 2:448, 450451
NAICS system, 5:197
trade balance with US, 2:221
underground economy, 2:214
mezzanine bond classes, 5:495
mezzanine financing, for leveraged
buyouts, 6:178
mezzanine-stage financing (mezzanine
venture capital), 6:179
mezzanine tranche, 6:34
Mian, Shehzad L., 4:161n.5
Mibor. see Mumbai interbank offered
rate
Michelin Group, 5:68, 74
microeconomics
defined, 2:6
demand and supply analysis in, 2:67
macroeconomics vs., 2:208

I-58
Micronesia, 1:205
Micron Technology, Inc., 3:493499
Microsoft Corporation, 1:434, 442;
2:186; 3:433434; 4:114
Microsoft Excel, 1:615n.14
Microsoft Word, network effects for,
2:186
Middle East. see also specific countries
debt and equity outstanding, 5:344
foreign exchange reserves, 2:500
and IFRS, 3:115
industrial comparative ratio analysis,
5:596597
institutionally owned real estate, 6:185
natural resources, 2:268
terms of trade, 2:424
trade-to-GDP ratio, 2:426
MiFID. see Markets in Financial
Instruments Directive
migration, credit ratings, 5:585586
Mikuni & Co., 5:581
Miles, James A., 4:41n.3
Miller, Merton, 4:53n.28
minimalist disclosure approach, 3:617
minimum cash balances, 4:151
minimum efficient scale (MES), 2:126
minimum lot allocations, 1:8889
minimum prices
of American options, 6:105106
of European options, 6:9193
minimum required rate of return, 5:177
minimum-variance frontier, 4:318
minimum-variance portfolios,
4:317319
and efficient frontier of risky assets, 4:319
global, 4:318
minimum-variance frontier, 4:318
minimum wage, 2:38
minority equity investing, 6:180
minority interests, 3:17, 243
Minsky, Hyman, 2:307308
Minsky moment, 2:308
Misconduct [Standard I(D)], 1:5356
application of the standard, 1:5456
compliance procedures, 1:54
guidance, 1:5354
text of, 1:16, 53
mismatching strategies, 4:157158
misrepresentation
avoiding, 1:52
of financial data, 3:74
potential, 1:49
Misrepresentation [Standard I(C)],
1:4353
compliance procedures, 1:4647
factual presentations, 1:4647
maintaining webpages, 1:47
plagiarism policy, 1:47
qualification summary, 1:47
verifying outside information, 1:47
guidance, 1:4346
impact on investment practice, 1:44
omissions, 1:45
performance reporting, 1:4445
plagiarism, 1:4546
social media, 1:45
work completed for employer, 1:46
text of, 1:16, 43
Mitchell, Arthur F., 2:290

Level I Curriculum Index


Mittoo, Usha, 4:66
MLPs. see master limited partnerships
MNCs. see multinational corporations
modal interval, 1:385
mode, 1:385387
model building, financial analysis for,
3:378379
model portfolios, security market
indices in, 5:95
Model Request for Proposal, 1:129
models
faulty/defective, 1:136137
manipulating inputs for, 1:72
in quantitatively oriented research,
1:128129
understanding technical aspects of,
1:136137
modern portfolio theory (MPT), 1:537;
4:243244, 363
modified duration
annual, 5:524526
approximate, 5:524527
calculating, 5:523524
and credit risk/return, 5:613614
and effective duration, 5:529, 530, 532
of portfolio, 5:536537
modified Dutch auctions, 2:28
Modigliani, Franco, 4:53n.28, 370
Modigliani, Leah, 4:370
Moldova, 3:114
momentum anomalies, 5:132
momentum effect, of marketcapitalization-weighted indices,
5:91
momentum oscillators, 1:690697
about, 1:690692
MACD oscillator, 1:696697
relative strength index, 1:692694
stochastic oscillator, 1:694696
Monetarist school, 2:308309, 355, 360,
387
monetary accommodation, 2:406
Monetary Authority of Singapore,
5:161
monetary base, 2:524
monetary flexibility, in sovereign credit
analysis, 5:628
monetary policy, 1:569; 2:346386
and aggregate demand, 2:243245
central banks
roles and responsibilities, 2:361363
tools of, 2:367368
and concept of money, 2:349360
contractionary and expansionary
policies, 2:380381
and currency regime, 2:519
defined, 2:347
of developing countries, 2:376
evaluating, 2:385386
exchange rate targeting, 2:377379
and fiscal policy, 2:404408
and inflation, 2:258
inflation targeting, 2:371377
central bank independence, 2:372
credibility, 2:372
exceptions to inflation-targeting rule,
2:375376
and monetary policy in developing
countries, 2:376

transparency, 2:373375
US Federal Reserve system, 2:376
influence on economy, 2:346348
limitations, 2:381385
and New Classical school, 2:311
objectives, 2:364367
of United Kingdom, 2:360
monetary reserve requirement, 3:370
monetary transmission mechanism,
2:369371, 381382
monetary unions, 2:448, 451452, 522
money, 2:349360
creation process, 2:350353
defined, 2:243, 353354
demand for, 2:355358
Fisher effect, 2:358359
functions of, 2:349350
and interest rates, 2:359
New Classical school models with,
2:311312
New Classical school models without,
2:309310
quantity theory of, 2:234235, 354355
supply and demand relationship,
2:356358
surplus of, 2:325326
time value of (see time value of money
(TMV))
velocity of, 2:234, 326328
money convexity, 5:545547
money creation, 2:350353
money duration, 5:538540, 553
money managers, estimation of client
inflows by, 1:583584
money market(s), 1:346; 2:234235;
5:15, 17
money market funds, 4:155, 258259
money market instruments, yield of,
5:416420
money market securities, 5:298
money market yields, 1:346351
annualizing of, 4:156
bank discount yield, 1:347348
discount rate for, 1:350
other yields vs., 1:350
money multiplier, 2:352
moneyness, 6:87
money neutrality, 2:354355, 358
money supply
and aggregate demand/supply,
2:244245
changes in, 2:356358
and interest rates, 2:359
M2, 2:330332
real, 2:234236
money-weighted rate of return
for portfolios, 1:340341, 344346
time- vs., 1:344346
money-weighted return, 4:275277
monitoring
in capital budgeting process, 4:67
of financial reporting standards,
3:132138
by CFA Institute, 3:133134
with company disclosures,
3:134138
for new products/types of
transactions, 3:133
in portfolio management, 4:253

Level I Curriculum Index


Monitronics International, Inc., 5:199
monoline insurance companies, 5:486
monopolist firms, 2:103, 188189
monopolistic competition, 2:171175.
see also imperfect competition
benefits of trade for, 2:430
characteristics of, 2:155
defined, 2:153
demand analysis, 2:172173
long-run equilibrium, 2:174175
optimal price and output, 2:173
supply analysis, 2:173
monopoly, 2:185193
about, 2:185186
characteristics of, 2:155
defined, 2:154
demand analysis, 2:186187
long-run equilibrium, 2:192193
optimal price and output, 2:189190
price discrimination and consumer
surplus, 2:190192
profit maximization in, 2:103
supply analysis, 2:187188
Monte Carlo simulation, 1:545551
of capital expenditures, 1:573574
historical simulation vs., 1:550551
number of trials for, 1:547
potential gains from market timing,
1:548550
process, 1:546547
random observations in, 1:547548
for risk assessment, 3:646
Montenegro, 2:522
monthly billing terms, 4:163
Moody, John, 5:580
Moodys Investors Service
commercial paper ratings, 5:368
in credit markets, 5:580, 581
credit ratings for aerospace industry,
3:648649
investment-grade ratings, 5:297n.2, 344
long-term ratings matrix, 5:581582
municipal debt ratings, 5:630, 631
ratings for Ford Motor Company,
5:586587
US department store debt ratings,
1:386387
Moores law, 5:222
moral hazard, insurance and, 5:34
Morck, Randall, 2:47n.12
more strict (MS) countries, 1:2425
more strict law, 1:22
Morgan, J. P., 2:184
Morgan Stanley, 5:298
Morl, Ian, 3:179
Morningstar, 1:364, 399; 5:99, 104
Morningstar US Market Index, 5:104
Morocco, 3:115; 5:96
mortgage(s). see mortgage loans
mortgage-backed securities (MBSs),
5:305; 6:189
commercial, 5:487490
balloon maturity provisions, 5:488
call protection, 5:488
credit risk, 5:487
structure, 5:487490
defined, 5:460
effective duration of, 5:528
repayment structure for, 5:317

I-59
residential, 5:473487
collateralized mortgage obligations,
5:478484
mortgage pass-through securities,
5:31, 474478, 483
non-agency residential mortgagebacked securities, 5:484487
and securitizers, 5:31
mortgage crisis (2007-2008), 2:361362
mortgage debt, 5:575576
mortgage design, 5:470
mortgage loans
defined, 5:470
fixed-rate, 1:306
residential, 5:470473; 6:187188
amortization schedule, 5:472
interest rate, 5:471
lenders rights in foreclosures, 5:473
maturity, 5:471
prepayments and prepayment
penalties, 5:472
for residential property (see residential
mortgage loans)
securitization of (see mortgage-backed
securities (MBSs))
mortgage pass-through securities, 5:31,
474478
cash flow characteristics, 5:474475
cash flow construction, 5:476477
collateralized mortgage obligations vs.,
5:483
conforming and non-conforming
loans, 5:475
contraction and extension risk, 5:478
defined, 5:474
prepayment rate, 5:475
weighted average life, 5:477478
mortgage pools, 5:31
mortgage rates, 5:471
mortgage real estate investment trusts,
6:188
mortgage sector, 5:474n.10
mosaic theory
applying, 1:65, 66
and material nonpublic information,
1:5859
Mossin, Jan, 4:363
Motally, 3:575
motivation
for manipulating financial reports,
3:588590
for producing low-quality financial
reports, 3:576, 583584
Motley Fool, 1:586
moving-average convergence/divergence
(MACD) oscillator, 1:696697
moving averages, 1:687689
Mozambique, 3:115
MPC. see marginal propensity to consume
MPS. see marginal propensity to save
MPT. see modern portfolio theory
MRP systems. see manufacturing
resource planning systems
MSCI All Country World Index, 5:104;
6:160, 191
MSCI Argentina Index, 5:96n.1
MSCI Barra
company classifications, 5:192
multi-market indices of, 5:9697

MSCI Developed Markets Index,


2:454455; 5:96
MSCI EAFE Index. see MSCI Europe,
Australasia, and Far East Index
MSCI Emerging Markets Index, 4:285
286, 412; 5:96
MSCI Europe, Australasia, and Far East
(EAFE) Index
co-movement patterns, 4:241243
correlation with other indices, 4:412
cross-sectional mean of, 1:380381
dividends, 4:112
GDP weighting in, 5:97
portfolio expected return and variance
of return, 1:480, 481, 484, 485
tracking error objective, 1:524
MSCI Europe Index, 4:412
MSCI Frontier Markets Index, 5:96
MSCI Germany Index, 1:435437,
450452
MSCI Global Total Return Index,
6:161
MSCI Jamaica Index, 5:96n.3
MSCI Pakistan Index, 5:96n.2
MSCI Trinidad & Tobago Index, 5:96n.3
MSCI US Index, 4:412
MSCI World Index, 4:412; 5:94; 6:182
MS countries. see more strict countries
MSP. see Multiple Strategy Portfolios
MTFS. see Medium Term Financial
Strategy
MTFs. see multilateral trading facilities
MTNs. see medium-term notes
multi-factor model, 4:356
Multi Fiber Agreement, 2:431
multilateral trading facilities (MTFs),
5:2930
multi-market equity indices, 5:9697
multinational corporations (MNCs),
2:427428
multinomial formula, 1:493494
multiple-delivery arrangements, 3:614
multiple IRR problem, for capital
projects, 4:2224
multiple-period financial performance,
projecting, 3:643646
multiple-price auctions, 5:356
multiple put bonds, 5:330
Multiple Strategy Portfolios (MSP),
1:225
multiple-year leases, 6:185
multiplication rule for expected value of
product of uncorrelated random
variables, 1:488
multiplication rule for independent
events, 1:467468
multiplication rule for probabilities,
1:463, 465
multiplication rule of counting,
1:492493
multiplier models for equity valuation,
5:263274
defined, 5:246
enterprise values in, 5:272274
example, 5:270271
fundamentals in, 5:264265
method of comparables, 5:267270
other models vs., 5:246248, 276278
price multiples in, 5:264267

I-60

multistage dividend discount models,


5:258262
multi-step format, income statement,
3:154
multi-strategy strategies, for hedge
funds, 6:163
multivariate distribution, 1:532
multivariate normal distribution, 1:532
Mumbai interbank offered rate (Mibor),
5:347
Munich RE, 1:397
municipal bonds (munis), 4:405; 5:349
municipal debt, 5:630631
Murphy, John, 1:708
must (term), 1:241
must not (term), 1:241
mutual fund cash position indicator,
1:702703
mutual funds, 4:254261
about, 4:254258
barriers to entry for, 5:207
derivatives vs., 6:6
hedge funds vs., 4:263264
performance of, 1:468469; 5:129
as pooled investments, 5:1819
predictability of performance for,
1:463465
risk/returns of, 1:618619, 633634
short-term investment, 4:155
skewness of, 1:423425
SMAs vs., 4:263
types, 4:258261
bond mutual funds, 4:259260
hybrid/balanced funds, 4:260261
money market funds, 4:258259
stock mutual funds, 4:260
mutually exclusive (term), 1:333, 459
mutually exclusive projects, 4:9
MV/BV ratio. see market value to book
value ratio
Mylan Inc., 5:602
N
NACE. see Statistical Classification
of Economic Activities in the
European Community
NAFTA. see North American Free Trade
Agreement
Nagler, Florian, 1:626
NAICS. see North American Industry
Classification System
NAIRU. see non-accelerating inflation
rate of unemployment
names, fictitious, 1:173, 174, 176
Namibia, 3:115
Napoleonic Wars, 2:391
NAREIT. see National Association of
Real Estate Investment Trusts
NAREIT Global composite, 6:191
narrow framing, 5:138
narrow money, 2:353
NARU. see natural rate of
unemployment
NASDAQ (National Association of
Securities Dealers Automated
Quotations), 5:151n.4
and ADRs, 5:167168
Arms index, 1:701702
minimum share price listing, 4:119

Level I Curriculum Index


as OTC securities market, 6:9
poststabilization disclosures, 4:218
required disclosures, 4:207
NASDAQ 100 Index (NASDAQ)
correlations of stocks, 4:312, 360
delisted companies, 1:588
options on, 6:120121
returns for, 6:181182
NASDAQ 100 Trust Shares, 6:121n.3
NASDAQ OMX, 5:151, 152
Nash, John, 2:180
Nash equilibrium, 2:180181, 184
NASSCOM, 2:440n.11
National Association of Pension Funds,
1:205
National Association of Real Estate
Investment Trusts (NAREIT),
5:102; 6:190
National Association of Securities
Dealers Automated Quotations.
see NASDAQ
National Bureau of Economic Research
(NBER), 1:662; 2:293, 329
National Bureau of Statistics of China,
2:211
National Council of Real Estate
Investment Fiduciaries (NCREIF),
6:190
National Datacomputer Inc., 3:350351
national debt. see government debt
national income, 2:223, 463
National Income and Product Accounts
(NIPA), 2:210
National Instrument 51-102,
amendments, 4:209n.22
nationalization, of monopolies, 2:192
National League of Management
Companies, 1:205
national tax-free bond mutual funds,
4:259
national welfare
and export subsidies, 2:446
and tariffs, 2:443
National Welfare Fund, 4:249
natural level of output, 2:240
natural monopolies, 2:185186, 192
natural rate of unemployment (NARU),
2:240, 324
natural resources. see also raw materials
and aggregate supply, 2:251
and economic growth, 2:268
nature of employment, 1:108109
NAV. see net asset value
NAVTEQ, 3:575
Nayar, Nandkumar, 1:622
NBER. see National Bureau of Economic
Research
NCREIF. see National Council of Real
Estate Investment Fiduciaries
NCREIF Farmland index, 6:190
NCREIF Property index, 6:190
NDFs. see nondeliverable forwards
negative correlation, 4:305
negative covenants, 3:525; 5:307308,
606
negative externalities, 2:35
negative pledges, 5:307
negotiable CDs, 5:376377
Neiman Marcus Group, Inc., 1:386

Neoclassical school of economic


thought, 2:305, 306
Neo-Keynesians, 2:311
Nestl Group, 3:641642
audit opinion excerpt, 3:588
justified forward P/E of, 5:265267
strategic analysis, 5:219221
subsidiary of, 5:159
net asset flows, for assets under
management, 6:159160
net asset value (NAV), 5:133134
breaking the buck, 4:259
and drawdown, 6:170171
mutual fund, 4:254255
of REITs, 6:192
trading vs. reporting, 6:172
net book value, 3:175
net cash flow, 3:268, 374
net client inflows, estimating,
1:583584
net debt, 5:595
net exports, 2:231, 424
Netherlands
banking supervision, 2:362
bonds outstanding, 5:348, 353
customs union, 2:448
domestic and international debt
securities, 5:312
equity risk premiums, 4:48
EU membership, 2:448n.18
exchange rate regime, 2:522
fact finding requirements, 4:407
frequency of capital budgeting, 4:25
as GIPS country sponsor, 1:205
IFRS adoption, 3:114
imports in, 2:423
in MSCI multi-market index, 5:96
real equity returns, 1:373
residential mortgage loans, 5:471, 472
returns on bonds, bills, and equities,
5:153
sovereign bonds, 5:362
total returns, 1:380, 383
two-tiered boards, 4:194
Netherlands Antilles, 2:378
Netherlands Beroepsvereniging van
Beleggingsprofessionals, 1:205
net income
cash flow and, 3:615
coefficient of variation for, 3:370
defined, 3:47, 153154
and direct method for overall
statement of cash flows,
3:289290
and financial reporting issues, 3:615
on income statement, 3:153154
and indirect method for overall
statement of cash flows,
3:290293
per employee, 3:371
in ROE, 5:172174
net interest margin, 3:370
net investment, 2:230
net loss, 3:47
net-of-fees returns
Calculation Methodology (GIPS
Section I.2), 1:210
defined, 1:241
Disclosure (GIPS Section I.4), 1:212

Level I Curriculum Index

GIPS Advertising Guidelines (GIPS


Section III), 1:231
hedge fund, 6:160, 168
Presentation and Reporting (GIPS
Section I.5), 1:215
Private Equity (GIPS Section I.7),
1:221, 222
Real Estate (GIPS Section I.6), 1:218,
220
net-of-fees SI-IRR, 1:219, 223
net operating cycle, 4:149
net operating income (NOI), 5:487;
6:191192
net present value (NPV), 1:332334;
2:99; 4:1621
in capital-budgeting decisions, 4:41
defined, 4:1011
and IRR, 4:1112
NPV profile, 4:1618
ranking conflicts between IRR and,
4:1821
and stock prices, 4:2526
net profit margin, 3:355, 356
calculation of, 3:326
defined, 3:356
and income statement ratios, 3:196
in ratio analysis, 3:325
net realisable value (NRV), 3:221222,
402
net reporting of revenues, 3:166167
net return, 4:281
Netscape, 2:186
net tax rate, 2:398
network effects, in monopolies, 2:186
net working capital, in credit analysis,
5:597
neutrality, in financial reporting, 3:579
neutral rate of interest, 2:380
new accounts, temporary, 1:211, 244
New Century Financial, 3:577
new classical macroeconomics, 2:309
New Classical school of economic
thought, 2:309313
new entrants, in strategic analysis,
5:205208
new equity issuance indicator,
1:703704
new firms, starting, 1:112
new-issue DRPs, 4:114
New Keynesians, 2:311
new media, retention of information on,
1:147
Newmont Mining, 5:274
new product bias, of price index, 2:320
new products
capital budgeting for, 4:7
financial reporting standards for,
3:133
newspaper publishers, productivity of,
2:138
New York Mercantile Exchange
(NYMEX), 5:23
New York Society of Security Analysts,
1:663
New York Stock Exchange (NYSE), 6:9
ADRs on, 5:167168
Arms index, 1:701702
correlations of stocks, 4:312
cross-sectional data from, 1:569

I-61

industry concentration and pricing


power of, 5:209
information availability of, 5:122
intermarket analysis, 1:708
minimum share listing price, 4:119
required disclosures, 4:207
trading volume, 4:364
New Zealand
business investment, 2:267
current account imbalance, 2:466
exchange rate regime, 2:523
export subsidies, 2:445
as GIPS country sponsor, 1:205
and IFRS, 3:115
inflation targeting, 2:371, 373375
in MSCI EAFE, 1:380
in MSCI multi-market index, 5:96
Policy Targets Agreement, 2:374375
real equity returns, 1:373
returns on equities, bonds, and bills,
5:152, 153
stock ownership in, 5:154
New Zealand dollar, 2:487, 504, 505n.4
New Zealand Stock Exchange, 1:515
Nicaragua, 3:114
Nigeria
and IFRS, 3:115
in MSCI multi-market index, 5:96
Nigerian Federal Executive Council, 3:115
Nikkei 225 Index, 1:672
Nikkei 300 Index, 4:346
Nikkei 500 Index, 4:241243
Nikkei-Dow Jones Average, 1:378,
565566
Nikkei Stock Average, 5:103
Nikon Corporation, 5:223
Nintendo, 2:428
NIPA. see National Income and Product
Accounts
Nissan Motor Company, 5:268
no arbitrage, principle of, 6:70
no-arbitrage value, 5:399
nodes, 1:475, 526
NOI. see net operating income
no IRR problem, for capital projects,
4:2224
noise, on point and figure charts, 1:669
Nokia Corporation, 3:553555, 573
576; 5:217
Nokia Siemens Networks, 3:574
no-load funds, 4:256
nominal exchange rates, 2:488492
nominal GDP, 2:214217
nominal interest rates, 2:358360
nominal rate. see coupon rate
nominal returns
of asset classes in other countries,
4:290
of asset classes in United States,
4:287288
defined, 4:282
of hedge funds, 6:166
nominal risk-free interest rate, 1:279
nominal scales, 1:364
nominal wages, 2:248, 251
nominations, of board members,
4:224225
nominations committee (board of
directors), 4:209210

Nomura, 5:30
non-accelerating inflation rate of
unemployment (NAIRU), 2:324
non-agency residential mortgage-backed
securities, 5:484487
defined, 5:473
external credit enhancements, 5:486
internal credit enhancements,
5:485486
non-amortizing loans, 5:490, 491
non-audit services, of audit companies,
4:205
nonbank finance companies, 4:176
non-callable, non-convertible perpetual
preferred shares, 5:252, 253
non-cash activities, on cash flow
statements, 3:267269
noncompete agreements, 1:107
non-conforming loans, 5:475
noncontrolling interest, 3:17, 243
nonconventional cash flow, 4:9
noncorrection of known errors, 1:48
non-cumulative preference shares, 5:160
non-current assets
on balance sheets, 3:215, 228239
Apple Inc., 3:229
financial assets, 3:236239
goodwill, 3:233236
intangible assets, 3:231236
investment property, 3:230231
property, plant, and equipment,
3:229230
SAP Group, 3:228229
defined, 3:46
non-current liabilities, 3:511562
balance sheets, 3:239241
of Apple Inc., 3:240
deferred tax liabilities, 3:241
long-term financial liabilities,
3:240241
of SAP Group, 3:239240
bonds payable, 3:512530
amortisation of bonds, 3:516520
debt covenants, 3:525527
derecognition of debt, 3:523525
fair value reporting, 3:520523
issuance of bonds, 3:512516
presentation of long-term debt,
3:527530
defined, 3:512
leases, 3:530548
advantages of, 3:530531
finance vs. operating, 3:531548
pension plans, 3:548551
practice problems, 3:558560
solutions to problems, 3:561562
solvency of, 3:551555
non-cyclical companies, 5:190191, 592
nondeliverable forwards (NDFs)
(contracts for differences),
5:2021; 6:17
nondiscretionary goods, 2:48
non-domestic equity securities,
5:163168
depositary receipts, 5:166168
direct investing in, 5:165
nondurable goods, 2:300, 301
nonfinancial assets, purchase of, 2:462
nonindependent board members, 4:194

I-62
non-investment-grade bonds, 5:582
and classification of bond market, 5:344
credit analysis of, 5:618, 622625
credit risk with, 5:297
non-investment grade credit ratings, 5:618
nonmarket securities, weight of, 4:378
non-mortgage asset-backed securities,
5:490494
auto loan receivable-backed securities,
5:491493
credit card receivable-backed
securities, 5:493494
non-operating items
financial reporting quality issues with,
3:616
on income statements, 3:183184
nonparametric inference, 1:637642
and parametric tests, 1:637638,
641642
and tests with correlation, 1:639641
use of, 1:638
nonparametric test, 1:638
non-participating preference shares,
5:160
non-price competition, 2:155
non-public companies, related-party
transactions with, 3:613
nonpublic information, 5:128
acting on, 1:63, 66
analyst recommendations as, 1:6566
controlling, 1:64
defined, 1:58
material (see Material Nonpublic
Information [Standard II(A)])
standards for priority of transactions
with, 1:158
nonrated debt, cost of, 4:44
non-recourse loans, 5:473
non-recurring items
financial reporting quality issues with,
3:616
on income statements, 3:178183
and changes in accounting policies,
3:181183
discontinued operations, 3:178179
extraordinary items, 3:179180
unusual and infrequent items,
3:180181
non-recurring restructuring events,
3:582
non-renewable resources, 2:268
non-satiation, assumption of, 2:6566
non-senior bond classes, 5:485
non-sovereign bonds, 5:304, 365, 366
non-sovereign governments, 5:297
nonsystematic risk, 4:354356
non-traded investments, valuation of,
6:172
no par shares, 3:242
Nordstrom, Inc., 1:386
normal distribution, 4:292
confidence intervals for population
mean with, 1:578
cumulative probabilities for, 1:722723
estimating probability with, 1:539
hypothesis tests of normallydistributed populations
difference between population
means, 1:623627

Level I Curriculum Index

differences between variances,


1:634635
mean differences, 1:629631
single population mean, 1:617620
value of population variance, 1:632
normal distribution of continuous
random variables, 1:531539
applications of, 1:537539
and probabilities for common stock
portfolio, 1:536
safety-first optimal portfolio,
1:537539
reliability factors for confidence
intervals based on, 1:578579
skewed vs., 1:420422
standard, 1:532, 722723
Students t-distribution vs., 1:580581
normal goods
and consumer response to income
changes, 2:81
and income elasticity of demand,
2:5051
and substitution/income effects,
2:8487
normal profit, 2:98101
Norse Energy Corp., 3:609
North Africa, trade-to-GDP ratio,
2:426
North America, 3:114; 6:185. see also
United States; specific countries
North American Free Trade Agreement
(NAFTA), 2:448, 450451
North American Industry Classification
System (NAICS), 2:138; 5:197
Northern Rock Bank, 2:361362;
4:189
Northern Telecom, 4:237
Northern Trust, 5:210
Northwestern University, 4:246
Norwalk Agreement, 3:112
Norway
exchange rate regime, 2:523
as GIPS country sponsor, 1:205
IFRS adoption, 3:114
inflation targeting, 2:371
in MSCI multi-market index, 5:96
real equity returns, 1:373
returns on bonds, bills, and equities,
5:153
share repurchases, 4:123
total returns, 1:380, 383
Norwegian Government Pension FundGlobal, 4:249
Norwegian krone, 2:487; 5:345
Norwegian Society of Financial Analysts,
1:205
no securities laws (NS) countries,
1:2425
notching, 5:583
not equal to alternative hypothesis,
1:608, 609, 635
notes
bonds vs., 5:17
corporate, 5:371374
credit-linked, 6:31
equity-linked, 5:325
exchange-traded, 5:19
floating-rate, 5:298299, 320321
medium-term, 5:371

privately placed, 5:492


publicly offered, 5:492
US Treasury, 5:361, 529530
variable-rate, 5:321
notes payable, 3:226
notes to financial statements
disclosures in, 3:126
in financial statement analysis, 3:2426
by PACCAR, 3:571
notice period, hedge fund, 6:159
notification
changes to investment process,
1:142144
client bonus compensation, 1:116117
Code and Standards, 1:114
of errors, 1:144
fund mandate change, 1:142
known violations, 1:27
outside compensation, 1:117
of risks/limitations, 1:145146
notional principal
in currency swaps, 6:23n.12
defined, 6:23
as measure of OTC market, 6:39
Novarra, 3:575
Novartis AG
industry concentration and pricing
power, 5:209
in pharmaceutical industry, 5:189
ROE for, 5:173175
strategic analysis, 5:219221
Novartis Group, 3:587, 641
Novo Nordisk, 3:550551
NPV. see net present value
NPV profile, 4:1618
NPV rule
defined, 1:333
evaluating programs with, 1:334
and IRR rule, 1:336339
NRV. see net realisable value
NS countries. see no securities laws
countries
null hypothesis, 1:608609
number of days of inventory, 4:147, 171
number of days of payables, 3:340, 344;
4:147, 174
number of days of receivables, 4:146,
167
numeraire, 2:520n.10
NYMEX. see New York Mercantile
Exchange
NYSE. see New York Stock Exchange
NYSE-Euronext
dividend payment time line, 4:121122
as exchange, 5:29
total market capitalization in, 5:151, 152
O
OAS. see option-adjusted spread
OAS duration, 5:529
objective probabilities, 1:460
objectives
of central banks, 2:364
of financial analysis, 3:319320
of financial reporting, 3:100102
of financial reports, 3:117118
of firms, 2:9697
of monetary policy, 2:364367
of trade organizations, 2:472474

Level I Curriculum Index


objectives (investment), 4:271272
establishing, 1:77
in IPSs, 1:93, 148
return, 4:401402
risk, 4:396401
of strategic asset allocation, 4:414415
Objectives and Principles of Securities
Regulation (IOSCO), 3:107
objectivity. see Independence and
Objectivity [Standard I(B)]
occupancy rate, 3:371
OCI. see other comprehensive income
odds, probabilities stated as, 1:460463
OECD. see Organisation for Economic
Co-Operation and Development
off-balance-sheet financing, 3:662669
offering day, 5:355
offerings
best efforts, 5:5051
initial public
defined, 5:50
in markets, 5:5052
and pricing anomalies, 5:135
and venture capital, 5:162
public, 5:5053
rights, 5:52
seasoned, 5:50
underwritten, 5:50, 51
offer prices, 5:44, 555
Office of the Comptroller of the
Currency, 2:363; 3:103
Office of the Superintendent of Financial
Institutions, 2:362
official interest rate (official policy rate),
2:367368
off-market forwards, 6:83
offsetting transactions, with futures,
6:19
off-the-run securities, 5:429
OHalloran, Elizabeth, 4:47n.16
oil, supply and price of, 2:248
oil and gas industry, 3:579580
oil services industry, strategic analysis
of, 5:219221
oligopoly, 2:175184
characteristics of, 2:155
defined, 2:153154
demand analysis and pricing strategies,
2:176182
long-run equilibrium, 2:184
optimal price and output, 2:183184
supply analysis, 2:182183
Oman, 2:378; 5:96
omissions, 1:45
1 and 10 fee structure, 6:166
one price, law of, 6:47, 67
one-share/one-vote standard, 4:220
one-sided (one-tailed) hypothesis test,
1:608
one-time sales, 3:616
Ontario Securities Commission, 5:29
on-the-run securities, 5:361, 429
OPEC. see Organization of Petroleum
Exporting Countries
open book credit accounts, 4:162
open economies, 2:424
benefits of trade, 2:429
investment in, 2:464
national income identity, 2:463

I-63
open-end funds, 1:221, 241, 249251;
4:256; 5:18
open interest, 6:20
open-market DRPs, 4:113
open market operations, 2:367; 5:352
open markets, share repurchases in,
4:124125
operating activities
on cash flow statement, 3:267,
283287
cash for income taxes, 3:287
cash for interest, 3:287
cash for other operating expenses,
3:286287
cash from customers, 3:283284
and cash generation activities,
3:607608
cash to employees, 3:286
cash to suppliers, 3:284286
direct vs. indirect reporting method,
3:606607
defined, 3:22, 42
operating breakeven points, 4:98100
operating cash flows (cash flow from
operating activities), 3:269280;
5:250, 597, 619
direct-format statement under IFRS,
3:274276
financing vs., 3:269
indirect-format statement under IFRS,
3:271274
under US GAAP, 3:276280
operating cycle, 4:149
operating efficiency ratios, 3:340. see
also activity ratio(s)
operating history, as company
fundamental, 5:593
operating income
coefficient of variation for, 3:370
and degree of operating leverage, 4:95
enterprise value and, 5:274
operating leases, 4:44n.11
accounting/reporting by lessee,
3:532543
accounting/reporting by lessor,
3:543548
and adjustments to debt, 3:666668
analyst adjustments for, 3:663669
coverage ratio for, 3:668669
finance vs., 3:531548
financial statement impact of,
3:546548
operating leverage, 3:351; 5:592. see also
degree of operating leverage
operating margins, 3:616
operating profit
defined, 3:18
and depreciation method, 3:603604
EBIT vs., 3:154
forecasts of, 3:639640
on income statement, 3:154155
operating profit margin, 3:355, 356
defined, 3:356
and depreciation method, 3:603604
and income statement ratios, 3:197
operating risk
defined, 4:53, 84
and leverage, 4:8591
operating ROA, 3:356

Operating Segments (IFRS 8), 5:189n.1


operational efficiency, 3:647
operational independence, 2:371, 372
operationally efficient financial systems,
5:5859
operations, statement of, 3:17. see also
income statements
opinion paragraph, audit report, 3:28
opinion polls, 1:697
opinions
about CFA Program or Institute,
1:166
audit, 3:28
of credit rating agency, 1:3334
facts in reports vs., 1:140
group research, 1:132
integrity of, 1:35
providing, as facts, 1:141
Oppenheimer, Peter, 3:9
opportunity cost(s), 1:278; 2:78, 165; 4:8,
9; 6:63, 65
opportunity set, 2:7479
and budget constraint, 2:7577
investment, 2:7879
production, 2:7778
optimal output
in monopolies, 2:189190
in monopolistic competition, 2:173
in oligopolies, 2:183184
in perfect competition, 2:165169
optimal portfolio, 4:271392
beta, 4:356363
calculation and interpretation,
4:359360
estimation, 4:360361
and expected return, 4:361363
return-generating models, 4:356357
and capital asset pricing model,
4:363382
applications, 4:368379
assumptions, 4:363365
extensions, 4:381382
limitations, 4:379380
security market line, 4:365368
and capital market theory, 4:342354
capital market line, 4:346354
risk-free and risky assets, portfolio of,
4:342346
and efficient frontier, 4:316327
indifference curve, 4:322323
investment opportunity set,
4:316317
investor preferences and optimal
portfolio, 4:327
minimum-variance portfolios,
4:317319
portfolio selection example,
4:322327
risk-free assets, 4:319322
and investment characteristics of
assets, 4:272295
distributional characteristics,
4:292294
market characteristics, 4:294295
return characteristics, 4:272286
as investor objective, 4:271272
for investor with heterogeneous beliefs,
4:378379
optimal risky portfolio, 4:341342

I-64

optimal portfolio (continued)


and portfolio risk, 4:304315
diversification of risk, 4:310315
portfolio with many risky assets,
4:309310
portfolio with two risky assets,
4:304309
practice problems, 4:330336, 384389
pricing of risk, 4:354356
and risk aversion, 4:295304
concepts, 4:295296
indifference curves, 4:297299
utility theory, 4:296304
solutions to problems, 4:337340,
390392
optimal price
in monopolies, 2:189190
in monopolistic competition, 2:173
in oligopolies, 2:183184
in perfect competition, 2:165169
optimal risky portfolio
and capital market line, 4:348
and homogeneity of expectations,
4:345346
portfolio selection for, 4:341342
option-adjusted price, 5:412413
option-adjusted spread (OAS), 4:44n.10,
45n.13; 5:432, 611
option-adjusted yield, 5:413
optionlike features, debt with, 4:44
option premium (option price), 5:24; 6:26
option pricing models, volatility in,
1:543544. see also specific
models, e.g.: BlackScholes
Merton model
options (options contracts), 5:327; 6:25
30, 33. see also embedded options;
specific types, e.g.: call options
agent, 1:154
binomial valuation of, 6:100104
call, 1:527, 546547, 551, 555; 5:24
commodity, 6:195
in contract markets, 5:2425
dealers of, 5:35
defined, 6:7, 25, 61
European-style, 1:546547, 554
forward commitments vs., 6:30
forwards and futures vs., 6:119
forwards vs., 5:25
in FX market, 2:496
implied volatility with, 6:41
long and short sides of, 5:39
notation for, 6:120
pricing, 6:85100, 104107
American options, 6:104107
European options, 6:85100
put, 1:554; 5:24, 623
on stocks, 6:36
underlying risk exposures of, 5:39
options strategies for equity portfolios,
6:119143
buying or short selling stock,
6:121123
with long and short positions, 6:123129
calls, 6:123126
puts, 6:126129
and notation for options, 6:120
and options vs. forwards and futures,
6:119

Level I Curriculum Index


practice problems, 6:138140
for risk management, 6:129136
covered calls, 6:130133
protective puts, 6:133136
solutions to problems, 6:141143
option writers, 5:24
Oracle Corporation, 4:132
Orange County, California, 6:44
order-driven markets, 5:5457
ordering costs, 4:170
Order Machine, 5:30
order matching rules, 5:55
order precedence hierarchy, 5:55
orders, 5:4450
clearing instructions for, 5:4950
execution instructions for, 5:4548
size/frequency of, 2:181
validity instructions for, 5:4849
ordinal rankings, 2:67
ordinal scales, 1:364
ordinary annuities, 1:288
and annuity due, 1:295297
with equal cash flows, 1:288290
present value of, 1:295, 301
projected present value of, 1:297298
ordinary shares, 3:184185; 4:112
ordinary terms, 4:162
Organisation for Economic
Co-Operation and Development
(OECD)
capacity utilization, 2:243
cyclically adjusted budget deficit, 2:401
economic indicators, 2:329
GDP reported by, 2:210
government liabilities/debt for, 2:392
government revenues/expenditures by,
2:387, 388
institutional assets in member
countries, 4:244245
net borrowing/lending by, 2:389
spillover effects for, 2:450
trade-to-GDP ratio, 2:426, 427
Organization for the Harmonization of
Business Law, 3:115
Organization of Petroleum Exporting
Countries (OPEC), 2:176, 181
organized exchanges, 5:359
original issue discount tax provision,
5:314
originators, in securitization process,
5:464
Osborne, George, 2:465
oscillators. see momentum oscillators
sterreichische Vereinigung fr
Finanzanalyse und Asset
Management, 1:204
OTC derivatives market. see over-thecounter derivatives market
OTC markets. see over-the-counter
markets; quote-driven markets
other comprehensive income (OCI)
accumulated, 3:242243
defined, 3:47n.4, 198
on income statements, 3:200201
on statement of comprehensive
income, 3:1920
other current assets, on balance sheets,
3:223224
other operating expenses, 3:286287

other receivables, 3:46


outcomes, of random variables, 1:458
outflows, 1:334
out-of-date information, 1:5253
out-of-sample tests, 1:586
out of the money, 6:27, 87
output
aggregate, 2:208226
in economy, 2:209210
in gross domestic product, 2:210226
full employment/natural level, 2:240
optimal
in monopolies, 2:189190
in monopolistic competition, 2:173
in oligopolies, 2:183184
in perfect competition, 2:165169
optimization of, 2:120125
productivity in terms of, 2:138141
recessionary gap in, 2:296
value of final output method for GDP,
2:211212, 222
outside compensation, 1:117
outside information, verifying, 1:47
outside organizations, referral
arrangements with, 1:164
outside parties, referral arrangements
and, 1:162164
outsourcing, 2:428
overall payroll employment, 2:315316
overall statement of cash flows,
3:289294
direct method, 3:289290
adjustments to net income,
3:289290
converting indirect and, 3:293294
defined, 3:23, 270
indirect method, 3:290293
adjustments to net income,
3:290293
converting direct and, 3:293294
defined, 3:23, 270271
overbought conditions, 1:690
overcapacity, 5:208
overcollateralization, 5:306, 486
overconfidence, 5:137
overdraft lines of credit, 4:175
overinvestment, in inventory, 4:168
overnight indexed swaps, 6:23
overnight repo, 5:378
overreaction anomalies, 5:132
oversold conditions, 1:690
over-the-counter (OTC) derivatives
market, 6:1114
equities market vs., 6:910
exchange-traded vs., 6:1314
size of, 6:3839
over-the-counter (OTC) markets, 2:494;
5:55, 167168, 359. see also quotedriven markets
overvalued (term), 5:244
Owens Corning Corporation, 4:101
102, 237
owner-of-record date, 4:121
owners, business risk for, 4:100102
owners equity. see also equity
accounting equation, 3:4647
defined, 3:12, 44, 212
in residential properties, 6:187
statement of, 3:68

Level I Curriculum Index

ownership
beneficial, 1:158, 159
of completed prior work, 1:111
of firms records, 1:147, 148
of real estate, 6:186188
stock, 1:151153
voting rights of shareowners and,
4:220221
own-price (term), 2:10
own-price elasticity of demand,
2:4350
about, 2:4348
calculating, 2:53
and total expenditure, 2:4850
P
Paasche index, 2:320
PACCAR, 3:570572
PAC tranches. see planned amortization
class tranches
paid-in capital, 1:241
paired comparisons test, 1:628
paired observations, 1:628
paired transactions, in BOP system,
2:460462
pairs arbitrage trade, 1:461
Pakistan
board member regulations, 4:200n.15,
201
GDP vs. GNP, 2:423
as GIPS country sponsor, 1:205
and IFRS, 3:115
in MSCI multi-market index, 5:96
Panama, 2:522, 523; 3:114
panda bonds, 5:311
panel data, 1:571n.3
Pan-European Aggregate Bond Index,
5:351
Papaconstantinou, George, 2:473
Paraguay, 2:448; 3:114
parallel shift, 5:537
parameters, 1:363, 566. see also specific
parameters
parametric tests, 1:637638, 641642
par curve, 5:423424
parent companies, on income
statements, 3:17
pari passu ranking, 5:576, 624
parity value, 5:331
Parmalat, 3:577; 4:189; 5:586
partial duration, 5:530
partial equilibrium analysis, 2:21
partial fills, 1:85
partially amortized bonds, 5:316318
partially amortizing loans, 5:472
participating preference shares, 5:160
participation ratio, 2:314
partnerships
broker-sponsored limited, 1:151
limited, 5:18, 26
Partnoy, Frank, 4:191n.8
par value (face value)
of bonds, 1:478479; 3:512515
of common shares, 3:242
of fixed-income securities, 5:298
and market discount rate, 5:390
of T-bills, 1:346
passing exams in consecutive years,
1:174175

I-65

passive crawling peg currency regime,


2:525
passive investment strategies, 5:117
passive management, 6:155
passive portfolio management, 5:129
passive portfolios, 4:346
passive strategies
borrowing, 4:177
short-term investing, 4:157
pass-through rate, 5:474
passthrough securities, on investment
pools, 5:32
patents, 2:185
path dependence, 5:218n.14
payable date, 4:121
payables
accounts payable
in accrual accounting, 3:7071
as current liability, 3:226
bonds payable, 3:512530
and amortisation of bonds,
3:516520
debt covenants, 3:525527
derecognition of debt, 3:523525
disclosure of long-term debt,
3:527530
fair value reporting, 3:520523
and issuance of bonds, 3:512516
presentation of long-term debt,
3:527530
income tax payable, 3:224, 226, 475
notes payable, 3:226
number of days of payables, 3:340, 344
payables turnover, 3:340, 344
payback period
capital budgeting, 4:1214
discounted, 4:1415
drawbacks of, 4:1314
payment chronology for dividends,
4:120123
capitalizing on, 4:122123
declaration date, 4:120
ex-dividend date, 4:120122
holder-of-record date, 4:121
interval between dates, 4:121123
NYSE Euronext time line, 4:121122
payment date, 4:121
payment date, dividend, 4:121122
payment-in-kind (PIK) coupon bonds,
5:322
payments. see also balance of payments
(BOP) system
central banks in payments system, 2:363
fixed-rate mortgage, 1:306
forms of, 2:209
as pull on liquidity, 4:144
receivable, 1:619620
transfer, 2:219, 394395
on underlying assets, 6:9091
payments-in-lieu of dividends, 5:40
payoffs
from call options, 6:2628
with contingent claims, 6:25
from forward contracts, 6:1516
with futures, 6:2021
from put options, 6:2830
payout, 4:112
payout policy, dividend, 4:112
payout ratio, 4:115, 118n.8; 5:264267

pay-to-play scandals, 1:34


P/B. see price-to-book ratio
PCAOB. see Public Company
Accounting Oversight Board
PCE. see personal consumption
expenditures
PCE index, 2:321, 322
P/CF. see price-to-cash flow ratio
PCP. see Professional Conduct Program
PDI. see personal disposable income
P/E. see price-to-earnings ratio
peak phase (business cycle), 2:290294,
299
Pearson coefficient of skewness,
1:422n.42
peer-assessments, boards of directors,
4:201
peer comparison ratios, 3:650
peer group(s), 4:216; 5:198202
penal sum, 5:307
penalties, prepayment, 5:472
pennant patterns, 1:686687
pension funds
investment restrictions for, 4:405
regulation of, 5:62
pension plans
defined benefit, 1:545; 3:548, 549;
4:245; 5:528
defined contribution, 3:548549; 4:244
disclosure of, 3:550551
as non-current liabilities, 3:548551
Pensions Act (1995), 4:394
Pensions Regulator, 4:394
pension trust fund, 3:549
Pentax Imaging Company, 5:223
Peoples Bank of China, 5:461
PEPI. see Thomson Reuters US Private
Equity Performance Index
PepsiCo, Inc., 5:209, 211
per capita real GDP, 2:214
percentage-of-completion method of
revenue recognition, 3:160162
%D (stochastic oscillator), 1:694695
percentiles, 1:395399
%K (stochastic oscillator), 1:694695
perfect competition, 2:156171
breakeven point in, 2:116117
characteristics of, 2:155
defined, 2:153
demand analysis, 2:157164
and consumer surplus, 2:162164
cross-price elasticity of demand,
2:161
elasticity of demand, 2:158160
income elasticity of demand,
2:160161
and innovation, 2:171
long-run equilibrium, 2:169170
LRATC in, 2:126127, 130131
and oligopoly, 2:184
optimal price in, 2:165169
output optimization in, 2:121124,
165169
and profit maximization, 2:103
revenue in, 2:104105
short-run supply curve in, 2:115116
shutdown point in, 2:116
SRATC in, 2:129130
supply analysis, 2:164165

I-66
perfectly elastic demand, 2:4647
perfectly inelastic demand, 2:4647
perfect price elasticity, 2:160
perfect price inelasticity, 2:160
performance
of hedge funds, 5:103
risk-adjusted, 5:94
standards for, 5:61
performance appraisal, 1:339, 399
performance attribution, industry
analysis in, 5:188189
performance-based compensation,
4:215
performance-based fees, 1:212, 241
performance bond, 6:11
performance calculation, 1:100101
performance evaluation, 1:339n.8.
see also portfolio performance
evaluation
benchmarks for, 1:93
objectivity of, 1:33
ratios for, 4:370372
with selected accounts, 1:100
performance examination report, 1:236,
242
performance examinations
defined, 1:242
Disclosure (GIPS Section I.4), 1:212
Verification (GIPS Section IV), 1:236
performance fees
for fund investments, 6:158
and risk, 6:202
performance measurement,
1:339; 4:254
performance presentation, 1:99100
Performance Presentation [Standard
III(D)], 1:97101
application of the standard, 1:98101
compliance procedures, 1:98
guidance, 1:9798
text of, 1:17, 97
performance reporting, 1:4445,
429430; 4:254
period costs, 3:169
periodic inventory systems, 3:400401
periodicity, 1:242; 4:52; 5:408, 420, 421
periodicity conversions, 5:408410
periods, number of, 1:305
PerkinElmer, 5:158159
permanent crops, 6:189
permanent differences, in taxable and
accounting profit, 3:484485
permutation, 1:494
permutation formula, 1:494495
Pernod Ricard, 5:209
perpetual bonds, 5:298
perpetual inventory systems, 3:400401
perpetuities, 5:531
defined, 1:288
present value of, 1:298299
and present value of ordinary annuity,
1:301
present value of projected, 1:300
perquisites, 4:216
personal actions, 1:55
personal consumption expenditures
(PCE), 2:321, 322
personal disposable income (PDI), 2:224
personal income, 2:224

Level I Curriculum Index


personal trading, 1:70
and conflict of interest, 1:155
disclosure of, 1:160, 161
limitations on, 1:62
and market manipulation, 1:6970
priority of transactions for, 1:157
personal use of company assets,
4:213214
personnel
preventing overlap of, 1:62
privy to recommendation, 1:84
reporting requirements for,
1:159160
Peru, 2:213214, 371, 522; 3:114; 5:96
per unit contribution margin, 4:87
per-unit tax, 2:3942
peso (Mexico), 2:487; 5:10
Peterson, James D., 4:53n.27
pet projects, 4:7
Petroleo Brasileiro ADRs, 1:695696
Petroleo Brasileiro SA (Petrobras),
5:264265
Pfizer Inc.
credit ratios for, 5:602
in pharmaceutical industry, 5:189
ROE for, 5:173175
strategic analysis, 5:219221
pharmaceutical industry
credit ratios for, 5:602603
similar companies in, 5:189
strategic analysis for, 5:219221
Philip Morris, 5:209
Philippines
Asian financial crisis, 2:429
exchange rate regime, 2:523
exports from, 2:428
and IFRS, 3:115
inflation targeting, 2:371
in MSCI multi-market index, 5:96
Philips, 1:397
photographic film industry, 5:223
physical capital
aggregate supply, 2:251
and business cycle, 2:295, 296
defined, 2:230
and economic growth, 2:266267
as factor of production, 2:108
and labor productivity, 2:270
and long-term aggregate supply, 2:250,
251
physical delivery. see delivery
physical settlement, of contracts, 5:20
PI. see profitability index
PIC multiple
defined, 1:242
Private Equity (GIPS Section I.7),
1:223
Real Estate (GIPS Section I.6),
1:219220
PIK coupon bonds. see payment-in-kind
coupon bonds
Pinto, Jerald, 4:41n.5, 42n.7
Piotowski, John, 5:342n.1
PIPEs. see private investments in public
companies
pips, 2:511
plagiarism, 1:4951
and misrepresentation, 1:4546
policies on, 1:47

plain vanilla (conventional) bonds, 5:298


cash flows for, 5:300, 315
outstanding, 5:332
plain vanilla swaps, 6:22, 37
planned amortization class (PAC)
tranches, 5:481483
planning horizon, 2:125
planning step (portfolio management),
4:250251
platykurtic, 1:425
Playtech, 5:5152
Plaza Accord, 2:526
pledges, negative, 5:307
P&L statements. see income statements;
profit and loss statements
PME. see public market equivalent
point and figure charts, 1:668670
The Point and Figure Method of
Anticipating Stock Price Movements
(de Villiers and Taylor), 1:668
point estimates, 1:577
point estimators, 1:575577, 578n.13
point of sale (POS) systems, 4:164
Poland
exchange rate regime, 2:523
IFRS adoption, 3:114
inflation-linked bonds, 5:324
inflation targeting, 2:371
in MSCI multi-market index, 5:96
policy costs, 4:170
policy portfolios, risk objectives for,
4:396
policy rate, 2:367368
Policy Targets Agreement, 2:374375
political risk, 5:626627
Polly Peck International (PPI), 3:577
pooled estimates, 1:623624
pooled investments, 4:254265;
5:1819, 32
buyout funds, 4:265
confidential voting on, 4:222n.32
exchange traded funds, 4:261263
hedge funds, 4:263264
mutual funds, 4:254261
about, 4:254258
types of, 4:258261
separately managed accounts, 4:263
venture capital funds, 4:265
pooled real estate vehicles, 6:187
population, 1:363
population mean, 1:378379
estimates of, 1:575585
confidence intervals, 1:577582
point estimators, 1:575577
sample size, 1:583585
test static for single, 1:617, 620
population standard deviation, 1:406
408; 4:284
population variance, 1:405
Porsche, 2:174
Porter, Michael, 2:156; 5:205, 228, 591
Porter, R. Burr, 4:64n.41
Porters five forces, 2:156
portfolio(s)
bond, 5:536538
Calculation Methodology (GIPS
Section I.2), 1:210
Composite Construction (GIPS
Section I.3), 1:210, 211

Level I Curriculum Index


composition of, 4:240241
defined, 1:242
developing, 1:7576
Disclosure (GIPS Section I.4), 1:212,
213
discretionary, 1:210
duration of, 5:536538
equity (see options strategies for equity
portfolios)
expected defaults in, 1:525526
expected returns
calculation of, 1:480481
and variance of return, 1:485486
Fundamentals of Compliance (GIPS
Section I.0), 1:208
GIPS Valuation Principles (GIPS
Section II), 1:227
hedge, 6:46
Input Data (GIPS Section I.1), 1:209
as investment approach, 4:235236
and diversification, 4:236238
and downside risk, 4:241243
and modern portfolio theory,
4:243244
and portfolio composition,
4:240241
and riskreturn tradeoff, 4:238240
measurement of returns, 1:339346
money-weighted rate of return,
1:340341, 344346
time-weighted rate of return,
1:341346
weighted mean, 1:389390
MSPs, 1:225
and positions, 5:38
Presentation and Reporting (GIPS
Section I.5), 1:215
probabilities for common stock, 1:536
Real Estate (GIPS Section I.6), 1:217,
219, 220
suitability of investment for, 1:9495
Verification (GIPS Section IV),
1:233235
wrap fee/SMA (see Wrap Fee/SMA
Portfolios [GIPS Section I.8])
portfolio beta, SML and, 4:367368
portfolio company
defined, 6:179
valuation of, 6:183184
portfolio construction, 4:410424
about, 4:410411
capital market expectations, 4:411
and CAPM, 4:376379
implementing investment strategy,
4:419423
organizing principles for, 4:423424
and portfolio management, 4:251253
strategic asset allocation, 4:411419
for European charity, 4:421423
objective of, 4:414415
for private investor, 4:418419
specifying asset classes for,
4:412413
portfolio demand for money, 2:355
portfolio management, 4:235269
active
information-motivated trading in,
5:10
manager performance, 5:129

I-67
manager selection, 5:116
security market indices in, 5:95
with fixed-income securities,
5:295296
investing in portfolios vs. single
equities, 4:235236
diversification, 4:236238
downside risk, 4:241243
and modern portfolio theory,
4:243244
and portfolio composition, 4:240241
riskreturn tradeoff, 4:238240
investment clients, 4:244250
individual investors, 4:244
institutional investors, 4:244250
passive, 5:129
pooled investments, 4:254265
buyout funds, 4:265
exchange traded funds, 4:261263
hedge funds, 4:263264
mutual funds, 4:254261
separately managed accounts, 4:263
venture capital funds, 4:265
practice problems, 4:267268
solutions to problems, 4:269
steps in, 4:250254
execution, 4:251253
feedback, 4:253254
planning, 4:250251
portfolio managers, independence of, 1:31
portfolio performance evaluation,
4:369374
example, 4:372374
Jensens alpha, 4:371372, 374
M2, 4:370371
Sharpe ratio, 4:370
Treynor ratio, 4:370
portfolio planning, 4:394410
case studies, 4:399402, 408410
gathering client information,
4:407410
investment policy statements,
4:394407
components, 4:395
investor constraints, 4:402407
legal and regulatory factors,
4:405406
liquidity, 4:402404
return objectives, 4:401402
risk objectives, 4:396401
tax concerns, 4:405
time horizon, 4:404405
unique circumstances on, 4:406407
portfolio returns
defined, 4:280281
for portfolios of risky assets, 4:304,
343344
portfolio risk, 4:304315
diversification, 4:310315
avenues for diversification, 4:313315
correlation and risk diversification,
4:312
historical correlation among asset
classes, 4:313
historical risk and correlation, 4:312
for portfolios of risky assets
with many risky assets, 4:309310
with one risk-free asset, 4:343344
with two risky assets, 4:304309

portfolio selection
and capital allocation line,
4:301304
comprehensive example, 4:322327
for optimal risky portfolio, 4:341342
and risk aversion, 4:301304
with utility theory, 4:301304
portfolio turnover, 1:406408
Portugal
EU membership, 2:448n.18
exchange rate regime, 2:522
GDP vs. GNP, 2:423
as GIPS country sponsor, 1:205
government debt, 2:346
Greek fiscal crisis 2010, 2:451, 452
in MSCI multi-market index, 5:96
public sector spending, 2:347
residential mortgage loans, 5:472
sovereign debt, 5:628629
total returns, 1:380, 383
POSIT, 5:30, 57
positions, 5:3844
leveraged, 5:4144
long, 5:39
short, 5:4041
positive correlation, 4:305
positive externalities, 2:35
POS systems. see point of sale systems
post-auditing, 4:67
posterior probability, 1:490
post-trade transparent markets, 5:58
potential GDP, 2:249
and demand-pull inflation, 2:325
and long-run equilibrium GDP, 2:253
measuring growth of, 2:269271,
273274
production function of, 2:264265
pound (United Kingdom)
EUR/GBP exchange rate, 2:504,
505n.4
exchange rate quotes with, 2:504506
GBP/EUR exchange rate, 2:489, 494
gold standard for, 2:520
identification code, 2:487
international bonds outstanding in,
5:345
as secondary reserve currency, 5:19
USD/GBP currency pair, 2:502
PowerLinx, Inc., 3:600601
power of a test, 1:611
PPE. see long-lived assets; property,
plant, and equipment
PPF. see production possibilities frontier
PPI. see Polly Peck International;
producer price index
PPP. see purchasing power parity
practice, defined, 1:106
Praxair, 5:209
precautionary money balances, 2:355
precautionary stocks, of inventory,
4:168
precious metals, 6:194
precision, point estimator, 1:578n.13
preclearance procedures, 1:160
predictability, of returns, 5:135136
pre-dissemination behavior, guidelines
for, 1:85
prefabricated housing industry,
5:215216

I-68

preference shares (preferred shares;


preferred stock), 5:159161,
170171
callable, 5:159160, 171, 252
common vs., 5:1718
convertible, 5:160
cost of, 4:4546
cumulative, 5:160, 171
defined, 3:242; 5:155
and diluted EPS, 3:187189
fixed rate perpetual, 4:45
non-callable, non-convertible
perpetual, 5:252, 253
non-cumulative, 5:160
non-participating, 5:160
participating, 5:160
retractable term, 5:252254
risk of, 5:170, 171
valuation of, 5:251254
premium(s), 4:290; 5:24, 391. see also
specific types, e.g.: risk premiums
premium bonds
returns on, 5:513
tax provisions for, 5:314
prepaid expenses, 3:70, 223224
Pre-Paid Legal Services Inc., 5:199
prepayment, 6:34
prepayment lockouts, 5:488
prepayment option, residential mortgage
loan, 5:472
prepayment penalties, 5:472
prepayment penalty mortgages, 5:472
prepayment penalty points, 5:488
prepayment rate, 5:475, 478
prepayment risk
and contraction/expansion risk, 5:478
in securitization transactions, 5:466
pre-refunded bonds, 5:488n.14
Presbo, John A., 5:78n.4
Prescott, Edward C., 2:309
presentation(s), 1:99100. see also
compliant presentations
aggressive, 3:573
and detection of financial reporting
issues, 3:591595
of income tax information,
3:493494
of inventory information, 3:404405
of long-lived assets, 3:453460
of long-term debt, 3:527530
of non-GAAP financial measures,
3:573576
Presentation and Reporting (GIPS
Section I.5), 1:214216
about, 1:206207
recommendations
general, 1:216
for private equity, 1:224
for real estate, 1:220
requirements
general, 1:214216
for private equity, 1:222223
for real estate, 1:218219
for real estate closed-end fund
composites, 1:219220
for wrap fee/SMA portfolios, 1:226
sample presentations, 1:246262
asset management company,
1:247248

Level I Curriculum Index

investment firm balanced growth


composite, 1:246247
large-cap SMA composite, 1:260262
Presentation of Financial Statements
(IAS No. 1), 3:125126, 150n.1
present value (PV), 3:122
defined, 1:280
future and, 1:281, 309310
present value of series of cash flows,
1:294302
with equal cash flows, 1:294298
for infinite series of equal cash flows,
1:298299
at other times than t = 0, 1:299301
with unequal cash flows, 1:301302
present value of single cash flow,
1:290294
finding, 1:290293
frequency of compounding,
1:293294
for future lump sum, 1:292293
for lump sum, 1:291292
present value models for equity
valuation, 5:248262
defined, 5:246
examples, 5:250251
Gordon growth model, 5:254258
multistage, 5:258262
other models vs., 5:246248, 276278
preferred stock valuation with,
5:251254
share value for three-year investment
horizon, 5:249
present value of future cash flows
approach, 6:62
present value of growth opportunities,
5:255n.3
Preservation of Confidentiality
[Standard III(E)], 1:17, 101105
application of the standard, 1:103105
compliance procedures, 1:103
guidance, 1:101102
text of, 1:17, 101
presidential cycle, 1:705
press releases, issuing, 1:61
pretax margin, 3:197, 355, 356
pre-tax nominal return, 4:282
pre-trade transparent markets, 5:58
pre-verification procedures, GIPS,
1:233234
price(s)
aggregate, 2:357358
and alternative trade policies, 2:446
ask, 5:44; 6:10n.3, 172
asset, 2:530
artificial volatility in, 1:7072
and head and shoulders patterns,
1:678681
normal distribution as model for, 1:533
and oscillators, 1:690
trends in, 1:661, 662
and volume, 1:671672
autarkic, 2:424, 435
bid, 5:44, 555; 6:10n.3, 172
and budget constraints, 2:76
and consumer demand equilibrium, 2:82
convergence of oscillator and, 1:690
in demand and supply analysis, 2:89,
1718

equilibrium, 2:21, 165166, 356357


and equilibrium GDP, 2:253263
aggregate supply and demand,
2:260263
inflationary gap, 2:257258
long-run equilibrium, 2:253254
recessionary gap, 2:254257
stagflation, 2:259260
exercise, 5:18
covered calls, 6:132
options, 6:26
flat, 5:401404
forward, 6:14, 26
full, 1:348n.14; 5:401404
futures, 6:18, 4041
harmonised index of, 2:321
housing, 2:242243, 246
input, 2:248, 251
law of one price, 5:267
and limit vs. market orders, 5:4546
market, 5:244246
offer, 5:44, 555
optimal
in monopolies, 2:189190
in monopolistic competition, 2:173
in oligopolies, 2:183184
in perfect competition, 2:165169
option, 6:26
option-adjusted, 5:412413
in profit maximization, 2:104
relative, 2:322323
repurchase, 5:378
reservation, 2:27
settlement, 6:18
spot, 6:5, 4041, 197, 199
stability of, 2:364
stock
as Bernoulli random variable,
1:518519
binomial model, 1:526527
and control deficiency disclosures,
1:621623
lognormal distribution for, 1:541
of stock, 2:246
and substitution/income effects, 2:90
and surpluses, 2:2224
and total expenditures, 2:4850
two-sided, 2:505506
and Veblen goods, 2:90
world, 2:424, 425, 435
price-based indicators, 1:687690
price bubbles, 2:26
price ceilings, 2:3637
price collusion, 2:175176, 181
price competition, in strategic analysis,
5:218220
price controls, 2:453
price currency, 2:487, 504
price discovery, 6:4041
price discrimination, in monopolies,
2:190192
priced risk, 4:47
price-driven markets. see quote-driven
markets
price elasticity of demand. see also
elasticity(-ies)
in oligopolies, 2:176
in perfect competition, 2:158160
and trade balance, 2:531535

Level I Curriculum Index


PRICE financial function, 5:403n.1
price floors, 2:3739
price impact, in cost of trading, 4:294
price index. see price return index
price indices, 2:319323
constructing, 2:319320
sub-indices, 2:322323
usage of, 2:320323
price limits, futures, 6:19
price multiples. see also specific price
multiples
defined, 5:263
example valuation based on,
5:270271
and method of comparables,
5:267270
in multiplier models for equity
valuation, 5:264267
price priority, in order-driven markets,
5:55
price relative, 1:541
price return, 5:7981
price return index (price index),
5:7881
price-specie-flow mechanism, 2:520
price-stabilization programs,
transparency about, 4:216218
price takers, 2:103, 154, 159; 4:365
price targets, 1:678682
price-to-book ratio (P/B), 1:588; 3:367,
368; 5:175, 263
price-to-cash flow ratio (P/CF), 3:367,
368; 5:263
price-to-earnings ratio (P/E), 1:383385;
3:367368
for Canon Inc., 5:269270
comparing equity valuation models
with, 5:276278
defined, 5:263
justified value of, 5:264267
in method of comparables, 5:267268
and stock dividends, 4:116
price-to-sales ratio (P/S), 3:367, 368;
5:263, 267268
price value of a basis point (PVBP),
5:538539
price wars, 2:176, 184
PricewaterhouseCoopers, 3:28, 587
price weighting, 5:8385, 92
pricing, 5:230. see also capital asset
pricing model (CAPM)
arbitrage pricing theory, 4:381
derivatives, 6:4552, 59117
about, 6:60
and arbitrage, 6:4752, 6672
definition of derivatives, 6:6062
forward commitments, 6:7385
options, 6:85100, 104107
practice problems, 6:109113
pricing underlying assets, 6:6266
solutions to problems, 6:114117
storage in, 6:4647
valuation vs. pricing, 6:7273
by dominant firms in oligopolies,
2:182183
forward commitments, 6:7385
forward contracts, 6:7380
futures, 6:8082, 198199
and market structure, 2:154

I-69
matrix, 4:43
in oligopolies, 2:176182
options, 6:85100, 104107
American options, 6:104107
European options, 6:85100
risk, 4:354356
of risky assets, 6:64
swap contracts, 6:8285
two-part tariff, 2:8687, 191192
of underlying assets, 6:6266
benefits and costs of holding assets,
6:6466
forming price expectations, 6:6263
pricing of risky assets, 6:64
required rate of return on assets, 6:63
risk aversion of investors, 6:6364
pricing day, 5:355
pricing power, 5:207210
primary dealers, 5:30, 358
primary funds, 1:221224, 242
primary fund vehicle, 1:258260
primary markets
bond, 5:353358
private placements on, 5:354, 358
public offerings on, 5:354358
capital, 5:1314
securities, 5:1415, 5053
defined, 5:14
private placements on, 5:5253
public offerings on, 5:5052
and secondary markets, 5:53
primary sources of liquidity, 4:143
Prime Bank, 5:305
prime brokers, 5:33, 49; 6:170
prime lending rate, 2:331; 5:367
prime loans, 5:485
Princeton University, 4:246
principal (principal amount; principal
value), 1:280; 5:298
principal business activity, industry
classification based on, 5:189
principal repayment structures,
5:315320
for bullet bonds, 5:315318
for corporate notes/bonds, 5:372
for fully amortized bonds, 5:316318
for partially amortized bonds,
5:316318
for sinking fund arrangements,
5:318320
principal value. see par value
principle of no arbitrage, 6:70
prior coverage, 1:38
prior employer
documents and files of, 1:110
in performance presentation, 1:99
prior fund, in performance presentation,
1:99
priority of claims, 5:575, 578579
Priority of Transactions [Standard
VI(B)], 1:157162
application of the standard, 1:160162
compliance procedures, 1:158160
guidance, 1:157158
text of, 1:1819, 157
prior probabilities, 1:489
prior work, ownership of, 1:111
private contracts, 3:588
private energy partnerships, 6:196

private equity, 6:175184


defined, 1:242
diversification benefits, 6:181183
downside frequencies, 6:157
due diligence, 6:184
and GIPS compliance, 1:203
GIPS Valuation Principles (GIPS
Section II) for, 1:228, 229
global assets under management, 6:151
growth in, 6:153
historical returns and volatility, 6:152
investment strategies, 6:177181
exit strategies, 6:180181
leveraged buyouts, 6:177179
minority and distressed, 6:180
venture capital, 6:179180
portfolio company valuation,
6:183184
returns for, 6:182
risk management with, 6:201
sample presentations, 1:253260
Sharpe ratios and downside risk
measures, 6:157
structure and fees, 6:176177
Private Equity (GIPS Section I.7),
1:221224
about, 1:207
Calculation Methodology provisions,
1:221, 224
Composite Construction provisions,
1:222, 224
Disclosure provisions, 1:222, 223
Input Data provisions, 1:221, 224
Presentation and Reporting provisions,
1:222224
recommendations, 1:224
requirements, 1:221223
Private Equity Council, 6:153
private equity funds
as alternative investments, 6:150
defined, 6:154
returns in, 6:181183
private equity securities, 5:15, 161163
private information, 5:128
private investments in public companies
(PIPEs), 5:162
private investors, strategic asset
allocation for, 4:418419
privately placed notes, 5:492
private placements
and alternative funds, 6:158n.13
on bond market, 5:354, 358
limits on, 1:159
on securities market, 5:5253
private sector, size of, 5:627
private value auction, 2:27
privatization, 4:220
probability(-ies), 1:457509
about, 1:458
Bayes formula, 1:488492
for common stock portfolio, 1:536
conditional, 1:462465
consistent, 1:462
correlation, 1:484485
counting, 1:492495
combination formula, 1:494
multinomial formula, 1:493494
multiplication rule of, 1:492493
permutation formula, 1:494495

I-70

probability(-ies) (continued)
defined, 1:459460
events
defined, 1:458
independent events, 1:467470
expected value, 1:471478
defined, 1:471472
of product of uncorrelated random
variables, 1:488
properties of, 1:480
standard deviation, 1:473474
total probability rule for expected
value, 1:474475
tree diagrams, 1:475476
variance, 1:472473
joint, 1:463
joint probability function, 1:486488
marginal, 1:462
multiplication rule for, 1:463, 465
portfolio expected return
calculation of, 1:480481
and variance of return, 1:485486
practice problems, 1:499503
of random variables, 1:488
risk-neutral, 6:102103
rules
addition rule for probability,
1:465466
multiplication rule for expected
value of product of uncorrelated
random variables, 1:488
multiplication rule for probability,
1:463
multiplication rule of counting,
1:492493
total probability rule, 1:469471
solutions to problems, 1:504509
unconditional, 1:462
variance
conditional variances, 1:476479
covariance, 1:481484
and portfolio expected return,
1:485486
probability density function, 1:516517
probability distributions, 1:513563
continuous random variables,
1:527545
continuous uniform distribution,
1:527531
lognormal distribution, 1:539545
normal distribution, 1:531539
cumulative probabilities for standard
normal distribution, 1:722723
defined, 1:514
discrete random variables, 1:515527
binomial distribution, 1:518527
discrete uniform distribution,
1:516518
Monte Carlo simulation, 1:545551
historical simulation vs., 1:550551
number of trials for, 1:547
potential gains from market timing,
1:548550
process, 1:546547
random observations in, 1:547548
practice problems, 1:554558
of sample mean, 1:572575
solutions to problems, 1:559563
Procedures, IPS, 4:395

Level I Curriculum Index


Procter & Gamble, 4:118119; 5:210
procurement process, 1:34
producer price index (PPI), 2:321
producer surplus
and alternative trade policies, 2:443,
446
and consumer surplus, 2:3234
defined, 2:31
product, of uncorrelated random
variables, 1:488
product differentiation
and market structure, 2:155
in monopolistic competition,
2:171172
and price collusion, 2:181
production
and alternative trade policies, 2:446
in autarky, 2:435
factors of, 2:108109
globalization of, 2:428429
technology of, 2:13
production function, 2:108, 264265
production opportunity set (production
opportunity frontier), 2:7778
production possibilities frontier (PPF),
2:436437
productivity, 2:133142
and aggregate supply, 2:250, 251
in cost-push inflation, 2:324325
diminishing marginal, 2:264265
and economic growth, 2:265
indicators of, 2:316
of labor, 2:250, 251, 270274
and long-term aggregate supply, 2:250,
251
and marginal returns, 2:136142
in terms of output, 2:138141
for total, average, and marginal
product, 2:134137
total factor, 2:264, 268
products
new, 3:133
of similar companies, 5:189
professional conduct. see Standards of
Professional Conduct
professional conduct investigations,
1:102
Professional Conduct Program (PCP),
1:910, 23, 54, 102
professional designations, order of,
1:176
professionalism, 1:54
Professionalism [Standard of
Professional Conduct I], 1:2156
Independence and Objectivity
[Standard I(B)]
application of the standard, 1:3642
compliance procedures, 1:3536
guidance, 1:3035
text of, 1:16, 30
Knowledge of the Law [Standard I(A)]
application of the standard, 1:2729
compliance procedures, 1:2627
guidance, 1:2125
text of, 1:16, 21
Misconduct [Standard I(D)], 1:16,
5356
application of the standard, 1:5456
compliance procedures, 1:54

guidance, 1:5354
text of, 1:16, 53
Misrepresentation [Standard I(C)],
1:16, 4353
compliance procedures, 1:4647
guidance, 1:4346
text of, 1:16, 43
text of, 1:16
professionally designated, certified, or
licensed commercial property
valuers/appraisers
defined, 1:242
GIPS Valuation Principles (GIPS
Section II), 1:228
Real Estate (GIPS Section I.6), 1:217,
218, 220
profit(s)
abnormal, 2:98
accounting, 2:9798, 100101
defined, 3:474
taxable income vs., 3:474479
taxable profit vs., 3:484489
with calls, 6:2728, 123126, 129133
cash flow vs., 3:78
defined, 2:96, 102
and demand/supply for firms,
2:101102
economic, 2:97101, 165, 173, 174;
5:204
as firm objective, 2:9697
as form of payment, 2:209
functions of, 2:102
gross, 3:154, 398400
maximization, 2:101133
about, 2:102103
costs, 2:109120
economies/diseconomies of scale,
2:125129
factors of production, 2:108109
formula, 2:97
long-run, 2:130131
and output optimization, 2:120125
revenue, 2:103107
measures of, 2:97101
in monopoly, 2:187188, 190
normal, 2:98101
operating
defined, 3:18
and depreciation method,
3:603604
EBIT vs., 3:154
forecasts of, 3:639640
on income statement, 3:154155
with puts, 6:2830, 126128, 134
supernormal, 2:98
profitability
cost flow assumptions and, 3:596598
in credit analysis, 5:594
degree of operating leverage and,
4:8889
profitability index (PI), 4:16
profitability ratios, 3:355359; 5:231
calculation, 3:355356
defined, 3:339
evaluation, 3:357359
and income statement ratios, 3:198
interpretation, 3:356359
profit and loss (P&L) statements, 3:17.
see also income statements

Level I Curriculum Index

profit margin
gross, 3:355, 356
defined, 3:356
and income statement ratios,
3:196197
on income statements, 3:154
in inventory ratios, 3:405, 406
in ratio analysis, 3:325
and income statement ratios, 3:196
net, 3:355, 356
calculation of, 3:326
defined, 3:356
and income statement ratios, 3:196
in ratio analysis, 3:325
operating, 3:355, 356
defined, 3:356
and depreciation method, 3:603604
and income statement ratios, 3:197
pretax, 3:197, 355, 356
pro forma reporting, 3:591
project beta. see beta
project sequencing, 4:910
promissory note, 2:350
promotion, company, 1:69
property, plant, and equipment (PPE),
3:426. see also long-lived assets
acquisition of, 3:428431
analyst adjustments for, 3:659660
on balance sheets, 3:229230
on cash flow statements, 3:287289
depreciation of, 3:659660
impairment of, 3:448449
investment property, 3:230231,
460462
sale of, 3:288289
property development investments,
6:193
proposals
in capital budgeting process, 4:6
by shareowners, 4:224225
proprietary assets, 1:214, 242
proprietary trading procedures, 1:63
prorated revenue recognition, 3:160, 161
prospective clients. see also
Communication with Clients and
Prospective Clients [Standard
V(B)]
benefits of GIPS compliance for,
1:196197
Composite Construction (GIPS
Section I.3), 1:211
defined, 1:242
Disclosure (GIPS Section I.4), 1:213
Fundamentals of Compliance (GIPS
Section I.0), 1:208
GIPS Advertising Guidelines (GIPS
Section III), 1:230
Verification (GIPS Section IV), 1:232
Wrap Fee/SMA Portfolios (GIPS
Section I.8), 1:224226
prospectus, 5:464n.3, 606
Protection One, Inc., 5:199, 200
protective puts
defined, 6:95, 134
fiduciary calls vs., 6:96, 99
with forward contracts, 6:9899
risk management with, 6:133136
Protocol for Broker Recruiting, 1:107
Provopoulos, George, 2:473

I-71
proxy, for market portfolio, 4:380
proxy statements
audit committee disclosures in,
4:206207
and board committees, 4:211
and compensation committees, 4:209
executive compensation in, 4:216
proxy voting disclosures, 4:222
related-party transactions in, 4:204
SEC requirements, 3:109
voting initiative information in, 4:226
proxy voting by shareowners, 4:221222
proxy voting policies, 1:76, 77
prudence. see Loyalty, Prudence, and
Care [Standard III(A)]
P/S. see price-to-sales ratio
PSA prepayment benchmark. see Public
Securities Association prepayment
benchmark
pseudo-random numbers, 1:547n.46
public auctions, 5:356358
public companies, independence and
objectivity of, 1:33
Public Company Accounting Oversight
Board (PCAOB), 3:27, 108
public dissemination, achieving, 1:60
public equity securities, 5:15, 161163
public information, 5:125127
publicly offered notes, 5:492
public market equivalent (PME), 1:222,
242
public offerings
on bond market, 5:354358
initial
defined, 5:50
in markets, 5:5052
and pricing anomalies, 5:135
and venture capital, 5:161
on securities market, 5:5053
public sector, size of, 5:627
public sector spending, 2:347
Public Securities Association (PSA)
prepayment benchmark, 5:475
pull on liquidity, 4:144145
pull to par effect, 5:398
pump and dump strategy, 1:72
pump-priming strategy, 1:71
purchasinginventorypayables process,
4:172
purchasing managers indices, 2:334
purchasing power parity (PPP), 2:488, 490
pure discount bonds, 5:299. see also
zero-coupon bonds
pure discount instruments, 1:346
pure-play method, for beta, 4:5357
PureTrading, 5:30
purpose, investment policy, 4:158
putable bonds, 5:329330, 373
effective convexity of, 5:548
interest rate risk with, 5:535
putable common shares, 5:159, 171
putable preference shares, 5:171
putcall parity
for European options, 6:9498
forward, 6:9899
put/call ratio, 1:697698
put options (puts)
American, 5:330; 6:105107
Bermuda-style, 5:330

change of control, 5:623


defined, 5:24; 6:25, 85
embedded (see putable bonds)
for equity portfolios, 6:126129
European (see European put options)
and insurance, 6:67
payoffs from, 6:2830
profits from, 6:2830, 129
protective, 6:95, 96, 9899, 133136
standard long and short positions,
6:126128
value for, 6:129
put options, European, 1:554
PV. see present value
p-value approach to hypothesis testing,
1:608, 615616
PVBP. see price value of a basis point
Q
Q&As. see Questions & Answers, GIPS
Qatar, 2:378; 3:115; 5:96
QE. see quantitative easing
Qlik Technologies, 1:384, 385
QQQs, 6:121n.3
quadruple witching days, 1:636
qualifications, board members,
4:200201
qualification summary, 1:47
qualified audit opinion, 3:28
Qualified Purchasers, 6:158n.14
quality
of earnings, 3:566, 567, 576
of financial reporting (see financial
reporting quality)
investment policy, 4:158
of reported results, 3:566
quality bias, 2:320
quantiles, 1:395402
calculating, 1:397399
defined, 1:395
in investment practice, 1:399402
types of, 1:395399
quantitative directional strategies, for
hedge funds, 6:164
quantitative easing (QE), 2:406407
and business cycle theories, 2:312
and deflation, 2:382383
in Japan, 2:384
quantitatively oriented models,
1:134135
quantitatively oriented research,
1:128129
quantitatively oriented techniques, 1:129
quantity
aggregation of, 2:1720
and demand/supply analysis, 2:89
in profit maximization, 2:104
quantity demanded, 2:1112, 104
quantity equation of exchange, 2:354
quantity supplied, 2:15
quantity theory of money, 2:234235,
354355
quarterly interest bonds (QUIBS), 5:298
quarterly interest debt securities
(QUIDS), 5:298
quartiles, 1:395
quasi-fixed cost, 2:112113
quasi-government bonds, 5:365366
quasi-government entities, 5:297

I-72
Qubes, 6:121n.3
Questcor Pharmaceuticals, 1:384
Quest Diagnostics, 5:209
Questions & Answers (Q&As), GIPS,
1:202, 207, 208, 233
QUIBS. see quarterly interest bonds
quick assets, 4:146
quick ratio, 3:347, 348; 4:146
QUIDS. see quarterly interest debt
securities
quintiles, 1:395
quota rents, 2:445
quotas, 2:445
defined, 2:442
and tariffs, 2:446447
in textile industry, 2:431
quotations, attributing, 1:46
quoted interest rate, 1:284
quoted margin, 5:413
quote-driven markets (dealer markets)
defined, 5:54
execution mechanisms for, 5:55
and fixed-income indices, 5:98
order-driven and brokered markets vs.,
5:57
R
rand (South Africa), 2:487
randomness, 1:567
random number generator, 1:547
random numbers, 1:547548
random observations, in Monte Carlo
simulations, 1:547548
random sampling
simple, 1:566568
stratified, 1:568569
random variables, 1:458
Bernoulli, 1:518519
continuous (see continuous random
variables)
defined, 1:515
discrete (see discrete random
variables)
independence for, 1:488
multiplication rule for expected value
of product of, 1:488
outcomes of, 1:458
standardization of, 1:534
random walk hypothesis, 5:124n.14
range
definition, 1:403
interquartile, 1:403n.27
and mean absolute deviation,
1:403405
ranked data, nonparametric tests of,
1:638639
rapid amortization provisions, 5:494
rate of change (ROC) oscillator,
1:690692
rate of return
average accounting, 4:1516
and functions of financial system,
5:1213
internal (see internal rate of return
(IRR))
money-weighted rate of return
for portfolios, 1:340341, 344346
time- vs., 1:344346
required, 4:8, 49; 5:177178, 251, 390

Level I Curriculum Index

time-weighted rate of return


Calculation Methodology (GIPS
Section I.2), 1:209
defined, 1:244
linked, 1:218
money- vs., 1:344346
for portfolios, 1:341346
Real Estate (GIPS Section I.6), 1:218,
219
on underlying, 6:63
rating agencies. see credit rating agencies
ratio analysis, 3:323336; 5:594597
classes of ratios, 3:326328
common-size, 3:330336
of balance sheet, 3:330331, 334335
of income statement, 3:331332
vertical, 3:194n.50, 246, 330332
cross-sectional, 3:332333, 340
for equity investments, 3:653654
for goodwill, 3:661662
interpreting financial ratios, 3:327
for Lenovo Group Limited, 3:323325
and relationships of financial
statements, 3:335336
and sources of ratios, 3:329330
for Toshiba Corporation, 3:323325
trend, 3:333335
value, purpose, and limitations,
3:328329
rationing, capital, 4:10
ratio scales, 1:364
raw materials, 2:108n.1, 248, 249, 251.
see also natural resources
raw materials inventory, 3:394
Rayovac, 2:152
RBC Bank, 5:209
RBC Canadian Index Fund, 1:387, 391
RBC Capital Markets, 5:30
RBCs. see real business cycle models
RCF. see retained cash flow
R&D. see research and development
R&D programs. see research and
development programs
real (Brazil), 2:487
real assets, 5:14, 2628
real business cycle models (RBCs),
2:310312
real estate, 6:184193
commercial, 6:151, 185, 188
correlation with other asset classes, 4:412
defined, 1:243; 6:154
downside frequencies, 6:157
forms of investment, 6:186187
and GIPS compliance, 1:203
GIPS Valuation Principles (GIPS
Section II) for, 1:227229
growth in, 6:153
historical returns and volatility, 6:152
institutionally owned, 6:151, 185
investment categories, 6:187189
performance and diversification
benefits, 6:189191
risk management with, 6:201
risks with, 6:157, 193
sample presentations
with closed-end funds, 1:251253
with open-end funds, 1:249251
Sharpe ratios, 6:157
valuation, 6:191192

Real Estate (GIPS Section I.6),


1:216220
about, 1:207
Calculation Methodology provisions,
1:217220
for closed-end fund composites,
1:219220
Composite Construction provisions,
1:219
Disclosure provisions, 1:218220
Input Data provisions, 1:217, 220
Presentation and Reporting provisions,
1:218220
recommendations, 1:220
requirements, 1:217220
real estate investment trust (REIT)
indices, 5:102; 6:189, 190
real estate investment trusts (REITs),
5:26
and beta exposure, 6:155
equity, 6:188
growth in, 6:153
mortgage, 6:188
returns on, 6:190191
risk management with, 6:201
shares of, 6:187
tax advantages for, 6:152
valuation of, 6:192
real estate limited partnerships, 6:187
real exchange rates, 2:488492
real GDP, 2:214217
and economic growth, 2:263
identifying recession with, 2:293294
and international trade, 2:430
in Japan, 2:262263
and shifts in aggregate supply/demand,
2:260263
real income, 2:85, 89
real interest rate, 2:230
realizable value, 3:122
realization multiple (DPI)
defined, 1:239, 243
Private Equity (GIPS Section I.7), 1:223
Real Estate (GIPS Section I.6), 1:220
real money accounts, in FX market,
2:498
real money supply, 2:234236
real returns
of asset classes in other countries,
4:290
of asset classes in United States,
4:289290
defined, 4:282
on equity securities, 5:152153
for hedge funds, 6:166
real risk-free interest rate, 1:279; 4:287
reasonable basis. see also Diligence and
Reasonable Basis [Standard V(A)]
defined, 1:127
developing, 1:131
reasonableness testing, for company
analysis, 5:232
rebalancing
of indices, 5:86, 92
of portfolios, 4:253
rebalancing policy, 4:421
rebate programs, 3:613
rebuilding cost, 6:192
recapitalization, private equity, 6:181

Level I Curriculum Index

receipts
customers, 4:163165
government, 2:387390
receivables
commercial, 3:46
discounted, 4:175
as drag on liquidity, 4:144
number of days of, 4:146, 167
other, 3:46
payments of, 1:619620
trade, 3:46, 219221
receivables turnover, 3:340, 343344
recession, 2:254n.15
defined, 2:290
identifying, 2:293294
investor preferences, 2:292
recessionary gap, 2:254257, 296
recognition. see also revenue recognition
Conceptual Framework on, 3:121
and derecognition, 3:451453,
523525
expense, 3:16, 152153, 168178
of finance leases, 3:533535, 544546
of financial report elements, 3:121
tax, 3:484n.4
taxable and accounting profit at, 3:488
recognition lag, 2:402
recommendation objectivity, 1:4041
recommendations. see also Investment
Analysis, Recommendations, and
Actions [Standard of Professional
Conduct V]
defined, 1:243
fair dealing in, 1:8283
from financial statement analysis,
3:3435
in investment policy statements, 1:148
as material nonpublic information,
1:6566
number of people privy to, 1:84
reasonable basis for, 1:127
reconstitution, 5:9293
record date, 4:121122
record keeping, supervision of, 1:123
record retention, 1:148
Record Retention [Standard V(C)],
1:146148
application of the standard, 1:148
compliance procedures, 1:147
guidance, 1:146147
text of, 1:18, 146
records
maintenance of, 1:62
as property of firm, 1:147, 148
recourse loans, 5:473
recoverable amount, 3:581
recovery
capital spending in, 2:297298
unemployment rate in, 2:315
recovery rates
in credit analysis, 5:576579
on defaulted bonds, 1:626627
and non-agency RMBS, 5:485
rectangle patterns, 1:686
redemptions, hedge fund restrictions on,
6:159, 171
redemption yield, 5:302. see also
yield-to-maturity
reference rates, 5:346347

I-73
references, employee, 1:54
Reference to CFA Institute, Designation
and Program [Standard VII(B)],
1:19, 170176
application of the standard, 1:174176
compliance procedures, 1:174
guidance, 1:170174
CFA designation, 1:171
CFA Institute membership, 1:171
referring to candidacy in CFA
program, 1:171172
use of CFA marks, 1:172173
text of, 1:19
referral arrangements
disclosure of, 1:162164
informing firms of, 1:163
interdepartmental, 1:163
Referral fees [Standard VI(C)],
1:162164
application of the standard, 1:162164
compliance procedures, 1:162
guidance, 1:162
text of, 1:19, 162
refinancing rate, 2:368
refinancing risk, 6:184
Reg D Offerings, 6:158n.13
Regional Investment Performance
Subcommittees, 1:204
regional trading agreements (RTAs),
2:448452
Regis Corporation, 5:199
registered bonds, 5:311
registration requirements, of market
regulators, 3:585
regression analysis, 2:194; 3:338;
4:360361
regular cash dividends, 4:112114
regular lines of credit, 4:175, 176
regulation(s)
ethics and, 1:13
on financial reporting, 5:61
of futures, 6:21
for markets, 5:6063
of monopolies, 2:193194
of OTC derivatives market, 6:1213
for pension funds, 5:62
Regulation D, 6:158n.13
Regulation FD (SEC), 3:110n.13; 5:122
Regulation of the European
Parliament and of the Council
on OTC Derivatives, Central
Counterparties, and Trade
Repositories, 6:12
Regulation S ADRs, 5:167
Regulation T (Federal Reserve), 5:41
regulatory authorities, 3:106111. see
also US Securities and Exchange
Commission (SEC)
for capital markets in Europe, 3:111
discipline for financial reporting
quality from, 3:584586
International Organization of
Securities Commissions, 3:107
S-1 registration statements for, 3:110
regulatory factors, in IPSs, 4:405406
regulatory influences
and fixed-income securities, 5:310313
of government, 5:224226
and industry life-cycle, 5:217

regulatory projects, capital budgeting


for, 4:7
reinvested dividends, 5:169170
reinvestment risk, 5:319
REITs. see real estate investment trusts
REIT indices. see real estate investment
trust indices
rejection point
for tests on population variance,
1:632633
for tests on relative values of
population variances, 1:635
for test statistic, 1:612614
for z-test alternative, 1:621
rejection region, test statistic, 1:612
related parties, gifts and entertainment
from, 1:3839
related-party transactions, 3:613, 616;
4:203204
relationships
and conflicts of interest, 1:152, 156
custodial, 1:32
fund manager, 1:32, 42
independent contractor, 1:108109
investment banking, 1:3233
and issuer relationship pressure,
1:3738
relative dispersion, 1:414
relative frequency
cumulative, 1:368372
and frequency distributions, 1:368372
relative price, 2:322323
relative risk objectives, 4:396
relative strength analysis
of charts, 1:672673
in intermarket analysis, 1:709710
relative strength index (RSI), 1:692694
relative value strategies, with hedge
funds, 6:162, 163
reliability factors
basis of computing, 1:582
for confidence intervals, 1:578580
religious tenets, laws and regulations
based on, 1:2829
remeasurements, pension plan,
3:549550
remuneration/compensation committees
(board of directors), 4:207209
and executive compensation, 4:215
implications for investors, 4:208
information about, 4:209
investor considerations, 4:208209
purpose, 4:207
renewable resources, 2:268
renminbi, yuan, 5:345
rent
economic, 2:99100
as form of payment, 2:209
in GDP, 2:213
reorganization, 4:101102; 5:579
repayment proceeds, bond, 5:304
repeat sales indices (real estate), 6:189,
190
replacement projects, capital budgeting
for, 4:7
replication, 5:35; 6:6869
repo(s). see repurchase agreements
repo margin, 5:379
repo rates, 2:367368; 5:378

I-74

reporting
incident-reporting procedures, 1:109
of material nonpublic information, 1:62
performance, 1:4445, 429430
of potential unethical actions, 1:29
requirements for investment
personnel, 1:159160
of violations, 1:27
reporting NAV, 6:172
Report on Securitization Incentives
(Bank for International
Settlements), 5:462
reports
annual, 4:201, 206, 209
facts vs. opinions in, 1:140
flash, 1:85
material nonpublic information in,
1:59
of nominations committees, 4:210
performance examination, 1:236, 242
in portfolio management, 4:254
presentation of, 1:140
research, 1:59
for share-repurchase and pricestabilization programs,
4:216218
on short-term investment portfolio,
4:160
verification, 1:232233, 236, 245
repo to maturity, 5:378
representation letter, 1:236
representative accounts, 1:195
representativeness bias, 5:137
representative sectors, for commercial
industry classifications, 5:193
representative security market indices,
5:103104
Repsol, 1:397
repurchase agreements (repos), 2:368;
4:154; 5:17, 377379
repurchase date, 5:378
repurchase price, 5:378
requested favors, 1:155
request for proposal (RFP), 1:112
required margin, 5:413414
required rate of return, 4:8, 49; 5:177
178, 251, 390
required yield, 5:390
required yield spread, 5:406
requirements (term), 1:243
research
diligence, 1:130
group, 1:129, 132
independence of, 1:3738, 40
issuer-paid, 1:3435, 48
and plagiarism, 1:4546
quantiles in, 1:399402
quantitatively oriented, 1:128129
reasonable basis for, 1:131
and record retention, 1:148
sampling biases in, 1:589590
secondary, 1:127128
supervision of, 1:122, 125126
third-party, 1:127128, 132
research and development (R&D),
2:268
and domestic productivity, 2:430
and goodwill, 3:233
and intangible assets, 3:232, 432

Level I Curriculum Index

research and development (R&D) programs


IRR rule in evaluation of, 1:335336
NPV Rule in evaluation of, 1:334
research costs, 3:581
research reports, material nonpublic
information in, 1:59
reservation prices, 2:27
reserve banking systems, 2:243244,
350352
Reserve Bank of Australia, 2:364
Reserve Bank of India, 2:321
Reserve Bank of New Zealand, 2:371,
373, 374
Reserve Bank of New Zealand Act,
2:371, 374
reserve funds, 5:485486
reserve requirements, 2:453
of central banks, 2:352, 368
and monetary policy, 2:368
and money creation, 2:351
residential mortgage-backed securities
(RMBS), 5:473487; 6:188
collateralized mortgage obligations,
5:478484
floating-rate tranches, 5:483484
planned amortization class tranches,
5:481483
sequential-pay tranches, 5:479481
support tranches, 5:481483
mortgage pass-through securities,
5:474478
cash flow characteristics, 5:474475
cash flow construction, 5:476477
conforming and non-conforming
loans, 5:475
contraction and extension risk, 5:478
prepayment rate, 5:475
weighted average life, 5:477478
non-agency residential mortgagebacked securities, 5:484487
external credit enhancements, 5:486
internal credit enhancements,
5:485486
residential mortgage loans, 5:470473;
6:187188
amortization schedule, 5:472
interest rate, 5:471
lenders rights in foreclosures, 5:473
maturity, 5:471
prepayments and prepayment
penalties, 5:472
residential property investments, 6:185,
187188
residual claim, 3:46
residual tranche, 5:487
residual value, 3:174176
defined, 1:243
Private Equity (GIPS Section I.7), 1:223
Real Estate (GIPS Section I.6), 1:220
resistance, 1:675
resolutions, shareowner, 4:225226
resource cost approach, 2:141142
resources
for boards of directors, 4:198
capital spending, 2:297299
consumer behavior and use of, 2:300302
cyclical use of, 2:294302
inventory levels, 2:299300
natural, 2:250, 251, 268

non-renewable, 2:268
renewable, 2:268
Responsibilities of CFA Members
and Candidates [Standard of
Professional Conduct VII]
Conduct as Participants in CFA
Institute Programs [Standard
VII(A)], 1:19, 165169
application of the standard, 1:167169
eleventh addition revision, 1:89
guidance, 1:165167
text of, 1:19, 165
Reference to CFA Institute,
Designation and Program
[Standard VII(B)], 1:19, 170176
application of the standard,
1:174176
compliance procedures, 1:174
guidance, 1:170174
text of, 1:19, 170
Responsibilities of Supervisors [Standard
IV(C)], 1:118126
application of the standard, 1:122126
compliance procedures, 1:120122
adequate, 1:120121
and code of ethics, 1:120
implementation of compliance
education and training, 1:121
eleventh edition revision, 1:8
guidance, 1:118120
detection as part of supervision,
1:119120
detection procedures, 1:119120
system for supervision, 1:119
text of, 1:18, 118
responsibility(-ies)
accepting, 1:124
of employers, 1:106
execution-only, 1:81
responsibility statements, 3:586
restaurants
asset-based equity valuation for,
5:275276
barriers to entry for, 5:206
restricted lists, creating, 1:36
restricted payments covenant, 5:624
restricted periods, 1:159
restricted subsidiaries, 5:624
restrictions
on asset disposals, 5:308
on debt, 5:307
on distributions to shareholders, 5:308
on international investment, 5:164
investment policy, 4:158
on investments, 5:308
on mergers and acquisitions, 5:308
on prior claims, 5:307
trade (see trade restrictions)
restructuring events, 3:582, 618
results
overemphasis of, 1:53
quality of, 3:566
simulated, 1:99100
retail accounts, in FX market, 2:499
retail currency transactions, 5:20
retail deposits, 5:375
retail investors, 5:352
retail method for inventory valuation,
3:221

Level I Curriculum Index


Retail Price Index (RPI), 5:323, 364
retail sales, consumer spending and,
2:300301
retained cash flow (RCF), 3:647
retained earnings, 3:4849, 68, 242
retaliation, price collusion and, 2:181
retention rate, 3:367, 369
retired CFA Institute membership
status, 1:175
retracements, 1:674
retractable term preferred shares,
5:252254
retraction, 5:253n.2
retrospective application, of accounting
policies, 3:181
return(s), 4:272286. see also specific
types of investments
abnormal, 5:124
absolute, 6:155156, 166
accounting return on equity,
5:172176
active, 5:116
in advertisements, 1:263265
alpha, 6:155156
annualized, 4:279280
arithmetic, 4:273274
and bank discount yield, 1:348
beta, 6:155
and beta, 4:359360, 367368
capital, 1:218, 237
on capital market line, 4:349350
CAPMs prediction of, 4:380
for commodities vs. commodity
indices, 5:102
continuously compounded, 1:541542
covariance of, 4:284285
credit risk vs., 5:609617
for discount securities, 1:348349
dollar-weighted, 1:340n.9
equity, 1:372373
on equity securities, 5:169170
expected, 1:485486
and beta, 4:361363
calculation of, 1:480481
CAPM estimation of, 4:368369
and historical mean return,
4:287288
and SML, 4:366367
and strategic asset allocation,
4:416417
and variance of return, 1:485486
Fama and French three-factor model,
5:133
on fixed-income securities, 5:512519
geometric mean, 1:391394;
4:274275
gross, 4:281
gross-of-fees
Calculation Methodology (GIPS
Section I.2), 1:210
defined, 1:240
Disclosure (GIPS Section I.4), 1:212
GIPS Advertising Guidelines (GIPS
Section III), 1:231
Presentation and Reporting (GIPS
Section I.5), 1:215, 216
Private Equity (GIPS Section I.7), 1:222
Real Estate (GIPS Section I.6), 1:218,
220

I-75
historical, 4:291
estimating cost of equity with,
4:4749
historical mean return and expected
return, 4:287288
nominal and real returns of asset
classes in other countries, 4:290
nominal returns of major US asset
classes, 4:287288
real returns of major US asset classes,
4:289290
riskreturn tradeoff, 4:291
historical mean, 4:287288
holding period, 4:273
defined, 1:339, 366
finding ending value of investment
with, 1:542
formula, 1:366
and time-weighted rate of return,
1:341342
income, 1:218, 240
independently and identically
distributed, 1:542
industry classifications based on
correlations in, 5:192
law of diminishing, 2:136, 167
leveraged, 4:282283
and liquidity, 1:400402
marginal, 2:136142
mean, 4:273274
money-weighted, 4:275277
of mutual funds, 1:618619,
633634
net, 4:281
net-of-fees, 6:160, 168
defined, 1:241
Disclosure (GIPS Section I.4), 1:212
GIPS Advertising Guidelines (GIPS
Section III), 1:231
Presentation and Reporting (GIPS
Section I.5), 1:215
Private Equity (GIPS Section I.7),
1:221, 222
Real Estate (GIPS Section I.6), 1:218,
220
nominal, 6:166
of asset classes in other countries,
4:290
of asset classes in United States,
4:287288
pre-tax/after-tax, 4:282
normal distribution as model for,
1:533
portfolio
defined, 4:280281
expected portfolio returns,
1:485486
measurement of returns, 1:339346,
389390
for portfolios of risky assets, 4:304,
343344
predictability of, 5:135136
price, 5:7881
real, 4:282; 5:152153; 6:166
of asset classes in other countries,
4:290
of asset classes in United States,
4:289290
defined, 4:282

risk and, 4:307309 (see also risk


return tradeoff )
risk-free, 4:348349
for risky assets, 4:304
to scale, 2:126, 128
security market indices as proxies for,
5:94
single-period, 5:7981
total, 6:155, 184
Calculation Methodology (GIPS
Section I.2), 1:210
defined, 1:244
for equity securities, 5:169170
GIPS Advertising Guidelines (GIPS
Section III), 1:231
for leveraged stock purchase, 5:4243
for multiple periods, 5:8182
Presentation and Reporting (GIPS
Section I.5), 1:215
price vs., 5:7879
Real Estate (GIPS Section I.6), 1:218
for single period, 5:8081
uncorrelated, 4:305
variance of, 4:284285
for portfolio of assets, 4:284285,
309310
for portfolio of risky assets, 4:343
for single asset, 4:284
and standard deviation, 4:284
return-generating models for beta,
4:356357, 379. see also capital
asset pricing model (CAPM)
decomposition of total risk for, 4:358
market model, 4:358359
single-index models, 4:358
three- and four-factor, 4:357
return interval, beta, 4:52
return objectives, on IPSs, 4:401402
return on assets (ROA), 3:327, 356357
operating, 3:356
segment, 3:376378
return on capital, 3:356, 357, 373
return on common equity, 3:356
return on equity (ROE), 3:357; 5:172176
and accounting method, 5:172
and accounting standards, 3:634636
and book vs. intrinsic value, 5:176
in company analysis, 5:231, 232
decomposition of, 3:361366
defined, 3:356
formulas, 5:172173
and justified forward P/E, 5:266267
for Pfizer, Novartis AG, and
GlaxoSmithKline, 5:173175
and ratio analysis, 3:328
return on invested capital (ROIC), 5:204
return on investment, 3:356
return on sales. see net profit margin
return on total capital, 3:356, 357
revaluation model for long-lived assets,
3:435436, 445448
revenue(s)
and accounts receivable, 3:614
accrued, 3:70
average
defined, 2:102, 104
in imperfect competition, 2:105107
in perfect competition, 2:104105
and profit maximization, 2:103107

I-76

revenue(s) (continued)
coefficient of variation for, 3:370
and credit sales, 3:598599
deferred/unearned
accrual accounting, 3:70
analysis of, 3:226228
balance sheet, 3:5758
as current liability, 3:226
on income statements, 3:156
defined, 2:96, 102; 3:44
and demand/supply for firms,
2:101102
gross vs. net reporting of, 3:166167
on income statements, 3:16, 151
interest expense and, 5:628
inventory, 3:169171
marginal
defined, 2:102, 104
in imperfect competition,
2:105107
in monopolies, 2:186190
in monopolistic competition,
2:173175
in oligopolies, 2:178, 179, 182, 184
and output optimization, 2:120125
in perfect competition, 2:104105,
158, 166167
and price elasticity, 2:161162
in profit maximization, 2:103107
outsized growth of, 3:614
and producer surplus, 2:3234
total
defined, 2:102, 104
in imperfect competition, 2:105107
in oligopoly, 2:178
and output optimization, 2:120125
in perfect competition, 2:105
and price elasticity, 2:161162
in profit maximization, 2:97, 103107
and shutdown analysis, 2:120
unbilled, 3:70
revenue bonds, 5:631
revenue per employee, 3:371
revenue recognition
completed contract method, 3:161,
163164
and financial reporting issues, 3:598
599, 610611, 613614
on income statements, 3:155168
for barter transactions, 3:165166
and financial statements, 3:167168
general principles, 3:156159
and gross vs. net reporting of
revenues, 3:166167
for installment sales, 3:164165
for long-term contracts, 3:160164
in special cases, 3:160167
installment method, 3:164165
in oil and gas industry, 3:580
percentage-of-completion method,
3:160162
prorated, 3:160, 161
revenue sufficiency, of tax policy, 2:396
reversal, impairment, 3:450
reversal patterns, 1:677683
double tops and bottoms, 1:681683
head and shoulders, 1:677681
about, 1:677678
determining price targets from, 1:680

Level I Curriculum Index


inverse, 1:679, 681
setting price targets with, 1:678681
triple tops and bottoms, 1:682683
reversal size, on point and figure charts,
1:669
reverse floating-rate notes, 5:321
reverse mortgage, 4:272n.1
reverse repurchase agreements (reverse
repos), 5:378
reverse stock splits, 4:119120
reviews. see also account reviews
of compliance procedures, 1:26
for independence/objectivity, 1:36
by market regulators, 3:586
revolving credit accounts, 4:162
revolving credit agreements, 4:175, 176
revolving period, 5:491
RFP. see request for proposal
Rhone-Poulenc, 2:193
Ricardian equivalence, 2:400
Ricardian model, 2:429, 440441
Ricardo, David, 2:400, 440
Richardson, Scott A., 4:191n.9
rights, shareowner. see shareowner
rights
rights offerings, 5:52
Riksbank, 2:373
Rio Tinto, 5:209, 274
risk(s)
with alternative investments, 6:151,
156157, 203
with arbitrage transactions, 6:70
balloon, 5:488
Bloombergs statistic for, 5:539
business (see business risk)
on capital market line, 4:349350
contraction, 5:478
counterparty, 5:22, 36
country, 4:5860
credit, 3:372, 647650; 4:157; 5:572
574; 6:30, 32
assessing, 3:647650
with commercial mortgage-backed
securities, 5:487
with corporate notes/bonds, 5:372
with fixed-income securities, 5:297,
555556
with non-agency RMBS, 5:485
with repurchase agreements, 5:379
return vs., 5:609617
and yield-to-maturity, 5:421
default, 4:157; 5:572, 573
downgrade, 5:573
downside, 4:241243; 6:156157, 203
of equity securities, 5:170171
event, 5:586
expansion, 5:478
financial, 1:539n.28; 4:53
foreign exchange, 4:157
historical, 4:291
interest rate, 4:157; 5:519555
approximate modified duration,
5:524527
bond convexity, 5:540548
defined, 5:513
duration of bond portfolio,
5:536538
effective duration, 5:527530
and floating-rate notes, 5:321

and investment horizon, 5:548555


key rate duration, 5:530
Macaulay duration, 5:520523,
550554
modified duration, 5:523524
money duration, 5:538539
price value of a basis point,
5:538539
properties of bond duration,
5:530535
yield volatility, 5:549550
investment, 4:156157
of investment analysis, 1:139140
investors willingness/ability to take
risk, 4:397399
liquidity, 5:555556, 573
of major asset classes, 4:290291
market, 4:157; 6:155
market price of, 4:301
measures of, 6:156157
Monte Carlo simulation for assessing,
3:646
of mutual funds, 1:618619, 633634
nonsystematic, 4:354356
notification of, 1:145146
operating, 4:53, 8591
political, 5:626627
portfolio (see portfolio risk)
prepayment, 5:466
priced, 4:47
pricing of, 4:354356
with real estate investments, 6:193
refinancing, 6:184
reinvestment, 5:319
relationship of return and, 4:307309
of relying on credit ratings, 5:584589
and repo rate, 5:378
rollover, 5:369
safety-first, 6:203
sales, 4:53, 8485
shaping, 5:530
shortfall, 1:537539; 6:203
spread, 5:573
substitution, 5:591
systematic (see systematic risk)
systemic, 6:32, 4344
total, 4:358, 370
transfer of, 6:78, 40
of two-asset portfolio, 4:285286
value at risk, 4:293; 6:203
risk-adjusted performance, 5:94
risk allocation, 6:40
risk arbitrage, 6:50n.24
risk-arbitrage trading, 1:63
risk attitude, clients, 4:397
risk averse (term), 4:296
risk aversion, 4:295304; 5:137; 6:6364,
6970
in CAPM assumptions, 4:364
concepts, 4:295296
and indifference curves, 4:297299
and optimal portfolio, 4:327
and portfolio selection, 4:301304
and utility theory, 4:296304
computation of utility, 4:300
portfolio selection with utility theory,
4:301304
risk aversion coefficient, 4:297
risk budgeting, 4:419, 420

Level I Curriculum Index


risk exposures, underlying, 5:39
risk-free assets, 4:319322
capital allocation line and optimal risky
portfolio, 4:319320
and capital market line, 4:348349
combining risky assets with, 4:343346
and homogeneity of expectations
assumption, 4:345346
investment opportunity frontier and,
2:7879
two-fund separation theorem,
4:320321
utility theory and selection of,
4:301304
risk-free bonds, arbitrage with, 6:4849
risk-free rate, 5:626
risk-free rate of interest, 4:51n.23, 287;
6:89
risk-free return, capital market line and,
4:348349
risk management, 1:539; 5:910
with alternative investments,
6:199205
due diligence, 6:202205
process, 6:201202
riskreturn measures, 6:203
with derivatives, 6:8, 9, 40
with forward contracts, 6:1617
with options strategies for equity
portfolios, 6:129136
covered calls, 6:130133
protective puts, 6:133136
in portfolio construction, 4:252
systems, 6:174
Risk Management Association, 3:330
risk management committees, 4:210,
211
risk managers, 5:6
risk neutral (term), 4:296
risk-neutral investors, 6:63
risk-neutral pricing, 6:6970
risk-neutral probabilities, 6:102103
risk objectives, on IPSs, 4:396401
risk premium(s)
asset, 4:243
bond yield plus, 4:5152
default risk, 1:279
defined, 1:609; 4:291
equity, 4:4750
expected, 4:287
historical equity risk premium
approach, 4:4749
in hypothesis testing, 1:609
for inflation, 2:359
and pricing of risky assets, 6:64
for real returns, 4:282
risk profile
investment suitability for, 1:94, 96
understanding, 1:91
riskreturn tradeoff, 4:291
and adding assets to portfolios, 4:315
and investing in portfolios vs. equities,
4:238240
measures of, 6:203
for strategic asset allocation, 4:413
for traditional and alternative
investments, 6:157158
risk seeking (term), 4:295
risk-seeking investors, 6:63

I-77
risk tolerance, 5:154
defined, 4:296
on investment policy statements,
4:397399
in portfolio management, 4:250
risky assets
combining risk-free assets with,
4:343346
covariance and correlation of risks,
4:305307
efficient frontier of, 4:319
importance of correlation of risks in
portfolio, 4:310
portfolio return for, 4:304
portfolio risk with, 4:304310
pricing, 6:64
relationship of risk and return,
4:307309
utility theory and selection of,
4:301304
risky portfolios
insurance for, 4:315
optimal risky portfolio
and capital market line, 4:348
and homogeneity of expectations,
4:345346
selection for, 4:341342
Rite Aid Corporation, 4:53
Ritter, Jay, 4:63
rivalries, 5:205, 591592
RMBS. see residential mortgage-backed
securities
ROA. see return on assets
A Roadmap for Convergence between
IFRSs and US GAAP (IASB/
FASB), 3:112
Robeco Boston Partners Small Cap
Value Fund II, 1:407
Robert Wood Johnson Foundation,
4:246
Robinson, Joan, 2:153
Robinson, Thomas, 4:41n.5, 42n.7
robust (term), 1:617
Roche, 2:193
Roche Group, 3:180181
Roche Holding AG, 5:189
Rockwell Automation, 1:682683
ROC oscillator. see rate of change
oscillator
Rodman and Renshaw, 1:673
ROE. see return on equity
ROIC. see return on invested capital
Rolex, 2:186
rollover, of futures, 5:102
rollover risk, 5:369
roll yield (convenience yield), 6:6465,
199
Romania, 2:371; 5:96
Ross, Stephen, 4:381
row crops, 6:189
Roxburgh, Charles, 5:342n.1
Roy, A. D., 1:537n.25
Royal Bank of Scotland, 5:305
Royal Dutch Shell PLC, 3:365366,
538543; 6:195
Royal Numico N. V., 3:377
Roys safety-first rule, 1:537539
RPI. see Retail Price Index
RSI. see relative strength index

RTAs. see regional trading agreements


ruble (Russia), 2:487
Rule 10b5-1 (SEC), 5:122n.10
Rule 10b5-2 (SEC), 5:122n.10
Rule 144 (SEC), 3:110
Rule 144A ADRs, 5:167
Rule of 72, 1:305n.9
Rules of Procedure. see Bylaws and Rules
of Procedure for Proceedings
Related to Professional Conduct
rules of thumb, 6:183n.29
rumors, addressing, 1:110111
running yield, 5:302
runs test, 1:639
rupee (Indian), 2:487
Russell 2000 Index, 1:417; 5:9293
Russell 3000 Index
as broad market index, 5:95
reconstitution of, 5:93
Russell Global Sectors Index, 5:188, 189,
192
Russell Investments, 5:192
Russia
and Asian financial crisis, 2:429
exchange rate regime, 2:522
foreign bonds, 5:311
as GIPS country sponsor, 1:205
in MSCI multi-market index, 5:96
steel import quotas, 2:445
Russian ruble, 2:487
RVPI. see unrealized multiple
RWE, 1:397
S
S-1 registration statements, 3:110
SAA. see strategic asset allocation
SAFE Investment Company, 4:249
safety-first risk, 6:203
safety-first rules, 1:537539
safety projects, capital budgeting for, 4:7
safety stock, of inventory, 4:169
Safeway, Inc., 3:235236
Saint-Gobain, 1:397
Saks Incorporated, 1:386
sale(s)
of assets, 5:619
available-for-sale securities, 3:199,
237239
and consumer spending, 2:300301
cost of, 3:398400
credit, 3:598599
days of sales outstanding, 3:340,
343344, 614
final, 2:299
on income statements, 3:151n.4
installment, 3:164165
inventorysales ratio, 2:299, 331
long and short, 5:50, 123
of long-lived assets
cash from, 3:288289
and derecognition of assets, 3:451
impairment of assets held for sale,
3:450
manufacturing, 2:330
one-time, 3:616
price-to-sales ratio, 3:367, 368; 5:263,
267268
return on (see net profit margin)
trade, 2:330

I-78

sales and purchases of non-produced,


non-financial assets sub-account,
BOP, 2:458
sales per square meter (sales per square
foot) ratio, 3:370
sales pressure, 1:38
sales returns and allowances, 3:44
sales risk, 4:53, 8485
sales-type leases, 3:543546
salvage value, 3:174
SAMA Foreign Holdings, 4:249
same store sales ratio, 3:370
sample excess kurtosis, 1:426429
sample mean, 1:379381
alternate use of term, 1:572n.4
distribution of, 1:572575
as point estimator, 1:575, 576
standard error of, 1:572573
samples
defined, 1:363, 566
dependent, 1:628631
independent, 1:623627
reasons for taking, 1:566
in statistics, 1:363
sample selection bias, 1:587589, 614
sample size
and estimates of population mean,
1:583585
and sampling distribution, 1:576577
sample skewness, 1:422423
sample standard deviation, 1:409411;
4:284
sample statistic, 1:363, 566568
sample variance, 1:408
calculating, 1:409411
as point estimator, 1:576
sampling, 1:565603
about, 1:565566
biases, 1:585590
data-mining bias, 1:585587
in investment research, 1:589590
look-ahead bias, 1:589
sample selection bias, 1:587589
time-period bias, 1:589, 590
and central limit theorem, 1:572575
distribution of sample mean, 1:572575
estimates of population mean,
1:575585
confidence intervals, 1:577582
point estimators, 1:575577
sample size, 1:583585
practice problems, 1:594597
simple random, 1:566568
solutions to problems, 1:598603
stratified random, 1:568569
of time-series and cross-sectional data,
1:569571
sampling biases, 1:585590
data-mining bias, 1:585587
in investment research, 1:589590
look-ahead bias, 1:589
sample selection bias, 1:587589
time-period bias, 1:589, 590, 614
sampling distribution, 1:567568, 576
sampling error, 1:567
sampling plans, 1:566569
Sampo, 4:403404
Sams Club, 1:378, 379
Samsung, 5:209

Level I Curriculum Index


Samurai bonds, 5:311
sanctions, 1:10, 15
Sandoz, 5:209
San Marino, 2:522
Sanofi, 1:398
Sanofi-Aventis S.A., 5:189
Santander UK plc, 5:303
SAP Group
accounts receivable, 3:219, 220
balance sheet components, 3:213214
current assets, 3:217218
current liabilities, 3:224225
deferred revenue, 3:226228
deferred tax assets, 3:224
deferred tax liabilities, 3:241
equity, 3:243244
financial assets, 3:239
goodwill, 3:236
inventories, 3:221
marketable securities, 3:219
market capitalization, 1:398
non-current assets, 3:228229
non-current liabilities, 3:239241
Sarbanes-Oxley Act, 1:621623
auditing standards, 3:27
financial expert definition, 4:205n.18
internal control systems requirements,
3:2930
and SEC authority, 3:108
Saudi Arabia, 2:378, 522; 3:115; 5:96
Saudi Arabian Monetary Agency, 3:115
Savage, Sam, 1:545
saving, 5:78, 12
defined, 2:7
household, 2:224, 227228
marginal propensity to save, 2:229
and trade balance, 2:530531
wealth effect on, 2:242243
savinginvestment differential, 2:231
saving rate, household, 2:224, 242243,
301
Say, J.B., 2:305
Says law, 2:305
scale
chart, 1:670671
as credit analysis factor, 3:647
project, 4:2021
Scania AB, 3:18
scarcity, 2:74
scenario analysis, 3:378379; 6:203
scenario testing, 1:131, 539
schedules
accounts receivable aging, 4:166167
equity award vesting, 4:216
investment opportunity, 4:40
marginal cost of capital, 4:6063
Schlumberger, 5:219221
Schneider Electric, 1:397
Schumpeter, Joseph A., 2:171, 306n.2
Schwab, Charles M., 2:184
SCL. see security characteristic line
scope paragraph, of audit report, 3:28
screening, of equity investments,
3:650654
scrip dividend schemes, 4:114
SDR. see special drawing right
sealed bid auctions, 2:27
search costs, 2:43
Sears, Roebuck and Co., 1:386; 3:591

seasoned offering, 5:50


seasoned securities, 5:50
SEC. see US Securities and Exchange
Commission
secondary funds, 1:221, 243
secondary markets
bond, 5:353, 358361
security, 5:5358
defined, 5:15
execution mechanisms, 5:5457
market information systems, 5:58
and primary markets, 5:50, 53
trading sessions on, 5:54
secondary offerings, 1:704
secondary precedence rules, 5:55
secondary research, 1:127128
secondary sales, of private equity, 6:181
secondary sources of liquidity,
4:143144
second-degree price discrimination, 2:191
second lien debt, 5:576
second price sealed bid, 2:27, 28
sector ETFs, 4:262
sector indices, 5:97
sectors. see also specific sectors, e.g.:
telecommunications sector
defined, 5:189
economic (see economic sectors)
economic sensitivity of, 5:190
ICB definition, 5:192
representative, 5:193
sector specific strategies, for hedge
funds, 6:164
secured bonds, 5:305, 467
secured debt, 5:575576
securities. see also specific types of
securities
antidilutive, 3:192193
asset-backed, 5:459508
about, 5:459460
collateralized debt obligations,
5:494497
commercial mortgage-backed
securities, 5:487490
creation of, 5:3132
economic benefits of securitization,
5:460462
non-mortgage asset-backed
securities, 5:490494
as pooled investments, 5:19
practice problems, 5:501503
residential mortgage-backed
securities, 5:473487
residential mortgage loans,
5:470473
securitization process, 5:462470
solutions to problems, 5:504508
available-for-sale
defined, 3:237
as financial assets, 3:237239
on income statements, 3:199
dealing, 3:267
defined, 5:16
description of, 1:141142
marketable, 3:219, 237239
in markets, 5:1619
for security market indices, 5:82
short positions in, 5:4041
trading, 3:199, 267

Level I Curriculum Index


Securities Act (1933), 3:108; 4:264;
6:158n.13
Securities and Exchange Board of India,
3:107n.9
Securities and Exchange Commission
(Brazil), 3:103
Securities and Futures Commission,
5:29, 41
Securities Exchange Act (1934), 1:663;
3:108
Securities Offerings Registration
Statement, 3:108109
securitization, 5:462470
of bonds, 5:297
bonds issued, 5:465467
defined, 5:459
economic benefits of, 5:460462
and financial markets, 5:460462
of mortgages, 6:187189
parties roles in, 5:464465
special purpose vehicles, 5:467470
transaction example, 5:462464
securitized assets, 5:460
securitized bonds, 5:297
securitizers, 5:3132
security analysis
financial statements in, 3:7374
in portfolio management, 4:251
Security Analysts Association of Japan,
1:205
security characteristic line (SCL),
4:374375
security lending agreements, 5:40
security market indices, 5:77114
for alternative investments, 5:101104
construction of, 5:8291
defined, 5:78
equity indices, 5:9598
fixed-income indices, 5:98101, 104, 351
index values over multiple time
periods, 5:8182
management, 5:9293
origins of, 5:7778
practice problems, 5:106111
representative, 5:103104
single-period returns for, 5:7981
solutions to problems, 5:112114
uses of, 5:9395
security market line (SML), 4:365368
and expected return, 4:366367
portfolio beta, 4:367368
and security selection, 4:375376
security of electronic information, 1:102
security selection
and CAPM, 4:375376
defined, 4:420
security valuation, cost of capital for,
4:4042
segment debt ratio, 3:376
segment margin, 3:376378
segment ratios, 3:376378
defined, 3:376
evaluation, 3:377378
segment ROA, 3:376378
segment turnover, 3:376378
seigniorage, 2:525
Selected American Shares (SLASX) fund
geometric and arithmetic mean
returns, 1:392393

I-79

range and mean absolute deviation,


1:404405
sample variance and sample standard
deviation, 1:409411
Sharpe ratio, 1:419
selective disclosure, 1:64, 86, 88
self-assessments, board members, 4:201
self-dealing, 1:107
self-investment limits, 4:405406
self-regulation of GIPS standards, 1:204
self-regulatory organizations (SROs),
3:107; 5:62
sellers
of derivatives, 6:7
per-unit tax on, 2:4042
price collusion and number/size of,
2:181
representing behavior of, 2:16
in securitization process, 5:464
selling short, 1:461n.2
sell-side firms, 4:253
sell-side participants, FX market, 2:498,
500501
semiannual bond basis yield, 5:408
semiconductor industry, 5:200202
semideviation, 1:411412
semilogarithmic scale, 1:429430
semi-strong-form efficient markets,
5:125127
semivariance, 1:411412
senior bond classes, 5:485
senior executives, 4:208210
seniority ranking, 5:305, 574578
senior tranche, 6:34
Sensex Index, 5:82
sensitivity analysis, 3:378; 5:266267
sentiment indicators, 1:697700
calculated statistical indices, 1:697700
opinion polls, 1:697
separately managed accounts (SMAs),
4:263
sequential comparisons, 1:467n.6
sequential-pay tranches, 5:479481
Serbia, 2:371; 3:114; 5:96
serial correlation, 5:125n.16
serial maturity structures, 5:372
series of cash flows
future value, 1:288290
with equal cash flows, 1:288290
with unequal cash flows, 1:290
present value, 1:294302
with equal cash flows, 1:294299
infinite series of equal cash flows,
1:298299
at other times than t = 0, 1:299301
with unequal cash flows, 1:301302
SERPs. see supplemental executive
retirement plans
service(s)
additional, for select clients, 1:88
change in CPI for, 2:331
consumer spending on, 2:300
GDP and value of, 2:213214
intermediate, 2:7
level of, 1:86
of similar companies, 5:189
Service Corporation International, 5:199
service fees, 1:40
service providers, selecting, 1:135136

servicers, in securitization process,


5:464
services sub-account, BOP, 2:457
servicing fee, mortgage pass-through
security, 5:474
SET. see Stock Exchange of Thailand
settlement
cash, 6:20, 26
clearing instructions for, 5:4950
of contracts, 5:20
of corporate notes and bonds,
5:373374
daily, 6:1819
by financial intermediaries, 5:3638
in secondary bond markets, 5:359360
settlement date, 5:401
settlement date accounting, 1:243
settlement price, 6:18
settlement value, 3:122
SFAS 13. see Statement of Financial
Accounting Standards 13
SG 100 Stamp Index, 6:200
shakeout stage (industry life-cycle), 5:215
Shanghai A-share Index, 4:117
Shanghai Stock Exchange, 4:347; 5:151,
152
Shanghai Stock Exchange Composite
Index (SSE), 5:95
shaping risk, 5:530
share-based compensation terms, 4:215
share-based remuneration plans, 4:208
share blocking, 4:221
shareholder equity, stock dividends and,
4:117
shareholder-of-record date, 4:121
shareholders
bondholders vs., 5:590
voting rights of, 5:155, 156
shareholders equity, 3:212; 5:174. see
also equity
shareholder wealth maximization, 2:97
shareowner proposals, 4:224226
advisory or binding proposals, 4:226
board nominations, 4:224225
resolutions, 4:225226
shareowner rights, 4:219228
actions of other shareowners, 4:228
and corporate governance, 4:197198
legal rights, 4:226227
shareowner proposals, 4:224226
takeover defenses, 4:227228
voting rights, 4:220224
confidential voting and vote
tabulation, 4:222
corporate changes requiring
shareowner input, 4:223224
cumulative voting, 4:222223
ownership and voting rights,
4:220221
proxy voting, 4:221222
shareowners
communications of boards of directors
with, 4:211
communications of management with,
4:218219
defined, 4:195
members of management as, 4:216
responsibilities for corporate
governance, 4:195198

I-80
share repurchase methods, 4:124126
buying in open markets, 4:124125
direct negotiation, 4:125
Dutch auction, 4:125
fixed price tender offer, 4:125
share-repurchase programs
shareowner voting on, 4:224
transparency about, 4:216218
share repurchases, 4:123131
about, 4:123124
Dutch auctions for, 2:28
financial statement effects, 4:126129
methods, 4:124126
transfers of wealth with, 4:131
valuation equivalence of cash
dividends and, 4:130131
shares. see also earnings per share (EPS)
cash flow per share, 3:367
common, 3:185, 289; 5:155159
callable, 5:158159, 171
defined, 5:155
and fixed-income securities, 5:296
at Ford Motor Company, 5:157158
and preference shares, 5:159
preferred vs., 5:1718
putable, 5:159, 171
at Viacom Corporation, 5:156157
companies with multiple classes of, 4:221
defined, 5:18
diluted, 3:18
dividends per share, 3:367
dual listing of, 5:164
global registered, 5:168
no par, 3:242
ordinary, 3:184185
preference (preferred), 5:159161
callable, 5:159160, 171, 252
common vs., 5:1718
convertible, 5:160
cumulative, 5:160, 171
defined, 5:155
non-callable, non-convertible
perpetual, 5:252, 253
non-cumulative, 5:160
non-participating, 5:160
participating, 5:160
retractable term, 5:252254
risk of, 5:170, 171
small-cap, 5:121, 133
treasury, 3:242
value of, for three-year investment
horizon, 5:249
Sharia, 4:406
Sharpe, William, 1:402; 4:243, 363
Sharpe ratio, 1:416419; 4:370
calculating, 1:570571
of commodities, 6:196, 197
confidence interval for population
mean, 1:579582
and downside risks, 6:156157
formula for, 1:417419
for portfolio management, 4:315
as riskreturn measure, 6:203
shelf registration, 5:52, 356
Shell, 2:195
shifting interest mechanism, 5:485
Shiller, Robert J., 1:661
shipping, financial reporting quality and,
3:596

Level I Curriculum Index


shoe leather costs, 2:365366
short (term), 6:7
short bias strategies, for hedge funds,
6:164
shortfall risk, 1:537539; 6:203
short hedge fund strategies, 4:264
shorting, 1:461n.2
short interest, 1:699700
short positions, 5:3941; 6:41, 47
short rebate rates, 5:40
short-run aggregate supply, 2:247249
business taxes and subsidies, 2:249
defined, 2:238239
exchange rate, 2:249
expectations about future prices,
2:248249
input prices, 2:248
nominal wages, 2:248
short-run aggregate supply (SRAS)
curve, 2:238239, 247249
short-run average cost (SRAC), 2:125n.3
short-run average total cost curve
(SRATC)
defined, 2:125
financial analysis with, 2:129130
and LRATC, 2:125
and profit maximization, 2:129131
short-run cost schedule, in perfect
competition, 2:168
short-run elasticity of demand, 2:48
short-run equilibrium, in perfect
competition, 2:169
short-run supply curve, 2:115116
short sales, 5:50, 123
short selling, 4:364n.4; 6:121123
and limits to arbitrage, 6:70
using puts vs., 6:93
short-term borrowing, 4:153
short-term cash flows, 4:151152
cash forecasting systems, 4:152
identifying typical cash flows,
4:151152
minimum cash balances, 4:151
short-term financing, 4:174180
asset-based loans, 4:178
borrowing approaches, 4:177
costs of borrowing for, 4:178180
sources of, 4:175176
short-term funding for banks, 5:375381
repurchase and reverse repurchase
agreements, 5:377379
retail deposits, 5:375
wholesale funds, 5:376377
short-term funds management,
4:153160
evaluating, 4:160
investment instruments, 4:154157
strategies for, 4:157160
short-term investment portfolio reports,
4:160
short-term investments, 4:154157
examples, 4:154155
investment risks, 4:156157
managing cash positions with, 4:153
yields of, 4:155156
short-term trading index (TRIN),
1:700702
should (term), 1:243
shutdown analysis, 2:120

shutdown point, 2:116


Sibor. see Singapore interbank offered
rate
SIC system. see Standard Industrial
Classification system
Siegel, Jeremy, 4:48n.18
Siemens, 1:398
signal line, MACD oscillator, 1:696
significant cash flows
Composite Construction (GIPS
Section I.3), 1:211
defined, 1:243
Disclosure (GIPS Section I.4),
1:214
SI-IRR. see since inception internal rates
of return
similar companies, 5:189191
simple capital structures, 3:184185
simple interest, 1:280
simple random sampling, 1:566568
simple yield, 5:410
simulated results, 1:99100
simulations
for financial forecasting, 3:379
in risk assessment, 3:646
simulation trials, 1:546
simultaneous dissemination, 1:8485
since inception (term), 1:243
since inception distributions, 1:223
since inception internal rates of return
(SI-IRR)
defined, 1:243
gross-of-fees, 1:219, 223
net-of-fees, 1:219, 223
Private Equity (GIPS Section I.7),
1:221, 223
Real Estate (GIPS Section I.6), 1:219
since inception paid-in capital,
1:223
Singapore
Asian financial crisis, 2:429
effects of global recession, 2:256
exchange rate regime, 2:522
external trade sector, 2:303
as GIPS country sponsor, 1:205
and IFRS, 3:115
mean and standard deviation of stock
returns, 1:415416
in MSCI EAFE, 1:380
in MSCI multi-market index, 5:96
share repurchases, 4:123
sovereign bonds, 5:362
Singapore dollar, 2:487
Singapore interbank offered rate (Sibor),
5:299, 347
Singapore Stock Exchange, 5:29, 167
Singha Co., 2:176
single cash flow
future value, 1:280288
with continuous compounding,
1:286287
frequency of compounding,
1:284286
with interim cash reinvested at same
rate, 1:281282
for lump sum, 1:283284
stated and effective rates for,
1:287288
without interim cash, 1:282

Level I Curriculum Index


present value, 1:290294
finding, 1:290293
frequency of compounding,
1:293294
for future lump sum, 1:292293
for lump sum, 1:291292
single-factor models of beta, limitations
of, 4:380
single-index models for beta, 4:357360.
see also capital asset pricing
model (CAPM)
calculation and interpretation of beta
with, 4:359360
decomposition of total risk for, 4:358
defined, 4:357
single mean hypothesis tests, 1:616623
and effect of disclosures on share
prices, 1:621623
and payments of receivables, 1:619620
and risk/returns of mutual funds,
1:618619
single monthly mortality (SMM) rate,
5:475
single-period models of beta, limitations
of, 4:380
single-period returns, for security
market indices, 5:7981
single price auctions, 2:2930; 5:54
single-step format, for income
statements, 3:154
single variance hypothesis tests,
1:632634
sinking fund arrangements, 5:318320,
372
SIX Swiss Stock Exchange, 3:106, 114
size effect, 5:133
skewness, 1:420425; 4:292293
defined, 1:422
of mutual funds, 1:423425
of normal distribution, 1:532
sample, 1:422423
skewed distributions, 1:420422
SLASX fund. see Selected American
Shares fund
Slovak Republic, 2:448n.18, 522
Slovenia, 2:448n.18, 522; 5:96
slower deliveries diffusion index, 2:330
SMAs. see separately managed accounts
Small, Medium, and Micro Enterprises
(SMME), 3:488
small-capitalization stocks, beta
adjustments for, 4:53
small-cap shares, 5:121, 133
small country (term), 2:442
small-denomination negotiable CDs,
5:377
SMA portfolios. see Wrap Fee/SMA
Portfolios (GIPS Section I.8)
SMAs. see separately managed accounts
Smith, Adam, 2:440
Smith, Clifford W., 4:161n.5
Smith, Donald J., 5:523n.3, 541n.6
Smith & Nephew, 5:209, 213
Smithsonian Agreements, 2:521
SML. see security market line
SMME. see Small, Medium, and Micro
Enterprises
SMM rate. see single monthly mortality
rate

I-81
smoothing techniques, for beta, 4:53
social influences
in industry analysis, 5:203, 226227
and industry life-cycle, 5:217
in strategic analysis, 5:220
socially responsible investing (SRI),
4:406407
social media
disclosure of confidential information
on, 1:104105
and duties to employer, 1:108
limited disclosures on, 1:89
and material nonpublic information,
1:59
misrepresentation on, 1:45
retention of information on, 1:147
social policies, taxes and, 2:397
Socit Franaise des Analystes
Financiers, 1:204
Socit Gnrale, 1:397
society, benefit of ethics to, 1:12
soft commissions, 1:76
soft costs, 6:192
soft dollars, 1:76
soft hurdle rate, 6:166
software, GIPS-compliant, 1:196
software development costs, 3:432433
solicitation, of former clients, 1:109114
Solow, Robert, 2:265
solvency
defined, 3:8, 246, 351, 551
of non-current liabilities, 3:551555
solvency ratios, 3:351355
calculation, 3:352353
in company analysis, 5:231
defined, 3:254, 339, 352353, 552
evaluation, 3:354355, 553555
interpretation, 3:353355
leverage/coverage ratios, 3:551555
Sony Corporation, 3:521523, 617; 5:209
Sortino ratio, 6:203
Sothebys, 5:199
source country, FDI, 2:427
South Africa
commodities and economy of, 1:710
equity risk premiums, 4:48
exchange rate regime, 2:523
as GIPS country sponsor, 1:205
and IFRS, 3:115
imports/exports, 2:423
inflation-linked bonds, 5:324
inflation targeting, 2:371
in MSCI multi-market index, 5:96
real equity returns, 1:373
returns
on bonds and bills, 5:152, 153
on equities, 5:152153
revenue terminology, 3:151n.4
South African rand, 2:487
South America, 3:585; 5:461. see also
specific countries
Southeast Asia, 2:454455. see also
specific countries
Southern Cone Common Market
(MERCOSUR), 2:448
South Korea
Asian financial crisis, 2:429
business investment, 2:267
disinflation, 2:319

domestic and international debt


securities, 5:312
effects of global recession, 2:256
exchange rate regime, 2:523, 527
foreign bonds, 5:311
as GIPS country sponsor, 1:205
government spending, 2:219
and IFRS, 3:115
inflation-linked bonds, 5:324
inflation targeting, 2:371, 373
international investment, 5:164
labor productivity, 2:271
mean and standard deviation of stock
returns, 1:415416
MSCI multi-market index, 5:96
national debt, 2:393
residential mortgage loans, 5:471, 472
risk tolerance and equity ownership,
5:154
share repurchases, 4:123
underground economy, 2:214
South Korean won, 2:487
sovereign bonds, 5:361364
credit quality, 5:362363
legal issuers, 5:303
names of, 5:361
sources of repayment, 5:304
types, 5:363364
sovereign debt, 5:625629
framework, 5:626628
in Portugal, 5:628629
sovereign debt defaults, 5:625626
sovereign governments, 5:297, 461
sovereignty, regional trade agreements
and, 2:451
sovereign wealth funds (SWFs), 2:500;
4:249; 5:352
sovereign yield spread, 4:59
S&P 500 Index
Arms index, 1:700702
as benchmark, 4:401
CBOE Volatility Index, 1:698
Chebyshevs inequality for, 1:413414
common-size analysis of, 3:195196,
250251
co-movement patterns, 4:241243
consensus current P/E, 1:383385
correlations of stocks, 4:312, 360
cumulative relative frequency and
relative frequency of, 1:377
and data mining, 1:587
diversification with stocks, 4:376377
earnings, 2:486
equity market returns, 1:411
expected value from, 1:390
frequency distribution for holding
period returns, 1:366372
frequency polygon, 1:375376
histogram, 1:374375
implied volatility and, 6:41
as indicator, 1:565566
intermarket analysis, 1:708710
as leading indicator, 2:330, 331
margin debt vs., 1:699
as market index, 4:346
as market proxy, 4:347349
mean returns on, 1:624625
modal interval, 1:385
number of securities in, 5:82

I-82

S&P 500 Index (continued)


portfolio expected return and variance
of return, 1:480, 481, 484, 485
as proxy for market portfolio, 5:94
range, 1:403
relative strength analysis, 1:672673
reported returns, 4:273
return and risk of two-asset portfolio,
4:285286
returns for, 6:181182
returns for Enron vs., 4:236237
securities selection for, 5:82
skewness and kurtosis, 1:423
and SPDR S&P 500, 1:417, 630
volatility of, 6:89
Spain
bonds outstanding, 5:348, 353
business investment, 2:267
disinflation, 2:319
domestic and international debt
securities, 5:312
equity risk premiums, 4:48
EU membership, 2:448n.18
exchange rate regime, 2:522
foreign bonds, 5:311
as GIPS country sponsor, 1:205
gold standard for, 2:520n.11
government spending, 2:220
Greek fiscal crisis 2010, 2:451, 452
inflation targeting, 2:371
labor productivity, 2:271
MSCI multi-market index, 5:96
real equity returns, 1:373
residential mortgage loans, 5:471, 472
returns on bonds, bills, and equities,
5:153
sovereign bonds, 5:362
total returns, 1:380, 383
underground economy, 2:214
wealth effect, 2:242
Spartan 500 Index fund, 4:369
S&P/ASX 200 Index, 1:415416
SPC. see Standards of Practice Council
S&P Corporation. see Standard & Poors
(S&P) Corporation
SPCs. see special purpose companies
S&P Developed Ex-US BMI Energy
Sector Index, 5:104
SPDR Gold Trust ETF, 6:195
SPDR S&P 500, 5:68, 74
Sharpe ratio, 1:417418
Vanguard Total World Stock Index
ETF vs., 1:630631
Spearman rank correlation coefficient,
1:639641
special cash dividends, 4:114116
special drawing right (SDR), 2:473n.29
special interests, shareowners, 4:224
specialization, international trade and,
2:429
Specialized Consumer Services subindustry, 5:199
special purpose companies (SPCs),
5:304, 463
special purpose entities (SPEs), 5:3132,
304, 463
special purpose vehicles (SPVs)
and bankruptcy, 5:468470
as counterparties, 5:464

Level I Curriculum Index


as financial intermediaries, 5:3132
legal obligation of, 5:304
role of, 5:467470
in securitization transaction,
5:463464
special situations strategies, for hedge
funds, 6:163
specific identification method of
inventory valuation, 3:171,
397399
Spectrem Group, 6:153
speculation, 2:493; 6:21, 4243
speculative demand for money, 2:355
speculative money balances, 2:355
speculators
in commodities market, 6:193194
in energy markets, 6:43n.20
in exchange-traded derivatives market,
6:10
forward contracts for, 6:17
gambling by, 6:43
spending
business, 2:243, 292
capital, 2:297299, 398
consumer, 2:243, 292, 300302
consumption, 2:229
government, 2:219220
and aggregate demand, 2:227228,
246
current, 2:395
and fiscal policy, 2:243
and taxes, 2:398399
investment, 2:230, 236237
public sector, 2:347
S&P Energy Sector Exchange-Traded
Fund, 5:104
SPEs. see special purpose entities
S&P GSCI Commodity Index, 6:196, 197
S&P GSCI Index, 5:101
spillover effect, of education, 2:266
spin-offs, 3:452453
S&P Insurance Brokers Index, 1:434
split coupon bonds, 5:322323
S&P MidCap 400 Index, 1:434, 442
S&P/MSCI Global Industry
Classification Standard (GICS).
see Global Industry Classification
Standard
sponsored depository receipts, 5:166
spot assets, pricing, 6:66
spot commodities markets, 5:25, 26
spot contracts, 5:20
spot currency transactions, 5:20
spot curve, 5:421422
spot exchange rates, 2:496498,
514516; 5:20
spot markets, 5:10, 15; 6:5
spot prices, 6:5
for commodities, 6:197, 199
and futures price, 6:4041
spot rates, 5:399401
spot transactions, in FX market, 2:493
spread(s), 6:23
benchmark, 5:429
and benchmark yield, 5:555
bidask, 5:44, 359
bidoffer, 5:359
credit, 5:406, 467, 586, 587
excess, 5:307, 486

G-, 5:429, 432


interpolated, 5:430
option-adjusted, 5:432, 611
yield, 5:428432
and benchmark rates, 5:428431
and benchmark yield curve,
5:430432
and credit risk/return, 5:610617
required, 5:406
zero-volatility, 5:430, 432
spread over the benchmark, 5:406
spread risk, 5:573
spreadsheet modeling, 5:232
Sprint, 5:217
S&P/TSX Capped Income Trust Index,
5:225
S&P/TSX Composite Total Return
Index, 1:387
SPVs. see special purpose vehicles
SRAC. see short-run average cost
SRAS curve. see short-run aggregate
supply curve
SRATC. see short-run average total cost
curve
SRI. see socially responsible investing
Sri Lanka, 1:205; 5:96
SROs. see self-regulatory organizations
SSE. see Shanghai Stock Exchange
Composite Index
stable equilibrium, 2:2526
stacked column graphs, 3:337
Stackelberg model, 2:182
stagflation
and aggregate supply, 2:259260
defined, 2:317
and inflation expectations, 2:327
staggered boards of directors, 4:202203
stakeholder groups, 4:192
stand-alone mortgage loans, 6:186187
standard costs, 3:221
standard deviation. see also variance
and coefficient of variation, 1:415416
and correlation, 4:305
defined, 1:244, 405
of expected total return, 5:170
expected value of, 1:473474
of investment classes, 6:152
of normal distribution, 1:531, 534535
population, 1:406408
for portfolio of two assets, 4:305
of risk-free asset, 4:348
sample, 1:409411
and variance of returns, 4:284
and volatility, 6:89
standard error
in confidence interval construction,
1:578
of the sample mean, 1:572573, 583
of test statistic, 1:609
Standard Industrial Classification (SIC)
system, 5:197
standardization
of exchange-traded derivatives,
6:1011
of futures contracts, 6:17
of random variables, 1:534535
standardized yield measures, 5:407
standard normal distribution, 1:532,
722723

Level I Curriculum Index

standard normal variables, probability


of, 1:535
Standard & Poors (S&P) Corporation
commercial paper ratings, 5:368
company classifications, 5:192,
201202
coverage ratios for capitalized interest,
3:431
credit rating process, 3:373374
credit ratings, 5:99
investment-grade, 5:297n.2, 344
transition rates of, 5:585586
for United Rentals, Inc., 5:583584
default rates by credit category,
5:584585, 615616
funds from operations, 5:595
industrial comparative ratio analysis,
5:596597
long-term ratings matrix, 5:581582
municipal debt ratings, 5:631
notching guidelines, 5:583
ratings, 1:364, 365n.3
ratings of, 2:451
role in credit markets, 5:580, 581
sovereign credit analysis by,
5:626628
Standard & Poors Depositary Receipt
(SPDR). see SPDR
Standard & Poors indices. see entries
beginning with S&P
Standards Advice Review Group, 3:111
Standards and Financial Marketing
Integrity Division, 3:134
Standards of Practice Council (SPC),
1:1011, 15
Standards of Practice Handbook (CFA
Institute), 1:3, 59, 11, 14
eleventh edition, 1:79, 11
revisions to, 1:6
standards for communicating
recommendations, 3:3435
Standards of Professional Conduct
(CFA Institute), 1:519, 21194.
see also Asset Manager Code of
Professional Conduct (AMC)
adoption of, 1:10
and applicable law, 1:2223
conflicts of interest [Standard VI],
1:149164
disclosure of conflicts [Standard
VI(A)], 1:18, 149156
priority of transactions [Standard
VI(B)], 1:1819, 157162
referral fees [Standard VI(C)], 1:19,
162164
text of, 1:1819
duties to clients [Standard III],
1:73105
fair dealing [Standard III(B)], 1:17,
8290
loyalty, prudence, and care [Standard
III(A)], 1:17, 7381
performance presentation [Standard
III(D)], 1:17, 97101
preservation of confidentiality
[Standard III(E)], 1:17, 101105
suitability [Standard III(C)], 1:17,
9097
text of, 1:17

I-83

duties to employers [Standard IV],


1:105126
additional compensation
arrangements [Standard IV(B)],
1:18, 116117
loyalty [Standard IV(A)], 1:1718,
105115
responsibilities of supervisors
[Standard IV(C)], 1:8, 18,
118126
text of, 1:1718
evolution of, 1:6
integrity of capital markets [Standard
II], 1:5673
market manipulation [Standard
II(B)], 1:17, 6873
material nonpublic information
[Standard II(A)], 1:1617, 5667
text of, 1:1617
investment analysis, recommendations,
and actions [Standard V],
1:126148
communication with clients and
prospective clients [Standard
V(B)], 1:8, 18, 137146
diligence and reasonable basis
[Standard V(A)], 1:18, 126137
record retention [Standard V(C)],
1:18, 146148
text of, 1:18
notification of, 1:114
practice problems, 1:177186
and Professional Conduct Program,
1:910
professionalism [Standard I], 1:2156
independence and objectivity
[Standard I(B)], 1:16, 3042
knowledge of the law [Standard I(A)],
1:16, 2129
misconduct [Standard I(D)], 1:16,
5356
misrepresentation [Standard I(C)],
1:16, 4353
text of, 1:16
and public offerings, 5:51
responsibilities of CFA members
and candidates [Standard VII],
1:165176
conduct as participants in CFA
Institute programs [Standard
VII(A)], 1:89, 19, 165169
reference to CFA Institute,
designation and Program
[Standard VII(B)], 1:19, 170176
text of, 1:19
solutions to problems, 1:187194
and Standards of Practice Council,
1:1011
in Standards of Practice Handbook,
1:3, 59
and stop-buy orders, 5:49
text of, 1:1619
and values of CFA Institute, 1:15
standing limit orders, 5:4546
Stanford University, 4:246
Stanley Gibbons, 6:200
Stanley Security Solutions, 5:199, 200
The Stanley Works, 5:199
stated annual interest rate, 1:284

stated rates, for single cash flow,


1:287288
stated value. see par value
Statement in Support of Convergence
and Global Accounting Standards
(SEC), 3:113
statement of cash flows. see cash flow
statements
Statement of Cash Flows (IAS 7), 3:609
statement of changes in equity
of Apple Inc., 3:245246
and balance sheet, 3:244246
defined, 3:12
in financial statement analysis, 3:2022
statement of comprehensive income,
3:12, 1620
Statement of Duties and Responsibilities,
IPS, 4:395
Statement of Financial Accounting
Standards 13 (SFAS 13), 4:44n.11
statement of operations, 3:17. see also
income statement
statement of owners equity, 3:68
Statement of Purpose, IPS, 4:395
statement of retained earnings, 3:4849,
68
statements of account information, 1:77
statements of financial condition, 3:212.
see also balance sheets
statements of financial position, 3:12,
212. see also balance sheets
State Street, 5:209
Statistical Classification of Economic
Activities in the European
Community (NACE), 5:196
statistical discrepancies, in GDP, 2:222
statistical factor models, 4:357
statistical inference, 1:363, 575, 606
statistical significance, 1:612
statistical similarities, of similar
companies, 5:192
statistics, 1:361455. see also test
statistic
about, 1:362
defined, 1:362
dispersion, 1:402419
Chebyshevs inequality, 1:412414
coefficient of variation, 1:414416
mean absolute deviation, 1:403405
population variance and standard
deviation, 1:405408
range, 1:403
sample variance and standard
deviation, 1:408411
semivariance and semideviation,
1:411412
Sharpe ratio, 1:416419
frequency distributions, 1:365373
construction of, 1:366368,
372373
defined, 1:365
and holding period formula, 1:366
and relative frequency, 1:368372
graphic presentations of data,
1:373377
frequency polygons and cumulative
frequency distributions,
1:375377
histograms, 1:374375

I-84

statistics (continued)
kurtosis, 1:425429
measurement scales, 1:364365
identifying, 1:365
types of scales, 1:364
measures of central tendency, 1:378395
arithmetic mean, 1:378382
geometric mean, 1:390394
harmonic mean, 1:394395
median, 1:382385
mode, 1:385387
weighted mean, 1:387390
nature of, 1:362363
populations and samples, 1:363
practice problems, 1:434441
quantiles, 1:395402
calculating, 1:397399
in investment practice, 1:399402
types of, 1:395399
sample, 1:363, 566568
solutions to problems, 1:442455
symmetry, 1:420425
using geometric and arithmetic means,
1:429430
Statistics Canada, 2:211, 222, 224
Statistics New Zealand, 5:196
status, client, 1:102
statutory voting, 5:156
Staunton, Mike, 4:48
Steiner, Fabian, 4:63
step-up coupon bonds, 5:321322
sterling (name convention), 2:504, 505.
see also pound (United Kingdom)
STMicroelectronics, 5:210
stochastic oscillator, 1:694696
stock(s). see also equity investments;
equity securities; shares
arbitrage with, 6:4849, 67
buying, 6:121123
common, 3:185, 289
correlation of T-bills/bonds with, 4:313
defined, 4:287
downside frequencies, 6:157
employee stock options, 4:236238,
314, 407
fixed rate perpetual preferred, 4:45
growth, 5:98
historical risk and correlation, 4:313
nominal returns, 4:287288, 290
ownership of, 1:151153
performance of, 6:161
preferred, 3:187189, 242; 4:4546;
5:251254
real returns, 4:289290
returns on, 6:152, 165, 196, 197
risk and return, 4:287288
Sharpe ratios and downside risk
measures, 6:157
short selling, 6:121123
skewness of stock returns, 4:292293
treasury stock method for diluted EPS,
3:190191
value, 5:98, 133
volatility of, 6:152
stock analysts, 5:6
stock dividends, 4:116117
Stock Exchange of Thailand (SET),
1:459460
stock funds, 4:257

Level I Curriculum Index


stock mutual funds, 4:260
stock-option expensing, 4:215
stock options, 3:192; 6:36n.15
stock-out costs, 4:170
stock-out losses, 4:168
stock prices
aggregate demand and, 2:246
as Bernoulli random variable,
1:518519
binomial model, 1:526527
and control deficiency disclosures,
1:621623
lognormal distribution for, 1:541
and net present value, 4:2526
and stock splits, 4:118, 119
stock screens, 1:468
stock splits, 4:118120; 5:83, 85
stop-buy orders, 5:4849
stop-loss orders, 5:4849
stop orders, 5:4849
storage
in derivatives pricing, 6:4647
and holding of assets, 6:65
theory of, 6:199
Stowe, John, 4:41n.5, 42n.7
Straight from the Gut (Welsh), 3:617
straight-line depreciation method
and balance sheet, 3:602605
bond premium/discount amortisation,
3:517
calculation, 3:436
defined, 3:436
depreciation/amortisation, 3:174175
Straits Times Index, 1:415416
strategic asset allocation (SAA), 4:411419
for European charity, 4:421423
objective of, 4:414415
for private investor, 4:418419
specifying asset classes for, 4:411413
strategic default, 5:473
strategic groups, analysis of, 5:202203
strategic industry analysis, 5:204222
barriers to entry in, 5:206208
example, 5:219222
five forces framework, 5:205
industry capacity in, 5:211212
industry concentration in, 5:208211
industry life-cycle model in, 5:213218
example, 5:217218
limitations of, 5:217
stages of industry life cycle,
5:213215
using, 5:216217
market share stability in, 5:212213
price competition in, 5:218219
stratified random sampling, 1:568569
Stratton Small-Cap Value Fund, 1:407
stratum, 1:568
Strauss-Kahn, Dominique, 2:472
street conversion, 5:410
stress testing, 1:539; 6:203
stretching payables, 4:173
strike price. see exercise price
strip curve, 5:421422
strong-form efficient markets, 5:128
structural budget deficit, 2:401
structural subordination, 5:583
structured finance CDOs, 5:494
structured finance sector, 5:343

structured interest-only tranches,


5:479n.12
structuring process, 5:479
Stryker, 5:213
Students t-distribution. see
t-distribution
style indices, 5:9798
sub-advisors
defined, 1:244
Disclosure (GIPS Section I.4), 1:213, 214
Fundamentals of Compliance (GIPS
Section I.0), 1:208
selecting, 1:129, 136
Subaru, 2:174
sub-indices, price, 2:322323
subjective probability, 1:460
submanagers, 1:96, 132133
subminuette, Elliott wave, 1:706
subordinated bond classes, 5:485
subordinated debt, 5:576
subordination, 5:306, 466
subprime loans, 5:485
Subrahmanyam, Marti G., 1:626
Subramanian, Guhan, 4:203n.16
Sub-Saharan Africa
growth spillovers, 2:450
trade-to-GDP ratio, 2:426
subscription accounting, 3:181183
subsidiaries
captive finance, 4:161
high-yield credit analysis for,
5:622623
on income statements, 3:17
investments in, 3:489
of Nestl, 5:159
restricted vs. unrestricted, 5:624
subsidies
export, 2:442, 445447
in monopolies, 2:192
and short-run aggregate supply, 2:249,
251
substitutes (substitute products), 2:47,
5152, 159, 161; 5:205, 591
substitution
import-substitution policy, 2:438n.10
marginal rate of, 2:6970, 7374, 80
substitution bias, 2:320
substitution effects, 2:8490
Giffen goods, 2:8890
inferior goods, 2:8788
normal goods, 2:8487
in perfectly competitive markets, 2:157
price decrease, 2:8990
and two-part tariff pricing, 2:8687
Veblen goods, 2:90
substitution risk, 5:591
succession plans, 4:209, 210
suitability, 1:9697
for entire portfolio, 1:9495
for investor risk profile, 1:94, 96
Suitability [Standard III(C)], 1:9097
application of the standard, 1:9497
compliance procedures, 1:9394
investment policy statements, 1:93
regular updates, 1:94
suitability test policies, 1:94
guidance, 1:9093
addressing unsolicited trading
requests, 1:9293

Level I Curriculum Index


developing investment policies, 1:91
managing to indices or mandates,
1:93
need for diversification, 1:92
understanding clients risk profile,
1:91
updating investment policies, 1:92
text of, 1:17, 90
suitability test policies, 1:94
summaries, attributing, 1:47
sum of value added method, for GDP,
2:211212, 222
Sunbeam, 3:336, 577, 584, 616
sunk costs, 4:9
superannuation funds, 5:528
super-majority voting, 4:224
supernormal profit, 2:98
supervision
detection as part of, 1:119120
inadequate, 1:124125
of research activities, 1:122, 125126
system for, 1:119
of trading activities, 1:123
supervisors. see Responsibilities of
Supervisors [Standard IV(C)]
supervisory board, 4:194
super voting rights, 4:220
supplemental executive retirement plans
(SERPs), 4:216
supplemental information, 1:244; 3:1112
supplementary prospectus, 5:464n.3
supplementary schedules, 3:2426
suppliers
alignment of board members and, 4:199
cash to, 3:284286
power of, 5:205, 591
supply function for, 2:9
supply. see also demand and supply
analysis (generally); demand and
supply analysis (for firms)
aggregate, 2:1720
and AS curve, 2:238240
defined, 2:227
and global recession, 2:256257
and imports/exports, 2:424425
investment strategies for shifts in,
2:259260
long-run, 2:238240, 249251
in perfectly competitive market,
2:169
in real business cycle models, 2:310
shifts in, 2:240241, 247252
shifts in demand and, 2:260263
short-run, 2:238239, 247249
and stagflation, 2:259260
changes in, 2:15
in company analysis, 5:230
and credit spreads, 5:611
defined, 2:8
excess, 2:2224, 425
of floating-rate debt, 5:346
inelastic, 2:100
law of, 2:15
money, 2:244245
changes in, 2:356358
and interest rates, 2:359
M2, 2:330332
real, 2:234236
in monopolies, 2:187188

I-85
in monopolistic competition, 2:173
in oligopolies, 2:182183
in perfect competition, 2:164165
supply chains, global, 2:429
supply curves, 2:1316
aggregate, 2:238240, 247252, 261262
changes in supply vs. movements
along, 2:15
defined, 2:1314
long-run industry, 2:131133
and market equilibrium, 2:20
in monopolistic competition, 2:173
and producer surplus, 2:3334
representing seller behavior with, 2:16
short-run, 2:115116
and supply function, 2:1314
and total surplus, 2:3435
supply functions
aggregating, 2:1720
and supply curves, 2:1314
supply shock to inflation rate, 2:381
support, 1:675
support tranches, 5:481483
supranational bonds, 5:366
supranational organizations, 5:297,
580n.10
surety bond, 5:307
surpluses, 2:3043
budget, 2:388
consumer, 2:3032
and alternative trade policies, 2:443, 446
in monopoly, 2:190192
in perfect competition, 2:162164
and tariffs, 2:443
in current account, 2:463, 465467
of money, 2:325326
producer
and alternative trade policies, 2:443,
446
and consumer surplus, 2:3234
defined, 2:31
total, 2:3443
calculation, 2:3435
and market interference, 2:3643
markets maximization of, 2:3536
maximization of, 2:3536
trade, 2:424
survey approach, for cost of equity, 4:50
Survey of Current Businesses (US
Department of Commerce), 2:211
survivorship bias, 1:588; 6:151n.2
in back-testing, 3:652
and GIPS standards, 1:196
in hedge fund reporting, 5:103
and hypothesis testing, 1:614
sustainability
of capital markets, 1:1213
of earnings, 3:568570
sustainable growth (of economy), 2:263,
269275
and fixed-income investments,
2:274275
and labor productivity, 2:271272
measures of, 2:272
rate of growth in potential GDP,
2:273274
sustainable growth rate (of firms), 3:367,
369; 4:51
Sviluppo Mercato Fondi Pensione, 1:205

swap funding, 2:495496


swap points, 2:512
swap rates, 2:512515
swaps (swap contracts), 6:2125
asset, 5:430
commodity, 6:195
in contract markets, 5:2325
credit default, 5:25, 34
currency, 6:23n.12, 37
defined, 6:21, 61
equity, 6:36
FX, 2:495496
index, 6:36
interest rate, 5:2324; 6:22
long and short side of, 5:39
plain vanilla, 6:22, 37
pricing and valuation of, 6:8285
total return, 6:30
swarming, 2:171
Swaziland, 3:115
Sweden
banking supervision, 2:362
disinflation, 2:319
equity risk premiums, 4:48
exchange rate regime, 2:523
as GIPS country sponsor, 1:205
government spending, 2:220
inflation-linked bonds, 5:323, 324
inflation targeting, 2:371, 373
labor productivity, 2:271
MSCI multi-market index, 5:96
real equity returns, 1:373
returns
on bonds and bills, 5:152, 153
on equities, 5:152153
risk tolerance and equity ownership,
5:154
share repurchases, 4:123
total returns, 1:380, 383
underground economy, 2:214
Swedish Financial Supervisory
Authority, 2:362
Swedish krona, 2:487; 5:345
Swedish Society of Financial Analysts,
1:205
SWFs. see sovereign wealth funds
Swiss Bankers Association, 1:205
Swiss franc, 2:487, 504, 506; 5:19, 345
Swiss GAAP FER, 3:106
Swiss National Bank, 2:499
Switzerland
accounting standards, 3:106
banking supervision, 2:362
equity risk premiums, 4:48
exchange rate regime, 2:523
flotation costs, 4:63
as GIPS country sponsor, 1:205
growth spillover, 2:450
IFRS adoption, 3:114
MSCI multi-market index, 5:96
real equity returns, 1:373
residential mortgage loans, 5:471,
472
returns on bonds, bills, and equities,
5:153
risk tolerance and equity ownership,
5:154
sovereign bonds, 5:362
total returns, 1:380, 383

I-86
symmetry, 1:420425
syndicated loans, 5:358, 367368
syndicated offerings, 5:354
Syngenta, 3:131132
synthetic CDOs, 5:494
synthetic leases, 3:531
Syria, 2:522
systematic account reviews, 1:86
systematic risk
about, 4:354356
beta as measurement of, 6:155
and calculation of beta, 4:359360
defined, 4:354
in Jensens alpha, 4:371
proxies for measuring, 5:94
for single-index model of beta, 4:359
and strategic asset allocation, 4:410
in Treynor ratio, 4:370
systematic sampling, 1:567
systemic risk, 5:331; 6:32, 4344
systems risk management, 6:174
T
T. Rowe Price Corporate Income Fund,
4:259260
T. Rowe Price Equity Income fund
geometric and arithmetic mean
returns, 1:392393
kurtosis, 1:427429
range and mean absolute deviation,
1:404405
sample variance and sample standard
deviation, 1:409411
Sharpe ratio, 1:419
skewness of, 1:423425
T. Rowe Price Small Cap Value Fund,
1:407
T + 2 settlement, 4:120n.11
T + 3 settlement, 4:120n.11
T206 Honus Wagner baseball card,
6:200n.34
T-accounts, 3:7692
tactical asset allocation, 4:419420
Tai, Jackson, 5:161
tail events, 6:203
Taiwan
Asian financial crisis, 2:429
comparative advantage, 2:438439
effects of global recession, 2:256
globalization of production, 2:428
in MSCI multi-market index, 5:96
Taiwan Semiconductor Manufacturing
Company Ltd., 5:201
takeover defenses
shareowner rights in, 4:227228
share repurchases in, 4:124126
voting on, 4:224
taking a market, 5:4547
tangible assets, 6:155, 200
Tankan Survey, 2:332, 334
Tanzania, 3:115
Target, 4:148149, 170
target balance, 4:153
target capital structure, 4:38
target companies, for leveraged buyouts,
6:178179
target independence, 2:372
target market, for security market
indices, 5:82

Level I Curriculum Index


target semideviation, 1:412
target semivariance, 1:412
target zone currency regimes, 2:522, 525
tariffs, 2:442447
analysis of, 2:444445
defined, 2:442
GATT, 2:468, 471
and quotas/VERs, 2:446447
two-part tariff pricing, 2:8687,
191192
taxable income, 3:474479
taxable profit, accounting profit vs.,
3:484489
taxable temporary differences, in
taxable/accounting profit, 3:485
tax-advantaged securities, 4:155
tax asset valuation accounts, 3:612
tax bases, 3:479484
of assets, 3:480481
and changes in tax rates, 3:483484
defined, 3:475
of liabilities, 3:481483
taxes
and aggregate demand, 2:230231,
243, 246
attributes of tax policy, 2:395396
capital gains, 4:114, 282
in CAPM assumptions, 4:364
and cost of capital, 4:3738
current, 3:490493
deferred, 3:490493, 499502
direct, 2:395, 398
on dividend income, 4:282
and fiscal policy, 2:387388, 396
and fixed-income securities, 5:313315
and government spending, 2:398399
income, 3:473510
and accounting profit vs. taxable
income, 3:474479
cash for, 3:287
disclosure of tax information,
3:493499
IFRS vs. US GAAP, 3:474, 499502
practice problems, 3:504508
presentation, 3:493494
solutions to problems, 3:509510
and taxable vs. accounting profit,
3:484489
tax bases for, 3:479484
unused tax losses and credits,
3:489490
and income trusts in Canada, 5:225
indirect, 2:395, 397
and IPSs, 4:405
net tax rate, 2:398
per-unit, 2:3942
reporting of depreciation methods,
3:441
and short-run aggregate supply, 2:249,
251
and social policies, 2:397
and yield-to-maturity, 5:421
taxes, on REITs, 6:152
tax-exempt bonds, 5:349
tax expense, 3:475
tax loss carry forward, 3:475
tax-loss selling hypothesis, 5:131
tax rates, changes in, 3:483484
tax recognition, 3:484n.4

tax reform, 2:396


Taylor, Owen, 1:668
T-bills. see US Treasury bills
T-bonds. see US Treasury bonds
TD Ameritrade Holding Corporation,
3:661662
TD Bank. see Toronto-Dominion Bank
t-distribution
and confidence interval for population
mean, 1:581582
defined, 1:616617
and estimation of normal sampling
distribution, 1:579
normal distribution vs., 1:579582
table, 1:724
Tech Data Corporation, 3:276278
technical analysis, 1:659720; 5:125, 129
defined, 1:660
Elliott Wave Theory, 1:705708
fundamental vs., 1:662664
intermarket, 1:708710
practice problems, 1:713717
principles and assumptions, 1:660662
solutions to problems, 1:718720
tools for, 1:664705
chart patterns, 1:676687
charts, 1:664673
market cycles, 1:704705
technical indicators, 1:687704
trends, 1:673676
technical indicators, 1:687704
flow-of-funds, 1:700704
Arms index, 1:700702
margin debt, 1:702
and market indicators, 1:703
mutual fund cash position, 1:702703
new equity issuance, 1:703704
secondary offerings, 1:704
momentum oscillators, 1:690697
about, 1:690692
MACD oscillator, 1:696697
relative strength index, 1:692694
stochastic oscillator, 1:694696
price-based, 1:687690
Bollinger bands, 1:689690
moving average, 1:687689
sentiment, 1:697700
calculated statistical indices,
1:697700
opinion polls, 1:697
Technical Practice Aid 5400.05 (AICPA),
3:180
technological influences
in industry analysis, 5:203, 222223
on industry life-cycle, 5:217
in strategic analysis, 5:220
technology
and aggregate supply, 2:250, 251
and comparative advantage, 2:440
and economic growth, 2:265, 266,
267268
and labor productivity, 2:270
and long-term aggregate supply, 2:250,
251
of production, 2:13
technology, substitution risk and, 5:591
technology sector, 5:193
Teck Resources Ltd., 3:1011
TED spread, 6:23

Level I Curriculum Index

telecommunications industry, structure


of, 5:217
telecommunications sector, 5:193
telecommunications services sector,
5:193
Telefonica, 1:398
Telefnica Group, 3:274276
Telefnica S.A., 5:192, 270271
Telfonos de Mxico, S.A.B. DE C.V.,
3:634636
Tele Norte Leste Participaes S.A.,
3:634636
telephone utilities, 2:188, 193
television broadcasting, 2:153
TeliaSonera AB, 4:115116
Temasek Holdings, 4:249
temporary differences, in accounting/
taxable profit, 3:474, 484489
deductible differences, 3:485488
examples, 3:486488
at initial recognition, 3:488
taxable differences, 3:485
temporary new accounts, 1:211, 244
temporary workers, use of, 2:316
10b-18 rule, 4:123
10-K, Form. see Form 10-K
Tenneco Automotive, Inc., 1:438
tenor, 5:298, 425
TEPCO. see Tokyo Electric Power
Company
terminal stock value (terminal value),
5:249, 258, 259
termination policies, 1:109
term maturity structures, 5:372
term of repurchase agreement, 5:378
term repo, 5:378
terms, board members, 4:202203
terms of trade, 2:423424
term structure
of credit spreads, 5:406
of interest rates, 5:421428, 549
of yield volatility, 5:549
term structure of interest rates, 6:7879
Tesco, 3:46; 5:356
test statistic
acceptance region for, 1:612
calculating, 1:614
defined, 1:609610
rejection point for, 1:612614
rejection region for, 1:612
in tests concerning difference between
variances, 1:634635
in tests concerning value of population
variance, 1:632
in tests of difference between
population means, 1:623625
in tests of mean differences, 1:629631
in tests of single population mean,
1:617620
Teva Pharmaceutical Industries, 5:209
Texas, 5:631
Texas A&M University System, 4:246
Texas Instruments, 5:210
textile industry, 2:431432
TFP. see total factor productivity
ThaiBev, 2:176
Thailand
Asian financial crisis, 2:429
beer industry, 2:175, 176

I-87
currency regime, 2:522
exchange rate targeting, 2:378
foreign investment, 5:164
and GAAP/IFRS convergence, 3:115
globalization of production, 2:428
inflation targeting, 2:371
in MSCI multi-market index, 5:96
regular cash dividends, 4:113
Thaler, Richard, 5:132
Thatcher, Margaret, 2:360
theory of storage, 6:199
theory of the consumer, 2:6, 96
theory of the firm, 2:6, 96
third-degree price discrimination, 2:191
third-party custodians, 1:32
third-party research, 1:127128, 132
Thomas, Randall S., 4:191n.8
Thomson Reuters, 3:329
Thomson Reuters US Private Equity
Performance Index (PEPI),
6:181182
three-factor models for beta, 4:357
three-stage dividend discount model,
5:259
Tibor. see Tokyo Interbank Offered Rate
tight fiscal policy, 2:405
tight monetary policy, 2:405
TIIS. see Treasury Inflation-Indexed
Securities
Timber Hill, 5:30
timberland, investing in, 6:185, 189
time
on point and figure charts, 1:668
present value of cash flows at times
other than t = 0, 1:299301
time frame
of decision and dissemination,
1:8485
and performance calculation, 1:9899
time frame, for market efficiency, 5:117
time horizon
for cash forecasting, 4:152
for portfolio management, 4:250
and portfolio planning, 4:404405
and risk tolerance, 4:397
time intervals, chart, 1:672
time period, GIPS standards and, 1:196
time-period bias, 1:589, 590, 614
time periods, security index values over
multiple, 5:8182
time-series data, 1:379, 569571
time-series pricing anomalies,
5:130132
time to expiration, option pricing and,
6:8889
time-to-maturity, 5:532
time tranching, 5:466
time value decay, 6:90
time value of money (TMV), 1:277330;
5:390401; 6:63
cash flow additivity principle, 1:311
defined, 1:278
and discounted cash flows, 1:331
future value
equivalence of present and,
1:309310
of series of cash flows, 1:288290
of single cash flow, 1:280288
and interest rates, 1:278279

market discount rate, 5:390393,


395399
practice problems, 1:313315
present value
equivalence of future and, 1:309310
of series of cash flows, 1:294302
of single cash flow, 1:290294
solutions to problems, 1:316330
solving problems for variables
interest rates and growth rates,
1:302305
number of periods, 1:305
size of annuity payments, 1:305309
spot rates, 5:399401
yield-to-maturity, 5:394395
time value of options, 6:90
Time Warner, 1:682
time-weighted rate of return
Calculation Methodology (GIPS
Section I.2), 1:209
defined, 1:244
linked, 1:218
money- vs., 1:344346
for portfolios, 1:341346
Real Estate (GIPS Section I.6), 1:218,
219
TIPS. see Treasury Inflation-Protected
Securities
titles, real estate, 6:185
TMV. see time value of money
T-notes. see US Treasury notes
to-arrive contracts, 6:3940
tobacco industry, 2:175176
tobacco industry, social influences on,
5:226
Tobago, 5:96
Tokyo, Japan, 5:630
Tokyo Agreement, 3:113
Tokyo Electric Power Company
(TEPCO), 5:586
Tokyo Electron, 5:209
Tokyo Interbank Offered Rate (Tibor),
5:347; 6:78n.11
Tokyo Stock Exchange, 6:9
as exchange, 5:29
information availability, 5:122
intermarket analysis, 1:708
and population mean, 1:378
ROC oscillator, 1:691692
and TOPIX, 5:103
Tokyo Stock Exchange Group, 5:151, 152
Tokyo Stock Price Index (TOPIX), 4:47,
397
features of, 5:103
number of securities in, 5:82
as proxy for market portfolio, 5:94
tolerance for leverage, 3:647
Tootsie Roll Industries, 4:117
top-down analysis, 3:650
top-down approach to equity valuation,
5:244
top-down portfolio analysis, 4:251, 423
top down strategies, 6:162, 163
TOPIX. see Tokyo Stock Price Index
TORM A/S, 3:526527
Toronto-Dominion Bank (TD Bank),
1:672, 700; 5:209
Toronto Stock Exchange (TSE), 4:206,
209

I-88

Toronto Stock Exchange 300 Index,


2:4748
Toshiba Corporation, 3:323325
Total (company), 1:398
total asset turnover, 3:341, 345
total comprehensive income, 3:198
total costs. see also long-run average
total cost curve (LRATC); shortrun average total cost curve
(SRATC)
in breakeven analysis, 2:116120
calculation of, 2:115
defined, 2:102, 112113
and output optimization, 2:120125
profit maximization with, 2:97,
109120
and shutdown analysis, 2:120
total debt to total debt plus equity ratio,
3:374
total expenditure(s)
and aggregate income, 2:227234
and consumer surplus, 2:3132, 163
and own-price elasticity of demand,
2:4850
total factor productivity (TFP), 2:264, 268
total firm assets
defined, 1:244
Disclosure (GIPS Section I.4), 1:212
Fundamentals of Compliance (GIPS
Section I.0), 1:208
Presentation and Reporting (GIPS
Section I.5), 1:215
Verification (GIPS Section IV), 1:233
total fixed cost
calculation of, 2:115
defined, 2:102, 112113
and other costs in profit maximization,
2:111113
and shutdown analysis, 2:120
total invested capital, 3:637n.4
total leverage, 4:9598
total market capitalization, 5:91
total market value, ROE and, 5:174
total probability rule, 1:469471, 488
total product
defined, 2:108, 134, 135
and productivity, 2:134137
total return
for equity securities, 5:169170
for leveraged stock purchase, 5:4243
for multiple periods, 5:8182
and portfolio management, 6:155
price vs., 5:7879
on real estate, 6:184
for single period, 5:8081
total return index, 5:7881
for multiple periods, 5:8182
for single period, 5:8081
value of, 5:7981
total returns. see also holding period
return (HPR)
Calculation Methodology (GIPS
Section I.2), 1:209
defined, 1:244
GIPS Advertising Guidelines (GIPS
Section III), 1:231
Presentation and Reporting (GIPS
Section I.5), 1:215
Real Estate (GIPS Section I.6), 1:218

Level I Curriculum Index


total return swaps, 6:30
total revenue
defined, 2:102, 104
in imperfect competition, 2:105107
in oligopoly, 2:178
and output optimization, 2:120125
in perfect competition, 2:105
and price elasticity, 2:161162
in profit maximization, 2:97, 103107
and shutdown analysis, 2:120
total risk
decomposition of, 4:358
in Sharpe ratio, 4:370
Total S. A., 5:255257
Total SA, 4:118, 122123
total surplus, 2:3443
calculation, 2:3435
and market interference, 2:3643
maximization of, 2:3536
total value
and consumer surplus, 2:163
defined, 1:244
Private Equity (GIPS Section I.7), 1:223
Real Estate (GIPS Section I.6), 1:219
and total surplus, 2:3436
total variable cost
in breakeven analysis, 2:117
calculation of, 2:115
defined, 2:102, 113
and other costs in profit maximization,
2:111113
and producer surplus, 2:33
and shutdown analysis, 2:120
and total surplus, 2:3436
toxic waste, 5:32
Toyota, 2:174
Toyota Motor Company, 5:209, 268
Toyota Motor Corporation, 1:303305,
691692; 3:569570
tracking error, 1:524
track record, as company fundamental,
5:593
track record, of hedge funds, 6:173
tradable assets, 4:347
trade. see also international trade
and alternative trade policies, 2:446
free, 2:424, 429430
gains from, 2:435438
inter-temporal, 2:463, 464
intra-industry, 2:429
terms of, 2:423424
trade agreements
common markets, 2:448
economic unions, 2:448
export subsidies, 2:445447
trading blocs, 2:448452
trade allocation procedures, 1:8586
trade balance
absorption approach, 2:535536
balance of trade deficit, 2:220, 424
in business cycles, 2:303304
and capital account, 2:530
elasticities approach, 2:531535
and GDP, 2:220221
and saving/expenditures, 2:530531
trade creation, 2:449
trade credit, 4:171, 172
trade date accounting, 1:209, 244
trade discounts, 4:173174

trade diversion, 2:450


trade granting process, 4:162163
trade organizations, 2:467474
function and objectives, 2:472474
International Monetary Fund,
2:468470
World Bank Group, 2:470471
World Trade Organization, 2:471472
trade payables. see accounts payable
trade pricing rules, 5:56
trade protection, 2:424
trade receivables, 3:46, 219221
trade restrictions, 2:442455
capital restrictions, 2:452455
quotas, 2:445447
tariffs, 2:442447
trade sales, 2:330
trade sales, private equity, 6:180181
trade sector, 2:220221, 303304
trade surplus, 2:424
trade-to-GDP ratio, 2:425428
trading
alternative systems, 5:2930
continuous trading markets, 5:5457
on contract/secondary security
markets, 5:54
excessive, 1:80, 89
information-motivated, 5:1012, 26
insider, 5:61, 122
multilateral facilities, 5:2930
personal, 1:70
and conflict of interest, 1:155
disclosure of, 1:161
limitations on, 1:62
and market manipulation, 1:6970
priority of transactions for, 1:157
proprietary trading procedures, 1:63
risk-arbitrage, 1:63
spot market, 5:10
supervising trading activities, 1:123
trading, cost of, 4:294, 315
trading blocs, 2:448452
trading expenses
Calculation Methodology (GIPS
Section I.2), 1:210
defined, 1:244
Disclosure (GIPS Section I.4), 1:212
trading limits, 5:122
trading NAV, 6:172
trading securities, 3:199, 267
trading volume
on charts, 1:671672
and head and shoulders pattern, 1:677
and personal trading, 1:70
trends in, 1:661
traditional investment markets, 5:15
traditional investments
alternative investments vs., 6:150
integration of alternative investments
with, 6:157158
Sharpe ratios for, 6:157
trailing twelve months (TTM) ratio,
3:329
training, compliance, 1:121
tranches, 5:464n.4
for collateralized debt obligations,
5:495
for collateralized mortgage obligations,
5:479484; 6:34, 187

Level I Curriculum Index


defined, 5:32
equity, 5:487
floating-rate, 5:483484
loss severity and credit risk for,
5:572n.1
planned amortization class, 5:481483
residual, 5:487
selection of, 5:484
sequential-pay, 5:479481
structured interest-only, 5:479n.12
support, 5:481483
tranching, 5:465467
transaction allocation, 1:8788
transaction-based manipulation, 1:69
transaction costs, 4:364, 376n.6; 5:9, 123
transaction costs, derivative, 6:41, 70
transaction expenses
defined, 1:245
Private Equity (GIPS Section I.7),
1:221, 222
Real Estate (GIPS Section I.6), 1:217,
218
transactions, BOP, 2:455
transactions, new, 3:133
transactions-based indices (real estate),
6:189, 190
transactions money balances, 2:355
transactions motive, 4:168
transfer payments, 2:219, 394395
transition probability, 1:526
transitive preferences, 2:65
transitivity assumption, 2:65, 7172
Transocean, 1:685
transparency. see also corporate
transparency
of exchange-traded derivatives market,
6:11
of futures market, 6:21
of inflation targeting, 2:373375
of markets, 5:58
travel expenses, 1:3637, 3940
travel funding, 1:35
Treasury bills, 1:279n.3, 349n.16; 4:287.
see also US Treasury bills
Treasury debt, 1:279
Treasury Inflation-Indexed Securities
(TIIS), 5:323
Treasury Inflation-Protected Securities
(TIPS), 2:321; 5:323
treasury shares, 3:242
treasury shares (treasury stock), 4:123
treasury stock method, 3:190191
tree diagrams (binomial trees), 1:475
476, 526
trend analysis, 3:333335
trends
recognizing, 1:673676
in technical analysis, 1:662663
Treynor, Jack, 4:243, 363
Treynor ratio, 4:370
trials, number of (for Monte Carlo
simulation), 1:547
triangle patterns, 1:684686
triangular arbitrage, 2:508
trimmed mean, 1:382n.14
TRIN. see short-term trading index
Trinidad, 5:96
triple bottoms, 1:682683
triple tops, 1:682683

I-89
trough phase (business cycle), 2:290, 291
true yield, 5:410
Trump Hotels & Casino Resorts
pro forma earnings of, 3:616
quality of financial reports by,
3:572573
trust deeds, 5:302
trustee agents, 5:464
trustees
bond indenture, 5:302
in securitization process, 5:464
trust preferred securities, 5:576n.4
trust receipt agreements, 4:178
trusts, in securitization process, 5:464
TSE. see Toronto Stock Exchange
Tsingtao Brewery, 3:633
TSX Group, 5:152
t-test, 1:616620
nonparametric test vs., 1:638
risk/return characteristics of mutual
fund, 1:618619
and slowdown in payments of
receivables, 1:619620
and Spearman rank correlation,
1:640641
and test static for difference between
population means, 1:623627
and test static for single population
mean, 1:617620
for test statistic for tests of mean
difference, 1:629631
z-test vs., 1:620, 623, 638
TTM ratio. see trailing twelve months
ratio
Tuna, A. Irem, 4:191n.9
Tunisia, 5:96
Turkey
business investment, 2:267
exchange rate regime, 2:523
and IFRS, 3:115
inflation-linked bonds, 5:324
inflation targeting, 2:371
labor productivity, 2:271
in MSCI multi-market index, 5:96
turn-of-the-month effect, 5:131
turn-of-the-year effect, 5:131
turnover
accounts receivable, 4:146
annual share, 1:400
asset, 3:341, 345, 614
on income statements, 3:151n.4
inventory, 3:342343; 4:146, 170171
and activity ratio, 3:341342
activity ratio definition, 3:340
and DOH, 3:342343
inventory ratios, 3:405406, 615
payables, 3:340, 344
portfolio, 1:406408
receivables, 3:340, 343344
segment, 3:376378
total asset, 3:345
working capital, 3:340, 345
turnover, in FX market, 2:501502
Turquoise, 5:30
TVPI. see investment multiple
2 and 20 fee structure, 6:166
two-asset portfolio, risk of, 4:285286
two-for-one stock splits, 4:118
two-fund separation theorem, 4:320321

two-part tariff pricing, 2:8687,


191192
two-sided (two-tailed) hypothesis test,
1:608
two-sided prices, 2:505506
two-stage dividend discount model,
5:258262
two-tiered board, 4:194
two-week repo rate, 2:368
Tyco International, Ltd., 5:199
Tyco International Ltd., 3:618
Type I error, 1:610611
Type II error, 1:610611
typical cash flows, identifying,
4:151152
U
UBS, 2:498, 500; 5:209
Uganda, 3:115
Ukraine, 1:205; 2:318, 522; 5:96
Ukrainian Association of Investment
Business, 1:205
ULC. see unit labor cost
unbiased estimators, 1:576
unbilled revenue, 3:70
uncertainty
about future cash flows, 1:430
inflation, 2:366
and theory of the firm, 2:96
unclassified balance sheets, 3:56
uncollectible accounts, 3:599600
uncommitted lines of credit, 4:175, 176
unconditional probability, 1:462
unconditional variance, 1:476n.9
uncorrelated returns, 4:305
underemployed, 2:314
underground economy, 2:213214
underinvestment, in inventory, 4:168
underlying (underlying assets), 6:5
for calls, 6:123124, 131133
defined, 6:7
and derivatives valuation, 6:46
in fiduciary calls, 6:96
hedging of, 6:6768
payments on, 6:9091
performance of, 6:6
pricing, 6:6266
in pricing of European options, 6:87,
8991
for puts, 6:95, 127128, 133135
storage of, 6:4647
types of, 6:3639
value of, 6:87
and value of contract, 5:20
volatility of, 6:8990
underlying risk exposures, of options,
5:39
undervalued (term), 5:244
underwriters, 5:354, 464
underwritten offerings, 5:50, 51,
354355
unearned fees, 3:5758
unearned revenue
accrual accounting for, 3:70
analysis of, 3:226228
on balance sheets, 3:5758
as current liability, 3:226
on income statements, 3:156
unemployed, 2:314

I-90

unemployment
analyzing, 2:316317
and business cycles, 2:313317
and international trade, 2:430
natural rate of, 2:240, 324
non-accelerating inflation rate of, 2:324
and overall payroll employment,
2:315316
and real business cycle models, 2:310
and regional trade agreements,
2:450451
in stagflation, 2:259260
unemployment insurance, 2:329
unemployment rate, 2:314, 315
unequal cash flows
future value of series with, 1:290
present value of series with, 1:301302
unethical actions, reporting, 1:29
unexpected inflation, 2:365367
Unibail-Rodamco, 1:397
UniCredit, 1:397
uniform distribution
continuous, 1:527531
discrete, 1:516518
uniform pricing rule, 5:56
unilateral transfers sub-account, BOP,
2:457
Unilever Group, 1:398; 3:271274;
4:118119; 5:210
unintentional errors, correction of, 1:48
Union Electric Company, 5:252254
unitary board, 4:195
United Agri-Products (UPI), 3:599600
United Arab Emirates, 5:96
United Kingdom
banking supervision, 2:363
bankruptcy, 5:579
benchmark rate, 5:429
bonds outstanding, 5:348, 353
budget deficit, 2:465
business investment, 2:267
capitalization level and contributions
to global GDP, 5:151
comparative advantage, 2:434437, 441
consol bonds, 1:299
covenant-strengthening investor
groups, 5:607
currency regime, 2:520, 521, 523
cyclically adjusted budget deficit, 2:401
disclosures in annual reports, 4:209
disinflation, 2:318, 319
domestic and international debt
securities, 5:312
EAR, 1:287n.6
equity risk premiums, 4:48
excess demand/supply of cars, 2:425
exchange rate targeting, 2:377, 378
expected inflation, 2:366
fiscal policy, 2:398
foreign bonds, 5:311
frequency of capital budgeting, 4:25
as GIPS country sponsor, 1:205
government cash flows, 2:389390
government liabilities/debt, 2:346, 392
government revenues/expenditures,
2:387, 388
hedge fund registration, 6:171
housing prices and saving rate,
2:242243

Level I Curriculum Index


inflation-linked bonds, 5:323, 324, 363,
364
inflation targeting, 2:371373
international investments in BASF,
5:165
investment spending, 2:230
IPS requirement, 4:394
Kondratieff Wave, 1:704
labor productivity, 2:271
minimum wage, 2:38
monetary policy, 2:360, 377
money measures, 2:354
MSCI multi-market index, 5:96
national debt, 2:391, 393
net borrowing/lending, 2:389
non-sovereign government bonds,
5:365
public sector spending, 2:347
real equity returns, 1:373
residential mortgage loans, 5:471, 472
returns on bonds, bills, and equities,
5:153
risk tolerance and equity ownership,
5:155
scrip dividend schemes, 4:114
share repurchases, 4:123
social influences on tobacco industry,
5:226
sovereign bonds, 5:303, 362
total returns, 1:380, 383
Treasury bills, 1:279n.3
wealth effect, 2:242243
UK Debt Management Office, 5:303
UK Financial Services Authority, 3:26
UK Investment Performance Committee,
1:205
United Nations, 5:196
United Nations Conference on Trade on
Employment, 2:468
United Nations Monetary and Financial
Conference, 2:468
United Rentals, Inc., 5:583584,
622623
United States
ACH system, 4:163
ADRs, 5:167168
alternative investors, 6:158n.14
antitrust violations, 2:193
approval for dividends, 4:111
APY, 1:287n.6
auctions, 5:356358
auditing standards, 3:27
balance of payments, 2:458459
banking supervision, 2:363
bank regulation, 3:103
bankruptcy, 5:579
bank sources of credit, 4:175
benchmark rate, 5:429
bond mutual funds, 4:259n.16
bonds outstanding, 5:348, 353
bond yields and credit risk/return,
5:609610
business investment, 2:267
capital budgeting, 4:25
capital goods expenditures, 2:218
capitalization level and contributions
to global GDP, 5:150151
capital-to-labor ratio, 2:265
cash underwritten offers, 4:63

company activities of government


industries, 5:197
consumption expenditures, 2:229230
correlation of equities, 4:412413
covenant-strengthening investor
groups, 5:607
CPI, 2:320322
currency regime, 2:520, 523
current account deficit, 2:463, 466, 467
cyclically adjusted budget deficit, 2:401
debt and equity outstanding, 5:344
deflation/disinflation, 2:318, 319
development of NAICS system, 5:197
domestic and international debt
securities, 5:312
economic indicators, 2:329331, 334
equity risk premium, 4:48
ETFs, 4:261
expected inflation, 2:366
external trade sector, 2:303
fiscal policy in 2009-2010, 2:398
foreign bonds, 5:311
foreign direct investment, 2:427, 428
four-factor model use, 4:382
as GIPS country sponsor, 1:205
globalization of production, 2:428
global recession, 2:256257
government liabilities/debt, 2:346, 392
government revenues/expenditures,
2:387, 388
government spending, 2:219
government-sponsored enterprises,
5:473
gross domestic product, 2:210211
forecasts, 2:274275
potential, 2:273
hedge fund registration, 6:171
imports in, 2:423
industrial comparative ratio analysis,
5:596597
inflation-linked bonds, 5:323, 324, 363,
364
and inflation targeting, 2:376
international investments, 5:165
investment spending, 2:230
and ITO charter, 2:468
labor productivity, 2:271
labor supply, 2:266
liquidity representations on balance
sheets, 3:15
manipulation of financial reporting,
3:566
minimum wage, 2:38
money market funds, 4:258259
money measures, 2:353
money-weighted return, 1:340n.9
MSCI multi-market index, 5:96
municipal bonds, 4:405
municipal debt, 5:630
mutual funds, 4:258259
NAFTA, 2:448, 450
national debt, 2:393
national income, 2:223n.6
natural monopolies, 2:192
net borrowing/lending, 2:389
nominal returns of major asset classes,
4:287288
non-sovereign government bonds,
5:365

Level I Curriculum Index


OCI statement format, 3:19
open market repurchase transactions,
4:124
operating vs. capital leases, 4:44n.11
pension fund investment restrictions,
4:405
portfolio management by banks,
4:248249
presidential cycle, 1:705
productivity of US industries, 2:138
proxy for market portfolio, 5:94
proxy statements, 4:204, 207, 209, 211,
216, 222, 226
PSA prepayment benchmark, 5:475
public sector spending, 2:347
quantitative easing, 2:382383
real equity returns, 1:373
real returns of major asset classes,
4:289290
regular cash dividends, 4:112, 113
residential mortgage loans, 5:471473
returns
by asset class, 5:624625
on bonds and bills, 5:153
on equities, 5:152153
on reinvested dividends, 5:169170
returns on real estate, 6:190
risk of asset classes, 4:290291
risk tolerance and equity ownership,
5:154, 155
securities ranked lower than
subordinated debt, 5:576
securitization market, 5:460
shareowner-sponsored board
nominations, 4:225
share repurchases, 4:123, 125
sovereign bonds, 5:361364
stagflation, 2:259, 327
stock dividends, 4:117
tax considerations with bonds,
5:313314
taxes and cost of capital, 4:37
television broadcasting, 2:153
textile industry, 2:431432
tobacco industry, 2:175176
transition rates of credit ratings, 5:585
underground economy, 2:213214
unemployment rate, 2:315
VERs in, 2:445
wealth effect, 2:242
US Aggregate Bond Index, 5:351
US Air Force, 5:226
US Bankruptcy Code, 4:101
US Bureau of Labor Statistics (BLS),
2:138, 315, 431
US Census Bureau, 5:197
US commercial paper (USCP) market,
5:369371
US Commodity Futures Trading
Commission, 6:153
US Consumer Price Index (CPI),
2:320322, 331; 6:197
US Department of Commerce,
2:210211
US Department of Housing and Urban
Development, 5:473
US dollar
CAD/USD currency pair, 2:502
CNY/USD exchange rate, 2:489490

I-91
cross-rate calculations with, 2:507508
as currency anchor, 2:522, 525, 526
exchange rate quotes with, 2:504507
as exchange rate target, 2:378
foreign exchange gains, 5:169
foreign exchange reserves, 2:499500
forward calculations with, 2:511512
gold standard for, 2:520
identification code, 2:487
international bonds outstanding in,
5:345
JPN/USD currency pair, 2:502
as reserve currency, 5:19
USD/AUD currency pair, 2:502
USD/EUR currency pair, 2:502
USD/EUR exchange rate, 2:495
USD/GBP currency pair, 2:502
US Federal Reserve
banking supervision by, 2:363
Beige Book, 2:334
CPI-U use by, 2:322
and dollarized currency regimes, 2:523
independence of, 2:372
inflation targeting by, 2:376
intervention in FX market, 2:526
measures of money, 2:353
monetary policy, 2:243244, 259, 275
money market intervention, 4:259
objectives of, 2:364
quantitative easing by, 2:382383
in recession (2007-2009), 2:257
US Federal Trade Commission (FTC),
5:127
US GAAP
for barter transactions, 3:165166
for bonds, 3:516, 517, 520, 521
for borrowed funds, 3:429
for cash flows, 3:22, 268, 271, 276280
for comprehensive income, 3:19, 201
for debt issuance costs, 3:523
on decision-useful information,
3:568n.2
for deferred tax assets/liabilities, 3:476,
477, 491
on disclosure of operating segment,
5:200
fair value definition, 3:426n.2
and FASB, 3:106
for financial statement ratios,
3:633634
and global reporting standards, 3:112,
127, 128, 131
for gross vs. net reporting, 3:166
and IFRS
conservatism in, 3:580583
convergence with, 3:112114
on financial reporting standards,
3:131132
frameworks of, 3:127128
on income taxes, 3:474, 499502
for impairments, 3:448450, 454
income statement standards, 3:150
for intangible assets, 3:432, 434
for interest, 3:287, 430, 520
for inventory valuation, 3:395397,
402405
for investment property, 3:460
for leases, 3:532, 535, 543, 544
for long-lived assets, 3:453, 454

for pension plans, 3:550


and percentage-of-completion method,
3:160161
policy disclosure requirements, 3:135
for revaluation, 3:435436, 445,
447448
for revenue recognition, 3:158
revenue recognition in oil and gas
industry, 3:580
on ROE, 5:173n.29
and ROE comparisons, 3:634636
for segment reporting, 3:375
and stock-option expensing, 4:215
and Syngenta, 3:131132
and taxable profit vs. accounting profit,
3:484486
for tax-related issues, 3:481, 489
and WorldCom financial reports, 3:74
US Investment Performance Committee,
1:205
US Securities and Exchange Commission
(SEC), 5:29
Accounting and Auditing Enforcement
Release, 3:599601
and control deficiency disclosures,
1:621622
and convergence of global reporting
standards, 3:113
on cookie jar reserve accounting,
3:582583
discipline for financial reporting by,
3:585
disclosure regulations, 5:122
financial expert definition, 4:205n.18
financial reporting standards of,
3:108111
Form 3, 3:110111
Form 4, 3:110111
Form 5, 3:110111
Form 6-K, 3:109
Form 8-A, 4:223
Form 8-K, 3:110
Form 10-K, 3:109
Form 10-Q, 3:109
Form 11-K, 3:111
Form 20-F, 3:109
Form 40-F, 3:109
Form 144, 3:110
Form DEF-14A, 3:109
and GAAP, 3:106, 128, 131
and Groupon, 3:593
and hedge funds, 6:171
and IASB, 3:104
on management reporting, 3:26
MD&A requirements, 3:2627
on non-GAAP measures in financial
reports, 3:572n.5, 573, 592
on non-recurring restructuring events,
3:582
and PACCAR, 3:570571
poststabilization disclosures, 4:218
prospectuses filed with, 5:464n.3
registration with, 5:167, 168
Regulation FD, 3:110n.13; 5:122
as regulatory body, 3:103
reporting requirements, 3:587; 4:263
requirements for sponsored DRs, 5:166
revenue recognition standards, 3:158
Rule 10b5-1 and 10b5-2, 5:122n.10

I-92

US Securities and Exchange (continued)


rule 10b-18, 4:123
Rule 144, 3:110
Rule 144A, 5:167
and WorldCom financial reports, 3:74
United States Steel Corporation (US
Steel), 2:184
US Territories, ACH system, 4:163
US Treasury, 2:257; 5:356358
US Treasury bills (T-bills)
bank discount yield, 1:347348
as benchmark, 4:157
characteristics of, 5:361, 362
correlation of stocks/bonds with, 4:313
discount rate, 5:417
expected value, 1:478479
historical risk and correlation, 4:313
and investment opportunity frontier,
2:78
money market yield, 1:349
nominal returns, 4:288
nominal risk-free interest and liquidity
premium, 1:279
as proxy of risk-free return, 4:347349
pure discount instrument, 1:346
quoting for, 1:347
real returns, 4:289290
returns on, 1:348
returns on equities and bonds vs.,
5:152153
riskreturn tradeoff, 4:288, 291
Sharpe ratio, 1:417419
short-term investment, 4:154
in short-term portfolio report, 4:160
single price auctions for, 2:2930
and TED spread, 6:23
transaction costs with, 5:123
yield, 4:155156
US Treasury bonds (T-bonds), 5:361
correlation with other asset classes,
4:412
in cost of equity, 4:46, 49
and interest, 5:362
price relative to the S&P 500, 1:709
yield convexity, 5:541542
US Treasury notes (T-notes), 5:361, 362,
529530
US v. DuPont, 2:161n.4
unit elastic (unitary elastic), 2:45, 159
unit labor cost (ULC), 2:324, 331
unit normal distribution, 1:532
units (term), 5:18
units-of-production depreciation
method, 3:436, 602605
univariate distribution, 1:532
university endowment funds, 4:245246;
6:152153
University of Michigan, 4:246
University of Texas System, 4:246
University of Virginia, 4:252
unlimited funds, 4:10
unqualified audit opinion, 3:28
unrealized capital gains and losses, 5:550
unrealized multiple (RVPI)
defined, 1:243, 245
Private Equity (GIPS Section I.7), 1:223
Real Estate (GIPS Section I.6), 1:220
unrestricted subsidiaries, 5:624
unsecured debt, 5:575, 576

Level I Curriculum Index


unsponsored depository receipts, 5:166
unstable equilibrium, 2:26
unused tax credits, 3:489490
unused tax losses, 3:489490
unusual items, on income statements,
3:180181
updates, 1:94, 131132
UPI. see United Agri-Products
upper Tier 2 securities, 5:576n.4
UPS, 5:209
up transition probability, 1:526
uptrends, 1:674
Uranium Energy Corporation, 5:93
Uruguay, 2:448, 525; 3:114
USCP market. see US commercial paper
market
useful life, 3:174176
utilities sector, 5:193
utility
computation of, 4:300
and risk seeking, 4:295
and strategic asset allocation,
4:415416
utility maximization, 4:364
utility theory, 2:6474; 4:296300
and axioms of consumer choice theory,
2:6566
consumer preference in, 2:6667
gains from voluntary exchange,
2:7274
indifference curves, 2:6772
portfolio selection with, 4:301304
and risk aversion, 4:296304
utils, 2:66
Uzbekistan, 3:115
V
Vale, 5:209
Valeant Pharmaceuticals International,
5:603
Valero, 5:209
validity instructions, 5:44, 4849
valuation. see also GIPS Valuation
Principles (GIPS Section II)
adjustments in, 3:71
of alternative investments, 6:151
binomial, 6:100104
of derivatives, 6:4552, 7385
and arbitrage, 6:4752
forward commitments, 6:7385
options, 6:100104
pricing vs. valuation, 6:7273
and storage, 6:4647
of equities (see equity valuation)
equivalence of dividends and share
repurchases, 4:130131
of fixed-income securities (see fixedincome valuation)
of hedge funds, 6:172173
inventory, 3:396402
changes in, 3:404405
comparison of, 3:402
cost of sales, gross profit, and ending
inventory, 3:398400
first-in, first-out, 3:397400
last-in, first-out, 3:397400
periodic vs. perpetual inventory
systems, 3:400401
retail method, 3:221

specific identification, 3:171, 397400


weighted average cost, 3:397, 399
market-based, 3:638643
of non-traded investments, 6:172
of portfolio company for private equity
investment, 6:183184
principles in capital budgeting, 4:6
of real estate, 6:188, 191192
valuation allowance, 3:475, 491, 600
valuation ratios, 3:367369
calculation, 3:367368
defined, 3:339, 367
dividend-related quantities, 3:369
interpretation of EPS, 3:368369
value. see also present value models for
equity valuation
book, 5:172173, 176, 247
carrying, 5:247
of company, 4:36
and consumer surplus, 2:3032,
162164
enterprise, 5:247, 272274, 625
estimated, 5:244246
expected (see expected value)
face, 3:512515 (see also par value)
fair
and asset-based approach to
valuation, 6:184
of bonds payable, 3:520523
Conceptual Framework on, 3:122
defined, 1:239; 3:212n.1, 218219,
426n.2
financial assets at, 3:237
of financial liabilities, 3:520521
Fundamentals of Compliance (GIPS
Section I.0), 1:208
GIPS Valuation Principles (GIPS
Section II), 1:226227
Input Data (GIPS Section I.1), 1:208
and long-term asset acquisition,
3:426428
Private Equity (GIPS Section I.7),
1:221
Real Estate (GIPS Section I.6), 1:217
fairly valued, 5:244
fundamental value, 5:119, 244
future
defined, 1:280
future value of series of cash flows,
1:288290
future value of single cash flow,
1:280288, 281288
present and, 1:281, 309310
of goods and services in GDP,
2:213214
of growth opportunities, 5:255n.3
intrinsic
book vs., 5:176
from dividend discount model,
5:248249
in equity valuation, 5:244
market vs., 5:119120
inventory, 3:402404
justified values of price multiples,
5:264266
marginal value curve, 2:31, 163
market, 6:39, 184
and asset-based valuation, 5:274275
and book value, 5:171172

Level I Curriculum Index


of debt, 5:272273
defined, 1:241
GIPS Valuation Principles (GIPS
Section II), 1:226
Input Data (GIPS Section I.1),
1:209n.2
intrinsic vs., 5:119120
Real Estate (GIPS Section I.6),
1:217n.6
total, 5:174
market value to book value ratio,
3:661662
measure of, 2:350
net asset value (see net asset value
[NAV])
net book, 3:175
net present (see net present value
[NPV])
net realisable, 3:221222, 402
other models vs., 5:276278
par (see par value)
present (see present value [PV])
price-to-book value ratio, 3:367, 368
realizable, 3:122
residual, 1:220, 223, 243; 3:174176
salvage, 3:174
settlement, 3:122
store of, 2:349350
terminal, 5:249, 258259
total
and consumer surplus, 2:163
defined, 1:244
Private Equity (GIPS Section I.7),
1:223
Real Estate (GIPS Section I.6), 1:219
and total surplus, 2:3436
total market, 5:174
value at risk (VaR), 1:539, 545; 4:293;
6:203
value effect, 5:133
value investors, 3:652
Value Line, 5:260262
The Value Line Investment Survey, 4:121
value of final output method, 2:211212,
222
values, CFA Institute, 1:15
value stocks, 5:98, 133
value strategies, for hedge funds, 6:164
value tilt, of indices, 5:91
value weighting. see marketcapitalization weighting
Vanguard Group, 4:260
Vanguard Total World Stock Index ETF,
1:630631
vanilla swaps, 6:22, 37
VaR. see value at risk
variable compensation, 4:215
variable costs
in breakeven analysis, 2:116, 117, 119
calculation of, 2:115
defined, 2:113, 114
and leverage, 4:8284
and operating leverage, 3:351; 4:8890
and producer surplus, 2:3234
profit maximization, 2:109117
variable-rate mortgages, 5:471
variable-rate notes, 5:321
variables, exogenous vs. endogenous,
2:21

I-93

variance
of binomial random variables, 1:525
conditional, 1:476479
covariance, 1:481484
defined, 1:405, 472473
hypothesis testing with, 1:632637
tests about equality of two variances,
1:634637
tests with known variance, 1:578,
620623
tests with single variance, 1:632634
tests with unknown variance,
1:617620, 623631
of lognormal distribution, 1:541,
544545
of normal distribution, 1:531
population, 1:405
and portfolio expected return,
1:485486
in probability, 1:458
sample, 1:408
semivariance, 1:411412
for single-index model of beta, 4:358
of standard normal distribution, 1:532
variance of returns, 1:481486; 4:284
285, 309310, 343
variation, coefficient of, 1:414416;
3:370
variation margin payments, for futures
contracts, 5:22
variety, monopolistic competition and,
2:174, 175
Veblen, Thorstein, 2:90
Veblen goods, 2:90
velocity of money, 2:234, 326328
vendors, number, size, location of, 4:172
Venezuela, 2:522; 3:114
venture capital, 6:179180
defined, 5:15; 6:154, 175
downside frequencies, 6:157
expansion, 6:179
mezzanine, 6:179
as private equity investment, 5:162
returns, 6:151, 152, 182
Sharpe ratios and downside risk
measures, 6:157
volatility, 6:152
venture capital funds, 4:265
Vereinigung sterreichischer
Investmentgesellschaften, 1:204
verification, 1:245; 3:579
Verification (GIPS Section IV), 1:197
198, 232236
and compliance, 1:203
and performance examinations, 1:236
required procedures, 1:233236
pre-verification procedures,
1:233234
verification procedures, 1:234236
scope and purpose, 1:232233
verification report
defined, 1:245
Verification (GIPS Section IV),
1:232233, 236
Verizon Communications Inc.,
3:634636
VERs. see voluntary export restraints
vertical common-size analysis,
3:194n.50, 246, 330333

vertical common-size balance sheet,


3:330332
vertical demand schedule, 2:160
vertical equity, 2:396
Viacom Corporation, 5:156157
Vickery auction, 2:27, 28
Vidal-Garcia, Javier, 1:463464
Vietnam, 2:522; 3:115; 5:96
VINCI, 1:397
vintage year
defined, 1:245
Private Equity (GIPS Section I.7),
1:222224
Real Estate (GIPS Section I.6), 1:219,
220
violations of ethical standards
detection of, 1:119120
dissociating from, 1:2728
lists of, 1:54
notification of known, 1:27
by others, participation or association
with, 1:23
reporting, 1:27
sanctions, 1:15
supervisors response to, 1:121
virtuous circle, 2:438
Visa, 5:206, 209
Viskanta, Tadas, 4:60n.36
Vivendi, 1:397
VIX. see CBOE Volatility index
Vodafone Group Plc, 3:454459
volatility
and arbitrage, 6:5051
artificial asset price, 1:7072
CBOE Volatility Index (VIX), 1:698
of commodities, 6:196197
of derivative expiration days,
1:636637
in equity markets, 5:153154
of exchange rates, 2:518, 521
and global financial crisis of late 2000s,
1:635636
implied, 6:41
of investment classes, 6:152
in option pricing models, 1:543544
and portfolio management,
4:238240
of underlying, 6:8990
yield, 5:549550
volatility strategies, for hedge funds,
6:163
Volkswagen Group
auditors reports, 3:2829
balance sheets, 3:1315
cash flow statements, 3:2224
disclosures, 3:135137
financial notes, 3:25
income statements, 3:1718
market capitalization, 1:397
MD&A, 3:27
and product differentiation, 2:174
spot market trading by, 5:10
statement of changes in equity,
3:2022
statement of comprehensive income,
3:1920
volume. see trading volume
voluntarily unemployed (term), 2:314
voluntary exchange, 2:7274, 429

I-94

voluntary export restraints (VERs),


2:442, 445447
volunteers, compromising of CFA
Institute integrity, 1:169
Volvic, 3:378
von Hayek, F., 2:305306
von Mises, L., 2:305
vote by proxy, 5:156
vote tabulation, 4:222
voting, 1:76, 77
voting rights, shareowner, 4:220224;
5:155, 156
confidential voting and vote tabulation,
4:222
corporate changes requiring
shareowner input, 4:223224
cumulative voting, 4:222223
ownership and voting rights,
4:220221
proxy voting, 4:221222
vulture investors, 6:180
W
WAC. see weighted average coupon
rate
WACC. see weighted average cost of
capital
wage(s)
minimum, 2:38
nominal, 2:248, 251
wage-push inflation (cost-push
inflation), 2:323325
Wagner, Honus, 6:200n.34
Waha Capital, 5:27
Walgreens, 4:53
Wall Street Journal, 5:103
Wall Street Reform and Consumer
Protection Act (2010), 6:12
Wal-Mart Stores, Inc.
balance sheets, 3:1516
cash flows from operating activities,
3:279281
current/quick ratios, 4:147149
and economies of scale, 2:127
and industry life cycle, 5:216
inventory management, 4:170
and market model, 4:358359
operating earnings and revenues, 4:90,
91
and population mean, 1:378, 379
pricing power of, 5:210
profit as a percentage of revenue,
1:379, 405406
Walras, Lon, 2:24n.2
Walrasian ttonnement, 2:24n.2
Walt Disney Company, 5:371
WAM. see weighted average maturity
war chests, 3:633
warehouse receipt agreements, 4:178
warranties, expense recognition for,
3:173
warrants, 3:529530; 5:18, 331; 6:36
warranty reserves, 3:612
waterfall structures, 5:306, 464
Watson Pharmaceuticals Inc. case study,
5:597605
The Wave Principle (Elliott), 1:705
weak-form efficient markets, 5:125, 128,
129

Level I Curriculum Index

wealth
household, 2:241243
shareholder, 2:97
store of, 2:349350
and voluntary exchange, 2:7274
wealth effect, 2:242243
wealth transfers, with share repurchases,
4:131
weather, derivatives on, 6:38
webpages, maintaining, 1:47
Webvan.com, 4:102
weekend effect, 5:132
weighing
for cost of capital, 4:3840
of nonmarket securities in portfolio,
4:378
weighted average cost method, 3:171,
397, 399
weighted average cost of capital
(WACC)
in capital budgeting decisions,
4:4041; 5:177
computing, 4:37
defined, 1:332n.2; 4:37
estimations, 4:5758
and raising of additional capital,
4:6163
risk factors in, 4:52
spread between ROIC and, 5:204
weighted average coupon rate (WAC),
5:474475
weighted average life, 5:477478
weighted average maturity (WAM),
5:474, 475
weighted averages, total probability rule
and, 1:471
weighted mean, 1:387390
formula, 1:388389
portfolio return as, 1:389390
Wellcome Trust, 4:248
Wells Fargo Advantage Small Cap Value
Fund, 1:407
Welsh, Jack, 3:617
Western Europe, 5:344. see also specific
countries
Wharf Holdings Ltd., 1:668
whistleblowing, 1:108, 113
White, Harry Dexter, 2:520
White, Ted, 4:191n.5
wholesale funds, 5:376377
wholesale price index (WPI), 2:321322
Wilcoxon signed-rank test, 1:638
Wilder, Welles, 1:692
William and Flora Hewlett Foundation,
4:247
willingness to take risk, investors,
4:397399
Wilshire 5000 Total Market Index, 5:95
window dressing, 5:131
winners curse, 2:27
Winsorized mean, 1:382n.14
Within GAAP, but biased choices
financial reports, 3:570576
Within GAAP, but earnings
management financial reports,
3:576
W.K. Kellogg Foundation, 4:247
women, in workforce, 5:226227
won (South Korea), 2:487

work, misrepresentation of, 1:46


working capital, 3:216, 345, 645n.7;
5:597, 619
working capital management, 4:141187
about, 4:141142
accounts payable management,
4:171174
cash disbursements, 4:174
evaluating, 4:174
trade discounts, 4:173174
accounts receivable management,
4:160167
customers receipts, 4:163165
evaluating, 4:165167
trade granting process, 4:162163
cash flows, 4:150153
forecasting short-term, 4:151152
monitoring cash uses and levels,
4:152153
cash position, 4:150153
defined, 1:332; 4:141
inventory management, 4:167171
approaches, 4:168169
evaluating, 4:170171
financial impact of inventory
methods, 4:171
and inventory costs, 4:170
liquidity, 4:142150
drags and pulls on, 4:144145
liquidity management, 4:143145
measuring, 4:145150
primary sources, 4:143
secondary sources, 4:143144
practice problems, 4:182184
short-term financing, 4:174180
asset-based loans, 4:178
borrowing approaches, 4:177
costs of borrowing for, 4:178180
sources of, 4:175176
short-term funds management,
4:153160
evaluating, 4:160
investment instruments, 4:154157
strategies for, 4:157160
solutions to problems, 4:185187
working capital turnover, 3:340, 345
work-in-progress inventory, 3:394
workout period, 5:488
World Bank. see International Bank for
Reconstruction and Development
World Bank Group
foreign currency of, 2:499
founding of, 2:468
and globalization, 2:425
and IMF, 2:468
mandates of, 2:470
World Development Report, 2:426
WorldCom
capitalization policies, 3:606
financial reporting quality, 3:577
governance failures at, 4:189
manipulation of accounting earnings,
3:74, 427
and rating agency failures, 5:586
technical vs. fundamental analysis of,
1:664
World Development Report, 2:426, 450
World Investment Report, 2:428
The World Is Flat (Friedman), 2:152

Level I Curriculum Index


world price, 2:424, 425, 435
World Trade Organization (WTO)
agreements under, 2:449
founding of, 2:468
functions of, 2:471472
and globalization, 2:425
quotas on non-members, 2:445
termination of Multi Fiber Agreement,
2:431
World War I, 2:318, 391, 453
World War II, 2:318, 391
WPI. see wholesale price index
wrap accounts, 4:263
wrap fee, 1:245
Wrap Fee/SMA Portfolios (GIPS Section
I.8), 1:224226
about, 1:207
compliance with, 1:203
Composite Construction provisions,
1:225
Disclosure provisions, 1:225
Presentation and Reporting provisions,
1:226
requirements, 1:225226
write-offs, private equity, 6:181
writer, derivatives, 6:7
writing, after exam period, 1:168
written material, brought into exam
room, 1:167
WTO. see World Trade Organization
W.W. Grainger, 5:210
X
XBRL. see eXtensible Business Reporting
Language
Y
Yahoo!, 5:40
Yahoo! Finance, 4:273
Yale University, 4:246248, 252;
6:152153
Yankee bonds, 5:311
yen, Japanese
foreign exchange gains, 5:169
international bonds outstanding in,
5:345
as reserve currency, 5:19

I-95
yield(s), 5:407420
benchmark, 5:555
bond equivalent, 4:156; 5:419
cash flow, 5:536
collateral, 6:199
and credit risk/return, 5:609611
current, 5:410
defined, 4:155156
of discounted securities, 4:155156
dividend, 4:118
of fixed-income securities, 5:302
of fixed-rate bonds, 5:407413
of floating-rate bonds, 5:413416
forward, 5:425
government equivalent, 5:410
horizon, 5:514519, 552
money market, 4:156; 5:416420
option-adjusted, 5:413
redemption, 5:302 (see also
yield-to-maturity)
required, 5:390
roll (convenience), 6:6465, 199
running, 5:302
semiannual bond basis yield, 5:408
short-term investments,
4:155156
simple, 5:410
sovereign yield spread, 4:59
true, 5:410
yield curves
benchmark, 5:430432
inverted, 5:422
yield duration, 5:520, 527, 543
yield maintenance charges, 5:488
yield measures, money market. see
money market yields
yield spreads, 5:428432
and credit risk/return, 5:610617
over benchmark rates, 5:428431
over benchmark yield curve,
5:430432
required, 5:406
yield-to-maturity (YTM)
and bond equivalent yield, 1:351
bonds vs. money market, 5:416
building blocks of, 5:428429
calculating, 5:394395

defined, 5:302
differences in, 5:421
and Macaulay duration, 5:532
and rate of return, 5:513514
yield-to-maturity (YTM) approach,
4:4243
yield to redemption, 5:302
yield-to-worst, 5:412
yield volatility, 5:549550
YPG Holdings, 5:253254
YTM. see yield-to-maturity
yuan, Chinese
CNY/USD exchange rate, 2:489490
exchange rate regime, 2:523
identification code, 2:487
yuan renminbi, 5:345
Yue Yuen Industrial, 4:238241
Yugoslavia, 2:318
Z
Zambia, 3:115
zero-coupon bonds
convexity adjustment for,
5:541544
default risk premium for, 1:478479
as deferred coupon bonds, 5:323
defined, 5:299
sovereign, 5:363
spot curve for, 5:421422
zero-coupon indexed bonds, 5:324
zero curve, 5:421422
zero-sum game, 6:15
zero-volatility spread (Z-spread), 5:430,
432
Zhao, Quanshui, 4:63
Zimbabwe, 2:318; 3:115
Zimmer, 5:209, 213
Z-score, 3:374
z-test alternative
confidence intervals for population
mean, 1:579581
for disclosures and share prices,
1:621623
hypothesis testing with, 1:620623
nonparametric test vs., 1:638
rejection points for, 1:614, 621
t-test vs., 1:620, 623, 638