Apptuto CFA L1 LOS Changes 2015

CFA Course of Study Changes 2015

Level 1

August 2014

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CFA Level 1 Curriculum Changes 2015 The CFA Institute has now released the Level 1 Course of Study for 2015, and there are a number of changes from 2014. We have reviewed and compared the new Learning Objective Statements (LOS) to help Candidates who are either repeating or using prior year materials. While it is important to know the whole curriculum thoroughly, always make sure you have a particularly good understanding of any new Readings or LOS as there is always a high chance that new material may be tested. If you have any comments please contact us at [email protected]

Summary of Changes

The Readings for Ethical and Professional Standards has been updated to the new 11th Edition of the Standards of Practice Handbook

In addition, 3 new Readings have been added; 1 each in Financial Reporting & Analysis, Fixed Income and Derivatives

6 Readings have been removed; 2 in Financial Reporting & Analysis and 4 in Derivatives In total 38 new LOS have been added, while 6 have been amended, and 39 have been removed 10 out of the 18 Study Sessions have been effected by changing LOS There is also a small adjustment in exam weighting guidelines affecting 4 subjects


Exam Weighting Summary

There has been minimal movement in the exam weightings, resulting with a greater emphasis on Portfolio Management, which has increased from 5% up to 7% and Alternative Investments (up to 4%)

Subject Study Sessions Exam Weighting

2014 Exam Weighting

2015 Net Change

Ethical and Professional Standards

1 15% 15% -

Quantitative Methods 2,3 12% 12% -

Economics 4,5,6 10% 10% -

Financial Reporting and Analysis

7,8,9,10 20% 20% -

Corporate Finance 11 8% 7% -1%

Portfolio Management 12 5% 7% +2%

Equity 13,14 10% 10% -

Fixed Income 15,16 12% 10% -2%

Derivatives 17 5% 5% -

Alternative Investments 18 3% 4% +1%


1 Study Session 1: Ethical and Professional Standards

1.1 Reading Text Changes In 2015, Readings 1 and 2 refer to the 11th Edition of the Standards of Practice Handbook, rather than the 10th Edition (used for the 2014 curriculum). Comment: The Eleventh edition, effective July 1 2014, updates to the Code and Standards and Handbook include the following1:

The Code of Ethics now includes language that aligns with the mission of CFA Institute and reflects an investment professional's responsibility to protect the integrity of capital markets for the betterment of society.

Standard IV(C): Responsibilities of Supervisors now focuses on the need for supervisors to take positive steps to promote compliance rather than just preventing violations.

Standard V(B): Communication with Clients and Prospective Clients now includes a requirement to address risks and limitations as part of the investment process.

Standard VII(A) now reflects the growth in educational programs of CFA Institute by encompassing additional programs beyond the CFA examination.

The Handbook chapter Ethics and the Investment Industry expands the discussion on the importance of ethical conduct within the industry. The integrity of capital markets and its participants is vital to maintaining levels of efficiencies and trust that ultimately benefit society.

Throughout the Handbook, guidance enhancements and new examples were added to cover a variety of current practices occurring within the investment industry such as social media usage and reliance upon quantitative models and processes.

1.2 LOS Changes NO CHANGE FROM 2014

1.3 Exam Weighting Change NO CHANGE FROM 2014 1 http://www.cfainstitute.org/ethics/codes/ethics/pages/periodic_review.aspx


2 Study Session 2: Quantitative Methods - Basic Concepts

2.1 Reading Text Changes NO CHANGE FROM 2014


2.3 Exam Weighting Change NO CHANGE FROM 2014

3 Study Session 3: Quantitative Methods Application


3.2 LOS Changes

3.2.1 Reading 9: Common Probability Distributions

LOS Change type 2014 Syllabus 2015 Syllabus

q.

Partial Change: Remove

Word

Explain Monte Carlo simulation and describe its major applications and limitations

Explain Monte Carlo simulation and describe its applications and limitations

Comment: By removing the word major could imply the Candidate needs to have a deeper knowledge of Monte Carlo simulations applications.



4 Study Session 4: Economics




5 Study Session 5: Economics Macroeconomic Analysis


5.2 LOS Changes 5.2.1 Reading 17: Aggregate Output, Prices, and Economic Growth


j. New -

distinguish between the following types of macroeconomic equilibria: long-run full employment, short-run recessionary gap, short-run inflationary gap, and short-run stagflation;

5.2.2 Reading 19: Monetary and Fiscal Policy


i. New - describe the monetary transmission mechanism



6 Study Session 6: Economics Economics in a Global Context


6.2 LOS Changes

6.2.1 Reading 20: International Trade and Capital Flows


g. New - describe common objectives of capital restrictions imposed by governments


7 Study Session 7: Financial Reporting and Analysis An Introduction





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


8.2 LOS Changes

8.2.1 Reading 26: Understanding Balance Sheets


g. Removed Analyze balance sheets and statements of changes in equity -

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


9.2 LOS Changes

9.2.1 Reading 32: Non-Current (Long Term) Liabilities


f.

Partial Change: Remove

Word

Explain the motivations for leasing assets instead of purchasing them

Explain motivations for leasing assets instead of purchasing them



10 Study Session 10 Financial Reporting and Analysis Financial Reporting Quality and Financial Statement Analysis

10.1 Reading Text Changes In 2015 there is one new Reading:

Reading 33 Financial Reporting Quality 2 Readings from 2014 have been removed:

2014 Reading 33 Financial Reporting Quality: Red Flags and Accounting Warning Signs 2014 Reading 34 Accounting Shenanigans on the Cash Flow Statement

10.2 LOS Change

10.2.1 Reading 33: Financial Reporting Quality

LOS Change Type 2014

Syllabus 2015 Syllabus

a. New - distinguish between financial reporting quality and quality of reported results (including quality of earnings, cash flow, and balance sheet items);

b. New - describe a spectrum for assessing financial reporting quality;

c. New - distinguish between conservative and aggressive accounting;

d. New - describe motivations that might cause management to issue financial reports that are not high quality;

e. New - describe conditions that are conducive to issuing low-quality, or even fraudulent, financial reports;

f. New - describe mechanisms that discipline financial reporting quality and the potential limitations of those mechanisms

g. New - describe presentation choices, including non-GAAP measures, that could be used to influence an analysts opinion

h. New - describe accounting methods (choices and estimates) that could be used to manage earnings, cash flow, and balance sheet items;

i. New - describe accounting warning signs and methods for detecting manipulation of information in financial reports.


10.2.2 2014 Reading 33: Financial Reporting Quality: Red Flags and Accounting Warning Signs

LOS Change Type 2014 Syllabus 2015

Syllabus

a. Removed describe incentives that might induce a companys executives to manage reported earnings, financial positions, and cash flows; -

b. Removed describe activities that will result in a low quality of earnings -

c. Removed describe the three conditions that are generally present when fraud occurs, including the risk factors related to these conditions

-

d. Removed describe common accounting warning signs and methods for detecting each -

10.2.3 2014 Reading 34 Accounting Shenanigans on the Cash Flow Statement


a. Removed describe reasons for investors to assess the quality of cash flow statements

-

b. Removed

analyze and describe the following ways to manage or manipulate the cash flow statement: stretching out payables, financing of payables, securitization of receivables, issuing stock options, and using stock buybacks.

-



11 Study Session 11: Corporate Finance


11.2 LOS Changes

11.2.1 Reading 35: Capital Budgeting (Reading 36 in 2014)


a. Partial Change: Removal

describe the capital budgeting process, including the typical steps of the pro-cess, and distinguish among the various categories of capital projects;

describe the capital budgeting process and distinguish among the various categories of capital projects;

b. Partial Change: Removal

describe the basic principles of capital budgeting, including cash flow estimation;

describe the basic principles of capital budgeting

d. Partial Change: Removal

calculate and interpret the results using each of the following methods to evaluate a single capital project: net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index (PI);

calculate and interpret net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index (PI) of a single capital project;

11.2.2 Reading 36: Capital Budgeting (Reading 36 in 2014)


c. Removed

Explain alternative methods of calculating the weights used in the WACC, including the use of the companys target capital structure

-

c. New -

Describe the use of target capital structure in estimating WACC and how target capital structure weights may be determined


11.2.3 Reading 37: Measures of Leverage


a. Partial

Change: Removal

define and explain leverage, business risk, sales risk, operating risk, and finan-cial risk, and classify a risk, given a description;

define and explain leverage, business risk, sales risk, operating risk, and financial risk, and classify a risk;

11.2.4 Reading 38: Dividends and Share Repurchases: Basics


a. Partial Change: New

Describe regular cash dividends, extra dividends, stock dividends, stock splits, and reverse stock splits, including their expected effect on shareholders wealth and a companys financial ratios;

Describe regular cash dividends, extra dividends, liquidating dividends, stock dividends, stock splits, and reverse stock splits, including their expected effect on shareholders wealth and a companys financial ratios;

11.3 Exam Weighting Change

12 Study Session 12: Portfolio Management


12.2 LOS Change NO CHANGE FROM 2014



2014

Exam Weighting

2015 Net Change

Corporate Finance 11 8% 7% -1%


2014 Exam Weighting

2015 Net Change

Portfolio Management 12 5% 7% +2%


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




14 Study Session 14: Equity Equity Analysis and Valuation





15 Study Session 15: Fixed Income: Basic Concepts


Reading 54 - Introduction to Asset Backed Securities

15.2 LOS Changes

15.2.1 Reading 54: Introduction to Asset Backed Securities



a. New - explain benefits of securitization for economies and financial markets;

b. New - describe the securitization process, including the parties to the process, the roles they play, and the legal structures involved;

c. New - describe types and characteristics of residential mortgage loans that are typically securitized;

d. New - describe types and characteristics of residential mortgage-backed securities, and explain the cash flows and credit risk for each type;

e. New - explain the motivation for creating securitized structures with multiple tranches (e.g., collateralized mortgage obligations), and the characteristics and risks of securitized structures;

f. New - describe the characteristics and risks of commercial mortgage-backed securities;

g. New - describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and credit risk of each type;

h. New - describe collateralized debt obligations, including their cash flows and credit risk.;



2014 Exam Weighting

2015 Net Change

Fixed Income 15,16 12% 10% -2%


16 Study Session 16: Fixed Income Analysis of Risk


16.2 LOS Change

16.2.1 Reading 55: Understanding Fixed-Income Risk and Return


d. New - Define key rate duration and describe the key use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield



2014 Exam Weighting

2015 Net Change

Fixed Income 15,16 12% 10% -2%


17 Study Session 17: Derivatives


Reading 58: Basics of Derivative Pricing and Valuation

4 Readings from 2014 have been removed: 2014 Reading 58: Forward Markets and Contracts 2014 Reading 59: Futures Markets and Contracts 2014 Reading 60: Option Markets and Contracts 2014 Reading 61: Swap Markets and Contracts

17.2 LOS Change

17.2.1 Reading 58: Basics of Derivative Pricing and Valuation



a. New - explain how the concepts of arbitrage, replication, and risk neutrality are used in pricing derivatives;

b. New - distinguish between value and price of forward and futures contracts;

c. New - explain how the value and price of a forward contract are determined at expiration, during the life of the contract, and at initiation

d. New - describe monetary and nonmonetary benefits and costs associated with holding the underlying asset, and explain how they affect the value and price of a forward contract

e. New - define a forward rate agreement and describe its uses;

f. New - explain why forward and futures prices differ

g. New - explain how swap contracts are similar to but different from a series of forward contracts;

h. New - distinguish between the value and price of swaps

i. New - explain how the value of a European option is determined at expiration

j. New - explain the exercise value, time value, and moneyness of an option

k. New - identify the factors that determine the value of an option, and explain how each factor affects the value of an option


17.2.2 2014 Reading 58: Forward Markets and Contracts


Syllabus

a. Removed explain delivery/settlement and default risk for both long and short positions in a forward contract -

b. Removed describe the procedures for settling a forward contract at expiration, and how termination prior to expiration can affect credit risk -

c. Removed distinguish between a dealer and an end user of a forward contract -

d. Removed describe characteristics of equity forward contracts and forward contracts on zero-coupon and coupon bonds -

e. Removed describe characteristics of the Eurodollar time deposit market, and define LIBOR and Euribor -

f. Removed describe forward rate agreements (FRAs) and calculate the gain/loss on a FRA -

g. Removed calculate and interpret the payoff of a FRA and explain each of the component terms of the payoff formula; -

h. Removed describe characteristics of currency forward contracts -

17.2.3 2014 Reading 59: Futures Markets and Contracts


Syllabus

a. Removed describe the characteristics of futures contracts; -

b. Removed compare futures contracts and forward contracts; -

c. Removed distinguish between margin in the securities markets and margin in the futures markets, and explain the role of initial margin, maintenance margin, variation margin, and settlement in futures trading

-

d. Removed describe price limits and the process of marking to market, and calculate and interpret the margin balance, given the previous days balance and the change in the futures price

-

e. Removed describe how a futures contract can be terminated at or prior to expiration -

f. Removed describe characteristics of the following types of futures contracts: Treasury bill, Eurodollar, Treasury bond, stock index, and currency -

l. New - Explain put-call parity for European options

m. New - Explain put-call-forward parity for European options

n. New - explain how the value of an option is determined using a one-period binomial model;

o. New - explain under which circumstances the values of European and American options differ.


17.2.4 2014 Reading 60: Option Markets and Contracts


Syllabus

a. Removed describe call and put options -

b. Removed distinguish between European and American options -

c. Removed define the concept of moneyness of an option; -

d. Removed compare exchange-traded options and over-the-counter options; -

e. Removed identify the types of options in terms of the underlying instruments -

f. Removed compare interest rate options with forward rate agreements (FRAs) -

g. Removed define interest rate caps, floors, and collars -

h. Removed calculate and interpret option payoffs and explain how interest rate options differ from other types of options; -

i. Removed define intrinsic value and time value, and explain their relationship; -

j. Removed determine the minimum and maximum values of European options and American options; -

k. Removed calculate and interpret the lowest prices of European and American calls and puts based on the rules for minimum values and lower bounds;

-

l. Removed explain how option prices are affected by the exercise price and the time to expiration; -

m. Removed explain putcall parity for European options, and explain how putcall parity is related to arbitrage and the construction of synthetic options; -

n. Removed explain how cash flows on the underlying asset affect putcall parity and the lower bounds of option prices; -

o. Removed Determine the directional effect of an interest rate change or volatility change -

17.2.5 2014 Reading 61: Swap Markets and Contracts


Syllabus

a. Removed describe characteristics of swap contracts and explain how swaps are terminated -

b. Removed describe, calculate, and interpret the payments of currency swaps, plain vanilla interest rate swaps, and equity swaps. -



18 Study Session 18: Alternative Investments


18.2 LOS Change NO CHANGE FROM 2014



2014 Exam Weighting

2015 Net Change

Alternative Investments 18 3% 4% +1%

Documents

Apptuto CFA L1 LOS Changes 2015