CFA Level I terms: L

They hold on to staff longer than demand alone would justify (labor hoarding) because finding and training new workers is costly.

Employment, capital spending, inventories, housing and trade over the cycle Economics

Lack of transparency means stakeholders may not understand the exposure. The risk grows when derivatives are combined or embedded in other securities.

Derivative risks: leverage, basis, liquidity, counterparty and systemic Derivatives

Lagging economic indicators turn after the economy and confirm what has already happened. They change only once a trend is established.

Leading, coincident and lagging economic indicators Economics

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

Large-cap equities, the shares of the biggest companies, earned the highest long-run geometric return. Equities beat bonds mainly because of price appreciation.

Long-run asset class returns and their components Quantitative Methods

The newest costs go to cost of sales. Ending inventory carries the oldest costs.

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

Data capture: how data are collected and put into a usable format. Latency is the delay on a network.

Data science: processing, visualization and text analytics Quantitative Methods

Later stage (expansion) financing comes after production and sales have begun but before an initial public offering (IPO).

Private equity strategies: buyouts, venture capital and growth equity Alternative Investments

The law of large numbers says that as the number of independent trials grows, the sample mean gets closer and closer to the true (unconditional) mean, provided the sample is random and representative.

Random variables and distribution functions Quantitative Methods

The law of one price says that two assets that pay exactly the same cash flows at the same dates, with the same risk, must trade at the same price.

Arbitrage and the law of one price Derivatives

The leading dividend yield is the forecast dividends per share for the next year divided by the current price, $Div_{t+1} \div P_t$.

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

Leading economic indicators turn before the economy does and are used to forecast the near-term future.

Leading, coincident and lagging economic indicators Economics

Channels include a better allocation of resources, higher productivity, learning by doing (unit cost falls as experience builds, as in aircraft assembly), knowledge spillovers from foreign research, and policies and institutions that reward innovation.

Benefits and costs of international trade Economics

A lease is a contract that gives one party the right to use a specific asset for a period in exchange for payments.

Leases: finance vs operating and lessee accounting (IFRS vs US GAAP) Financial Statement Analysis

On day one the lessee records a right-of-use asset and a lease liability, both equal to the present value of the lease payments.

Leases: finance vs operating and lessee accounting (IFRS vs US GAAP) Financial Statement Analysis

The lessor derecognizes the leased asset and records a lease receivable equal to the present value of the payments, discounted at the rate implicit in the lease.

Lessor accounting: finance vs operating leases Financial Statement Analysis

They need a lot of financing, and because their assets can be pledged, much of it is cheap: secured debt is backed by specific assets as collateral, and leases give the company the use of an asset in return for lease payments, much like a loan.

Factors affecting capital structure and the cost of capital Corporate Finance

Leasing, licensing arrangements and franchising are different, but all are like subscriptions in that they involve recurring payments for the transfer of property or access to it, not a product.

Pricing and revenue models Corporate Finance

Leaving an employer is where this Standard is tested most. Your duty runs until your employment actually ends.

Standard IV(A): Loyalty (to employers) Ethical and Professional Standards

A one-tailed test asks about one direction only and puts all of the rejection region in that tail: the right-tail test when the claim is "greater than", the left-tail test when it is "less than".

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

Legal and regulatory factors are restrictions on how the portfolio may be invested. Some countries limit institutional investors' portfolios, for example a cap on the share of equities, real estate or overseas assets in a pension fund.

IPS constraints: liquidity, time horizon, taxes, legal and unique circumstances Portfolio Construction

Legal and regulatory protection for digital assets is still being built. Regulators classify them differently (some treat them as commodities, others as non-financial assets).

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

Seeking advice from the compliance department or legal counsel is recommended when you are not sure which rule applies or whether a colleague is breaking one.

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

A corporation is formed by registering with a regulator, and from then on it is a legal identity in its own right.

Key features of corporate issuers Corporate Finance

Legal influences are laws and regulations from courts and policymakers that impose constraints or costs, change how an industry does business, or open or close whole markets by banning or allowing activities.

PESTLE and the innovation matrix Equities

Weak compliance or poor reporting exposes a company to legal risk (lawsuits from shareholders, employees, creditors or others for breach of contract, bylaws or rights) and regulatory risk (investigations and penalties for breaking the law).

Corporate governance risks and benefits Corporate Finance

Legal standards are the rules of conduct set by a legislature or regulator for those within its jurisdiction. Ethical standards are what communities, such as a profession, consider right conduct, and they usually ask for more than the law.

Challenges to ethical behavior, and ethical vs legal standards Ethical and Professional Standards

Monopoly supplier of the currency. Modern money is fiat money: it cannot be converted into gold or anything else.

The role of central banks Economics

Lender of last resort. A bank can be sound and still run out of cash if depositors panic. The central bank can create the cash needed, so a solvent bank that cannot borrow elsewhere is lent to against collateral.

The role of central banks Economics

Points beyond P are borrowing portfolios, with more than 100% of the investor's own money in P. Together these are the lending and borrowing portfolios on the line.

From the capital allocation line to the capital market line and the CAPM Quantitative Methods

The names for the points on the line follow the weight: a lending portfolio has w below 1, a borrowing portfolio has w above 1, and a borrowing portfolio is also called a leveraged portfolio.

The capital market line Portfolio Construction

A leptokurtic distribution is fat-tailed (also called long-tailed). A platykurtic one is thin-tailed (short-tailed).

Skewness and kurtosis Quantitative Methods

A lease is a contract that gives one party the right to use a specific asset for a period in exchange for payments. The user is the lessee.

Leases: finance vs operating and lessee accounting (IFRS vs US GAAP) Financial Statement Analysis

The lessee disclosures include the carrying amount of ROU assets by class of asset, depreciation and interest on leases, additions to ROU assets, total cash outflow for leases, the nature of the leasing activity, any covenants or restrictions, and sale-and-leaseback transactions.

Leases: finance vs operating and lessee accounting (IFRS vs US GAAP) Financial Statement Analysis

The user is the lessee. The owner is the lessor.

Leases: finance vs operating and lessee accounting (IFRS vs US GAAP) Financial Statement Analysis

The lessor accounting question is the mirror image of the lessee's. The owner of the asset applies the same five finance-lease tests as the lessee (ownership transfer, a purchase option likely to be used, a term covering most of the life, a present value of at least substantially all of fair value, and no alternative use).

Lessor accounting: finance vs operating leases Financial Statement Analysis

The lessor disclosures mirror the two models. For finance leases: selling profit or loss, finance income on the net investment in the lease and income from variable payments, along with a maturity analysis of the undiscounted receipts for at least each of the first five years and a total for later years.

Lessor accounting: finance vs operating leases Financial Statement Analysis

A letter of credit is a bank's promise to provide funds up to a limit. A cash collateral account is cash funded by a third party and held as a reserve.

Credit enhancement and credit tranching Fixed Income

Private equity and private real estate rely on Level 3 inputs: cash flow projections and other models with assumptions that cannot be observed in the market.

Why alternative investment performance is hard to judge Alternative Investments

The level of model detail is a trade-off every time you add a line.

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

The level of significance (α) is the probability of rejecting a true null that you are willing to accept, usually 5%.

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

A level-payment instrument pays the same amount every period, so it is an annuity. 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

The conditions for levels of service are that they are disclosed to clients and prospects, are available to everyone willing to pay, and do not disadvantage or negatively affect other clients.

Standard III(B): Fair Dealing Ethical and Professional Standards

Leverage means funding part of the price with debt. Most real estate strategies use some, in proportions that depend on the strategy.

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

The main risks are illiquidity risk (no easy way out), leverage risk (debt magnifies losses as well as gains), concentration in a few holdings, and valuation uncertainty.

Private capital in a portfolio: risk, return, vintage years and diversification Alternative Investments

Speculate; a large and growing share of volume.

The foreign exchange market and who trades in it Economics

They usually pay a premium over the current share price and often borrow to fund the purchase, which is why it is called a leveraged buyout.

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

A leveraged buyout (LBO) is the purchase of all the outstanding common shares of a listed company by one or more investors, often with significant debt.

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

A leveraged loan is a loan to a lower-quality borrower, and its spread often depends on a leverage ratio, so a weaker balance sheet pays more.

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

In leveraged loans the lender is itself levered: it borrows money first and then lends it on, which can enhance the return on its loan portfolio.

Private debt: direct lending, mezzanine, venture and distressed debt Alternative Investments

The names for the points on the line follow the weight: a lending portfolio has w below 1, a borrowing portfolio has w above 1, and a borrowing portfolio is also called a leveraged portfolio.

The capital market line Portfolio Construction

The leveraged return is above the portfolio return only when r_P exceeds r_d.

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

Debt makes equity riskier, so an observed beta, the levered beta, mixes business risk with financial risk. Strip the comparables' leverage out to get the unlevered beta, which holds business risk only.

Industry betas, the market risk premium and country risk Equities

Text analytics uses computer programs to analyze and derive meaning from large unstructured text or voice datasets: filings, reports, earnings calls, social media, email and surveys. It includes automated retrieval, lexical analysis (analysis of word frequency in a document) and pattern recognition on key words and phrases.

Data science: processing, visualization and text analytics Quantitative Methods

A client who has known future obligations may want the portfolio built around them. That is liability-driven investment: the risk objective is to minimize the chance of failing to meet the payments, and a pension plan might aim to beat the discount rate of its liabilities.

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

Leasing, licensing arrangements and franchising are different, but all are like subscriptions in that they involve recurring payments for the transfer of property or access to it, not a product.

Pricing and revenue models Corporate Finance

A secured bond adds a legal claim on specific assets. That claim is called a lien or a pledge, and the assets are the collateral.

Bond indentures and covenants Fixed Income

These life-cycle cash flow patterns are tendencies, not laws. A growth company with negative CFO is normal for a while, but not forever.

Reading a cash flow statement: sources, uses and common-size Financial Statement Analysis

Life cycle. The life-cycle stage (start-up, growth, maturity or decline) changes growth and risk.

Choosing a peer group for multiples Equities

If a LIFO company sells more units than it buys, old, cheap layers flow into cost of sales. That LIFO liquidation temporarily inflates profit and gross margin, and it cannot be repeated once the layers are gone.

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

The LIFO reserve is the amount by which FIFO inventory would exceed LIFO inventory, disclosed by US companies using LIFO.

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

The funds are open mainly to institutions and accredited investors, individuals who meet income or net worth tests. That limit is why hedge funds fall under light regulation: fewer rules on what they may hold, how much they borrow, and how much they disclose.

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

Start with the prior probability, your view of the event before the news; it is also called the a priori or ex ante probability. The likelihood is how probable the news is if the event is true.

Bayes' theorem: updating a probability with new information Quantitative Methods

Because it is uncertain you borrow a proportion based on the likelihood of exercise, which is closely tied to moneyness.

Option price bounds and replication vs forwards Derivatives

A limit order sets a price boundary: a buy limit gives the most you will pay, a sell limit the least you will accept.

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

Unfilled limit orders wait in the limit order book. Buy limits sit on the bid side at lower prices and sell limits on the ask side at higher prices.

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

Auditors give an independent opinion on whether statements are fairly presented. In the United States, large listed companies also receive an opinion on internal control over financial reporting.

Why managers misreport, and what stops them Financial Statement Analysis

The limitations of parametric VaR all come from its assumptions.

Value at risk from the normal distribution Quantitative Methods

Limitations of ratio analysis also include a simple one: "good" ranges differ by industry, and even steady ratios deserve a question, because consistency can come from accounting policies chosen to smooth earnings.

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

A limited company is a separate legal person with limited liability for every owner. Ownership is divided into shares that are easy to transfer.

Organizational forms of businesses Corporate Finance

Shareholders never owe more than they put in, because of limited liability.

Equity and debt as options on the firm Derivatives

A limited liability partnership (LLP) has no general partner. Every partner has limited liability and the partners share management.

Organizational forms of businesses Corporate Finance

The limited partner (LP) is an outside investor. Each LP owns a fraction of the partnership based on its investment and the partnership terms.

Ownership structures: general and limited partners Alternative Investments

Unlike normal buy-side work, the research does not stay private. It goes first to the firm's limited partners (the investors in its fund) and then to the public.

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

A limited partnership needs at least one general partner (GP), who usually manages and has unlimited liability.

Organizational forms of businesses Corporate Finance

The limited partnership agreement (LPA) is the rulebook. It covers how profits and losses are distributed, the manager's investment criteria and limits, and the terms for transfers, withdrawals and dissolution.

Ownership structures: general and limited partners Alternative Investments

The limits of annualizing come from its one assumption: the same return can be earned again and reinvested. It stretches a short period's result over a full year.

Annualized and continuously compounded returns Quantitative Methods

In the lin-log model (also called linear-log) only X is in logs. Equal percentage rises in X give equal absolute rises in Y, so the effect of each extra unit of X fades as X grows.

Functional forms: log-lin, lin-log and log-log models Quantitative Methods

Each USD 1 move in S_T changes the payoff by exactly USD 1 per barrel, in both directions. That straight-line shape is why forwards, futures and swaps are called linear derivatives.

Forward contracts: payoff for the long and the short Derivatives

Comparable bonds rarely have exactly the target's maturity, so draw a straight line between the yields on either side and read off the target's maturity. This is linear interpolation.

Matrix pricing Fixed Income

Y is linear in the parameters (X may be transformed, lesson 6)

The four regression assumptions and what residual plots reveal Quantitative Methods

Liquid alternatives are mutual funds and exchange-traded funds that use traded securities and quantitative tools to imitate hedge fund styles such as long/short equity, market neutral and event-driven.

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

The cash reserve ratio and liquid asset requirement show banking liquidity and reflect monetary and regulatory requirements.

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

A liquidating dividend is a return of capital rather than a distribution of earnings. A company uses one when it winds up and distributes its net assets, or when it sells part of its business and pays out the proceeds.

Dividends, share repurchases, stock splits and the dividend timetable Equities

Liquidation costs are the fees, commissions and price discount that come with a quick sale. Net proceeds are the fair value less those costs, summed over everything sold.

Liquidity sources and liquidity ratios Corporate Finance

A liquidation preference payout is a set cash amount paid to preference holders before anything goes to common holders if the company is liquidated.

Common shares and preference shares Equities

Compare the assets that become cash soon with the obligations due soon. Liquidity is the ability to meet short-term commitments.

Common-size balance sheets, liquidity and solvency ratios Financial Statement Analysis

A liquidity gate limits the share of the fund that can be redeemed at one time, so assets can be sold over a longer period.

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

Bonds: the default risk premium (the borrower may not pay in full and on time), the liquidity premium (selling quickly costs you a discount) and the maturity risk premium (long bonds lose more value when rates rise).

Required return: risk-free rate, inflation and risk premia Quantitative Methods

Liquidity ratios compare assets that turn into cash soon with bills due soon. They describe a position at one date, so they use year-end balances, not averages.

Liquidity and solvency ratios: can the company pay? Financial Statement Analysis

Liquidity requirements are the expected and unexpected withdrawals from the portfolio. For an individual: healthcare, tuition, a house deposit, a tax bill.

IPS constraints: liquidity, time horizon, taxes, legal and unique circumstances Portfolio Construction

Liquidity risk is a divergence in cash-flow timing. Daily settlement of futures takes cash out each day, while the hedged item may not pay until later.

Derivative risks: leverage, basis, liquidity, counterparty and systemic Derivatives

The liquidity spectrum ranks the wrappers from least to most liquid.

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

The liquidity spread turns the bid–offer gap into yield terms. A lower bid price means a higher bid yield, so subtracting the offer yield gives a positive number.

What drives credit spreads Fixed Income

Extra money then neither lowers rates nor lifts activity, and policy can become completely ineffective. A liquidity trap is typically associated with deflation.

The neutral rate and the limits of monetary policy Economics

Listed infrastructure (shares and funds of listed infrastructure companies) is liquid and priced daily, but it behaves more like equities and is a small, clustered part of the market.

Infrastructure risk, return and diversification Alternative Investments

To list and stay listed, a company must meet the listing requirements of its exchange: a minimum market value, sales or profits, a minimum number of shareholders, and standardized financial and non-financial disclosure such as audited reports.

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

Expect errors in reading or reporting metrics. This is the LLM accuracy risk.

Large language models and generative AI in finance Quantitative Methods

Their ratio, the load factor, is the airline industry's measure of capacity utilization. Cost per available seat kilometer (CASK) compares cost levels across airlines of different sizes.

Competitive strategy: cost leadership, differentiation and focus Equities

A load fund charges a percentage fee on buying and/or on redeeming, and usually sells through brokers who share the up-front fee.

Mutual funds, ETFs and other pooled investment products Portfolio Construction

Both are borrowing with a promise to pay interest and repay principal. A loan is a private agreement, usually between a borrower and a bank.

The features of a bond Fixed Income

When a loan is secured on property, the lender watches the loan to value (LTV) ratio: the loan outstanding divided by the value of the collateral.

Private debt: direct lending, mezzanine, venture and distressed debt Alternative Investments

A mortgage must meet a loan-to-value limit to enter the pool, and a loan that breaches it is swapped for one that qualifies.

Covered bonds Fixed Income

Two ratios carry most of the weight. The loan-to-value ratio measures the equity cushion in the property.

Residential mortgage loans: the features that matter Fixed Income

Local requirements and firm policy come first. Meeting them satisfies Standard V(C).

Standard V(C): Record Retention Ethical and Professional Standards

The logistic distribution is a symmetric bell with an S-shaped cumulative curve. It has a location parameter μ, which is its mean, and a scale parameter s.

Continuous distributions: uniform, normal and logistic Quantitative Methods

During the lockout period, also called the revolving period, the principal that cardholders repay is used to buy new receivables, so the pool stays about the same size.

Credit card, auto loan and solar ABS Fixed Income

A lockup is an initial period in which investors cannot redeem. A liquidity gate limits the share of the fund that can be redeemed at one time, so assets can be sold over a longer period.

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

A lockup period is the minimum holding period before an investor may withdraw. It gives the manager time to carry out the strategy.

Leverage, redemptions, lockups and gates Alternative Investments

The log return, also called the continuously compounded return, over several periods is the sum of the single-period figures, because growth factors multiply and logs turn products into sums.

Why asset prices are log-normal Quantitative Methods

In the log-lin model (also called log-linear) only Y is in logs.

Functional forms: log-lin, lin-log and log-log models Quantitative Methods

In the log-log model both variables are in logs.

Functional forms: log-lin, lin-log and log-log models Quantitative Methods

The log-normal distribution is defined through it: a variable $Y$ is log-normal when its natural log, $\ln Y$, is normal, and the reverse also holds.

Why asset prices are log-normal Quantitative Methods

The logistic distribution is a symmetric bell with an S-shaped cumulative curve. It has a location parameter μ, which is its mean, and a scale parameter s.

Continuous distributions: uniform, normal and logistic Quantitative Methods

The buyer holds the long forward: a position that gains when the underlying rises.

Forward contracts: payoff for the long and the short Derivatives

The buyer of the future earns the reference rate and gains when it falls: long futures gains when rates fall. The seller pays the rate and gains when it rises.

Interest rate futures: the 100 minus rate convention Derivatives

The buyer of a derivative holds a long position: its value moves like owning the underlying. The seller holds a short position, with exposure like a short sale.

What a derivative is Derivatives

It is built on a transformer, a network design that handles long-range dependencies: how words far apart in a text relate to each other, which is what gives text its context and meaning. The model picks out the most relevant parts of an instruction or document and, drawing on what it learned, produces whole sentences and longer passages…

Large language models and generative AI in finance Quantitative Methods

Tracing the lowest cost at every output gives the long-run average total cost (LRAC) curve: the envelope that hugs the bottom of all the short-run smiles.

Economies and diseconomies of scale Economics

This is long-run equilibrium: no firm wants to enter or leave, and no firm can earn more by changing its output. Compare it with perfect competition.

Monopolistic competition: price, output and the long run Economics

The equity reinvestment rate is the share of net income that stays in the business after borrowing is counted, and long-run FCFE growth is that share earning the return on equity.

Why two analysts using the same model get different values Equities

A long-term contract that meets an over-time test is recognized this way.

Revenue recognition: the five-step model Financial Statement Analysis

The debt-to-equity ratio, long-term debt-to-equity, the total debt ratio and the financial leverage ratio all rise as the company borrows more.

Common-size balance sheets, liquidity and solvency ratios Financial Statement Analysis

Long-term financial liabilities are borrowings from banks, and notes and bonds issued to investors. Leases and post-employment obligations are also non-current liabilities, taken up in the long-term liabilities and equity module.

Non-current liabilities: bonds at amortized cost and deferred taxes Financial Statement Analysis

The second is the long-term growth rate, which should be compared with the growth of the economy. A few companies with a durable edge can outgrow the economy for many years, taking a rising share of output.

The forecast horizon, normalized earnings and long-term forecasts Financial Statement Analysis

The simplest case is the two-stage growth model. It gives the company two growth rates: a short-term growth rate g_s for a finite number of periods $n$, and a long-term growth rate g_l forever after.

Two-stage (multistage) growth models Equities

Typical uses are portfolio risk across many assets, options on more than one underlying, and hedges. A long–short position holds one asset and sells another short.

Simulating two correlated assets: the Cholesky step Quantitative Methods

Outliving one's financial resources. Insurers and pension plans can rely on group averages, but an individual cannot know the date, so someone in a defined contribution plan must make assets last.

Financial and non-financial risks, and how they interact Portfolio Construction

The first is the probability of default (POD), usually stated for one year. The second is the loss given default (LGD).

Credit risk: probability of default and loss given default Fixed Income

The recovery rate (RR) is the percentage of the claim recovered. The part that does not come back, 1 − RR, is the loss severity.

Credit risk: probability of default and loss given default Fixed Income

When averaging past P/Es, leave out the loss years in a multiple average: a negative P/E is not meaningful.

Trailing, current and forward multiples Equities

Loss-aversion bias is the strong preference for avoiding losses over achieving gains. People judge outcomes from a reference point, usually the price paid.

Emotional biases: loss aversion, overconfidence and four more Portfolio Construction

They usually show low correlation with traditional assets. That is the diversification appeal, and it comes alongside the hope of higher expected returns.

What makes an investment alternative: features and categories Alternative Investments

Their return drivers differ from those of stocks and bonds, so their low historical correlation with traditional assets pointed to a potential diversification benefit.

Digital assets: risk, return and diversification Alternative Investments

A high-beta stock has a beta above 1 and swings more than the market. A low-beta stock has a beta below 1 and swings less.

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

The exception is a low-cost producer, whose costs sit well below those of the marginal producer. It can earn above its cost of capital, but only for as long as the cost lead survives.

Revenue drivers and pricing power Equities

The low-value asset exemption covers items worth about USD 5,000 or less when new, such as laptops and small office equipment, and exists only under IFRS.

Leases: finance vs operating and lessee accounting (IFRS vs US GAAP) Financial Statement Analysis

For an option it only builds a fence: a lower bound and an upper bound. These no-arbitrage bounds follow from the option's payoff.

Option price bounds and replication vs forwards Derivatives

The rule, lower of cost and net realizable value, compares cost with NRV. It is applied item by item, or to groups of similar or related items.

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

The old lower of cost or market test survives only for inventories measured with LIFO or the retail method. There, market is built from replacement cost, the amount it would cost to buy or make the same goods now, and a normal profit margin.

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

An associate notices a valuation that flatters the results but stays quiet, because the manager is respected and everyone else seems comfortable. Loyalty and the bystander effect have both done their work.

Challenges to ethical behavior, and ethical vs legal standards Ethical and Professional Standards

A manager recommends a fund because it pays him a larger fee, not because it fits.

Cases on market integrity and duties to clients Ethical and Professional Standards

Loyalty to the employer covers matters related to the job. It stops at law and ethics, and it ranks below clients and markets, but it covers the firm's records, models and clients.

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