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| Concept/Formula | Definition/Equation | When to Use |
|---|---|---|
| Code of Ethics | Principles of conduct for CFA members | Ethical dilemmas |
| Time Value of Money | Investment calculations | |
| GDP | Total value of goods/services produced | Macroeconomic analysis |
| Financial Ratios | Metrics to assess company performance | Financial statement analysis |
Type A: Ethical Violation
Setup: "When presented with a scenario involving potential ethical misconduct"
Method: Identify the relevant CFA Institute Standard and determine if a violation occurred.
Example: A portfolio manager trades ahead of client orders.
Type B: TVM Calculation
Setup: "If given present value, interest rate, and number of periods"
Method: Use the appropriate TVM formula to calculate future value.
Example: Calculate the future value of $100 invested at 5% for 10 years.
Problem: Calculate the future value of $100 invested at 5% for 10 years. Steps:
"โAnswer: $162.89
| Concept/Formula | Definition/Equation | When to Use |
|---|---|---|
| Independence & Objectivity | Avoiding conflicts of interest | Ethical decision-making |
| Regression Analysis | Statistical modeling | |
| Supply & Demand | Interaction determining market price | Economic forecasting |
| Cash Flow Statement | Reports cash inflows and outflows | Analyzing company liquidity |
Type A: Conflict of Interest
Setup: "When an investment professional has competing interests"
Method: Disclose the conflict and prioritize client interests.
Example: A broker recommends a stock they own personally.
Type B: Hypothesis Testing
Setup: "If given sample data and a null hypothesis"
Method: Calculate the test statistic and compare it to the critical value.
Example: Test if the average return of a stock is significantly different from zero.
Problem: A company has net income of $500, depreciation of $100, and capital expenditures of $200. Calculate free cash flow to the firm (FCFF) if there are no interest expenses. Steps:
"โAnswer: $400
| Concept/Formula | Definition/Equation | When to Use |
|---|---|---|
| Fair Dealing | Treating all clients equitably | Ethical practice |
| Standard Deviation | Measuring data dispersion | |
| Fiscal Policy | Government spending and taxation | Macroeconomic stabilization |
| Inventory Accounting | FIFO, LIFO, Weighted Average | Financial reporting |
Type A: Fair Dealing Violation
Setup: "When a firm favors certain clients over others"
Method: Ensure equal opportunity for all clients.
Example: Allocating hot IPO shares only to preferred clients.
Type B: Standard Deviation Calculation
Setup: "If given a set of data points"
Method: Calculate the mean, deviations from the mean, and apply the formula.
Example: Calculate the standard deviation of stock returns.
Problem: A company uses FIFO. Beginning inventory is 10 units at $5. Purchases: 20 units at $6. Sales: 15 units. Calculate the cost of goods sold (COGS). Steps:
"โAnswer: $80
| Concept/Formula | Definition/Equation | When to Use |
|---|---|---|
| Duties to Employers | Loyalty, reasonable care | Ethical responsibilities |
| Correlation Coefficient | Measuring linear relationship | |
| Monetary Policy | Central bank actions to control money supply | Economic management |
| Capital Budgeting | NPV, IRR, Payback Period | Investment decisions |
Type A: Breach of Duty to Employer
Setup: "When an employee acts against the employer's interests"
Method: Act in the employer's best interest.
Example: Stealing trade secrets.
Type B: NPV Calculation
Setup: "If given cash flows and discount rate"
Method: Discount each cash flow to present value and sum them.
Example: Calculate the NPV of a project.
Problem: A project has an initial investment of $1000 and generates cash flows of $400 per year for 3 years. The discount rate is 10%. Calculate the NPV. Steps:
"โAnswer: $(-4.75)
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