CFA Level I terms: G

The G-spread is the bond's yield minus the government yield at the same maturity. Governments rarely have a bond maturing on exactly the right day, so you interpolate between the two nearest.

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

P is the proceeds, C the original cost, AD accumulated depreciation, and C − AD the carrying amount. The gain or loss on sale goes in profit, often in other income.

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

Gains and losses work differently. The gains and losses on sale of equipment are investing items.

Cash flow from operations: the indirect method Financial Statement Analysis

Trade makes a country better off in total because it can sell what it makes relatively cheaply, buy what it makes relatively dearly, and enjoy larger markets, more choice and tougher competition. The gains from trade are these net benefits.

Benefits and costs of international trade Economics

Game theory is the study of decisions when each participant's best move depends on what the others do. A Nash equilibrium is a set of strategies in which each firm's strategy is its best response to the others', so no firm can raise its profit by changing strategy alone.

Oligopoly pricing: kinked demand, Cournot, Nash and Stackelberg Economics

A gate lets the manager limit or suspend redemptions for a time, at the manager's discretion.

Leverage, redemptions, lockups and gates Alternative Investments

Larger, richer economies handle economic and political shocks better, so analysts look at the size of the economy (GDP, often in purchasing power terms) and at GDP per capita.

Sovereign credit analysis: the key ratios Fixed Income

Its rulebook grew from the General Agreement on Tariffs and Trade (GATT), signed in 1947 and covering goods only.

The IMF, the World Bank and the WTO Economics

The second kind is a general collateral repo, done at the general collateral repo rate. A master repurchase agreement or similar document governs all trades between two parties: margining, substitution of collateral and events of default.

Repurchase agreements (repos) Fixed Income

The second kind is a general collateral repo, done at the general collateral repo rate. A master repurchase agreement or similar document governs all trades between two parties: margining, substitution of collateral and events of default.

Repurchase agreements (repos) Fixed Income

General obligation (GO) bonds are unsecured and backed by the issuer's general revenues, so by its power to tax.

Agencies, supranationals and local government bonds Fixed Income

The general partner (GP) is the fund manager. It buys and sells assets, borrows, sets up reserves, enters contracts and reports to investors, to an agreed standard of care.

Ownership structures: general and limited partners Alternative Investments

The legal relationship is that of general partner and limited partners: the manager is the general partner and runs the fund, while the investors are limited partners who put in money and receive a share of returns after fees.

How to invest in hedge funds: master-feeder, SMAs, funds of funds Alternative Investments

In a general partnership, two or more partners share management and every one is liable without limit. If one partner cannot pay a share of the debts, the others must cover it.

Organizational forms of businesses Corporate Finance

So a generalized discounted cash flow model forecasts the cash flow available to investors and discounts it at their required return.

Dividend discount and free-cash-flow-to-equity models Equities

A generative adversarial network (GAN) pairs a generator network, which makes synthetic data, with a discriminator network, which tries to tell the synthetic data from real data.

AI and machine learning: supervised, unsupervised, reinforcement, deep Quantitative Methods

Generative AI creates new content, data or solutions from patterns it has learned in existing data. Traditional AI models classify or predict a value (regression); generative models produce outputs that look like real data.

Large language models and generative AI in finance Quantitative Methods

A large language model (LLM), such as a generative pre-trained transformer (GPT), is a neural network trained on vast amounts of text that can read and write language.

Large language models and generative AI in finance Quantitative Methods

60% of its sales are in developed markets with long-run inflation of 2.0% and nominal GDP growth of 3.5%; 40% are in emerging markets with 4.5% and 7.5%. This is the geographic mix of growth.

Discount rates and terminal values Equities

The geographic mix of profits makes the effective rate a weighted blend of the local rates, weighted by profit.

Effective, statutory and cash tax rates Financial Statement Analysis

The geometric average portfolio return turns it into a constant annual rate.

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

A simulation moves a price with geometric Brownian motion: $S_t = S_0 \times \exp\left[(\mu - \sigma^2/2)t + \sigma W_t\right]$.

Why asset prices are log-normal Quantitative Methods

The geometric mean return works on growth factors (1 + r), never on the raw returns.

Arithmetic and geometric mean returns Quantitative Methods

Resource endowment. A country's geophysical resource endowment is the natural wealth its geography gives it, such as energy, minerals, arable land or ports.

Geopolitics: cooperation vs competition Economics

Geopolitical risk is the risk associated with tensions or actions between actors, state and non-state, that disrupt normal and peaceful international relations.

Geopolitical risk and the four country archetypes Economics

Geopolitics is the study of how geography affects politics and international relations. Analysts follow the actors who carry out political, economic and financial activity, and how those actors deal with one another.

Geopolitics: cooperation vs competition Economics

Gifts and entertainment that are modest and customary are acceptable. Anything lavish, or offered just before a decision, is not.

Standard I(B): Independence and Objectivity Ethical and Professional Standards

For a manager showing the performance of assets under management, complying with the GIPS standards is the best way to meet III(D), and members should encourage their firms to comply.

Standard III(D): Performance Presentation Ethical and Professional Standards

Global bonds are issued simultaneously in the Eurobond market and in at least one domestic market, which gives very large issues, such as those of supranational banks, demand from investors everywhere.

Domestic, foreign and Eurobonds, and how bonds are taxed Fixed Income

A global depositary receipt (GDR) is issued outside the company's home country and outside the United States. London and Luxembourg were the first exchanges to trade them, and others, such as Dubai and Singapore, followed.

Investing across jurisdictions: dual listings and depositary receipts Equities

The Global Industry Classification Standard (GICS), from MSCI and S&P Dow Jones Indices (S&P stands for Standard & Poor's).

Industry classification: GICS, ICB, TRBC and other groupings Equities

The Global Investment Performance Standards (GIPS) are a voluntary standard for how investment firms present performance.

Money-weighted vs time-weighted rate of return Quantitative Methods

Global macro funds take top-down positions in rates, currencies, equities and commodities on the basis of expected economic trends.

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

The minimum-variance portfolio, also called the global minimum-variance portfolio, is the leftmost point of the frontier.

The minimum-variance portfolio and the efficient frontier Quantitative Methods

They produce commodities that are traded and consumed worldwide, so trade interruptions and growing competition can cut prices.

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

Globalization is a separate axis: economic and financial cooperation across borders, covering the trade of goods and services, capital flows, currency exchange and the exchange of culture and information.

Globalization vs nationalism: gains, costs and rollback Economics

Present value models also rest on the going concern assumption. A negative growth rate can model a slow decline (lesson 5), but financial distress (bankruptcy, restructuring, liquidation) often arrives suddenly.

Where DCF and growth models break down Equities

Going concern projects continue current operations at their current size: replacing assets near the end of their life, keeping IT systems current, improving efficiency.

Types of capital investments Corporate Finance

Weight the going-concern value and the distress sale value by their probabilities. Discount a future distress sale value to today first.

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

Goodwill arises in a business combination, when one company buys control of another. Accounting standards require the purchase price allocation in three steps.

Goodwill: how it is measured and tested Financial Statement Analysis

The company tests it for goodwill impairment at least once a year, and if its value has fallen it writes it down and charges the loss to profit.

Goodwill: how it is measured and tested Financial Statement Analysis

When dividends grow at the same rate g forever, the infinite sum still has a closed form. This is the Gordon growth model, and the pattern is constant growth.

Valuing a stock from its dividends Quantitative Methods

Governance factors are standards for running a company: board composition, audit committee structure, bribery and corruption, executive pay, lobbying, political contributions and whistleblower schemes.

ESG factors investors consider Corporate Finance

A governance token is a vote on how a network is run, important on permissionless networks where no central body decides.

Distributed ledgers and blockchain: how digital assets are recorded Alternative Investments

government agencies are quasi-government entities set up under national or local law to provide a particular public good or service, or to run infrastructure the law requires.

Agency, municipal and supranational bonds Fixed Income

Corporate bonds promised higher yields than government bonds but earned slightly less over the sample. The reason is the default effect: some issuers fail to pay, so what is realized falls below what was promised.

Long-run asset class returns and their components Quantitative Methods

government debt management decides the composition of debt (short or long term, fixed or floating, local or foreign currency).

Sovereign debt: who borrows, in what currency, for how long Fixed Income

Government equivalent yield restates a 30/360 yield on an actual/actual basis. A simple approximation multiplies by 365/360.

Current yield, simple yield and yield conventions Fixed Income

Gradient descent. Each weight is moved a little in the direction opposite to the gradient, which lowers the loss.

AI and machine learning: supervised, unsupervised, reinforcement, deep Quantitative Methods

Four dates matter, in this order. On the grant date the award is made and its value is measured.

Share-based compensation: stock grants, options and SARs Financial Statement Analysis

The company measures the grant-date fair value once and expenses it evenly over the service period. The offsetting entry is an increase in paid-in capital, so total equity does not change: retained earnings fall by the expense and paid-in capital rises by the same amount.

Share-based compensation: stock grants, options and SARs Financial Statement Analysis

Graphs fit different jobs: pie charts show the composition of a total at one or two dates, line graphs show how a few items change over a longer time, and stacked columns show composition and amounts together over time.

Analysis tools: common-size, trend, cross-sectional and the limits of ratios Financial Statement Analysis

Green bonds are different: they carry an ordinary coupon but fund projects with an environmental benefit.

Floating, step-up, inflation-linked and zero-coupon bonds Fixed Income

A green covered bond is backed by a pool of mortgages on buildings that meet a green certification, so the proceeds support energy-efficient housing.

Covered bonds Fixed Income

Greenfield investments develop new assets. They are opportunistic: the investor may lease or sell the finished asset to the government, or hold and operate it, perhaps until it matures and is sold to new investors (which delivers the capital gain that pays for the construction and commissioning risk).

Infrastructure: economic vs social, greenfield vs brownfield Alternative Investments

Gross margin is gross profit divided by revenue, for example 4,650 ÷ 8,750 = 53.1% under FIFO.

FIFO, LIFO and weighted average when prices rise or fall Financial Statement Analysis

The names to know: gross profit margin, operating profit margin, pretax margin and net profit margin.

Common-size income statements and margin ratios Financial Statement Analysis

Subtract transaction costs (trading costs, commissions and similar direct fees) and you have the gross return.

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

The published view is the consensus of the group research, not necessarily the view of each name on the cover.

Standard V(A): Diligence and Reasonable Basis Ethical and Professional Standards

Teams that read the same research and speak to the same clients risk groupthink, thinking as a group in a way that discourages creativity, so the process needs deliberately varied views.

How geopolitical risk affects investments Economics

Maintenance capex keeps existing capacity running, so it roughly equals depreciation. Growth capex adds capacity and follows the volume plans.

Forecasting working capital, capex, cash flow and the balance sheet Financial Statement Analysis

A third group, growth companies, is relatively insensitive to the cycle: revenue grows quickly, well above the economy, in good years and bad, often from a new technology or treatment.

Industry classification: GICS, ICB, TRBC and other groupings Equities

A growth company often turns profitable and grows revenue and earnings faster than the economy and its industry (above-trend growth).

Company life cycle and the addressable market Equities

Output relative to its trend, the output gap.

The business cycle and its four phases Economics

Growth equity serves a company that is already profitable and expanding but wants to stay private. A new investor group funds the expansion, and the early backers can reduce their stakes, so ownership becomes less concentrated.

Public vs private equity: venture capital, buyouts and PIPEs Equities

A growth industry grows faster than the economy and is usually not sensitive to the cycle, because it has not yet reached full penetration of its total addressable market, the revenue it could earn if every potential customer bought.

Industry size, growth, profitability and concentration Equities

The growth option (also called an expansion option) is the mirror image, investing more when results are strong.

Real options Corporate Finance

The growth rate of output.

The business cycle and its four phases Economics

The value factor, high minus low (HML), is long stocks with high book-to-market ratios and short stocks with low book-to-market ratios.

Arbitrage pricing theory and multi-factor models Equities

Growth stocks have a high P/E, a low book-to-market ratio and a high price-to-dividend ratio. Value stocks have the opposite profile: low P/E, high book-to-market and low price-to-dividend.

How biases show up in markets: momentum, bubbles and value Portfolio Construction

A growth-phase valuation targets the investor's return through a terminal multiple, as a start-up does, but on earnings (the P/E of mature peers), not sales.

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

Do not guarantee returns on investments that are inherently uncertain (a guarantee of performance). You may describe a product with a real guarantee accurately: say who guarantees what.

Standard I(C): Misrepresentation Ethical and Professional Standards