Foreword by Simon Holohan, CFA ix

How to Use the Exam Companion xi

Study Session 1 Ethics and Professional Standards 1

Reading 1 Code of Ethics and Standards of Professional Conduct 3
Reading 2 Guidance for Standards I-VII 6
Reading 3 Introduction to the Global Investment Performance Standards (GIPS) 8
Reading 4 Global Investment Performance Standards (GIPS) 11

Study Session 2 Quantitative Methods: Basic Concepts 13

Reading 5 The Time Value of Money 15
Reading 6 Discounted Cash Flow Applications 19
Reading 7 Statistical Concepts and Market Returns 22
Reading 8 Probability Concepts 26

Study Session 3 Quantitative Methods: Application 31

Reading 9 Common Probability Distributions 33
Reading 10 Sampling and Estimation 37
Reading 11 Hypothesis Testing 40
Reading 12 Technical Analysis 45

Study Session 4 Economics: Microeconomic Analysis 49

Reading 13 Demand and Supply Analysis: Introduction 51
Reading 14 Demand and Supply Analysis: Consumer Demand 56
Reading 15 Demand and Supply Analysis: The Firm 58
Reading 16 The Firm and Market Structures 62

Study Session 5 Economics: Macroeconomic Analysis 67

Reading 17 Aggregate Output, Prices, and Economic Growth 69
Reading 18 Understanding Business Cycles 74
Reading 19 Monetary and Fiscal Policy 78

Study Session 6 Economics: Economics in a Global Context 83

Reading 20 International Trade and Capital Flows 85
Reading 21 Currency Exchange Rates 88

Study Session 7 Financial Reporting and Analysis: An Introduction 91

Reading 22 Financial Statement Analysis: An Introduction 95
Reading 23 Financial Reporting Mechanics 98
Reading 24 Financial Reporting Standards 103

Study Session 8 Financial Reporting and Analysis: Income Statements, Balance Sheets, and Cash Flow Statements 107

Reading 25 Understanding Income Statements 109
Reading 26 Understanding Balance Sheets 114
Reading 27 Understanding Cash Flow Statements 118
Reading 28 Financial Analysis Techniques 124

Study Session 9 Financial Reporting and Analysis: Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities 129

Reading 29 Inventories 131
Reading 30 Long-lived Assets 135
Reading 31 Income Taxes 140
Reading 32 Non-current (Long-term) Liabilities 144

Study Session 10 Financial Reporting and Analysis: Evaluating Financial Reporting Quality and Other Applications 151

Reading 33 Financial Reporting Quality: Red Flags and Accounting Warning Signs 153
Reading 34 Accounting Shenanigans on the Cash Flow Statement 155
Reading 35 Financial Statement Analysis: Applications 156

Study Session 11 Corporate Finance 159

Reading 36 Capital Budgeting 161
Reading 37 Cost of Capital 165
Reading 38 Measures of Leverage 170
Reading 39 Dividends and Share Repurchases: Basics 172
Reading 40 Working Capital Management 175
Reading 41 The Corporate Governance of Listed Companies: A Manual for Investors 180

Study Session 12 Portfolio Management 183

Reading 42 Portfolio Management: An Overview 185
Reading 43 Portfolio Risk and Return: Part I 187
Reading 44 Portfolio Risk and Return: Part II 192
Reading 45 Basics of Portfolio Planning and Construction 196

Study Session 13 Equity: Market Organization, Market Indices, and Market Efficiency 199

Reading 46 Market Organization and Structure 201
Reading 47 Security Market Indices 206
Reading 48 Market Efficiency 209

Study Session 14 Equity Analysis and Valuation 213

Reading 49 Overview of Equity Securities 215
Reading 50 Introduction to Industry and Company Analysis 218
Reading 51 Equity Valuation: Concepts and Basic Tools 221

Study Session 15 Fixed Income: Basic Concepts 225

Reading 52 Fixed-Income Securities: Defining Elements 227
Reading 53 Fixed-Income Markets: Issuance, Trading, and Funding 230
Reading 54 Introduction to Fixed-Income Valuation 232

Study Session 16 Fixed Income: Analysis and Valuation 239

Reading 55 Understanding Fixed-Income Risk and Return 241
Reading 56 Fundamentals of Credit Analysis 246

Study Session 17 Derivatives 249

Reading 57 Derivative Markets and Instruments 251
Reading 58 Forward Markets and Contracts 254
Reading 59 Futures Markets and Contracts 258
Reading 60 Option Markets and Contracts 262
Reading 61 Swap Markets and Contracts 268
Reading 62 Risk Management Applications of Option Strategies 271

Study Session 18 Alternative Investments 273

Reading 63 Introduction to Alternative Investments 275

Answers to Sample Questions 279

Index 299