CFA Level I terms: A

Abandonment or retirement works like a sale with no proceeds, so the loss equals the carrying amount. In an asset exchange, remove the asset given up, record the new one at fair value (the fair value of the asset given up unless the one received is more clearly evident), and book the difference as a gain or loss.

Impairment and derecognition of PP&E and intangibles Financial Statement Analysis

The abandonment option lets the company walk away: if the cash from abandoning exceeds the present value of continuing, it should.

Real options Corporate Finance

The ability to bear risk is judged mainly on objective factors. A 20-year investor can recover from losses; a 2-year investor cannot.

Risk and return objectives: willingness vs ability to take risk Portfolio Construction

The ability to pay is whether the government has the resources: a tax base, a budget it can adjust, foreign currency if it owes foreigners.

Sovereign credit analysis: qualitative factors Fixed Income

A country has a comparative advantage in the good whose opportunity cost is lower: what it gives up of the other good to make one more unit. It is different from absolute advantage, which just means more output per unit of input.

Benefits and costs of international trade Economics

The measures below are absolute dispersion: they are expressed in the units of the data, either percent or percent squared.

Range, mean absolute deviation, variance and standard deviation Quantitative Methods

A recommendation is a rating of buy, hold or sell, measured over a horizon that is usually one or two years. An absolute rating looks at the expected return itself.

Equity research reports: contents, ratings and price targets Equities

Most aim for an absolute return (a positive result in any market) or a good return for the risk taken, so they often judge themselves against zero or a hedge fund index rather than a stock market benchmark.

What a hedge fund is, and how it differs from other funds Alternative Investments

Absolute risk aversion is how much utility changes for each extra unit of risk, with wealth held fixed.

Risk preferences, mean–variance utility and indifference curves Quantitative Methods

An absolute risk objective stands on its own: "no loss greater than 8% in any calendar year", "volatility below 12%".

Risk and return objectives: willingness vs ability to take risk Portfolio Construction

Absolute valuation, also called fundamental valuation, estimates intrinsic value from expected cash flows, as in Learning Module 4.

Market price, intrinsic value and perceived value Equities

Accounting choices are selections among acceptable methods, such as how to depreciate or which inventory cost flow to assume.

How accounting choices and estimates manage earnings, cash flow and the balance sheet Financial Statement Analysis

Accounting earnings management changes how the same activity is reported: a longer useful life, a smaller bad-debt allowance, an earlier revenue date.

Reporting quality vs earnings quality, and the quality spectrum Financial Statement Analysis

Accounting estimates are judgments about the future, such as how long an asset will last or how much of the receivables will go unpaid.

How accounting choices and estimates manage earnings, cash flow and the balance sheet Financial Statement Analysis

Accounting goodwill exists only after an acquisition and sits on the balance sheet at the excess paid over the net identifiable assets.

Goodwill: how it is measured and tested Financial Statement Analysis

Accounting profit (pretax income) is the profit before tax in the income statement. Taxable income is the income on the tax return under tax law.

Accounting profit vs taxable income: temporary and permanent differences Financial Statement Analysis

Accounting red flags include revenue recognized too early, costs capitalized instead of expensed, heavy off-balance-sheet financing and, perhaps the clearest, frequent changes of auditor or CFO.

Assessing corporate creditworthiness Fixed Income

In the accounts payable roll-forward, purchases on credit are the addition and cash paid to suppliers is the deduction.

How the cash flow statement links to the balance sheet and income statement Financial Statement Analysis

For receivables, the addition is revenue on credit and the deduction is cash collected. This is the accounts receivable roll-forward.

How the cash flow statement links to the balance sheet and income statement Financial Statement Analysis

Regulators often limit private placements to accredited investors (also called qualified or sophisticated investors), whom they judge able and willing to carry the greater risk of a non-public offering.

Public vs private companies, going public and going private Corporate Finance

They are typically accredited investors: institutions or wealthy individuals who meet net worth or other tests, because these funds are less regulated than public offerings.

Ownership structures: general and limited partners Alternative Investments

Under accrual accounting a credit sale creates revenue and a receivable at once, and cash received before delivery creates a liability instead.

Revenue recognition: the five-step model Financial Statement Analysis

The full price has two parts, the flat price and the accrued interest.

Accrued interest, flat price and full price Fixed Income

Start with the book value, then add any gain or subtract any loss. The book value is original cost minus accumulated depreciation.

Investing and financing cash flows: asset sales, debt and dividends Financial Statement Analysis

Time to decide and put the measure in place.

Fiscal stance, structural deficits and policy lags Economics

They now also make passive investing possible: an index fund or exchange-traded fund aims to replicate an index at low cost, while active investing tries to beat a benchmark through security selection and timing.

Rebalancing, reconstitution and what indexes are used for Quantitative Methods

Active management tries to outperform a benchmark through fundamental or quantitative research. Passive management replicates the returns of a market index at low cost.

The asset management industry Portfolio Construction

Your active membership continues only while you pay annual dues and file the Professional Conduct Statement. If either lapses, you are no longer an active member and must not present yourself as one until reactivation.

Standard VII(B): Reference to CFA Institute, the CFA Designation, and the CFA Program Ethical and Professional Standards

An active portfolio strategy departs from the market weights because the manager believes the market's prices or forecasts are wrong.

The capital market line Portfolio Construction

An activist fund buys enough shares to seek a board seat and influence policy, for example asking for a sale of a division, higher payouts or new management.

Hedge fund strategies: equity, event-driven, relative value, opportunistic Alternative Investments

A strategic investor and an activist investor may hold a significant minority or a majority and push for change through board seats, a shareholder vote or taking the company private: asset sales, combinations, cost cuts or a restructuring.

Model construction by company life cycle: from venture to decline Equities

An activist short seller researches stocks it expects to fall significantly, usually because of misinformation or fraud that the price does not yet reflect.

Sell-side, buy-side and activist short-seller research Equities

Activity ratios (also called asset utilization or operating efficiency ratios) put an income statement flow on top and a balance sheet stock below.

Activity ratios: turnover, days and the cash conversion cycle Financial Statement Analysis

Under actual/actual, count the real days, leap days included. Under 30/360, every month has 30 days, and a 31st counts as the 30th.

Accrued interest, flat price and full price Fixed Income

Remeasurements go to OCI and are never recycled to profit. They are the actuarial gains and losses (changes in assumptions such as turnover, mortality, retirement age and salary growth) and the difference between the plan assets' actual return and the part already in net interest.

Defined contribution vs defined benefit pension plans Financial Statement Analysis

When a company is struggling to meet its indenture, a group of bondholders may form an ad hoc committee to approach it with restructuring options.

Corporate governance mechanisms Corporate Finance

To adapt to a bias is to recognize it, accept it and adjust the plan, instead of trying to change the person.

Cognitive errors vs emotional biases Portfolio Construction

Add-on pricing sells optional services or features, either at the time of purchase or during use. The firm tries to price the add-on profitably once the customer is committed, such as extra baggage on a flight or in-app purchases.

Pricing and revenue models Corporate Finance

An add-on rate is a simple interest rate on the amount invested. You put in the principal today and receive the principal plus interest at maturity.

Money market rates: discount basis and add-on basis Fixed Income

Any outside additional compensation that fits that description needs permission first.

Standard IV(B): Additional Compensation Arrangements Ethical and Professional Standards

Additional compensation arrangements are benefits or pay for services related to your job from someone other than your employer.

Cases on duties to employers and investment analysis Ethical and Professional Standards

Adequate compliance procedures are designed to meet industry standards, regulatory requirements, the Code and Standards and the firm's circumstances.

Standard IV(C): Responsibilities of Supervisors Ethical and Professional Standards

Results are high quality when they are sustainable earnings (they come from activities likely to recur) and give an adequate return (more than the cost of the investment, and at least the return investors expected).

Reporting quality vs earnings quality, and the quality spectrum Financial Statement Analysis

A regression beta is called the raw beta. The adjusted beta is a weighted average of the raw beta and 1.0.

Estimating the cost of equity with the CAPM and the market model Equities

Adjusted EBITDA is the typical case. EBITDA itself is net income plus interest, taxes, and depreciation and amortization.

Non-GAAP measures and other presentation choices Financial Statement Analysis

The adjustment approach modifies a multiple by a fundamental variable so it compares more directly.

Valuing with multiples: comparables and forecasted fundamentals Equities

Their workers face unemployment and need retraining for jobs in expanding industries. These are the adjustment costs of trade.

Benefits and costs of international trade Economics

Subtract the management fee (including performance and custody fees) and administrative expenses as well and you have the net return.

Gross, net, after-tax, real and leveraged returns Quantitative Methods

Materially departs from standards; not fairly presented.

Regulatory filings, notes, MD&A and the audit report Financial Statement Analysis

When you are in an advisory relationship with a client, you must weigh the client's needs, circumstances and objectives when deciding whether an investment or action is appropriate.

Standard III(C): Suitability Ethical and Professional Standards

Affirmative covenants say what the issuer must do. They are mostly administrative and cheap: use the proceeds as stated, deliver financial statements on time, and let bondholders redeem at a premium if the issuer is acquired.

Bond indentures and covenants Fixed Income

Decide on after-tax cash flows, not accounting profit. Taxes are a real cash cost, and depreciation changes them.

Capital allocation principles and pitfalls Corporate Finance

The debt cost is multiplied by $(1 - t)$ because interest saves tax. That product is the after-tax cost of debt.

Weighted-average cost of capital (WACC) Corporate Finance

The add-back is after-tax interest, not the full amount, because interest is tax deductible: CFO already includes the tax saving, so the net cost that came out of CFO was Int × (1 − t).

Free cash flow to the firm (FCFF) and to equity (FCFE) Financial Statement Analysis

Only the after-tax interest expense is added back, because interest saves tax.

Dividends, FCFE, FCFF or residual income: which cash flow, which discount rate Equities

The result is the after-tax nominal return.

Gross, net, after-tax, real and leveraged returns Quantitative Methods

After tax. After-tax operating profit is operating profit times one minus the tax rate.

Return on invested capital (ROIC) Corporate Finance

Apply it to the after-tax figure and you have the after-tax real return.

Gross, net, after-tax, real and leveraged returns Quantitative Methods

Agency bonds come from quasi-government bodies set up by a specific law to carry out a government mission, such as providing a public service.

Agencies, supranationals and local government bonds Fixed Income

Agency costs are the costs of conflicts of interest between managers and the owners they work for. In capital structure, the free cash flow hypothesis (Michael Jensen's idea) says managers who hold spare cash may waste it on perks or poor acquisitions.

Optimal and target capital structure, pecking order and agency costs Corporate Finance

agency RMBS are backed by a federal agency or a government-sponsored enterprise (GSE). Federal agency RMBS carry the full faith and credit of the government; GSE RMBS carry the GSE's own guarantee of timely interest and principal, for which it charges a fee.

Residential mortgage loans: the features that matter Fixed Income

A broker-dealer that is an exchange member brings their orders. It can act as an agent or principal: as agent it trades on the client's behalf, and as principal it trades against the client from its own book.

Where shares trade: exchanges, off-exchange and over the counter Equities

The level of aggregate demand, which is the amount households and firms plan to spend, and through it output and employment.

Fiscal vs monetary policy and what fiscal policy is for Economics

Aggregate index means a broad index across many sectors and currencies. A typical global aggregate holds fixed-coupon investment-grade bonds of sovereign, government, corporate and securitized issuers in dozens of currencies.

Bond indexes and how they differ from equity indexes Fixed Income

Every index divides an aggregate reference value by a divisor. The aggregate depends on the weighting: the sum of one share of each constituent for a price-weighted index, the total market value for a cap-weighted one, and so on.

Index value, price return and total return Quantitative Methods

A choice is aggressive accounting when it makes the current period look better: more revenue, earnings or operating cash flow, or fewer expenses and less reported debt.

Conservative vs aggressive accounting Financial Statement Analysis

IFRS (International Accounting Standard, IAS, 2) does not apply the lower-of-cost rule to agricultural and mineral inventories or to commodity broker-traders.

Lower of cost and net realizable value (and write-down reversals) Financial Statement Analysis

Algorithmic stablecoins (also called smart stablecoins) instead use an algorithm to control the supply, for example by creating more coins when demand rises.

How digital assets differ from stocks, bonds and currencies Alternative Investments

The words all parties involved cover the employer and the party offering the compensation. In practice, you report the arrangement to your employer in writing and the offering party confirms the details.

Standard IV(B): Additional Compensation Arrangements Ethical and Professional Standards

The allowance for doubtful accounts is an estimate of unpaid receivables. A smaller allowance means a smaller expense, higher profit and higher net receivables.

How accounting choices and estimates manage earnings, cash flow and the balance sheet Financial Statement Analysis

Alpha is what is left: the return from the manager's choice of positions and timing. Leverage can amplify all three.

Hedge fund returns: market beta, strategy beta, alpha and diversification Alternative Investments

Altcoins are all the other cryptocurrencies built on similar technology. The most prominent is Ether, launched in 2015 on the Ethereum network.

How digital assets differ from stocks, bonds and currencies Alternative Investments

Seek guidance, ideally from someone not exposed to the same pressures: compliance, a mentor, outside counsel, firm policy and the Code and Standards. Then generate alternative actions and weigh them.

A framework for ethical decision making Ethical and Professional Standards

Alternative asset managers run hedge funds, private equity, venture capital and similar strategies and earn management fees plus performance fees.

The asset management industry Portfolio Construction

Alternative data are information from non-traditional sources, such as social media activity, satellite images, web traffic, real-time retail sales and location data.

Big data, the four Vs and alternative data Quantitative Methods

The alternative hypothesis ($H_A$) is the claim to be proven, and the one the data support if we reject the null.

How a hypothesis test works: four steps from claim to decision Quantitative Methods

Alternative investments tend to share three features, and each leads to something in how they are built and paid for.

What makes an investment alternative: features and categories Alternative Investments

Other names are pro forma earnings, non-IFRS measures and alternative performance measures.

Non-GAAP measures and other presentation choices Financial Statement Analysis

Some indexes keep a broad index's members but change the weights, because cap weighting tilts toward the largest companies and those whose prices have already risen. That is alternative weighting.

Types of equity indexes Equities

An American depositary receipt (ADR) lets non-US shares trade in US markets in US dollars (USD). It is the oldest and largest DR market.

Investing across jurisdictions: dual listings and depositary receipts Equities

European options can be exercised only at expiration. American options can be exercised at any time up to expiration.

Call and put options: payoff and profit at expiration Derivatives

Costs that benefit several years are capitalization candidates: they go on the balance sheet as an asset and are expensed through depreciation (tangible assets) or amortization (intangibles).

Expense recognition: capitalizing vs expensing Financial Statement Analysis

After that comes the amortization period, when principal is collected and paid out to investors.

Credit card, auto loan and solar ABS Fixed Income

Amortized cost is the amount first recognized, less principal repaid, plus or minus amortization of any discount or premium, less impairment.

Financial instruments: amortized cost, FVOCI and FVPL Financial Statement Analysis

An amortizing bond repays its principal in scheduled installments during its life instead of all at maturity.

Types of returns: assets, instruments and indicators Quantitative Methods

Amortizing debt retires part of the principal before maturity, inside the regular payments. Mortgages and many loans work this way.

Bullet, amortizing and sinking fund bonds Fixed Income

A fully repaid amortizing loan, such as a mortgage or a car loan, is the lender's side of the same picture: the loan amount is the present value, and the payment is the unknown.

Annuities and level-payment loans Quantitative Methods

Amortizing loans repay principal in scheduled installments along with interest, so the pool shrinks. Auto loans and solar loans are amortizing.

Credit card, auto loan and solar ABS Fixed Income

Analysis of variance (ANOVA) splits the variation in Y into the part the regression explains and the part it does not, then compares them.

The ANOVA table and the standard error of the estimate Quantitative Methods

The third is the analyst perspective: a new private investor, a minority shareholder or a controlling owner each looks at the company differently.

Model construction by company life cycle: from venture to decline Equities

An analytic pricing formula is a closed-form solution for a security's price; shares and plain bonds usually have one, many complex securities do not.

Monte Carlo simulation Quantitative Methods

Every duration so far (Macaulay, modified, approximate, effective, key rate) is calculated from a formula or a valuation model. These are analytical duration measures.

Empirical vs analytical duration Fixed Income

Anchoring and adjustment bias is relying on an initial piece of information, an anchor, and adjusting from it too little.

Cognitive errors: belief perseverance and information processing Portfolio Construction

General meetings let shareholders discuss and vote on matters that are not delegated to the board. The annual general meeting (AGM) is held once a year.

Corporate governance mechanisms Corporate Finance

Company law is not the same everywhere, but shareholders of a listed company generally get their say on the big decisions at the annual general meeting (AGM), or at a special shareholder meeting called between AGMs.

How shareholders vote: proposals, proxies, proxy advisors and asset managers Equities

Here $m$ is the number of coupons per year, 2 for semiannual. The result is the annualized duration.

Macaulay duration: definition and calculation Fixed Income

If the Macaulay duration is annualized, the result is the annualized modified duration.

Modified duration Fixed Income

Here c is the number of periods in a year: 365 ÷ days, 52 for weeks, 12 for months, 1 ÷ years for a multi-year period. The result is the annualized return.

Annualized and continuously compounded returns Quantitative Methods

If they are monthly, multiply by 12 first (annualizing monthly premiums).

Arbitrage pricing theory and multi-factor models Equities

An annuity pays the same amount every period for a fixed number of periods. In an ordinary annuity the first payment arrives at the end of the first period.

Annuities and level-payment loans Quantitative Methods

An annuity withdrawal turns savings into a level income. It is the same calculation seen from the other side: the lump sum is the present value, and the withdrawal is the payment.

Annuities and level-payment loans Quantitative Methods

Antidilutive securities are those that would raise EPS if included, so leave them out. For a convertible, divide its add-back by its new shares and compare with basic EPS.

Diluted EPS: if-converted and treasury stock methods Financial Statement Analysis

Comply with the applicable law of every jurisdiction and body that governs what you do: where you live, where you work, where your client lives and where you sell.

Standard I(A): Knowledge of the Law Ethical and Professional Standards

Appraisal smoothing from this timing mismatch makes private correlations look artificially low. Second, equity REIT correlations with stock benchmarks tend to rise in steep downturns, just when diversification is most wanted.

Real estate returns: core to opportunistic, leverage and diversification Alternative Investments

Farmland and timberland trade rarely, in private markets, so their values rest on infrequent transactions and appraisal-based pricing with imprecise estimates.

Natural resources: risk, return, inflation hedging and diversification Alternative Investments

Approximate convexity uses the same three prices as approximate modified duration: today's price $PV_0$, the price after a small yield fall $PV_-$ and the price after the same small rise $PV_+$.

Convexity and the convexity adjustment Fixed Income

Move the yield down and up by the same small amount, reprice the bond, and measure how far the price swings. The result is the approximate modified duration.

Modified duration Fixed Income

An arbitrage is a trade, or a set of trades, that gives a riskless profit with no net investment. You start with nothing, you finish with money, and no outcome of the market can leave you worse off.

Arbitrage and the law of one price Derivatives

The arbitrage pricing theory (APT) is the theoretical one: it also gives a linear relationship, but with any number of factors, each with its own premium λ and sensitivity β.

The CAPM and the security market line Portfolio Construction

In arbitrage pricing theory (APT), a general framework, expected returns depend on several systematic risk factors, each with its own sensitivity (a factor exposure, or beta) and its own expected factor risk premium.

Arbitrage pricing theory and multi-factor models Equities

Because the option can be hedged perfectly with the share, so its price follows from no arbitrage alone. That is arbitrage-free pricing.

Risk neutrality: why real-world probabilities do not matter Derivatives

The areas of valuation focus move as a company ages, and the company life cycle stages vary widely in length.

Model construction by company life cycle: from venture to decline Equities

The arithmetic average portfolio return is the plain mean of the period returns. It is not the cumulative return divided by T.

Portfolio returns over time: buy-and-hold, drift and rebalancing Quantitative Methods

The arithmetic mean is the sum of the observations divided by the number of observations. When the data are a sample, the same calculation gives the sample mean.

Mean, median, mode and what outliers do to them Quantitative Methods

The arithmetic mean return is the right tool for a one-period-ahead forecast. It is the wrong tool for describing what happened over several periods, as the next section shows.

Arithmetic and geometric mean returns Quantitative Methods

This is the arithmetic–geometric mean inequality: the geometric mean equals the arithmetic mean only when returns are constant; otherwise it is lower, and the gap widens as returns vary more.

Arithmetic and geometric mean returns Quantitative Methods

An Asian option pays the excess of the final price over the average price during its life, if positive. Its payoff depends on the whole path, so no simple formula exists; this is where Monte Carlo is essential.

Monte Carlo simulation Quantitative Methods

The bid price is what a buyer will pay for a stated quantity, and the ask (offer) price is what a seller will accept.

Where shares trade: exchanges, off-exchange and over the counter Equities

Asset allocation. Set the target weights of the asset classes, such as equities, fixed income, cash and alternatives, and the sub-asset classes and geographies within them.

The three steps of the portfolio management process Portfolio Construction

An asset class is a category of assets with similar characteristics, attributes and risk–return relationships.

Asset classes, strategic asset allocation and portfolio construction Portfolio Construction

In an asset exchange, remove the asset given up, record the new one at fair value (the fair value of the asset given up unless the one received is more clearly evident), and book the difference as a gain or loss.

Impairment and derecognition of PP&E and intangibles Financial Statement Analysis

The asset growth and efficiency model covers working capital and fixed investment.

Why build a disaggregated model, and at what level of detail Equities

An asset manager invests money for clients. An asset owner is the investor whose money it is, such as a pension plan or an endowment.

How shareholders vote: proposals, proxies, proxy advisors and asset managers Equities

The asset model decides how much working capital and how many fixed assets the revenue forecast needs, and so it sets net investment.

Asset and financing models Equities

An asset owner is the investor whose money it is, such as a pension plan or an endowment. Many of both treat timely, active voting as a core part of owning shares.

How shareholders vote: proposals, proxies, proxy advisors and asset managers Equities

The comparables must have the same asset risk (business risk) as the company. If they do not, the industry beta is simply the wrong beta.

Industry betas, the market risk premium and country risk Equities

An asset swap converts the fixed coupon of a particular bond into a floating market reference rate plus or minus a spread.

G-spread, I-spread, Z-spread and option-adjusted spread Fixed Income

A falling asset turnover (revenue ÷ total assets), especially after acquisitions, points to later write-downs of goodwill and may tempt managers to reach for growth.

Warning signs of earnings manipulation Financial Statement Analysis

Asset-backed commercial paper (ABCP) is a secured form of paper.

How banks fund themselves short term Fixed Income

For asset-backed securities (ABS), the repayment source is the cash flow from a pool of loans or receivables owned by a special purpose issuer.

Bond indentures and covenants Fixed Income

Asset-backed tokens are digital claims on physical assets, financial assets or financial instruments. They are collateralized by the underlying asset and take their value directly from it: tokenized gold, crude oil, real estate and equities are examples.

Ways to invest in digital assets: direct and indirect Alternative Investments

Absolute valuation estimates the cash flows or asset prices that drive a share's intrinsic value, and it has two kinds of model: present value models and asset-based valuation models.

Equity valuation models: present value, asset-based and relative Equities

The business model sets how much a company must invest: carmakers and aircraft makers carry heavy tangible assets, service and technology firms earn with a small, efficient asset base, and companies that license software or other intellectual property hold mostly intangible assets amortized over their useful lives (asset-heavy and…

Capital investments and capital structure Equities

Asset-light and asset-heavy business models need very different investment: a booking platform that owns no hotels earns revenue from a small asset base, while the hotel owner needs heavy investment.

Asset and financing models Equities

The simplest assumption is assets growing with revenue, so that constant asset turnover (revenue divided by assets) holds.

Asset and financing models Equities

In an assignment of accounts receivable, the receivables are collateral for a loan. The company stays responsible for collecting them.

Short-term funding for companies: credit lines, secured loans and commercial paper Fixed Income

The pecking order theory starts from a different place: asymmetric information. Managers know more about the company's prospects than outside investors do, and investors know it.

Optimal and target capital structure, pecking order and agency costs Corporate Finance

Asynchronous markets trade on different days and close on different holidays (or for unplanned reasons). Some securities did not exist for the whole window.

Historical simulation and historical value at risk Quantitative Methods

An option is in the money (ITM) when exercising would pay, at the money (ATM) when S = X, and out of the money (OTM) when exercising would not pay.

Exercise value, moneyness and time value Derivatives

When S equals X exactly, it is at-the-money, and exercising gives nothing either.

Call and put options: payoff and profit at expiration Derivatives

You may use and redistribute third-party research, but you must not represent yourself as its author, and you should say where it came from, so clients know who did the work. Use of attribution is the fix: name the source and keep a copy of it.

Standard I(C): Misrepresentation Ethical and Professional Standards

A bidding process sets the price, now automated by digital technology.

Pricing and revenue models Corporate Finance

The audit committee is the most widely required. Best practice is that it is wholly independent and includes at least one director with accounting or financial expertise.

Corporate governance mechanisms Corporate Finance

The audit report is an independent accounting firm's written opinion on whether the audited statements fairly present financial position, performance and cash flows under a stated set of standards.

Regulatory filings, notes, MD&A and the audit report Financial Statement Analysis

Autarky is non-cooperative and nationalist.

Geopolitical risk and the four country archetypes Economics

An auto loan ABS is backed by amortizing vehicle loans (sometimes leases) secured by the vehicle. Investors receive principal every month and are exposed to both prepayment and default.

Credit card, auto loan and solar ABS Fixed Income

Long runs of positives followed by negatives, or a repeating cycle, show that one residual predicts the next. This is autocorrelation, and it breaks the independence assumption.

The four regression assumptions and what residual plots reveal Quantitative Methods

Automatic stabilizers change the budget in the opposite direction to the cycle with no decision. In a slump, incomes and profits fall, so progressive income and profit taxes bring in less, and unemployment benefits and other social payments rise.

Fiscal vs monetary policy and what fiscal policy is for Economics

Availability bias is estimating the probability or importance of something by how easily it comes to mind. It can restrict the investment opportunity set, lead to choosing funds by advertising or news coverage, and cause a failure to diversify.

Cognitive errors: belief perseverance and information processing Portfolio Construction

Available seat kilometers add up, for every flight, the seats available times the kilometers flown. Revenue per ASK (RASK) and cost per ASK (CASK) give unit economics that compare across airlines.

Equity research reports: contents, ratings and price targets Equities

Available seat kilometers (ASKs) measure an airline's capacity. Revenue per ASK is what each unit of capacity earns, so revenue is the product of the two.

Revenue models: historical, bottom-up and top-down Equities

Available-for-sale debt securities are measured at fair value with changes in OCI. The IFRS counterpart is fair value through other comprehensive income (FVOCI), used for debt when the business model is both to collect cash flows and to sell.

Financial instruments: amortized cost, FVOCI and FVPL Financial Statement Analysis

Suppose every asset has variance σ², and the average correlation between pairs is ρ̄.

How many assets does diversification need? Quantitative Methods

The average covariance replaces the correlation term, and σ̄² is the average variance.

How many assets does diversification need? Quantitative Methods

The occupancy rate measures demand against capacity, and the average daily rate measures price per room that was actually sold.

Industry-specific ratios and using ratios to forecast Financial Statement Analysis

The average daily volume (ADV) is the average number of shares traded per business day over a period you choose, n days.

Liquidity: market float, average daily volume and turnover Equities

A large order "walks the book", so its average execution price is worse than the best quote.

Where shares trade: exchanges, off-exchange and over the counter Equities

Give tied values the average of the ranks they would occupy (average ranking), so two values tied for third and fourth both get 3.5.

Spearman rank correlation: the non-parametric test Quantitative Methods

The average return on equity method takes the average ROE over the cycle times the current book value per share (BVPS).

Price multiples: P/E, earnings yield, P/S, P/B and dividend yield Equities

Average revenue is revenue per unit, which is simply the price. Marginal revenue is the extra revenue from selling one more unit.

Breakeven and shutdown points Economics

The occupancy rate measures demand against capacity, and the average daily rate measures price per room that was actually sold. A subscription business uses average revenue per user.

Industry-specific ratios and using ratios to forecast Financial Statement Analysis

In the short run the firm should stop when revenue does not even cover its total variable cost (TVC), that is when price is below average variable cost at every output.

Breakeven and shutdown points Economics

The Standard sets a sequence, which we call avoid or disclose. Best practice is to avoid actual conflicts and even the appearance of them.

Standard VI(A): Avoid or Disclose Conflicts Ethical and Professional Standards

Avoid or disclose conflicts is the wording since the 2023 revisions. Where a conflict cannot reasonably be avoided, disclose it fully, prominently and in plain language to the employer, clients and prospects.

Cases on conflicts of interest and CFA responsibilities Ethical and Professional Standards