2015 l1 cumulative index

8/20/2019 2015 L1 Cumulative Index

1/96

Level I Curriculum Index

I

A

AAII. see American Association ofIndividual Investors

AAR. see average accounting rate ofreturn

Abbott Laboratories, 4:90, 91; 5:213, 602Abercrombie & Fitch, 1:438Abermarle Corporation, 1:438ABG Gas Supply LLC, 3:608abilities, board members’, 4:200–201

implications for investors, 4:200information about, 4:201investor considerations, 4:200–201

ability to take risk, investors’, 4:397–399abnormal profit, 2:98abnormal returns, 5:124

ABP (pension fund), 4:414–415ABS. see asset-backed securitiesabsolute advantage, 2:433–440absolute dispersion, 1:402absolute frequency, 1:367absolute priority rule, 5:468absolute return

in alpha-seeking strategies, 6:155–156of hedge funds, 6:166

absolute risk objectives, 4:396absorption approach to trade balance,

2:535–536Abu Dhabi Investment Authority, 4:249academic designations, order of, 1:176accelerated book building, 5:50accelerated methods of depreciation,

3:175–177, 436acceptance region, test statistic, 1:612access, short-term borrowing strategy

and, 4:177account information, regular statements

of, 1:77accounting

accrual, 3:69, 598–599cash-basis, 3:598–599

Accounting and Auditing EnforcementRelease (SEC), 3:599–601

Accounting and Corporate RegulatoryAuthority, 3:103, 115

accounting choicesaggressive

and bias in application of accountingstandards, 3:582–583

conservative vs., 3:578–583defined, 3:570

biased, 3:570–576, 578conservative, 3:578–583

aggressive vs., 3:578–583bias in application of accounting

standards, 3:582–583defined, 3:570in extractive industries, 3:579–580losses in, 3:578–579

and deferred-tax assets, 3:600–601earnings management with, 3:576financial reporting issues, 3:596–613

cash ow statements, 3:606–609earnings and balance sheets,

3:596–606accounting costs, 2:97–98accounting equation, 3:12accounting estimates, 3:598–599accounting goodwill, 3:234accounting loss, 2:97accounting policies

changes in, 3:136–138disclosures relating to, 3:135–138

accounting process, 3:51–68financial statements in, 3:65–68Investment Advisers Ltd. case study,

3:51–68records in, 3:53–65

accounting profit, 2:97–98, 100–101defined, 3:474taxable income vs., 3:474–479

and current tax assets/liabilities,3:475–476

and deferred tax assets/liabilities,3:476–479

taxable profit vs., 3:484–489and business combinations/deferred

taxes, 3:488and investments in subsidiaries,

branches, associates, andinterests, 3:489

temporary differences, 3:484–489accounting records, 3:53–65Accounting Regulatory Committee,

3:111accounting scandals, 3:566accounting standards

biased application of, 3:582–583and ROE, 3:634–636

Accounting Standards Board of Japan,3:113

accounting standards boards, 3:104–106attributes of, 3:106Financial Accounting Standards Board,

3:105–106International Accounting Standards

Board, 3:104–105 Accounting Standards Codication

(FASB), 3:106Accounting Standards Update, 3:137Expenses: Compensation–Retirement

Benefits, 3:635General Electric disclosures, 3:137

Accounting Standards Update (ASU),3:137

accounting systems, 3:71–73debits and credits, 3:72–73, 76–92ow of information in, 3:72Investment Advisers Ltd. case study,

3:76–92account reviews

firm policies on, 1:77regular, 1:94systematic, 1:86

accountsbalance of payments, 2:456–457, 463–4with beneficial ownership, 1:158, 159family, 1:80, 158, 160–161on financial statements

contra, 3:44, 219defined, 3:44doubtful, 3:173, 611equations for, 3:46–51, 47–51as financial statement elements,

3:44–46on income statements, 3:47, 48-accounts, 3:76–92tax asset valuation, 3:612types of, 3:45uncollectible, 3:599–600

in FX market, 2:498–499in performance calculations, 1:100accounts payable

in accrual accounting, 3:70as current liability, 3:226

accounts payable management, 4:171–17cash disbursements, 4:174evaluating, 4:174trade discounts, 4:173–174

accounts receivableas current assets, 3:219–221defined, 3:46and financial reporting quality, 3:614

accounts receivable aging schedule,4:166–167

accounts receivable management,

4:160–167customers’ receipts, 4:163–165evaluating, 4:165–167trade granting process, 4:162–163

accounts receivable turnover, 4:146accredited individuals, 4:264n.21Accredited Investors, 6:158n.14accrual accounting

cash-basis vs., 3:598–599defined, 1:236Input Data (GIPS Section I.1), 1:209revenue recording under, 3:69

accruals, reporting of, 3:69–71accrued expenses

as current liability, 3:226reporting, 3:70–71

accrued interest, 1:348; 5:401–404accrued revenue, 3:70accumulated depreciation, 3:44accumulated other comprehensive

income, 3:242–243Acer Inc., 3:323–325; 5:209ACH. see Automated Clearing Houseacid-test ratio, 4:146acquisition, of long-lived assets, 3:426–4

accounting for, 3:426–428and financial reporting issues, 3:606intangible assets, 3:431–435property, plant, and equipment,

3:428–431


2/96

I-2 Level I Curriculum Index

action lag, 2:402actions

investment ( see also InvestmentAnalysis, Recommendations, andActions [Standard of ProfessionalConduct V])

fair dealing in, 1:83–84firm policies on, 1:77impact of, 1:12–13unethical, 1:29

personal, 1:55actions of other shareowners, rights

pertaining to, 4:228active crawling peg currency regime,

2:525–526active investment strategies

industry analysis in, 5:188information-acquisition costs for,

5:123–124and market effi ciency, 5:117

actively managed funds, 4:260active management, 6:150, 155active portfolio management

information-motivated trading in,5:10manager performance, 5:129manager selection, 5:116security market indices in, 5:94–95

active portfolios, capital market line for,4:346

active returns, 5:116active strategies

borrowing, 4:177short-term investing, 4:157–158

activist shareholders, 4:125activist strategy, hedge fund, 6:163activity ratio(s), 2:314; 3:339–346

calculation of, 3:340–342in company analysis, 5:230–231

defined, 3:340–341evaluation of, 3:343–346interpretation of, 3:342–346

fixed asset turnover, 3:345inventory turnover and DOH,

3:342–343payables turnover and number of

days of payables, 3:344receivables turnover and DSO,

3:343–344total asset turnover, 3:345working capital turnover, 3:345

AD. see aggregate demandADB. see Asian Developmental BankADC elecommunications, 4:237AD curve. see aggregate demand curveAdditional Compensation Arrangements

[Standard IV(B)], 1:116–117application of the standard,

1:116–117compliance procedures, 1:116guidance, 1:116text of, 1:18, 116

additional information, 1:236addition rule for probabilities,

1:465–466add-on rates, 5:416–419adequate compliance procedures,

1:120–121adjustable-rate mortgages (ARMs), 5:471

adjusted consolidated segment operatingincome (adjusted CSOI),3:592–595

adjusted EBIDA, 3:591–592adjusted funds from operations (AFFO),

6:192ADM. see Archer Daniels Midlandadministrative costs, 2:453–454administrative fee, 1:236ADRs. see American Depository

ReceiptsADSs. see American Depository SharesAD Security Services, Inc., 5:199, 200advanced economies, trade-to-GDP

ratio for, 2:426Advanced Micro Devices, 5:209advance notice provisions, 4:226adverse audit opinion, 3:28adverse selection, with insurance, 5:34advertisements. see also GIPS

Advertising Guidelines (GIPSSection III)

defined, 1:230

information included in, 1:230advisers, selecting, 1:129advisory proposals, shareowners’, 4:226Aegis Value Fund, 1:407aerospace industry, governmental

inuences on, 5:225–226AFDB. see African Development Bankaffi rmative covenants, 3:525; 5:307, 606AFFO. see adjusted funds from

operationsAfghanistan, 3:115Africa

debt and equity outstanding, 5:344and IFRS, 3:115industrial comparative ratio analysis,

5:596–597

institutionally owned real estate, 6:185terms of trade for, 2:423, 424 ( see also

specic regions and countries)African Development Bank (AFDB),

2:499; 5:366after-tax cost of debt, 4:43after-tax nominal return, 4:282agency bonds, 5:365–366agency problems, with market

regulation, 5:61agency RMBS, 5:473–474. see

also collateralized mortgageobligations (CMOs); mortgagepass-through securities

agent options, 1:154agents, trustee, 5:464aggregate demand (AD), 2:17–19,

227–238and AD curve, 2:235–238and business cycle, 2:295–297defined, 2:227and fiscal policy, 2:386–387and global recession (2007-2009),

2:256–257and imports/exports, 2:424–425and inationary gap, 2:258investment strategies for decrease in,

2:255investment strategies for increase in,

2:258

IS curve, 2:227–234LM curve, 2:234–235and recessionary gap, 2:254–257shifts in, 2:240–247

capacity utilization, 2:243consumer and business expectations,

2:243economic growth, 2:245–246exchange rate, 2:245fiscal policy, 2:243household wealth, 2:241–243monetary policy, 2:243–245

shifts in supply and, 2:260–263aggregate demand curve (AD curve)

example, 2:237–238features of, 2:235–236interest rates and income effects,

2:236–237investment strategies based on,

2:261–262aggregate expenditures, 2:209aggregate income, 2:208–226

in economy, 2:209–210

and expenditures, 2:227–234in gross domestic product, 2:210–226components of, 2:217–221external sector, 2:220–221government sector, 2:219–220household and business sectors, 2:218measuring, 2:210–213nominal and real, 2:214–217and other income measures,

2:221–226 values of goods and services ,

2:213–214real personal, 2:330

aggregate indices, fixed-income,5:99–101, 104

aggregate output, 2:208–226

in economy, 2:209–210in gross domestic product, 2:210–226

components of, 2:217–221external sector, 2:220–221government sector, 2:219–220household and business sectors,

2:218measuring, 2:210–213nominal and real, 2:214–217and other income measures,

2:221–226 values of goods and services ,

2:213–214aggregate price, supply of money and,

2:357–358aggregate real personal income, 2:330aggregate supply (AS), 2:17–20

and AS curve, 2:238–240defined, 2:227and global recession, 2:256–257and imports/exports, 2:424–425investment strategies for shifts in,

2:259–260long-run, 2:239, 249–251in perfectly competitive market, 2:169in real business cycle models, 2:310shifts in, 2:240–241, 247–252shifts in demand and, 2:260–263short-run, 2:238–239, 247–249and stagation, 2:259–260


3/96

Level I Curriculum Index I

aggregate supply curve (AS curve)about, 2:238–240investment strategies based on,

2:261–262long-run, 2:238–240short-run, 2:238–239, 247–249

aggressive accounting choicesand biased application of standards,

3:582–583conservative vs., 3:578–583defined, 3:570and non-GAAP measures in reports,

3:572–573aging schedule, 4:166–167Agnelli Industries, 5:469–470agriculture, 6:194agriculture industry, 2:156–157AIFM Directive. see Directive on

Alternative Investment FundManagers

AIG. see American International GroupAIMR. see Association for Investment

Management and Research

AIMR Performance PresentationStandards (AIMR-PPS), 1:200Airbus

governmental inuences on, 5:225–226in method of comparables, 5:268–269strategic analysis with, 5:207–208, 218

Aircastle Limited, 5:27aircraft manufacturing industry, strategic

analysis of, 5:207–208, 218airline industry

asset-based equity valuation for, 5:276life-cycle stage and business cycle

sensitivity, 5:227–228Air Liquide, 1:397Air Products and Chemicals, 5:209Airran Airways, 2:176

air transportation industry, 2:138, 153–154Akerlof, George A., 1:661Alcatel-Lucent, 3:406–412Alcoa, 5:274Alcon, 3:641Algeria, 2:522Allergan, Inc., 5:602Allianz SE, 1:398; 5:164–165all-in fees, 1:237allocationally effi cient financial systems,

5:59allocations

minimum lot, 1:88–89with safety-first rules, 1:537–539trade allocation procedures, 1:85–86transaction, 1:87–88

allocative effi ciency, 5:116n.2all-or-nothing orders (AONs), 5:47allowance

for bad debts, 3:44for doubtful accounts, 3:611for loan loss reserves, 3:611

alpha, 5:94; 6:155Alpha Natural Resources, 4:362–363alpha-seeking strategies, 6:155–156alternative hypothesis, 1:608, 635alternative inventory costing, 3:171–172alternative investments, 6:149–211

categories of, 6:154–155collectibles, 6:199–200

commodities, 6:193–199derivatives and indices, 6:194–195investment vehicles, 6:195–196performance and diversification

benefits, 6:196–197prices of, 6:197–199

common characteristics, 6:150–154defined, 6:149hedge funds, 6:159–174

about, 6:159–161diversification benefits, 6:164–165due diligence, 6:173–174fees and returns, 6:166–169investment strategies for, 6:162–164and leverage, 6:170–171and redemptions, 6:170–172

valuation issues, 6:172–173historical records of, 6:151markets for, 5:15–16portfolio diversification with, 6:157–158practice problems, 6:208–209private equity, 6:175–184

diversification benefits, 6:181–183

due diligence, 6:184investment strategies, 6:177–181portfolio company valuation,

6:183–184structure and fees, 6:176–177

real estate, 6:184–193forms of investment, 6:186–187investment categories, 6:187–189performance and diversification

benefits, 6:189–191risks with, 6:193

valuation, 6:191–192returns from, 6:155–157risk management, 6:199–205

due diligence with, 6:202–205process, 6:201–202

risk–return measures, 6:203security market indices for, 5:101–104solutions to problems, 6:210–211and traditional investments, 6:157–158

alternative trading systems (ASs), 5:29–30Altria Group Inc., 3:452–453Amaranth Advisors LLC, 6:197AMC. see Asset Manager Code of

Professional ConductAmeren, 5:252American Association of Individual

Investors (AAII), 1:697American call options, 1:527; 5:328American Depository Receipts (ADRs),

1:664; 5:167–168American Depository Shares (ADSs),

5:167American Express, 1:532n.18American Institute of Certified Public

Accountants, 3:180American International Group (AIG),

4:119; 6:32, 33American options (American-style

options)defined, 6:26, 85pricing, 6:104–107

American puts, 5:330American Stock Exchange (AMEX),

4:207; 5:167American-style contracts, 5:24

AmeriCredit Automobile Receivablerust 2013-4, 5:492–493

AmeriGas, 5:210AMEX. see American Stock ExchangeAmgen, 5:209amortisation

of bonds, 3:516–520amortisation of discounts, 3:517–51amortisation of premiums, 3:519–5and interest expense/interest

payments, 3:516–517defined, 3:173and expense recognition on income

statements, 3:177of intangible assets, 3:173–174, 231of long-lived assets, 3:444–445

amortised costs, 3:122, 218–219, 237amortization expenses, 3:444–445amortization provisions, 5:494amortization schedule, residential

mortgage loan, 5:472amortizing bonds, 5:316–317amortizing loans, 5:472, 490–491

AMR Corporation, 3:663–666Amtrak, 2:192analysis of variance (ANOVA), 1:616n.analyst adjustments

to debt, 3:666–668framework for, 3:654for goodwill, 3:660–662for inventory, 3:655–658

and current ratio, 3:657–658with LIFO accounting, 3:655–657

for investments, 3:654–655for off-balance-sheet financing,

3:662–669for plant, property, and equipment,

3:659–660analysts

areas of concern about financialreporting quality, 3:610–613

estimates of value by, 4:6 judgment about financial statement

entries, 3:73–74nonpublic information from, 1:65–66

Andrew W. Mellon Foundation, 4:247Anglo American, 5:274AngloGold Ashanti, 5:274Anheuser-Busch, 3:434–435Anheuser-Busch InBev SA/NV, 1:398;

3:434–435, 640–642; 5:200annual coupon rate, 5:392annualized convexity, 5:543annualized return(s), 1:263–265;

4:279–280annualized yield measures, 5:407–408annual modified duration, 5:524–526annual percentage rate (APR), 1:287n.6annual percentage yield (APY), 1:287nannual reports, 3:109, 571; 4:201, 206,

209annual share turnover, 1:400Annual Statement Studies (Risk

Management Association), 3:330annuities. see also ordinary annuities

defined, 1:288future value of, 1:288–290lump sums to fund, 1:309–310size of annuity payments, 1:305–309


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annuity due, 1:288, 295–297anomalies, market. see market anomaliesANOVA. see analysis of varianceAnson, Mark, 4:191n.5anticipation stock, of inventory, 4:169antidilutive securities, 3:192–193Antigua, 2:522antitrust policies, 2:180, 193–194

ANZSIC. see Australia and New ZealandStandard Industrial Classification

AON Corporation, 1:434AONs. see all-or-nothing ordersAPs. see authorized participantsAPC. see average propensity to consumeApollo Group, 5:210Appendices, IPS, 4:395Apple Inc., 4:362–363

accounts receivable, 3:219–220balance sheet components, 3:214cash ow analysis of comparables,

3:305change in accounting standards,

3:181–183cross-sectional common-size analysis,

3:252–254current assets, 3:218current liabilities, 3:225deferred revenue, 3:226–228deferred tax assets, 3:224deferred tax liabilities, 3:241earnings announcements, 3:8–9equity, 3:244financial assets, 3:239goodwill, 3:236and international trade, 2:430inventory valuation, 3:221, 222marketable securities, 3:219non-current assets, 3:229non-current liabilities, 3:240

and revenue recognition on incomestatements, 3:167–168statement of changes in equity,

3:244–246strategy and financial performance,

3:321–322, 629–633war chests, 3:633

Apple V, 3:181–182applicable law

and Code/Standards, 1:22–23on confidentiality, 1:102in firm policy, 1:77global, 1:24–25and investment products, 1:23–25providing information on, 1:27

applications of financial statement

analysis, 3:627–674analyst adjustments

to debt, 3:666–668framework for, 3:654for goodwill, 3:660–662for inventory, 3:655–658for investments, 3:654–655for off-balance-sheet financing,

3:662–669for plant, property, and equipment,

3:659–660credit risk assessments, 3:647–650

Moody’s rating factors, 3:648–649peer comparison ratios, 3:650

equity screening, 3:650–654example, 3:651ratio-based, 3:653–654

financial performance evaluations,3:629–637

accounting standards and ROE,3:634–636

and changes in business strategy,

3:629–633and war chests, 3:633

financial performance projections,3:637–646

consistency of forecasts, 3:646example, 3:644–645forecasting operating profit,

3:639–640issues with, 3:640–643with market-based valuation,

3:638–643for multiple periods, 3:643–646

practice problems, 3:671–673solutions to problems, 3:674

Applied Materials, 5:209appraisal indices (real estate), 6:189–190appreciation, currency, 2:506approval, for outside compensation,

1:117approximate modified duration,

5:524–527APR. see annual percentage ratea priori probability, 1:460APs. see authorized participantsAP. see arbitrage pricing theory APY. see annual percentage yieldarbitrage, 1:63; 4:264

bounds of, 5:123commodities, 6:198–199defined, 6:47in derivatives pricing, 6:47–52, 66–72

executing, 6:67with forward contracts, 6:50frequency of arbitrage opportunities,

6:67and hedge funds, 6:162–164limits to, 6:70and market effi ciency, 5:123and put–call parity, 6:97and relative valuation, 6:48–49and replication, 6:68–69risk, 6:50n.24with stocks and risk-free bonds, 6:48–49triangular, 2:508

arbitrage-free pricing, 6:70arbitrage pricing theory (AP), 4:381arbitrageurs, 5:34–36, 123

arc elasticity, 2:46ArcelorMittal, 1:397; 5:603, 605Archer Daniels Midland (ADM), 1:715,

719; 2:193Argentina

discipline for financial reportingquality in, 3:585

exchange rate regime, 2:522, 525foreign direct investment, 2:427, 428IFRS adoption, 3:114ination-linked bonds, 5:324, 363MERCOSUR, 2:448MSCI multi-market index, 5:96municipal debt, 5:630

Ariane space program, 5:225arithmetic mean, 1:378–382

and coeffi cient of variation, 1:415–416as cross-sectional mean, 1:380–381defined, 1:372n.9, 378and geometric, 1:391–394and median, 1:383–385as population mean, 1:378–379

properties, 1:381–382sample mean, 1:379–381using, 1:429–430and weighted mean, 1:388n.19

arithmetic return, 4:273–274Armenia, 3:115Armitage, Seth, 4:63ARMs. see adjustable-rate mortgagesArms index, 1:700–702Arngrove Group Holdings, 3:179Arnott, Robert, 4:132n.28Art Market Research, 6:200AS. see aggregate supply ASA, 3:609Asahi Breweries, 3:633ascending price auction, 2:27ascending triangle pattern, 1:684AS curve. see aggregate supply curveASEAN. see Association of Southeast

Asian NationsAsia. see also specic countries

capitalization level and contributionsto global GDP, 5:151

current account imbalance, 2:466debt and equity outstanding, 5:344discipline for financial reporting

quality in, 3:585effects of global recession, 2:256–257financial crisis (1997-1998), 2:378, 429and IFRS, 3:115institutionally owned real estate, 6:185

regular cash dividends, 4:113reverse stock splits, 4:119terms of trade, 2:423trade-to-GDP ratio, 2:426

Asia 50 ADR Index Fund, 5:168Asian call options, 1:546–547Asian Developmental Bank (ADB), 5:366Asian Financial Crisis (1997-1998),

5:164Asian-Pacific Aggregate Bond Index,

5:351Asia Pacific Association for Fiduciary

Studies, 1:205ask price(s), 5:44; 6:10n.3, 172ask sizes, 5:44ASML, 1:397

ASML Holdings NV, 5:200–202Asociación Española de Presentación de

Resultados de Gestión, 1:205asset(s)

on balance sheets, 3:212, 236–239and classification of markets, 5:14–16as collateral, 5:606in Conceptual Framework, 3:120currencies, 5:19–20current

and accounting profit vs. taxableincome, 3:475–476

on balance sheets, 3:215, 217–224defined, 3:46


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debt-to-assets ratio, 3:352, 353, 552deferred tax

accounting choices about, 3:600–601accounting profit vs. taxable income

for, 3:476–479changes in tax rates, 3:483–484current assets, 3:224defined, 3:475

and timing, 3:474unused tax losses/credits, 3:489–490

defined, 3:9, 43, 212financial, 5:14income tax bases of, 3:480–481intangible, 5:274–276

acquisition of, 3:431–435on balance sheets, 3:231–236depreciation/amortisation, 3:173–174impairment of, 3:231, 450on income statements, 3:177internally-developed,3:431–434long-lived, 3:426

investment characteristics of ( see investment characteristics ofassets)

liquid asset requirement, 3:370liquidity and sales of, 5:619long-lived ( see long-lived assets)market effi ciency and prices of ,

5:117–120in markets, 5:14–20non-current

on balance sheets, 3:215, 228–239defined, 3:46

personal use of company assets,4:213–214

quick, 4:146real, 5:14, 26–28return on, 3:327, 356–357risk-free, 4:319–322

and capital allocation line,4:319–320and capital market line, 4:348–349combining risky assets with,

4:343–346and homogeneity of expectations

assumption, 4:345–346two-fund separation theorem,

4:320–321utility theory and selection of,

4:301–304risk of two-asset portfolio, 4:285–286risky

combining risk-free assets with,4:343–346

covariance and correlation of risks,

4:305–307effi cient frontier of, 4:319importance of correlation of risks in

portfolio, 4:310portfolio return, 4:304portfolio risk, 4:304–310risk and return relationship,

4:307–309utility theory and selection of,

4:301–304securities, 5:16–19

equities, 5:17–18fixed-income, 5:17pooled investments, 5:18–19

securitized, 5:460tradable, 4:347underlying, 5:20

variance of return for single, 4:284asset allocation, 5:93. see also strategic

asset allocation (SAA)in portfolio management, 4:251safety-first rules for, 1:537–539

tactical, 4:419–420asset-backed securities (ABS), 5:459–

508; 6:33–35about, 5:459–460auto loan receivable-backed securities,

5:491–493collateralized debt obligations,

5:494–497structure, 5:495transaction example, 5:495–497

commercial mortgage-backedsecurities, 5:487–490

balloon maturity provisions, 5:488call protection, 5:488credit risk, 5:487structure, 5:487–490

creation of, 5:31–32credit card receivable-backed

securities, 5:493–494defined, 5:459economic benefits of securitization,

5:460–462non-mortgage asset-backed securities,

5:490–494auto loan receivable-backed

securities, 5:491–493credit card receivable-backed

securities, 5:493–494as pooled investments, 5:19practice problems, 5:501–503residential mortgage-backed securities,

5:473–487collateralized mortgage obligations,5:478–484

mortgage pass-through securities,5:474–478

non-agency residential mortgage-backed securities, 5:484–487

residential mortgage loans, 5:470–473amortization schedule, 5:472interest rate, 5:471lender’s rights in foreclosure, 5:473maturity, 5:471prepayments and prepayment

penalties, 5:472securitization, 5:462–470

bonds issued, 5:465–467

economic and market benefits,5:460–462

parties’ roles in transaction,5:464–465

special purpose vehicles, 5:467–470transaction example, 5:462–464

solutions to problems, 5:504–508asset-based equity valuation models,

5:274–278for airline industry, 5:276defined, 5:247for family-owned laundry, 5:275other models vs., 5:246–248, 276–278for restaurant, 5:275–276

asset-based loans, 4:178asset-based valuation approach

for private equity, 6:184for REIs, 6:192

asset beta, 4:53–56asset class(es)

adding, to investment opportunity se4:317

correlation matrix, 4:412–413correlation of risk among, 4:313defining, 4:410diversification with, 4:314nominal returns, 4:287–288, 290real returns, 4:289–290returns by, 5:624–625risk and return of, 4:287–288, 290–29security market indices as proxies for

5:94in strategic asset allocation, 4:411–41

asset management company, samplepresentation of, 1:247–248

Asset Manager Code of ProfessionalConduct (AMC), 1:10, 27, 129

asset price(s)artificial volatility in, 1:70–72capital ows and, 2:530and head and shoulders patterns,

1:678–681normal distribution as model for, 1:53and oscillators, 1:690trends in, 1:661, 662and volume, 1:671–672

asset risk premium, 4:243assets under management (AUM)

alternative investments, 6:150global, 6:151growth of, 6:159–160hedge funds, 6:159–160institutionally owned real estate, 6:18

by strategy, 6:162asset swaps, 5:430asset turnover

and financial reporting quality, 3:614fixed, 3:341, 345total, 3:341, 345

asset utilization ratios, 3:340. see also activity ratio(s)

asset weighing, 1:99Assicurazioni Generali, 1:397assignments of accounts receivable,

4:178Assirevi, 1:205Associação Portuguesa de Analista

Financeiros, 1:205associate businesses, investments in,

3:489Association for Investment Manageme

and Research (AIMR), 1:200Association for Savings and Investmen

South Africa, 1:205Association Française de la Gestion

Financière, 1:204Association of British Insurers, 1:205Association of Hungarian Investment

Fund and Asset ManagementCompanies, 1:205

Association of Southeast Asian Nation(ASEAN), 2:176

L’Associazione Bancaria Italiana, 1:205


6/96


7/96


balanced funds, 4:257–258, 260–261balance of payments (BOP) system,

2:455–467accounts in, 2:456–457, 463–465components of, 2:457–459imbalances since 1996, 2:465–467paired transactions in, 2:460–462for United States, 2:458–459

balance of trade deficit, 2:220, 424balance sheet equation, 3:12balance sheet ratios, 3:254–256balance sheets, 3:211–263

about, 3:212accounts on, 3:47, 48analysis of, 3:13–16, 246–256

balance sheet ratios, 3:254–256common-size, 3:246–254, 330–331,

334–335and cash ow statements, 3:219,

280–282cash on, 5:597, 619classified, 3:216components of, 3:213–215current assets, 3:217–224

Apple Inc., 3:218cash and cash equivalents, 3:218–219inventories, 3:221–223marketable securities, 3:219other, 3:223–224SAP Group, 3:217–218trade receivables, 3:219–221

current liabilities, 3:224–228Apple Inc., 3:225deferred revenue analysis, 3:226–228SAP Group, 3:224–225

defined, 3:12, 46, 212equity, 3:241–246

components of, 3:242–244statement of changes in equity,

3:244–246financial assets on, 3:236–239format of, 3:215–217information provided by, 3:67–68inventories on, 3:221–223non-current assets, 3:215, 228–239

Apple Inc., 3:229financial assets, 3:236–239goodwill, 3:233–236intangible assets, 3:231–236investment property, 3:230–231property, plant, and equipment,

3:229–230SAP Group, 3:228–229

non-current liabilities, 3:239–241Apple Inc., 3:240

deferred tax liabilities, 3:241long-term financial liabilities,

3:240–241SAP Group, 3:239–240

practice problems, 3:259–261quality of reporting on, 3:596–606solutions to problems, 3:262–263unclassified, 3:56

vertical common-size, 3:330–332balloon maturity provisions, 5:488balloon payments, 5:316balloon risk, 5:488Bancel, Franck, 4:66Banco Central del Uruguay, 3:107n.9

BancoFinansur, 5:491Banco Santander, 5:303bank certificates of deposit. see

certificates of depositbank discount basis, 1:347bank discount yield, 1:347–348, 350banker’s acceptances (BAs), 4:154, 175;

5:418

Bank for International Settlements (BIS),2:501–502; 5:462; 6:39

bank guarantees, 5:307Banking and Finance Commission, 2:362bank loans, 5:367–368Bank of Canada, 2:275, 373, 526Bank of England

in FX market, 2:526independence of, 2:372monetary policy, 2:360, 363, 373, 521quantitative easing, 2:382, 407two-week repo rate, 2:368

Bank of International Settlement, 5:161Bank of Italy, 2:334, 362Bank of Japan

in FX market, 2:499, 526monetary policy, 2:375–376, 383–385and money measures in Japan, 2:354

Bank of Korea, 2:364Bank of Montreal, 6:197Bank of Netherlands, 2:362Bank of New York Mellon, 5:166bankruptcy

business risk and, 4:100–102priority of claims in, 5:578–579regulations for bankrupt traders, 5:63and special purpose vehicles,

5:468–470technical analysis and, 1:664

banksaggregate demand and reserves of,

2:243–244, 246benefits of securitization for, 5:461as brokers, 5:29capital adequacy ratios, 3:370credit cycle assessments by, 5:577n.7credit from, 4:175depository, 5:166as financial intermediaries, 5:32, 33in FX market, 2:500–501portfolio management for, 4:248regulation of, 3:103short-term funding for, 5:375–381

repurchase and reverse repurchaseagreements, 5:377–379

retail deposits, 5:375wholesale funds, 5:376–377

bank sweep services, 4:154Barbados, 2:378bar charts, 1:665–666Barclays Capital

corporate yields, 5:609–610minimum issue size and bond holdings

in indices, 5:99Barclays Capital Global Aggregate Bond

Index, 5:100–101, 104, 351; 6:160,161, 191

Barclays Capital US Aggregate BondIndex, 5:99, 474n.10

Barclays plc, 1:714–715, 719Barrick Gold, 5:274

barriers to entry in credit analysis, 5:591market structure and, 2:154–155, 185in strategic industry analysis, 5:206–

208, 219barriers to exit, 5:208barriers to success, 5:207

Barron’s, 1:697

barter economy, 2:213, 349barter transactions, revenue recognitio

for, 3:165–166, 613BAs. see banker’s acceptancesbase currency, 2:487, 504Basel Accords, 3:103Basel Committee on Banking

Supervision, 3:103, 104, 107Basel III global framework for bank

supervision, 5:580n.12Baseline (database), 3:341base metals, as commodities, 6:194base prospectus, 5:464n.3base rates, 2:368BASF Group, 1:398; 2:193; 3:536–537;

5:165basic earnings per share, 3:185–187,

367, 368basic materials and processing sector,

5:193basis point, 5:298, 406, 538–539basis point value (BPV), 5:538–539basis swaps, 6:23baskets of listed depository receipts

(BLDRs), 5:168BAS, 5:30Bauer, Rob, 4:191n.7Baxter-FX, 5:30Bayer, 1:398Bayes’ formula, 1:460, 488–492BBA. see British Bankers’ Association

BBVA, 1:398BCO Santander, 1:398bearer bonds, 5:311bearish rectangles, 1:686bear markets

Elliott waves in, 1:705forecasting, 1:548–550

Bear Stearns Companies, 4:189Bebchuk, Lucian A., 4:203n.16beer industry, 2:175, 176behavior

consumer, 2:12–13, 300–302external trade sector, 2:303–304housing sector, 2:302–303supplier, 2:16

behavioral biases, 5:137–138

behavioral equations, 2:21behavioral finance, market effi ciency

and, 5:136–139behind the market (term), 5:45“Beige Book,” 2:334Belarus, 2:522Belgian Asset Managers Association,

1:204Belgium

banking supervision, 2:362customs union, 2:448equity risk premiums, 4:48in EU, 2:448n.18exchange rate regime, 2:522


8/96


Belgium (continued)as GIPS country sponsor, 1:204government debt, 2:346in MSCI multi-market index, 5:96public sector spending, 2:347real equity returns, 1:372returns on bonds, bills, and equities,

5:153

total returns, 1:380, 383beliefs, investors’, 4:364–365, 375,

378–379Belize, 2:378benchmark description

defined, 1:237Disclosure (GIPS Section I.4), 1:212GIPS Advertising Guidelines (GIPS

Section III), 1:231benchmark issue, 5:361–362benchmark rate, 4:160; 5:406, 428–431benchmarks, 3:583

defined, 1:237Disclosure (GIPS Section I.4), 1:213,

214GIPS Advertising Guidelines (GIPS

Section III), 1:231Presentation and Reporting (GIPS

Section I.5), 1:215, 216Private Equity (GIPS Section I.7),

1:222, 223PSA prepayment, 5:475Real Estate (GIPS Section I.6), 1:220security market indices as, 5:94–95spread over, 5:406

benchmark spread, 5:429benchmark yield, 5:555benchmark yield curve, 5:430–432beneficial ownership, 1:158, 159Berkshire Hathaway, Inc., 1:438; 5:159–

160, 175, 176

Bermuda-style calls, 5:328Bermuda-style puts, 5:330Bernanke, Ben, 2:382Bernoulli, Jakob, 1:518Bernoulli random variable(s), 1:518–519Bernoulli trials, 1:518best bid, 5:44best efforts offering, 5:50–51, 354best execution (term), 1:76Bestfoods, Inc., 1:353, 357best offer, 5:44

Best Practice Guidelines Governing Analyst/Corporate Issuer Relations (CFA Institute), 1:33

beta, 4:356–363; 6:155asset, 4:53–56

calculation and interpretation,4:359–360

and CAPM, 4:360–361, 380estimating, 4:52–58

with CAPM, 4:360–361inferring asset betas, 4:56pure-play method, 4:55–57

and expected return, 4:361–363levering and unlevering, 4:53–54return-generating models, 4:356–357and security characteristic line, 4:374security market indices and, 5:94

Bhagat, Sanjai, 4:191n.4B+H Ocean Carriers, 3:524–525

BHP Billiton, 3:639–640; 5:274biased accounting choices, 3:570–576,

578biases, 6:151

in accounting standard application,3:582–583

behavioral, 5:137–138in equity screening, 3:652–653

price index, 2:320sampling ( see sampling biases)

bid–ask spread, 4:294; 5:44, 359bid–offer spread, 5:359bid prices, 5:44, 555; 6:10n.3, 172bid sizes, 5:44“big bath” accounting, 3:582Big Mac index, 2:488bilateral loans, 5:367–368bill-and-hold transactions, 3:610Bill & Melinda Gates Foundation, 4:246bill-to-bill terms, 4:163binding shareowner proposals, 4:226binomial distribution of discrete random

variables , 1:518–527evaluating block brokers with, 1:519–

520, 522–523and expected defaults in bond

portfolio, 1:525–526mean and variance of, 1:525and one-period stock price as Bernoulli

random variable, 1:518–519and tracking error objectives, 1:524

binomial formula, 1:494binomial model

for bond defaults, 1:525–526for stock price, 1:526–527

binomial tree (tree diagrams), 1:475–476, 526

binomial valuation of options,6:100–104

Biomet, 5:213BIS. see Bank for InternationalSettlements

BJ’s Wholesale Club, 1:378, 379,405–406

blackout periods, 1:159BlackRock, 5:210Black—Scholes—Merton model,

6:121n.4as continuous time finance model,

1:541n.33for European call options, 1:551lognormal distribution in, 1:539

volatility of, 1:543BLDRs. see baskets of listed depository

receipts

block brokers, 1:519–520, 522–523; 5:28blogs, confidential firm information on,

1:115Bloomberg, 3:329, 341, 364Bloomberg Fixed Income Electronic

rading, 5:359Bloomberg Fixed Income Relative Value

page, 5:431Bloomberg risk statistic, 5:539Bloomberg Yield and Spread Analysis

page, 5:529–530, 541–542BLS. see US Bureau of Labor Statisticsblue-chip companies, 5:173blue-chip shares, 5:121n.7

Blume, Marshall, 4:53n.26BME Spanish Exchanges, 5:152BMW, 1:397; 2:174; 5:218BNP Paribas, 1:398BNY Mellon, 5:209board members

defined, 4:193–194qualifications and abilities of,

4:200–201shareowners’ nominations of,

4:224–225terms of, 4:202–203

board of directors, 4:198–211committees, 4:204–211

audit committees, 4:204–207nominations committee, 4:209–210other committees, 4:210–211remuneration/compensation

committees, 4:207–209communications with shareowners,

4:211composition of, 4:202–203corporate governance for, 4:195–196defined, 4:194external consultants for, 4:201–202independence of, 4:198–200related-party transactions by, 4:203–204size of, 4:203

Boeingmethod of comparables for, 5:268–269strategic analysis with, 5:207–208, 218

Bolivia, 2:522; 3:114Bollinger, John, 1:689Bollinger bands, 1:689–690Bolton, Brian J., 4:191n.4bond classes, 5:464n.4

mezzanine, 5:495subordinated and senior, 5:485and tranching, 5:465–467

bond convexity, 5:540–548bond equivalent yield, 4:156; 5:419bond-equivalent yield, 1:351bond EFs, 4:262bondholders

negotiation on covenants by, 5:607shareholders vs., 5:590

bond indenture, 5:302–310collateral backing, 5:305–306covenants, 5:307–308, 606credit enhancement, 5:306–307legal identity of issuer/legal form of

bond, 5:303–304repayment proceeds, 5:304

bond indentures, 4:217n.27bond indices, stratified sampling and,

1:568–569bond market. see also fixed-income

marketdeveloped, 5:348–349emerging, 5:348–349primary, 5:353–358

private placements, 5:354, 358public offerings, 5:354–358

secondary, 5:353, 358–361bond market vigilantes, 2:381bond mutual funds, 4:258–260bond portfolios, duration of, 5:536–538bond premiums, amortisation of,

3:519–520


9/96


bonds. see also fixed-income securities; specic types

amortisation, 3:516–520arbitrage with, 6:48–49, 67consol, 1:299convertible, 6:172correlation of -bills/stocks with,

4:312, 313

credit ratings and prices of, 5:586–587credit ratings of issuers vs., 5:582–584default

binomial model for, 1:525–526recovery rates on, 1:626–627

defined, 4:287; 5:302at discount, 3:515–519downside frequencies of, 6:157at face value, 3:512–515face value of, 1:478–479government, 4:412historical risk and return, 4:287–288and interest expense/interest

payments, 3:516–517intrinsic value of, 5:119investment grade, 4:412issuance, 3:512–516legal form of, 5:303–304margin, 6:11municipal, 4:405nominal returns of, 4:290notes vs., 5:17performance of, 6:11, 161at premium, 3:519–520puts vs. short sales and, 6:93real returns of, 4:289–290returns, 6:152, 165, 196, 197returns on equities and bills vs.,

5:152–153risk-free, 6:48–49in securitization process, 5:465–467

Sharpe ratios and downside riskmeasures, 6:156–157as short positions, 5:40US reasury, 1:709; 4:46, 49, 412

volatility, 6:152with warrants, 3:529–530zero-coupon, 1:478–479

bonds payable, 3:512–530and amortisation of bonds, 3:516–520debt covenants, 3:525–527derecognition of debt, 3:523–525disclosure of long-term debt, 3:527–530fair value reporting, 3:520–523and issuance of bonds, 3:512–516presentation of long-term debt,

3:527–530

bond yield plus risk premium approach,4:51–52

Bon-on Stores Inc., 1:386bonus compensation, 1:116–117bonuses, executive compensation and,

4:214bonus issue of shares, 4:116book building, 5:50book runners, 5:50book value

in asset-based valuation models, 5:247intrinsic vs., 5:176and market value, 5:171–172in ROE, 5:172–173

book value per share (BVPS), 4:129boom phase (business cycle), 2:293, 297BOP system. see balance of payments

systemborrowers, size and short-term strategy

of, 4:177borrowing

costs of, 4:172, 178–180

and equilibrium interest rate, 5:12as financial system function, 5:8–9for share repurchases, 4:127–128short-term, 4:153, 177

borrowing costs, for property, plant, andequipment, 3:430

borrowing rates, effects on leveragedportfolios, 4:351–354

Bosnia and Herzegovina, 2:522Boston Scientific, 5:213Botswana, 3:115; 5:96, 96n.4bottom line, income statement, 3:153bottom-up analysis, 3:650–651bottom-up approach to equity valuation,

5:244bottom-up portfolio analysis, 4:251bottom-up strategies, 6:162, 164box size, point and figure charts’, 1:669BP, 5:209BP/Amoco/Arco, 2:195BPV. see basis point valueBrady bonds, 5:351branches of businesses, investments in,

3:489brand loyalty, 2:172, 186Brave, Alon, 4:191n.8Brazil

absolute and comparative advantage,2:433–434

business investment, 2:267discipline for financial reporting

quality in, 3:585domestic and international debtsecurities, 5:312

effects of Asian financial crisis, 2:429exchange rate regimes, 2:525GDP vs. GNP, 2:423IFRS adoption, 3:114ination-linked bonds, 5:323, 324, 363ination targeting, 2:371MERCOSUR, 2:448MSCI multi-market index, 5:96natural resources, 2:268as small country, 2:442

Brazilian Bovespa Index (BVSP), 1:666Brazilian GAAP, 3:114, 634, 635Brazilian real, 2:487

breakevenfor calls, 6:123, 129, 131for puts, 6:127, 129, 134–135

breakeven analysis, profit maximizationand, 2:115–120

breakeven point(s), 2:115–117, 123–124and leverage, 4:98–99operating, 4:98–100

breakeven reinvestment rate, 5:426breaking the buck, 4:259break point, 4:61Bretton Woods system, 2:520bridge financing, 5:368Brightman, Christopher J., 5:116n.1

Brink’s Home Security, 5:199–200Bristol-Myers Squibb, 5:602British American obacco, 5:209British Bankers’ Association (BBA), 5:34British pound

EUR/GBP exchange rate, 2:504, 505nexchange rate quotes with, 2:504–506GBP/EUR exchange rate, 2:489, 494

gold standard for, 2:520identification code, 2:487international bonds outstanding in,

5:345as reserve currency, 5:19USD/GBP currency pair, 2:502

British elecom, 5:322, 614–615broad-based equity EFs, 4:262broad market equity indices, 5:95broad measure of liquidity, 2:354broad money, 2:353brokerage arrangements, 1:76, 79brokerage commissions, 4:294broker–dealers, 5:30brokered markets, 5:55, 57broker recruiting, 1:107brokers, 6:170

clearinghouses for, 5:36and dealers, 5:30–31dealers vs., 2:43as financial intermediaries, 5:28–29lending by, 5:33prime, 5:33, 49

broker-sponsored limited partnerships1:151

Brounen, Dirk, 4:66Brown, Constance, 1:695Brown, E. H. Phelps, 1:704Brown, George Garvin, 5:260Brown, Lawrence D., 4:191n.3Brown-Forman Corporation, 5:260–26

Bruce, Roger, 4:237Bruce Fund, 1:406Bruner, Robert F., 4:47n.16bubbles, 6:42budget constraints

and consumer equilibrium, 2:79–81defined, 2:64demand curve from, 2:83–84and opportunity set, 2:75–77and price elasticity of demand, 2:159

budget deficit (fiscal deficit), 2:388and business cycles, 2:219and fiscal policy, 2:401–402and foreign capital, 2:228and national debt, 2:391–393and Ricardian equivalence, 2:400

budgeting, capital, 1:332budget surplus, 2:388Buenos Aires, Argentina, 5:630Buffett, Warren, 5:175Bühner, Tomas, 4:63building permits, 2:330, 332–333Bulgaria, 2:522; 5:96bulldog bonds, 5:311bullet bonds, 5:315–318bullet mortgages, 5:472bullish rectangle, 1:686bull markets

Elliott waves in, 1:706–708forecasting, 1:548–550


10/96


Bundesanstalt fürFinanzdienstleistungsaufsicht,5:29

Bundesverband Investment und AssetManagement, 1:205

bundled feesCalculation Methodology (GIPS

Section I.2), 1:210

defined, 1:237Disclosure (GIPS Section I.4), 1:213Presentation and Reporting (GIPS

Section I.5), 1:215Wrap Fee/SMA Portfolios (GIPS

Section I.8), 1:224–225Bunds, 5:298, 610Burlington Northern, 5:209Burns, Wesley Clair, 2:290business activities, classifying, 3:42–43business combinations

intangible assets from, 3:434–435intangible assets not from, 3:431and quality of financial reporting,

3:591taxable vs. accounting profit for, 3:488

business confidence, 2:243, 246Business Cycle and Dating Committee,

2:293business cycles, 2:289–343

defined, 2:290economic indicators, 2:328–335

cyclical measures as, 2:334diffusion index of, 2:333–334leading, lagging, and coincident,

2:328–334and external trade sector behavior,

2:303–304and GDP, 2:240–241and housing sector behavior,

2:302–303

ination, 2:317–328cost-push, 2:323–325deation, hyperination, disination,

2:317–319demand-pull, 2:325–326expectations, 2:326–327price indices, 2:319–323types of, 2:323–326

phases of, 2:290–294practice problems, 2:338–341resource use, 2:294–302

capital spending, 2:297–299consumer behavior, 2:300–302inventory levels, 2:299–300

as short-term movements in economy,2:289

solutions to problems, 2:342–343unemployment, 2:313–317

analyzing, 2:316–317indicators, 2:315–316rate of, 2:315

business-cycle sensitivities, 5:190–191,227–228

business cycle theories, 2:305–313Austrian school, 2:305–306Keynesian school, 2:306–308Monetarist school, 2:308–309Neoclassical school, 2:305, 306New Classical school, 2:309–313

business entities, distinct, 1:208, 239

business environment, in industryanalysis, 5:188

business expectations, aggregate demandand, 2:243

business relationships, conicts ofinterest and, 1:152, 156

business riskcomponents of, 4:84

for creditors and owners, 4:100–102defined, 4:53and leverage, 4:84–91operating risk, 4:85–91sales risk, 4:84–85

business sector, in GDP, 2:218business segments, financial analysis for,

3:375–378business spending, 2:243, 292business strategy, financial performance

and, 3:629–633business taxes, SRAS and, 2:249, 251buy-and-hold investors, market timers

vs., 1:548–550buy-and-hold strategies, 4:274n.2buyback, 4:123. see also share

repurchasesbuyers. see also consumer(s)

demand function for, 2:8–9derivatives, 6:7per-unit tax on, 2:40power of, 5:591

buying stock (as strategy), 6:121–123buyout funds, 4:265buy-side clients, 1:31buy-side firms, 4:253buy-side participants, FX market,

2:498–500BVPS. see book value per shareBVSP. see Brazilian Bovespa IndexBylaws and Rules of Procedure

for Proceedings Related toProfessional Conduct, 1:9

CCAC 40 Index, 4:346Cadbury, 5:209, 219–221CAIA Association. see Chartered

Alternative Investment AnalystAssociation

Caisse de dépôt et placement duQuébec, 2:499

calculated statistical indices, 1:697–700Calculation Methodology (GIPS Section

I.2), 1:209–210about, 1:206recommendations

general, 1:210for private equity, 1:224for real estate closed-end fund

composites, 1:220requirements

general, 1:209–210for private equity, 1:221for real estate, 1:217–218for real estate closed-end fund

composites, 1:219calendar anomalies, 5:130–132California, 5:630, 631California Public Employees Retirement

System (CalPERS), 4:191

callable bonds, 5:327–329and contingency provisions, 5:373effective convexity of, 5:547–548effective duration of, 5:527–528and embedded options, 5:412interest rate risk with, 5:534–535

callable common shares, 5:158–159, 171callable preference shares, 5:159–160,

171, 252call markets, 5:54call money rate, 5:41call options (calls)

American, 1:527; 5:328; 6:105–107Asian, 1:546–547Bermuda-style, 5:328covered, 6:130–133defined, 5:24; 6:25, 85down-and-out, 1:555as embedded options ( see callable

bonds)in equity portfolios, 6:123–126European ( see European call options)fiduciary, 6:95–96, 99make-whole, 5:328margin transactions vs., 6:91–92payoff from, 6:26–28profits from, 6:27–28, 129standard long and short positions,

6:123–126 value for, 6:129

call premium, 5:328call price, 5:328call protection, 5:488call protection period, 5:328, 412call provisions, 5:319calls. see call optionsCambodia, 2:522Cameco Corporation, 5:272–273Cameroon, 3:115

CanadaACH system, 4:163auctions in, 5:356banking supervision, 2:362bank regulation, 3:103bonds outstanding, 5:348, 353business investment, 2:267capitalization level and contributions

to global GDP, 5:151code of ethics, 4:213n.24commodities in economy, 1:710consumption expenditures, 2:229credit rating services, 5:581disclosures in annual reports, 4:201,

206, 209disination, 2:318

domestic and international debtsecurities, 5:312

equity risk premiums, 4:48exchange rate regime, 2:523expected ination, 2:366foreign bonds, 5:311in FX market, 2:499as GIPS country sponsor, 1:204government spending, 2:219gross domestic product, 2:211,

221–226forecasts of, 2:274–275GNP vs., 2:423potential, 2:273, 274


11/96


12/96


13/96

Level I Curriculum Index I-1

cash outows, in forecasts, 4:152cash position, 4:150–153cash prices. see spot pricescash ratio, 3:347, 348cash reserve ratio, 3:370cash-settled forwards. see nondeliverable

forwards (NDFs)cash settlement

of contracts, 5:20of futures, 6:20of options, 6:26

Catalent, 5:602Caterpillar Inc., 1:384; 5:198, 209, 219Cathay Pacific Airways, 4:238–241Caylor, Marcus, 4:191n.3CBD. see cash before delivery CBOE Volatility index (VIX), 1:698CBOs. see collateralized bond

obligationsCBO. see Chicago Board of radeCBS. see currency board systemCBS Records, 3:617CCA. see capital consumption allowanceCCR. see corporate credit ratingCD equivalent yield, 1:349. see also

money market yieldsCDOs. see collateralized debt obligationsCDs. see certificates of depositCDSs. see credit default swapscell (term), 1:568Center for Research in Security Prices

(CRSP), 1:588Central African Republic, 2:450Central America, 3:114. see also specic

countriescentral bank funds market, 5:376central bank funds rates, 5:376Central Bank of Brazil, 2:364central banks

countercyclical policies of, 2:292credibility of, 2:372and credit cycle, 5:577n.7currency purchases by foreign,

2:461–462exchange rate regime switching by,

2:526in FX market, 2:499–500independence of, 2:372, 406and ination, 2:258, 317, 365, 371–377monetary policy by, 2:347n.1, 363; 5:352monetary transmission mechanism of,

2:369–371, 381–382objectives of, 2:364open market operations by, 5:352policy rate of, 2:367–368

price index use by, 2:321–322reserve requirements of, 2:352, 368roles and responsibilities of, 2:361–363technical analysis by, 1:663transparency of, 2:373

Central Europe. see also speciccountries

current account imbalance, 2:466debt and equity outstanding, 5:344trade-to-GDP ratio, 2:426

centralization, of financial organization,4:172

central limit theorem, 1:572–575, 580,610n.7

central tendency. see measures of centraltendency

Centre for Economic Policy Research(CEPR), 2:334

century bonds, 5:371, 429CEOs. see chief executive offi cersCEPR. see Centre for Economic Policy

Research

certainty, theory of the firm and, 2:96Certificate in Investment Performance

Measurement (CIPM), 1:9certificates of deposit (CDs), 4:154;

5:376–377CESR. see Committee of European

Securities Regulatorsceteris paribus, 2:10CFA Association of Pakistan, 1:205CFA charterholders, 1:171CFA Denmark, 1:204CFA designation, 1:171. see also

Reference to CFA Institute,Designation and Program[Standard VII(B)]

guidance on using, 1:171order of professional and academic

designations with, 1:176right to use, 1:175stating facts about, 1:176

CFA examinations, 1:5bringing written material into exam

room, 1:167confidential information in, 1:165–166expressing opinions about, 1:166grading guidelines and results for,

1:169passing, in consecutive years,

1:174–175sharing content of, 1:168–169sharing questions from, 1:167–169

writing after exam period, 1:168CFA Institute, 1:205; 4:395. see also specic committees and programs

clarifications of GIPS by, 1:202, 207,208, 233

compromising integrity of, 1:169ethical commitment of, 1:14–15GIPS standards, 1:199, 200mission of, 1:7monitoring of financial reporting

standards, 3:133–134performance standards of, 5:61referring to, 1:171 ( see also Reference

to CFA Institute, Designation andProgram [Standard VII(B)])

standards for communicating

recommendations, 3:34–35Standards of Professional Conduct,

5:49, 51 values of, 1:15 vote disclosure for pooled investment

funds, 4:222n.32website, 1:15, 129

CFA Institute Centre for FinancialMarket Integrity, 4:190

CFA logo, 1:172–173, 175–176CFA marks, use of, 1:172–173CFA members and candidates

knowledge of the law [Standard I(A)],1:26–27

responsibilities of ( see Responsibilitieof CFA Members and Candidate[Standard of Professional ConduVII])

CFA Program. see also Reference toCFA Institute, Designation andProgram [Standard VII(B)]

conduct restrictions for candidates an

members, 1:165confidential information about,

1:165–166stating facts about, 1:176testing policies for, 1:167

CFA Society of Hungary, 1:205CFA Society of New Zealand, 1:205CFA Sri Lanka, 1:205CFDs. see contracts for differencesCFNAI. see Chicago Fed National

Activity IndexCFO. see cash ow from operationsCFOs. see chief financial offi cersCFR. see corporate family ratingCGM Focus Fund, 1:406chairman of board, 4:199Chamberlin, Edward H., 2:153change-in-control provisions, 4:228change in polarity principle, 1:675change of control covenant, 5:606n.26change of control put option, 5:623changes

fund mandate, 1:142to investment process, 1:142–144

channel stuffi ng, 3:610Chapter 7 bankruptcy, 4:101n.8, 102Chapter 11 bankruptcy, 4:101–102character, in four Cs framework,

5:590–591, 607–608charitable foundations, endowments fo

4:246–248

charities, strategic asset allocation for,4:421–423Charles Schwab Corporation, 3:661–66Chartered Alternative Investment

Analyst (CAIA) Association,6:162n.18

Chartered Financial Analyst. see entriesbeginning with CFA

Chartered Financial Analyst Program,5:61

chart of accounts, for financialstatements, 3:44

chart patterns, 1:676–687continuation patterns, 1:683–687

ags and pennants, 1:686–687rectangles, 1:686

triangles, 1:684–686reversal patterns, 1:677–683

double tops and bottoms, 1:681–68head and shoulders, 1:677–681triple tops and bottoms, 1:682–683

charts, 1:664–673bar, 1:665–666candlestick, 1:666–668line, 1:664–665point and figure, 1:668–670relative strength analysis of, 1:672–67scale of, 1:670–671time intervals of, 1:672

volume on, 1:671–672


14/96


Chebyshev, Pafnuty, 1:412–413Chebyshev’s inequality, 1:412–414Chevron/exaco, 2:195Chicago, Illinois, 6:39Chicago Board of rade (CBO), 6:37,

39–40Chicago Board Options Exchange,

1:698

Chicago Fed National Activity Index(CFNAI), 2:334

Chicago Mercantile Exchange (CME),2:494; 5:29

chief executive offi cers (CEOs), 4:199chief financial offi cers (CFOs), 4:65–66Chile

discipline for financial reportingquality in, 3:585

exchange rate regimes, 2:523, 525IFRS adoption, 3:114ination-linked bonds, 5:323, 324ination targeting, 2:371in MSCI multi-market index, 5:96

Chinaapproval for dividends, 4:111, 120business investment, 2:267capital goods expenditures, 2:218capital restrictions, 2:453central bank reserves, 2:499comparative advantage, 2:433–434,

438CPI, 2:320–321current account, 2:463, 466debt and equity outstanding, 5:344discipline for financial reporting

quality in, 3:585domestic and international debt

securities, 5:312economic growth, 2:269economic indicators, 2:334

effects of global recession, 2:256, 257exchange rate regime, 2:522, 523, 527exports from, 2:423, 428, 440foreign bonds, 5:311foreign investment in, 5:164GDP, 2:211, 245globalization of production, 2:428as growth country, 5:190n.2housing sector, 2:303and IFRS, 3:115industrialization, 5:211labor supply, 2:266market effi ciency, 5:121in MSCI multi-market index, 5:96Multi Fiber Agreement, 2:431regular cash dividends, 4:113

reserve requirements, 2:368securitization pilot program, 5:461stock dividends, 4:117trade balance with US, 2:220, 221underground economy, 2:214

China Aviation Oil Corp., 6:197China Construction Bank, 3:216–217China Investment Corporation, 4:249China Mobile Ltd., 1:674–675, 687;

5:192China Securities Regulatory

Commission, 3:107n.9Chinese accounting standards (CAS),

3:115

Chinese yuanCNY/USD exchange rate, 2:489–490exchange rate regime, 2:523identification code, 2:487

chi-square testfor value of population variance tests,

1:632 values of chi square, 1:725

Chi-X Europe, 5:30CIPM. see Certificate in Investment

Performance MeasurementCisco Systems, 3:222–223; 5:209Citibank Inc., 4:49Citigroup, Inc., 2:498, 500; 3:608;

4:51–52, 119–120Citigroup Commercial Mortgage rust

2013-GCJ11, 5:489–490classes of shares, companies with

multiple, 4:221classical gold standard, 2:520classified balance sheet, 3:216classified boards of directors, 4:202–203clawback, private equity, 6:177claw-back provisions, 4:216clearing (term), 6:11clearinghouse(s), 5:22, 36

daily settlement by, 6:18–19in exchange-traded derivatives market,

6:11clearing instructions, 5:44, 49–50Clearstream, 5:359–360CLI. see Composite Leading Indicatorsclient commission practices, 1:78–80client–plan participants, identifying,

1:78clients

approval from, 1:77buy-side, 1:31communication with ( see

Communication with Clients andProspective Clients [StandardV(B)])

disclosure to, 1:150–151duties to ( see Duties to Clients

[Standard of Professional ConductIII])

fair dealing between, 1:90gathering information from, 4:407–410gifts and entertainment from, 1:39identifying, 1:75, 80–81, 93individual investors as, 4:244informing, of investment process,

1:138–139institutional investors as, 4:244–250interests of, 1:78

loyalty to, 1:81maintaining lists of, 1:85priority of personal trading vs. trading

for, 1:157risk profile of, 1:91select, additional services for, 1:88soliciting former, 1:109–114status of, 1:102

client updates, 1:131–132CLOs. see collateralized loan obligationsclosed economy, 2:424, 463–464closed-end funds, 5:18–19

defined, 1:237; 4:256discounts with, 5:133–134

Real Estate (GIPS Section I.6),1:219–220

real estate presentations with,1:251–253

CMBS. see commercial mortgage-backedsecurities

CME. see Chicago Mercantile ExchangeCML. see capital market line

CMOs. see collateralized mortgageobligations

coal mining industry, 2:138Coates, John C., IV, 4:203n.16Coca-Cola, 2:153, 159, 533, 534; 5:176,

209, 211CoCos. see contingent convertible bondsCOD. see cash on delivery Code of Corporate Governance, 4:201Code of Ethics (CFA Institute), 1:5–16

adoption of, 1:10and applicable law, 1:22–23evolution of, 1:6notification of, 1:114and Professional Conduct Program,

1:9–10and Standards of Practice Council,

1:10–11in Standards of Practice Handbook,

1:3, 5–9, 14text of, 1:16and values of CFA Institute, 1:15

codes of ethics (in general), 4:212–213adopting, 1:120commitment to, 1:14developing, 1:26–27, 54

Codification. see Accounting StandardsCodication (FASB)

coeffi cient of variation (CV ), 1:414–416coeffi cient of variation of net income,

3:370

coeffi cient of variation of operatingincome, 3:370coeffi cient of variation of revenues, 3:370coils, 1:684coincident economic indicators, 2:328–

331, 333–335Coinstar, Inc., 5:199collateral

assumed default rate for, 5:485for bond indenture, 5:302in four Cs framework, 5:590–591,

605–606for hedge funds, 6:170real estate as, 6:184and repo margin, 5:379and repo rate, 5:378

collateral backing, 5:305–306, 372–373collateralized bond obligations (CBOs),

5:494; 6:34collateralized debt obligations (CDOs),

5:494–497defined, 6:34ethical issues, 1:114motivation for creating, 5:497structure, 5:495transaction example, 5:495–497underlying for, 6:37–38

valuation of, 6:172collateralized loan obligations (CLOs),

5:494; 6:34


15/96


collateralized loans, 4:175, 176collateralized mortgage obligations

(CMOs), 5:478–484; 6:34defined, 5:479oating-rate tranches, 5:483–484mortgage pass-through securities vs.,

5:483planned amortization class tranches,

5:481–483sequential-pay tranches, 5:479–481support tranches, 5:481–483

collateral managers, 5:495collateral trust bonds, 5:305collateral yield, 6:199collectibles, 6:199–200Colombia

exchange rate regime, 2:522IFRS adoption, 3:114ination-linked bonds, 5:323, 324ination targeting, 2:371in MSCI multi-market index, 5:96

Columbia Pictures, 3:617Columbia University, 4:246combination (term), 1:494combination formula, 1:494combined ratio, 3:327commercial banking industry, 2:138commercial banks, 5:32, 33commercial industry classification

systems, 5:192–196example, 5:194–196GICS standard, 5:192ICB system, 5:192–193representative sectors in, 5:193RGS system, 5:192

commercial loans, 2:331commercial mortgage-backed securities

(CMBS), 5:487–490; 6:189balloon maturity provisions, 5:488

call protection, 5:488credit risk, 5:487structure, 5:487–490

commercial paper (CP), 4:176; 5:368–371, 619n.34

credit quality, 5:368–369issuers, 5:368maturities, features, and risks, 4:155US vs. Euro markets, 5:369–371

commercial real estate investmentsdirect and indirect investing in, 6:188global assets under management,

6:151institutionally owned, 6:185

commercial receivables, 3:46Commission Bancaire, 2:362

commissions, 1:78–80; 4:294commitment fees, 4:178n.10committed capital

defined, 1:238for private equity, 6:176Private Equity (GIPS Section I.7), 1:223Real Estate (GIPS Section I.6), 1:220

committed lines of credit, 4:176Committee of European Securities

Regulators (CESR), 3:111committees of boards of directors,

4:204–211audit committees, 4:204–207nominations committee, 4:209–210

other committees, 4:210–211remuneration/compensation

committees, 4:207–209committee system, of unitary boards,

4:195commodities, 5:14, 21, 25–26;

6:193–199benefits and costs of holding, 6:64–65

correlation with other asset classes,4:412

defined, 6:155derivatives and indices, 6:194–195downside frequencies, 6:157global assets under management,

6:151growth in, 6:153investment vehicles, 6:195–196performance and diversification

benefits, 6:196–197prices of, 6:197–199returns on, 6:152, 157, 193, 196–197risk–return tradeoffs for, 6:157Sharpe ratios and downside risk

measures, 6:157as underlying, 6:5, 37

volatility, 6:152commodity exchange traded funds,

6:155commodity futures, 6:37

pricing of, 6:198–199risk management with, 6:201

commodity indices, 5:101–102;6:194–195

bias in, 6:151growth in trading, 6:153

commodity inventories, 3:581Commodity Research Bureau (CRB)

Index, 5:101commodity swaps, 5:24

common equity, cost of. see cost ofcommon equity common markets, 2:448–452common shares, 3:185, 289; 4:112;

5:155–159callable, 5:158–159, 171defined, 5:155and fixed-income securities, 5:296at Ford Motor Company, 5:157–158and preference shares, 5:160preferred vs., 5:17–18putable, 5:159, 171at Viacom Corporation, 5:156–157

common-size analysisfor balance sheets, 3:246–254

analysis of ratios, 3:330–331,

334–335cross-sectional, 3:252–254for S&P 500, 3:250–251

of cash ow statements, 3:298–302horizontal, 3:194n.50, 331, 334–335for income statements, 3:194–196,

331–332of ratios, 3:330–336

vertical, 3:194n.50, 246, 330–332common stock, 3:185, 289; 4:112

for commodities investing, 6:195elasticity of demand for, 2:47–48

common stock portfolio, probabilitiesfor, 1:536

common value auction, 2:27Commonwealth of Independent States

2:426; 5:344communication(s)

of boards of directors andshareowners, 4:211

different forms of, 1:140elasticity of demand and, 2:51–52,

161to employees of material nonpublic

information, 1:63interdepartmental, 1:61of management and shareowners,

4:218–219Communication with Clients and

Prospective Clients [StandardV(B)]

application of the standard,1:141–146

compliance procedures, 1:140–141eleventh edition revision, 1:8guidance, 1:138–140

different forms of communication,1:139

facts vs. opinions in reports, 1:140identifying risks and limitations,

1:139–140informing clients of investment

process, 1:138–139report presentation, 1:140

text of, 1:18, 137–138co-movement patterns, 4:241–243Companhia Vale do Rio Doce, 1:667company(-ies)

as bond issuers, 5:297borrowing by, 5:8comparable, 4:53cyclical, 5:190–191, 221, 592definition of, 4:195

fundamentals of, 5:592–597non-cyclical, 5:190–191, 592similar, 5:189–191

value of, 5:171–177, 204 variability of recovery rates for,

5:578company analysis, 5:228–232

defined, 5:188elements of, 5:229–232and industry analysis, 5:593–594spreadsheet modeling in, 5:232

company assets, personal use of,4:213–214

company promotion, 1:69company value, cost of capital and,

4:36

comparability, of accounting choices,3:24

comparable company, 4:53comparables, 3:305. see also method of

comparablescomparable sales approach to real estat

valuation, 6:191comparable store sales ratio, 3:370comparative advantage, 2:433–441

absolute advantage vs., 2:433–440defined, 2:422n.1Ricardian and Heckscher–Ohlin

models, 2:440–441comparative growth information, 3:336


16/96


17/96


comprehensive incomedefined, 3:47n.4, 243n.22on income statements, 3:198–201other

accumulated, 3:242–243defined, 3:47n.4, 198on income statements, 3:200–201on statement of comprehensive

income, 3:19–20statement of, 3:12, 16–20total, 3:198US GAAP on, 3:198

Compustat, 3:329computations, financial analysis vs.,

3:320–322computer hardware industry, 5:222–223ConAgra Foods, Inc., 3:599concentrated portfolio strategies, 6:156concentration, industry, 5:208–211,

219concentration ratio, 2:194–196“Conceptual Framework for Financial

Reporting” (Concepts Statement8), 3:568n.2

Conceptual Framework for Financial Reporting 2010 (IFRS), 3:116–128

and barriers to single standardsframework, 3:129–130

conservatism in, 3:579constraints on financial reports,

3:119–120convergence of US GAAP and,

3:127–128and effective standards frameworks,

3:129elements of financial reports,

3:120–122objective of financial reporting,

3:100–102

objective of financial reports,3:117–118qualitative characteristics of financial

reports, 3:118–119and quality of financial reporting,

3:568–569requirements of Presentation of

Financial Statements (IAS No. 1),3:122–126

conclusions, from financial statementanalysis, 3:34–35

conditional expected values, 1:474conditional prepayment rate (CPR),

5:475conditional probability, 1:462–465,

468–469

conditional variances, 1:476–479Conduct as Participants in CFA Institute

Programs [Standard VII(A)], 1:19,165–169

application of the standard, 1:167–169eleventh edition revision, 1:8–9guidance, 1:165–167

additional CFA restrictions, 1:165confidential program information,

1:165–166expressing opinions, 1:166

text of, 1:19, 165confections industry, 5:219–221Conference Board, 2:329, 333

confidencebusiness and consumer, 2:243, 246investor, 1:201

confidence intervals, 1:577–582construction of, 1:577–578definition, 1:577for hypothesis testing, 1:607and hypothesis tests, 1:613–614

for population mean, 1:577–582with normally distributed population

with known variance, 1:578t -distribution, 1:581–582z -alternative, 1:579–581

reliability factors for, 1:578–580and sample size, 1:583–585

confidence limits, 1:577confidential information

about CFA program, 1:165–166accidental disclosure of, 1:104–105of firm, 1:115possessing, 1:103

confidentiality, 1:77. see also Preservation of Confidentiality[Standard III(E)]

confidential voting, by shareowners, 4:222confirmations of transactions, duplicate,

1:160conicts of interest

and business relationships, 1:152, 156and business stock ownership, 1:152and compensation arrangement,

1:153–154and directorship, 1:154–155disclosure of, 1:77 ( see also Disclosure

of Conicts [Standard VI(A)])and personal stock ownership, 1:153and personal trading, 1:155and priority of transactions, 1:157for remuneration/compensation

committee, 4:209and requested favors, 1:155Conicts of Interest [Standard of

Professional Conduct VI],1:149–164

Disclosure of Conicts [StandardVI(A)], 1:149–156


compliance procedures, 1:152guidance, 1:149–152text of, 1:18, 149

Priority of ransactions [StandardVI(B)], 1:157–162


compliance procedures, 1:158–160guidance, 1:157–158text of, 1:18–19, 157

Referral Fees [Standard VI(C)],1:162–164


compliance procedures, 1:162guidance, 1:162text of, 1:19, 162

conforming loans, 5:475Conroy, Robert M., 4:47n.16Consensus Bullish Sentiment Index,

1:697

conservatism, 5:137conservative accounting choices

(conservatism)aggressive vs., 3:578–583benefits of, 3:581–582biased application of standards,

3:582–583defined, 3:570

in extractive industries, 3:579–580losses in, 3:578–579

conservatorship, 5:474n.9consistency

estimator, 1:576–577of financial performance forecasts,

3:646consistent probabilities, 1:462consol bonds (consols), 1:299; 5:531conspicuous consumption, 2:90constant-cost industry, 2:132constant returns to scale, 2:128constant-yield price trajectory, 5:398,

399constituent securities, 5:78, 92constraints, investor, 1:93construction industry, 5:225consultants, external, 4:201–202, 215consumer(s)

behavior of, 2:300–302demand curve for, 2:12–13expectations of, 2:243preference of

and consumer choice theory, 2:64and demand curve, 2:83–84graphical representation, 2:67–70and utility theory, 2:64–74

theory of the consumer, 2:6, 96consumer choice theory, 2:64–66consumer confidence, 2:243, 246consumer demand, 2:63–94

and consumer choice theory, 2:64–66in demand and supply analysis,2:63–94

demand function, 2:83–90and demand curve, 2:83–84substitution and income effects,

2:84–90equilibrium in, 2:79–82opportunity set, 2:74–79

and budget constraint, 2:74–77investment, 2:78–79production, 2:77–78

practice problems, 2:92–93solutions to problems, 2:94utility theory for, 2:64–74

and axioms of consumer choice

theory, 2:65–66gains from voluntary exchange,

2:72–74indifference curves, 2:67–72representation of consumer

preference, 2:66–67consumer discretionary sector, 5:193consumer goods, arbitrage opportunity

with, 6:47consumer installment debt, income and

2:331Consumer Price Index for All Urban

Consumers (CPI-U), 2:321, 322;5:364


18/96


consumer spendingand business cycles, 2:300–302and expectations, 2:243in phases of business cycle, 2:292

consumer surplus, 2:30–32and alternative trade policies, 2:443,

446in monopoly, 2:190–192

in perfect competition, 2:162–164and tariffs, 2:443

consumption, 2:6and aggregate demand, 2:229and alternative trade policies, 2:446in autarky, 2:435average propensity to consume,

2:229–230conspicuous, 2:90marginal propensity to consume,

2:229, 398–400wealth effect on, 2:242–243

consumption bundle (consumptionbasket)

in consumer choice theory, 2:65equilibrium, 2:79–81and price indices, 2:319–320

consumption spending, 2:229contango, 6:199contingency provisions, 5:296, 327–333

callable bonds, 5:327–329convertible bonds, 5:330–333with corporate notes/bonds, 5:373putable bonds, 5:329–330

contingent claims, 6:25–35. see also options

asset-backed securities, 6:33–35credit derivatives, 6:30–33defined, 6:7, 61forward commitments vs., 6:35–36options, 6:25–30, 33

contingent convertible bonds (CoCos),5:331–332contingent liabilities, 5:627, 628continuation patterns, 1:676, 683–687

ags and pennants, 1:686–687rectangles, 1:686triangles, 1:684–686

continuing education, board members’,4:201

continuous compounding, 1:286–287,541–542

continuous random variables,1:527–545

continuous uniform distribution,1:527–531

defined, 1:515

lognormal distribution, 1:539–545normal distribution, 1:531–539

applications of, 1:537–539and probabilities for common stock

portfolio, 1:536safety-first optimal portfolio,

1:537–539continuous time finance models,

1:541n.33continuous trading markets, 5:54–57continuous uniform distribution,

1:527–531contra accounts, 3:44, 219contractionary fiscal policy, 2:388, 401

contractionary monetary policy,2:380–381

contraction phase (business cycle),2:290–294. see also recession

contraction risk, 5:478contract markets, 5:20–25, 54–57

contracts for difference, 5:20–21execution mechanisms, 5:54–57

forwards, 5:21–22futures, 5:22–23insurance contracts, 5:25market information systems, 5:58options, 5:24–25swaps, 5:23–25trading sessions on, 5:54

contract rates, mortgage, 5:471contracts

American- vs. European-style, 5:24defined, 5:14derivative, 5:15and discipline for financial reporting

quality, 3:588insurance, 5:25revenue recognition for, 3:160–164short positions in, 5:39–41sides of, 5:39spot, 5:20

contracts for differences (CFDs),5:20–21; 6:17

contrarian effect, 5:91contrarian trading strategies, 1:689–690contribution margin, 4:87control, market structure and, 2:154, 155control deficiency disclosures,

1:621–623convenience yield. see roll yieldconventional bonds, 5:298. see also plain

vanilla bondsconventional cash ow, 4:9

convergenceincome, 2:265oscillator and price, 1:690

conversion premium, 5:331conversion price, 5:330conversion ratio, 5:330conversion value, 5:331convertible arbitrage, 4:264convertible bonds, 5:330–333, 373;

6:172convertible debt, 3:188–189convertible mortgages, 5:471convertible preference shares, 5:160–161convexity

of credit risk/return, 5:613–614effective, 5:547–548

money, 5:545–547and return, 5:512

convexity adjustment, 5:541convexity assumption, of indifference

curve, 2:69–70convexity effect, 5:395–397, 548“cookie jar” reserve accounting,

3:582–583copies, maintaining, 1:47copyright laws, 2:185core ination, 2:322core–satellite approach, 4:423–424Corning, 4:237corporate accounts, in FX market, 2:498

corporate auditors system, 4:194corporate bond mutual funds, 4:259corporate bonds, 5:371–374

earnings surprise for, 5:135n.43legal issuers of, 5:303sources of repayment for, 5:304

corporate changes, shareowner input on,4:223–224

corporate credit rating (CCR), 5:582corporate culture, financial reporting

issues and, 3:617–618corporate debt, 5:367–375

bank and syndicated loans, 5:367–368commercial paper, 5:368–371corporate notes and bonds, 5:371–374

corporate debt securities, 5:589–608corporate family rating (CFR), 5:582Corporate Finance (CFA Institute),

4:200n.14corporate governance, 4:189–230

about, 4:189–190boards of directors, 4:198–211

committees, 4:204–211communications with shareowners,

4:211external consultants, 4:201–202independence, 4:198–200member qualifications and abilities,

4:200–201member terms and board

composition, 4:202–203related-party transactions, 4:203–204

importance of, 4:190–192key terms, 4:192–195management, 4:212–219

code of ethics, 4:212–213corporate transparency, 4:214–219personal use of company assets,

4:213–214

practice problems, 4:229for private equity firms, 5:163shareowner rights, 4:219–228

actions of other shareowners, 4:228legal rights, 4:226–227shareowner proposals, 4:224–226takeover defenses, 4:227–228

voting rights , 4:220–224solutions to problems, 4:230summary of investor/shareowner

responsibilities, 4:195–198corporate notes, 5:371–374corporate profile, in company analysis,

5:229corporate sector, 5:343corporate structure, in high-yield credit

analysis, 5:622–623corporate transparency

and corporate governance ofmanagement, 4:214–219

executive compensation, 4:214–216management communications with

shareowners, 4:218–219share-repurchase and price-

stabilization programs, 4:216–218corporate treasurers, 5:6Corporation Law, 4:119corporations, real assets of, 5:26correction, of unintentional errors, 1:48corrective waves, 1:706–707


19/96


20/96


coupon payment structures, 5:320–327corporate notes/bonds, 5:371–372credit-linked coupon bonds, 5:322deferred coupon bonds, 5:322–323oating-rate notes, 5:320–321index-linked bonds, 5:323–327payment-in-kind coupon bonds, 5:322step-up coupon bonds, 5:321–322

coupon rate (nominal rate), 3:513; 4:155;5:298–299, 392, 532

coupon-type classification for fixed-income markets, 5:346–347

Cournot, Augustin, 2:178Cournot assumption, 2:178–179Cournot equilibrium, 2:179, 181, 182covariance, 1:481–484, 486–487

and correlation of risks in portfolio,4:305–307

of return, 4:284–285of risk-free asset in portfolio of risky

assets, 4:343and strategic asset allocation, 4:416

covariance matrix, 1:483–484, 486covenant(s), 5:307–308

affi rmative, 5:307, 606for bond indenture, 5:302change of control covenant, 5:606n.26debt, 3:525–527in four Cs framework, 5:590–591,

606–607in high-yield credit analysis, 5:623–624with leveraged loans, 6:177–178limitations on liens, 5:624maintenance, 5:624negative, 5:307–308, 606probability of breaching, 1:530–531restricted payments, 5:624

Covenant Review, 5:607coverage, prior, 1:38

coverage ratios, 3:353; 5:596, 631for capitalized interest, 3:430–431fixed charge, 3:353–354interest, 3:353, 373for operating lease adjustment,

3:668–669and solvency ratios, 3:551–555

covered bonds, 5:306covered calls, 6:130–133covering, of positions, 5:40CP. see commercial paperCPI. see French consumer prince index;

US Consumer Price IndexCPI-U. see Consumer Price Index for All

Urban ConsumersCPR. see conditional prepayment rate

CRA International Inc., 3:155crashes, 6:42crawling band currency regimes, 2:522,

526crawling peg currency regimes, 2:522,

525–526Crazy Eddie’s, 3:577CRB Index. see Commodity Research

Bureau Indexcreative destruction theory, 2:306credibility

of central banks, 2:372of monetary and fiscal policy mix,

2:407

creditand accounts receivable management,

4:161as drag on liquidity, 4:144for short-term financing, 4:175–176trade, 4:171, 172as underlying, 6:37–38

credit accounts, 4:162–163

credit analysis, 3:372–375; 5:571–641capital structure in, 5:574–575for corporate debt securities,

5:589–608credit rating process, 3:372–374credit risk

defined, 5:572–574return vs., 5:609–617

defined, 3:647four Cs framework, 5:590–608

capacity, 5:590–605character, 5:607–608collateral, 5:605–606covenants, 5:606–607Watson Pharmaceuticals Inc. case

study, 5:597–605functions of, 5:571–572high-yield, 5:618–625

debt structure and leverage in,5:620–622

and non-investment grade ratings,5:618

special considerations, 5:618, 622–625for municipal debt, 5:630–631practice problems, 5:636–639by ratings agencies, 5:580–589

credit ratings, 5:581–582issuer vs. issue ratings, 5:582–584risks of relying on ratings, 5:584–589use of ratings, 5:580–581

recovery rates in, 5:576–579

research on ratios in, 3:374–375seniority ranking in, 5:575–576solutions to problems, 5:640–641for sovereign debt, 5:625–629

framework, 5:626–628in Portugal, 5:628–629sovereign debt defaults, 5:625–626

credit analysts, 3:31credit card networks, barriers to entry

for, 5:206–207credit card receivable-backed securities,

5:493–494credit crisis (2007-2009), 2:387, 391,

392; 5:159, 306. see also globalfinancial crisis (2007-2009)

credit curve, 5:616–617

credit cycle, 5:577–578, 611credit default swaps (CDSs), 5:25, 34;

6:31–33, 37credit derivatives, 6:30–33credit duration, 5:528, 555credit enhancement

for auto loan receivable-backedsecurities, 5:491

and bond indenture, 5:306–307defined, 5:302external, 5:307, 486internal, 5:306–307, 485–486non-agency residential mortgage-

backed securities, 5:485–487

credit insurance, 4:161credit limits, 4:145credit lines

restrictions on, 4:145for short-term financing, 4:175–176

credit-linked coupon bonds, 5:322credit-linked notes, 6:31Credit Lyonnais Securities Asia Group,

4:191–192credit migration, 5:573creditors, business risk for, 4:100–102credit quality

classifying fixed-income markets by,5:344–345

of commercial paper, 5:368–369and repo margin, 5:379of sovereign bonds, 5:362–363

credit rating agencies, 5:580–589basis for ratings, 5:581–582fallibility of, 5:586opinions of, 1:33–34risks of relying on, 5:584–589in securitization process, 5:464use of, 5:580–581

credit ratingsbasis for, 5:581–582country risk and, 4:60for issuer vs. issue, 5:582–584non-investment grade, 5:618risks of relying on, 5:584–589and special purpose vehicles, 5:467use of, 5:580–581

credit risk, 5:572–574assessing, 3:647–650attributes and safety measures, 4:157with commercial mortgage-backed

securities, 5:487with corporate notes/bonds, 5:372and credit default swaps, 6:32

and credit derivatives, 6:30defined, 3:372, 647with fixed-income securities, 5:297,

555–556with non-agency RMBS, 5:485with repurchase agreements, 5:379return vs., 5:609–617and yield-to-maturity, 5:421

Credit Roundtable, 5:607credits

in accounting systems, 3:72–73, 76–92BOP system, 2:456–457unused tax, 3:489–490

credit sales, revenues and, 3:598–599credit scoring model, 4:163credit services, financial institutions’,

5:32–33credit spread options, 6:30–31credit spreads

and credit ratings, 5:586, 587defined, 5:467term structure of, 5:406

Credit Suisse, 5:210credit tranching, 5:466credit-worthiness, 4:145, 163, 177CRH, 1:397“Critical Accounting Estimates”

(MD&A), 3:582–583critical value, 1:612–614Croatia, 2:522; 5:96


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crop types (farmland investments), 6:189cross-border real estate investments,

6:185cross-default provisions, 5:583cross-departmental conicts, 1:151crossing networks, derivatives pricing

rule for, 5:57cross-price elasticity of demand,

2:51–52calculating, 2:53in perfect competition, 2:161

cross-rates, currency, 2:505, 507–511cross-sectional common-size analysis,

3:252–254cross-sectional data, 1:379, 569, 571cross-sectional mean, 1:380–381cross-sectional pricing anomalies, 5:130,

132–133cross-sectional ratio analysis, 3:332–333,

340cross-sectional regression analysis, 2:194crowding out, 2:393CRSP. see Center for Research in

Security Pricesculture, corporate, 3:617–618cumulative distribution function,

1:516–517, 529cumulative frequency, 1:368–372cumulative frequency distributions,

1:376–377cumulative preference shares, 5:160, 171cumulative probabilities, 1:722–723cumulative relative frequency,

1:368–369cumulative voting, 4:222–223; 5:156currency(-ies), 5:14

in business cycles, 2:304classifying fixed-income markets by,

5:345

for fixed-income securities, 5:299–300foreign central bank purchases of,2:461–462

FX conventions for, 2:487–488in markets, 5:19–20for sovereign bonds, 5:362–363in sovereign credit analysis, 5:627as underlying, 6:5, 37 ( see also specic

currencies)and yield-to-maturity, 5:421

currency board system (CBS), 2:522,524–525

currency codes, FX market, 2:487currency contracts, 5:39currency exchange rates, 2:485–548

and aggregate deman

2015 l1 cumulative index

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