Professional Documents
Culture Documents
“Hypothesis Testing”
The practitioner should be able to:
• Define a hypothesis, describe the steps of hypothesis testing, interpret and
discuss the choice of the null hypothesis and alternative hypothesis, and
distinguish between one-tailed and two-tailed tests of hypotheses
• Define and interpret a test statistic, a Type I and a Type II error, and a
significance level, and explain how significance levels are used in hypothesis
testing
• Define and interpret a decision rule and the power of a test, and explain the
relation between confidence intervals and hypothesis tests
• Distinguish between a statistical result and an economically meaningful result
• Identify the appropriate test statistic and interpret the results for a hypothesis
test concerning 1) the population mean of a normally distributed population
with a) known or b) unknown variance, 2) the equality of the population
means of two normally distributed populations, based on independent
random samples with a) equal or b) unequal assumed variances, and 3) the
mean difference of two normally distributed populations (paired comparisons
test)
• Identify the appropriate test statistic and interpret the results for a hypothesis
test concerning 1) the variance of a normally distributed population, and 2)
the equality of the variances of two normally distributed populations, based
on two independent random samples
• Distinguish between parametric and nonparametric tests and describe the
situations in which the use of nonparametric tests may be appropriate
“Technical Analysis”
The practitioner should be able to:
• Explain the underlying assumptions of technical analysis
• Discuss the advantages of and challenges to technical analysis
• List and describe examples of each major category of technical trading rules
and indicators
“Elasticity”
The practitioner should be able to:
• Calculate and interpret the elasticities of demand (price elasticity, cross
elasticity, income elasticity) and the elasticity of supply, and discuss the
factors that influence each measure
• Calculate elasticities on a straight-line demand curve, differentiate among
elastic, inelastic, and unit elastic demand and describe the relation between
price elasticity of demand and total revenue
“Markets in Action”
The practitioner should be able to:
• Explain market equilibrium, distinguish between long-term and short-term
impacts of outside shocks, and describe the effects of rent ceilings on the
existence of black markets in the housing sector and on the market’s
efficiency
• Describe labor market equilibrium and explain the effects and inefficiencies
of a minimum wage above the equilibrium wage
• Explain the impact of taxes on supply, demand, and market equilibrium, and
describe tax incidence and its relation to demand and supply elasticity
• Discuss the impact of subsidies, quotas, and markets for illegal goods on
demand, supply, and market equilibrium
“Organizing Production”
The practitioner should be able to:
• Explain the types of opportunity cost and their relation to economic profit,
and calculate economic profit
• Discuss a firm’s constraints and their impact on achievability of maximum
profit
• Differentiate between technological efficiency and economic efficiency, and
calculate economic efficiency of various firms under different scenarios
• Explain command systems and incentive systems to organize production, the
principal-agent problem, and measures a firm uses to reduce the principal-
agent problem
• Describe the different types of business organization and the advantages and
disadvantages of each
• Characterize the four market types
• Calculate and interpret the four-firm concentration ratio and the Herfindahl-
Hirschman Index, and discuss the limitations of concentration measures
• Explain why firms are often more efficient than markets in coordinating
economic activity
"Perfect Competition"
The practitioner should be able to:
• Describe the characteristics of perfect competition, explain why firms in a
perfectly competitive market are price takers, and differentiate between
market and firm demand curves
• Determine the profit maximizing (loss minimizing) output for a perfectly
competitive firm, and explain marginal cost, marginal revenue, and economic
profit and loss
• Describe a perfectly competitive firm’s short-run supply curve and explain the
impact of changes in demand, entry and exit of firms, and changes in plant
size on the long-run equilibrium
• Discuss how a permanent change in demand or changes in technology affect
price, output, and economic profit
"Monopoly"
The practitioner should be able to:
• Describe the characteristics of a monopoly, including factors that allow a
monopoly to arise, and monopoly price-setting strategies
• Explain the relation between price, marginal revenue, and elasticity for a
monopoly, and determine a monopoly’s profit-maximizing price and quantity
• Explain price discrimination, and why perfect price discrimination is efficient
• Explain how consumer and producer surplus are redistributed in a monopoly,
including the occurrence of deadweight loss and rent seeking
• Explain the potential gains from monopoly and the regulation of a natural
monopoly
"Fiscal Policy"
The practitioner should be able to:
• Explain supply-side effects on employment, potential GDP, and aggregate
supply, including the income tax and taxes on expenditure, and describe the
Laffer curve and its relation to supply-side economics
• Discuss the sources of investment finance and the influence of fiscal policy on
capital markets, including the crowding-out effect
• Discuss the generational effects of fiscal policy, including generational
accounting and generational imbalance
• Discuss the use of fiscal policy to stabilize the economy, including the effects
of the government purchases multiplier, the tax multiplier, and the balanced
budget multiplier
• Explain the limitations of discretionary fiscal policy, and differentiate between
discretionary fiscal policy and automatic stabilizers
"Monetary Policy"
The practitioner should be able to:
• Discuss the U.S. Federal Reserve’s primary goal of price stability, the
secondary goal of maintaining sustainable real GDP growth, and the
intermediate targets of monetary policy, and compare and contrast the
policies that can be used to achieve price level stability
• Compare and contrast fixed-rule and feedback-rule monetary policies to
stabilize aggregate demand, and explain the problem of monetary policy lags
• Discuss the fixed-rule and feedback-rule policies to stabilize aggregate supply
in response to a productivity shock and a cost-push inflation shock
• Discuss the importance of policy credibility in monetary policy
implementation
• Compare and contrast the new monetarist and new Keynesian feedback rules
"Financial Statement Analysis: An Introduction"
The practitioner should be able to:
• Discuss the roles of financial reporting and financial statement analysis
• Discuss the role of key financial statements (income statement, balance
sheet, cash flow statement and statement of changes in owners’ equity) in
evaluating a company’s performance and financial position
• Discuss the importance of financial statement notes and supplementary
information (including disclosures of accounting methods, estimates and
assumptions), and management’s discussion and analysis
• Discuss the objective of audits of financial statements, the types of audit
reports, and the importance of effective internal controls
• Identify and explain information sources other than annual financial
statements and supplementary information that analysts use in financial
statement analysis
• Describe the steps in the financial statement analysis framework
“Analysis of Inventories”
The practitioner should be able to:
• Compute ending inventory balances and cost of goods sold using the LIFO,
FIFO, and
average cost methods to account for product inventory and explain the
relationship among and the usefulness of inventory and cost of goods sold
data provided by the LIFO, FIFO, and average cost methods when prices are
1) stable or 2) changing
• Analyze the financial statements of companies using different inventory
accounting
methods to compare and describe the effect of the different methods on cost
of goods sold and inventory balances, discuss how a company’s choice of
inventory accounting method affects other financial items such as income,
cash flow, and working capital, and compute and describe the effects of the
choice of inventory method on profitability, liquidity, activity, and solvency
ratios
• Discuss the reasons that a LIFO reserve might decline during a given period
and discuss the implications of such a decline for financial analysis
• Discuss how inventories are reported in the financial statements and how the
lower of cost or market principle is used and applied
"Long-Term Assets”
The practitioner should be able to:
• Describe the factors that distinguish long-term assets from other assets and
identify the common types of long-term assets and how carrying value is
determined on the balance sheet
• Determine the costs that are capitalized to property, plant and equipment
and determine which costs are expensed as incurred
• Explain depreciation accounting (including the reasons for depreciation),
calculate depreciation using the straight-line, production (also known as
units-of-production), and declining-balance methods, and calculate
depreciation after revising the estimated useful life of an asset
• Describe how to account for the sale, exchange, or disposal of depreciable
assets, and determine whether a gain or loss is recorded
• Identify assets that should be classified as natural resources, determine their
carrying values on the balance sheet and calculate depletion
• Identify the types of intangible assets and describe how the accounting
treatment for goodwill under U.S. GAAP differs from the accounting treatment
for other intangible assets
"Cost of Capital"
The practitioner should be able to:
• Calculate and interpret the weighted average cost of capital (WACC) of a
company
• Describe how taxes affect the cost of capital from different capital sources
• Describe alternative methods of calculating the weights used in the weighted
average cost of capital, including the use of the company’s target capital
structure
• Explain how the marginal cost of capital and the investment opportunity
schedule are used to determine the optimal capital budget
• Explain the marginal cost of capital’s role in determining the net present
value of a project
• Calculate and interpret the cost of fixed rate debt capital using the yield-to-
maturity approach and the debt-rating approach
• Calculate and interpret the cost of noncallable, nonconvertible preferred
stock
• Calculate and interpret the cost of equity capital using the capital asset
pricing model approach, the dividend discount model approach, and the
bond-yield-plus risk-premium approach
• Explain the country equity risk premium in the estimation of the cost of
equity for a company located in a developing market
• Describe the marginal cost of capital schedule, explain why it may be
upward-sloping with respect to additional capital, and calculate and interpret
its breakpoints
• Explain and demonstrate the correct treatment of flotation costs
"Working Capital Management"
The practitioner should be able to:
• Calculate and interpret liquidity measures using selected financial ratios for a
company and compare the company with peer companies
• Evaluate overall working capital effectiveness of a company, using the
operating and cash conversion cycles, and compare the company’s
effectiveness with other peer companies
• Classify the components of a cash forecast and prepare a cash forecast, given
estimates of revenues, expenses, and other items
• Identify and evaluate the necessary tools to use in managing a company’s
net daily cash position
• Compute and interpret comparable yields on various securities, compare
portfolio returns against a standard benchmark, and evaluate a company’s
short-term investment policy guidelines
• Evaluate the performance of a company’s accounts receivable, inventory
management, and accounts payable functions against historical figures and
comparable peer company values
• Evaluate the choices of short-term funding available to a company and
recommend a financing method
“Security-Market Indexes”
The practitioner should be able to:
• Compare and contrast the characteristics of, and discuss the source and
direction of bias exhibited by, each of the three predominant weighting
schemes used in constructing stock market indexes, and compute a price-
weighted, valueweighted, and unweighted index series for three stocks
• Compare and contrast major structural features of domestic and global stock
indexes, bond indexes, and composite stock-bond indexes
• State how low correlations between global markets support global investment
“Industry Analysis”
The practitioner should be able to describe how structural economic changes (e.g.,
demographics, technology, politics, and regulation) may affect industries.
“Alternative Investments”
The practitioner should be able to:
• Differentiate between an open-end and a closed-end fund, and explain how
net asset value of a fund is calculated and the nature of fees charged by
investment companies
• Distinguish among style, sector, index, global, and stable value strategies in
equity investment and among exchange traded funds (ETFs), traditional
mutual funds, and closed end funds
• Explain the advantages and risks of ETFs
• Describe the forms of real estate investment and explain their characteristics
as an investable asset class
• Describe the various approaches to the valuation of real estate
• Calculate the net operating income (NOI) from a real estate investment, the
value of a property using the sales comparison and income approaches, and
the after-tax cash flows, net present value, and yield of a real estate
investment
• Explain the stages in venture capital investing, venture capital investment
characteristics, and challenges to venture capital valuation and performance
measurement
• Calculate the net present value (NPV) of a venture capital project, given the
project’s possible payoff and conditional failure probabilities
• Discuss the descriptive accuracy of the term “hedge fund,” define hedge fund
in terms of objectives, legal structure, and fee structure, and describe the
various classifications of hedge funds
• Explain the benefits and drawbacks to fund of funds investing
• Discuss the leverage and unique risks of hedge funds
• Discuss the performance of hedge funds, the biases present in hedge fund
performance measurement, and explain the effect of survivorship bias on the
reported return and risk measures for a hedge fund database
• Explain how the legal environment affects the valuation of closely held
companies
• Describe alternative valuation methods for closely held companies and
distinguish among the bases for the discounts and premiums for these
companies
• Discuss distressed securities investing and compare venture capital investing
with distressed securities investing
• Discuss the role of commodities as a vehicle for investing in production and
consumption
• Explain the motivation for investing in commodities, commodities derivatives,
and commodity-linked securities
• Discuss the sources of return on a collateralized commodity futures position