hi guys,
Here are a few topics that I think are conceptually harder than others. I mention all the following from memory, so I may be incorrect with the formule and might have missed out some stuff. Feel free to correct me.
ETHICS
Well! nothing tough here. But need to memorise the heads of all the ethics.
PIDDICR - thats the code - Professionalism, Integrity of Capital Markets, Duties to Clients, Duties to Employers, Investment Action Recommendation and Analysis, Conflict and Reference to the CFA Institute.
Ofcourse there are sub-heads and those too require to be remembered. Not tough. but this is mugging.
Corporate Governance is quire easy. Just need to remember to disclose and have an independent board and give shareholders as many powers as you can.
GIPS - really sucks. Again, this is mugging.
ECONOMICS
Need to remember Keynesian, Crowding out, Neo and supply side theories.
A few equation in foreign currency parity. FC(1 + Rdc) = DC(1+Rfc)
And remember only in Monopoly that we have to reduce Price till Average total cost and in all other its Price = Marginal Revenue for the purpose of allocative effciency. I think. Need to check it.
QUANTITATIVE
Well! This is basic math. Just the hypothesis and probability concepts need attention. Baye�s formula, z test, t test, f test and the stupid chi square test which I fail to understand. But it�s a formula! So be it.
I think there are few tough formulae regarding skewness. Wonder whether they are relevant? Anyone remembering them? I even forget with reference to what the formula is about. I think leptocurvic, platycurvic curves.
I guess all males know well about curves! Leptocurvic for sure! haha
FSA
Well! I dont have a financial background and these are according to me the tough parts in ascending order.
Calculation of EPS! The diluted and anti-dilutive effect
Cash flows- This is the deal breaker. I am sure all you guys know it well! CFO, CFI and CFF - need to get the right classification for the deduction/addition. CRITICAL. HEARD THAT THIS GETS TESTED EVERYTIME.
Remember CFO + CFI + CFF = CFA --- (stupid! I know).
Inventory Valuations! - A few formulae regarding converting LIFO to FIFO. INV (FIFO) = INV (LIFO) + Lifo reserve
COGS (FIFO) = COGS (LIFO) - Change in Lifo reserve
Analysis of Long term assets - Understanding that capitalization decision, what can be capitalized, and the difference ways of depreciation.
Deferred Tax Assets and DTL - The key to understanding this is the formula
TE = TP + change in DTL - change in DTA
A DTL occurs then TP < TE (follows from the formula) - since revenues recognized earlier on the Financial Statements and depreciation lives are longer
and a DTA arises when TP>TE - since expenses are recognizes earlier than under the Tax return.
FINANCING DECISION AND OFF BALANCE SHEET FINANCING - I need to get clear on this. When does a lease need to get capitalized. From the lessees side its pretty easy. Its when I do it for the lessee that I get confused.
Lastly when interest should be added back to CFI and deducted from CFO in case of bonds issue at a premium or discount.
FIXED INCOME
Valuation of Bonds
The z-spread, OAS spead. Bootstrapping.
Duration and Convexity adjustments.
Calculation of future rates and spot rates.
I think the formula goes like this
F = [(1+Sm+t) ^t+m /(1+Sm) ^ m]^1/t
t m
something like that.
DERIVATIVES
Understanding how to get the upper and lower bounds for call and puts.
Put Call parity, Covered Call and Protective Puts. This can be screwing! but its only 5% of the portion. It takes comparatively more time to understand and there is no limit to how tough the questions can be.
PORTFOLIO MANAGEMENT
the Markowitz theory can be the clincher.
Understand the derivation of the CML, SML and CAPM.
Standard deviation of the portfolio when combined with a risk free asset = weight of the asset in portfolio * standard deviation of the asset
Standard deviation of a two asset portfolio
CML is
E(R) = RFR + std.deviaton of portfolio / std deviation of asset * [E(mkt) � RFR]
SML
E(R) = RFR + Beta [E(mkt) � RFR]
Beta = Covariance of the asset and market / std.dev of the mkt
GOSH! This can be crazy! I need someone to explain me the difference between CML and SML.
I believe the CAPM is just a variation of the SML for estimating the required return on an asset.
CML is the equation for a portfolio that is combined with a risk free asset. Therefore if there were unlimited lending and borrowing of a risk free asset then one would like on the CML. It help in estimating return based on leverage.
As against, the SML is the equation for the return on a portfolio that is completely diversified and the only risk is the market risk. This is not an assumption in the CML.
Am I correct in my understanding? Please let me know.
CORPORATE FINANCE and Equity
Nothing really tough here. Need to remember some formulae.
ALTERNATIVE INVESTMENTS
Calculation of NOI�s for real estate is the only sensible part! Rest all is gas.
I realize that I have written a bit too much. It more useful to me than you because now I know what I remember. Need to get back and see what I forget. And that I only know when I read my books again. Haha. Will I ever be able to remember everything?
Chow.