Break through for the 2014

CFA Level II Exam CFA Level II Exam

Agenda
CFA Exam Fast Facts & Challenges CFA Exam Fast Facts & Challenges
Why Candidates Fail?
Exam Forecast & Program Highlights
Q&A Q
Few while important words to L2 Candidates
CFA Level 2 Exam is challenging but not that
threatening
Simply reading Schweser Notes will not be py g
sufficient enough to pass the exams
Having a big picture in your mind is very Having a big picture in your mind is very
necessary
After studying level two you are equivalent to a After studying level two you are equivalent to a
finance master degree graduate
Lets get the ball running
Level II Challenges
Why Level II is a big Challenge
Perspective from the Pass Rates Perspective from the Pass Rates
Year Level 2 Pass Rate
(Exam Actually Taken)
2005
2006
56%
48% 2006
2007
2008
2009
48%
40%
46%
41% 2009
2010
2011
2012
41%
39%
43%
42% 2012 42%
Why Level II is a big Challenge
Perspective from the Pass Rates
Around 40% recently
Body of Knowledge
Ethical and Professional Standards
Q tit ti M th d
Investment
Tools
Quantitative Methods
Economics
Financial Statement Analysis
Corporate Finance
Analysis of Equity Investments
Asset
Valuation
Analysis of Equity Investments
Analysis of Debt Investments
Analysis of Derivatives
Analysis of Alternative Investments
Portfolio Management and Performance
P tf li
Analysis of Alternative Investments
Portfolio Management and Performance
Presentation
Portfolio
Management

Why Level II is a big Challenge

Perspective from the Content
Exam Topic Focus Learning Focus Exam Topic Focus Learning Focus
Level I Investment Knowledge
Tools and Ethical Standards oo s a d t ca Sta da ds
Level II Asset Application pp
Valuation and Ethical Standards
Level III Portfolio Synthesis and
Management Ethical Standards
Why Level II is a big Challenge
Perspective from the Exam Format
How is Level 2 Different from Level 1?
Level 1 is building block for Level 2 (like a prerequisite for a
university course)
Le el 1 command ords define e plain describe Level 1 command words: define, explain, describe,
calculate
Level 2 command words: analyze,formulate,evaluate, Level 2 command words: analyze, formulate, evaluate,
contrast, modify, demonstrate, illustrate
Questions can address combined LOS
2013 Level 2 Exam Format
120 selected response questions (more commonly known
as multiple choice)
Grouped into six-question item sets
1 i t 1 i t 3 i t ti 18 i t 1 minute = 1 point; 3 minutes per question; 18 minutes per
item set; 360 minutes (6 hours) for exam
60 Qs (10 itemsets) in 3-hour AMsession 60 Qs (10 item sets) in 3-hour AM session
60 Qs (10 item sets) in 3-hour PM session
2013 Topic Area Weights
Topic % Item Sets p
Ethics 10% 2
Quantitative Methods 5 - 10% 1 - 2
Economics 5 - 10% 1 - 2
Financial Statement Analysis 15 - 25% 3 - 5
Corporate Finance 5 - 15% 1 - 3
Equity 20 - 30% 4 - 6
Fixed Income 5 - 15% 1 - 3
Derivatives 5 - 15% 1 - 3
Alternative Investments 5 - 15% 1 - 3
Portfolio Management 5 - 15% 1 - 3
Exam Major Focus - Cannot follow?
Do not Worry, will covered during revision
course
Exam Forecast: Ethics (2 Item Sets)
Standards of Practice is the same as Level 1
(and this is also the key to success at Level 2) (and this is also the key to success at Level 2)
Al i l d P d t I t R l S ft Also includes Prudent Investor Rule, Soft
Dollar Standards, and Research Objectivity
St d d Standards
Ethics
The most important topics are (1) soft dollars
t (2) fid i d ti (i l di arrangements, (2) fiduciary duties (including
the prudent man vs. prudent investor rules),
d (3) R h Obj ti St d d and (3) Research Objective Standard.
However, in one item set you must be well
acquainted with the Standards of Professional q
Conduct. Be ready for a random sampling of
topics. p
Quant (1 - 2 Item Sets)
Correlation Analysis (Simple and y ( p
Straightforward)
Simple Linear regression with one Simple Linear regression with one
independent variable (the basics)
Multiple Regression with more than one Multiple Regression with more than one
independent variable (basics again plus model
misspecification and problems with regression) misspecification and problems with regression)
Time Series Analysis (observations over
i ti i d thl t k successive time periods; e.g. monthly stock
returns, quarterly revenue data)
Economics (1 - 2 Item Sets)
Currency Exchange Rate determination and y g
forecasting
International Finance (FX markets, Spot Vs Forward, parity
conditions, arbitrage)
Balance of Payment
Carry Trade Carry Trade
Monetary and Fiscal policies on exchange rate
Determinants of Economic growth Determinants of Economic growth
Growth Theories
Government Regulation Government Regulation
Financial Statement Analysis (3 - 5 Item Sets)
Inventory Valuation and Long-term Asset
Intercorporate Investment (Cost method vs
equity method vs consolidation vs proportionate q y p p
consolidation)
Employee compensationDefined contribution Employee compensationDefined contribution
plan, defined benefit plan; share based
compensation compensation
Multinational Operations: FX translation
E i Q lit d t i bl h fl Earnings Quality and sustainable cash flow
Integration of Financial Statement Analysis
Techniques
Corporate Finance (1 - 3 Item Sets)
Capital Budgeting (evaluating projects with p g g ( g p j
NPV)
Capital Structure (optimal capital structure; Capital Structure (optimal capital structure;
lots of theory)
Dividend Policy (optimal dividend policy) Dividend Policy (optimal dividend policy)
and Share Repurchase analysis
C t G Corporate Governance
Merger and Acquisitions (Quantitative
Questions)
Equity (4 - 6 Item Sets)
Equity Valuation: Applications and Processes
Return Concepts Return Concepts
Porters Competitive Strategy Model
Your strategy needs a strategy(new)
Industry and company analysis(new) y y y ( )
Dividend Discount Models
Free cash FlowModels Free cash Flow Models
Market-Based Valuation: Price and Enterprise
Value Multiples Value Multiples
Residual Income Model and EVA
Private Company Valuation
Alternative Investments (1 - 2 Item Sets)
Private Real Estate Investments
PubliclyTraded Real Estate Securities Publicly Traded Real Estate Securities
Private Equity Valuation
Investing in Hedge Funds: A Survey
A primer on commodity investing (new)
There are basicallytwo things you can see here The first is There are basically two things you can see here. The first is
venture capital. The likely scenario is a question from the
viewpoint of a pension fund portfolio manager.
The second possible topic is real estate. In real estate, you will
see either a numerical real estate valuation problemor see either a numerical real estate valuation problem or
discussion problem of the value of real estate as a diversification
tool for an equity portfolio. Be ready for either
Fixed Income (1 - 3 Item Sets)
Credit analysis models (modified)
Term Structure Theories
Valuing Callable Puttable Convertible bonds Valuing Callable, Puttable, Convertible bonds
(the binomial model)
Mortgage backed and Asset backed Securities Mortgage-backed and Asset-backed Securities
(different types of MBS and ABS and their
features) features)
Valuing Mortgage-Backed and Asset-Backed
S iti Securities
Derivatives (1 - 3 Item Sets)
Valuation of:
Forward Markets and Contracts
Futures Markets and Contracts
Options Markets and Contracts
Swaps Markets and Contracts
Interest Rate Derivative Instruments
Credit Default Swaps (modified)
Portfolio Management (1 - 3 Item Sets)
Portfolio concepts: CAPM and APT, Multi-Factor p ,
Models
Residual Risk and Return: The Information Ratio Residual Risk and Return: The Information Ratio
(new)
The Fundamental Lawof Active Management The Fundamental Law of Active Management
(Treynor-Black model) (modified)
P tf li M t P (i t t L l 3) Portfolio Management Process (intro to Level 3)
Solution to Success: Find An Effective
Study Strategy y gy
Points about The CFAI Curriculum Book
Remember: Remember:
They are not Schweser Study Notes They are not Schweser Study Notes
- Repackaged textbook readings as set by CFA
Institute Institute
- Equally voluminous and unwieldy as previous
volumes, which used to be for separate purchase , p p
Study Approach
1. Attend class and make
notes in slide packs
2. Practice questions in the
3 lid k
notes in slide packs
3. slide packs
4. Practice MockExams
3. Work through study material
further annotating slide packs
Mock Exam & Review
T t i t t BOK Target important BOK
Dry run for the real exam
Find weak areas
Focus additional review Focus additional review
Time management and techniques
The End The End The End The End
Q&A Q&A QQ