Break through for the 2014CFA Level II ExamCFA Level II Exam

Agenda

CFA Exam Fast Facts & ChallengesCFA Exam Fast Facts & Challenges

Why Candidates Fail?

Exam Forecast & Program Highlights

Q&AQ

Few while important words to L2 Candidates

CFA Level 2 Exam is challenging but not that threatening Simply reading Schweser Notes will not be p y gsufficient enough to pass the examsHaving a big picture in your mind is veryHaving a big picture in your mind is very necessaryAfter studying level two you are equivalent to aAfter studying level two you are equivalent to a finance master degree graduate

Let’s get the ball running

Level II Challenges

Why Level II is a big ChallengePerspective from the Pass RatesPerspective from the Pass Rates

Year Level 2 Pass Rate(Exam Actually Taken)

2005 2006

56%48%2006

2007 2008 2009

48%40%46% 41%2009

201020112012

41%39%43%42%2012 42%

Why Level II is a big ChallengePerspective from the Pass Rates

Around 40% recently

Body of Knowledge

• Ethical and Professional Standards

Q tit ti M th dInvestment

Tools

• Quantitative Methods• Economics• Financial Statement Analysis• Corporate Finance

• Analysis of Equity InvestmentsAsset

Valuation

Analysis of Equity Investments• Analysis of Debt Investments• Analysis of Derivatives• Analysis of Alternative Investments

• Portfolio Management and Performance P tf li

• Analysis of Alternative Investments

Portfolio Management and Performance Presentation Portfolio

Management

考试内容

Why Level II is a big ChallengePerspective from the Content

Exam Topic Focus Learning FocusExam Topic Focus Learning FocusLevel I Investment Knowledge

Tools and Ethical Standardsoo s a d t ca Sta da ds

Level II Asset Application ppValuation and Ethical Standards

Level III Portfolio Synthesis and Management Ethical Standards

Why Level II is a big ChallengePerspective from the Exam Format

How is Level 2 Different from Level 1?Level 1 is “building block” for Level 2 (like a prerequisite for a university course)Le el 1 command ords “define ” “e plain ” “describe ”Level 1 command words: “define,” “explain,” “describe,” “calculate”Level 2 command words: “analyze,” “formulate,” “evaluate,”Level 2 command words: analyze, formulate, evaluate, “contrast,” “modify,” “demonstrate,” “illustrate”Questions can address combined LOS

2013 Level 2 Exam Format

120 “selected response” questions (more commonly known as multiple choice)Grouped into six-question “item sets”1 i t 1 i t 3 i t ti 18 i t1 minute = 1 point; 3 minutes per question; 18 minutes per item set; 360 minutes (6 hours) for exam60 Q’s (10 item sets) in 3-hour AM session60 Q s (10 item sets) in 3-hour AM session60 Q’s (10 item sets) in 3-hour PM session

2013 Topic Area Weights

Topic % Item SetspEthics 10% 2Quantitative Methods 5 - 10% 1 - 2Economics 5 - 10% 1 - 2Financial Statement Analysis 15 - 25% 3 - 5Corporate Finance 5 - 15% 1 - 3Equity 20 - 30% 4 - 6Fixed Income 5 - 15% 1 - 3Derivatives 5 - 15% 1 - 3Alternative Investments 5 - 15% 1 - 3Portfolio Management 5 - 15% 1 - 3

Exam Major Focus - Cannot follow?

Do not Worry, will covered during revision course

Exam Forecast: Ethics (2 Item Sets)

Standards of Practice is the same as Level 1 (and this is also the key to success at Level 2)(and this is also the key to success at Level 2)

Al i l d P d t I t R l S ftAlso includes Prudent Investor Rule, Soft Dollar Standards, and Research Objectivity St d dStandards

Ethics

The most important topics are (1) soft dollars t (2) fid i d ti (i l diarrangements, (2) fiduciary duties (including

the prudent man vs. prudent investor rules), d (3) R h Obj ti St d dand (3) Research Objective Standard.

However, in one item set you must be well acquainted with the Standards of Professional qConduct. Be ready for a random sampling of topics.p

Quant (1 - 2 Item Sets)

Correlation Analysis (Simple and y ( pStraightforward)Simple Linear regression with oneSimple Linear regression with one independent variable (the basics)Multiple Regression with more than oneMultiple Regression with more than one independent variable (basics again plus model misspecification and problems with regression)misspecification and problems with regression)Time Series Analysis (observations over

i ti i d thl t ksuccessive time periods; e.g. monthly stock returns, quarterly revenue data)

Economics (1 - 2 Item Sets)

Currency Exchange Rate determination and y gforecasting

International Finance (FX markets, Spot Vs Forward, parity conditions, arbitrage)Balance of PaymentCarry TradeCarry TradeMonetary and Fiscal policies on exchange rate

Determinants of Economic growthDeterminants of Economic growthGrowth Theories

Government RegulationGovernment Regulation

Financial Statement Analysis (3 - 5 Item Sets)

Inventory Valuation and Long-term AssetIntercorporate Investment (Cost method vs equity method vs consolidation vs proportionate q y p pconsolidation)Employee compensation：Defined contributionEmployee compensation：Defined contribution plan, defined benefit plan; share based compensationcompensationMultinational Operations: FX translationE i Q lit d t i bl h flEarnings Quality and sustainable cash flowIntegration of Financial Statement Analysis Techniques

Corporate Finance (1 - 3 Item Sets)

Capital Budgeting (evaluating projects with p g g ( g p jNPV)Capital Structure (optimal capital structure;Capital Structure (optimal capital structure; lots of theory)Dividend Policy (optimal dividend policy)Dividend Policy (optimal dividend policy) and Share Repurchase analysisC t GCorporate GovernanceMerger and Acquisitions (Quantitative Questions)

Equity (4 - 6 Item Sets)

Equity Valuation: Applications and Processes Return ConceptsReturn ConceptsPorter’s Competitive Strategy ModelYour strategy needs a strategy(new)Industry and company analysis(new)y y y ( )Dividend Discount ModelsFree cash Flow ModelsFree cash Flow ModelsMarket-Based Valuation: Price and Enterprise Value MultiplesValue Multiples Residual Income Model and EVAPrivate Company Valuation

Alternative Investments (1 - 2 Item Sets)

Private Real Estate Investments Publicly Traded Real Estate SecuritiesPublicly Traded Real Estate Securities Private Equity Valuation Investing in Hedge Funds: A Survey A primer on commodity investing (new)

There are basically two things you can see here The first isThere are basically two things you can see here. The first is venture capital. The likely scenario is a question from the viewpoint of a pension fund portfolio manager.

The second possible topic is real estate. In real estate, you will see either a numerical real estate valuation problem orsee either a numerical real estate valuation problem or discussion problem of the value of real estate as a diversification tool for an equity portfolio. Be ready for either

Fixed Income (1 - 3 Item Sets)

Credit analysis models (modified)Term Structure TheoriesValuing Callable Puttable Convertible bondsValuing Callable, Puttable, Convertible bonds (the binomial model)Mortgage backed and Asset backed SecuritiesMortgage-backed and Asset-backed Securities (different types of MBS and ABS and their features)features)Valuing Mortgage-Backed and Asset-Backed S itiSecurities

Derivatives (1 - 3 Item Sets)

Valuation of:Forward Markets and Contracts Futures Markets and Contracts Options Markets and ContractsSwaps Markets and ContractsInterest Rate Derivative Instruments Credit Default Swaps (modified)

Portfolio Management (1 - 3 Item Sets)

Portfolio concepts: CAPM and APT, Multi-Factor p ,ModelsResidual Risk and Return: The Information RatioResidual Risk and Return: The Information Ratio (new)The Fundamental Law of Active ManagementThe Fundamental Law of Active Management

(Treynor-Black model) (modified)P tf li M t P (i t t L l 3)Portfolio Management Process (intro to Level 3)

Solution to Success: Find An Effective Study Strategyy gy

Points about The CFAI Curriculum Book

Remember:Remember:

• They are not Schweser Study Notes• They are not Schweser Study Notes- Repackaged textbook readings as set by CFA

InstituteInstitute- Equally voluminous and unwieldy as previous

volumes, which used to be for separate purchase, p p

Study Approach

1. Attend class and make notes in slide packs

2. Practice questions in the 3 lid knotes in slide packs 3. slide packs

4. Practice Mock Exams 3. Work through study material further annotating slide packs

Mock Exam & Review

T t i t t BOK• Target important BOK • Dry run for the real exam• Find weak areas• Focus additional reviewFocus additional review• Time management and techniques

The EndThe End！！The EndThe End！！

Q&AQ&AQQ