2023 CFA© Program Curriculum Level I Volume 5: Fixed Income, Derivatives, Alternative Investments, and Portfolio Management

Prepare for success on the 2023 CFA Level I exam with the latest official CFA® Program Curriculum.The 2023 CFA Program Curriculum Level I Box Set contains all the material you need to succeed on the Level I CFA exam in 2023. This set includes the full official curriculum for Level I and is part of the larger CFA Candidate Body of Knowledge (CBOK).Highly visual and intuitively organized, this box set allows you to:Learn from financial thought leaders.Access market-relevant instruction.Gain critical knowledge and skills.The set also includes practice questions to assist with your recall of key terms, concepts, and formulas. The volumes in Level I’s box set are:Volume 1: Quantitative MethodsVolume 2: Economics and Financial Statement AnalysisVolume 3: Financial Statement Analysis and Corporate IssuersVolume 4: Corporate Issuers, Equity, Investments, and Fixed IncomeVolume 5: Fixed Income, Derivatives, Alternative Investments, and Portfolio ManagementVolume 6: Portfolio Management and Ethical and Professional StandardsPerfect for anyone preparing for the 2023 Level I CFA exam, the 2023 CFA Program Curriculum Level I Box Set is a must-have resource for those seeking the foundational skills required to become a Chartered Financial Analyst®. How to Use the CFA Program Curriculum Errata Designing Your Personal Study Program CFA Institute Learning Ecosystem (LES) Feedback Fixed Income Learning Module 1 Understanding Fixed-Income Risk and Return Introduction Sources of Return Macaulay and Modified Duration Macaulay, Modified, and Approximate Duration Approximate Modified and Macaulay Duration Effective and Key Rate Duration Key Rate Duration Properties of Bond Duration Duration of a Bond Portfolio Money Duration and the Price Value of a Basis Point Bond Convexity Investment Horizon, Macaulay Duration and Interest Rate Risk Yield Volatility Investment Horizon, Macaulay Duration, and Interest Rate Risk Credit and Liquidity Risk Empirical Duration Summary References Practice Problems Solutions Learning Module 2 Fundamentals of Credit Analysis Introduction Credit Risk Capital Structure, Seniority Ranking, and Recovery Rates Capital Structure Seniority Ranking Recovery Rates Rating Agencies, Credit Ratings, and Their Role in the Debt Markets Credit Ratings Issuer vs. Issue Ratings ESG Ratings Risks in Relying on Agency Ratings Traditional Credit Analysis: Corporate Debt Securities Credit Analysis vs. Equity Analysis: Similarities and Differences The Four Cs of Credit Analysis: A Useful Framework Credit Risk vs. Return: Yields and Spreads Credit Risk vs. Return: The Price Impact of Spread Changes High-Yield, Sovereign, and Non-Sovereign Credit Analysis High Yield Sovereign Debt Non-Sovereign Government Debt Summary Practice Problems Solutions Derivatives Learning Module 1 Derivative Instrument and Derivative Market Features Introduction Summary Derivative Features Definition and Features of a Derivative Derivative Underlyings Equities Fixed-Income Instruments Currencies Commodities Credit Other Investor Scenarios Derivative Markets Over-the-Counter (OTC) Derivative Markets Exchange-Traded Derivative (ETD) Markets Central Clearing Investor Scenarios Practice Problems Solutions Learning Module 2 Forward Commitment and Contingent Claim Features and Instruments Introduction Summary Forwards Futures Swaps Options Scenario 1: Transact (ST > X) Scenario 2: Do Not Transact (ST < X) Credit Derivatives Forward commitments vs contingent claims Practice Problems Solutions Learning Module 3 Derivative Benefits, Risks, and Issuer and Investor Uses Introduction Summary Derivative Benefits Derivative Risks Issuer Use of Derivatives Investor Use of Derivatives Practice Problems Solutions Learning Module 4 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives Introduction Summary Arbitrage Replication Costs and Benefits Associated with Owning the Underlying Learning Module 5 Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities Introduction Summary Pricing and Valuation of Forward Commitments Pricing versus Valuation of Forward Contracts Pricing and Valuation of Interest Rate Forward Contracts Interest Rate Forward Contracts Practice Problems Solutions Learning Module 6 Pricing and Valuation of Futures Contracts Introduction Summary Pricing of Futures Contracts at Inception MTM Valuation: Forwards versus Futures Interest Rate Futures versus Forward Contracts Forward and Futures Price Differences Interest Rate Forward and Futures Price Differences Effect of Central Clearing of OTC Derivatives Practice Problems Solutions Learning Module 7 Pricing and Valuation of Interest Rates and Other Swaps Introduction Summary Swaps vs. Forwards Swap Values and Prices Practice Problems Solutions Learning Module 8 Pricing and Valuation of Options Introduction Summary Option Value relative to the Underlying Spot Price Option Exercise Value Option Moneyness Option Time Value Arbitrage Replication Factors Affecting Option Value Value of the Underlying Exercise Price Time to Expiration Risk-Free Interest Rate Volatility of the Underlying Income or Cost Related to Owning Underlying Asset Practice Problems Solutions Learning Module 9 Option Replication Using Put–Call Parity Introduction Summary Put–Call Parity Option Strategies Based on Put–Call Parity Put–Call Forward Parity and Option Applications Put–Call Forward Parity Option Put–Call Parity Applications: Firm Value Learning Module 10 Valuing a Derivative Using a One-Period Binomial Model Introduction Summary Binomial Valuation The Binomial Model Pricing a European Call Option Risk Neutrality Practice Problems Solutions Alternative Investments Learning Module 1 Categories, Characteristics, and Compensation Structures of Alternative Investments Introduction Why Investors Consider Alternative Investments Categories of Alternative Investments Investment Methods Summary—Investment Methods for Alternative Investments Methods of Investing in Alternative Investments Advantages and Disadvantages of Direct Investing, Co-Investing, and Fund Investing Due Diligence for Fund Investing, Direct Investing, and Co-Investing Investment and Compensation Structures Summary—Investment and Compensation Structures (GP/LP, Performance Fees, Hurdle Rates, High-Water Marks, Lock-Ups, Waterfall Calculations) Partnership Structures Compensation Structures Common Investment Clauses, Provisions, and Contingencies Practice Problems Solutions Learning Module 2 Performance Calculation and Appraisal of Alternative Investments Summary—Issues in Performance Appraisal Overview of Performance Appraisal for Alternative Investments Common Approaches to Performance Appraisal and Application Challenges Private Equity and Real Estate Performance Evaluation Hedge Funds: Leverage, Illiquidity, and Redemption Terms Calculating Fees and Returns Summary—Calculating Fees and Returns of Alternative Investments Custom Fee Arrangements Alignment of Interests and Survivorship Bias Practice Problems Solutions Learning Module 3 Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds Summary—Private Capital Introduction and Overview of Private Capital Description of Private Equity Description of Private Debt Risk and Return Characteristics of Private Capital Diversification Benefits of Private Capital Real Estate Summary—Real Estate Introduction and Overview of Real Estate Description of Real Estate Forms of Real Estate Investing Risk and Return Characteristics of Real Estate Diversification Benefits of Real Estate Infrastructure Summary—Infrastructure Introduction and Overview of Infrastructure Description of Infrastructure Risk and Return Characteristics of Infrastructure Diversification Benefits of Infrastructure Natural Resources Summary—Natural Resources Introduction and Overview of Natural Resources Description of Commodities Description of Timberland and Farmland Risk and Return Characteristics of Natural Resources Diversification Benefits of Natural Resources Hedge Funds Summary—Hedge Funds Introduction and Overview of Hedge Funds Description of Hedge Funds Forms of Hedge Fund Investments Risk and Return Characteristics of Hedge Funds Diversification Benefits of Hedge Funds Practice Problems Solutions Portfolio Management Learning Module 1 Portfolio Management: An Overview Introduction Portfolio Perspective: Diversification and Risk Reduction Historical Example of Portfolio Diversification: Avoiding Disaster Portfolios: Reduce Risk Portfolio Perspective: Risk-Return Trade-off, Downside Protection, Modern Portfolio Theory Historical Portfolio Example: Not Necessarily Downside Protection Portfolios: Modern Portfolio Theory Steps in the Portfolio Management Process Step One: The Planning Step Step Two: The Execution Step Step Three: The Feedback Step Types of Investors Individual Investors Institutional Investors The Asset Management Industry Active versus Passive Management Traditional versus Alternative Asset Managers Ownership Structure Asset Management Industry Trends Pooled Interest - Mutual Funds Mutual Funds Pooled Interest - Type of Mutual Funds Money Market Funds Bond Mutual Funds Stock Mutual Funds Hybrid/Balanced Funds Pooled Interest - Other Investment Products Exchange-Traded Funds Hedge Funds Private Equity and Venture Capital Funds Summary References Practice Problems Solutions Learning Module 2 Portfolio Risk and Return: Part I Introduction Investment Characteristics of Assets: Return Return Money-Weighted Return or Internal Rate of Return Time-Weighted Rate of Return Annualized Return Other Major Return Measures and their Applications Gross and Net Return Pre-tax and After-tax Nominal Return Real Returns Leveraged Return Historical Return and Risk Historical Mean Return and Expected Return Nominal Returns of Major US Asset Classes Real Returns of Major US Asset Classes Nominal and Real Returns of Asset Classes in Major Countries Risk of Major Asset Classes Risk–Return Trade-off Other Investment Characteristics Distributional Characteristics Market Characteristics Risk Aversion and Portfolio Selection The Concept of Risk Aversion Utility Theory and Indifference Curves Indifference Curves Application of Utility Theory to Portfolio Selection Portfolio Risk & Portfolio of Two Risky Assets Portfolio of Two Risky Assets Portfolio of Many Risky Assets Importance of Correlation in a Portfolio of Many Assets The Power of Diversification Correlation and Risk Diversification Historical Risk and Correlation Historical Correlation among Asset Classes Avenues for Diversification Efficient Frontier: Investment Opportunity Set & Minimum Variance Portfolios Investment Opportunity Set Minimum-Variance Portfolios Efficient Frontier: A Risk-Free Asset and Many Risky Assets Capital Allocation Line and Optimal Risky Portfolio The Two-Fund Separation Theorem Efficient Frontier: Optimal Investor Portfolio Investor Preferences and Optimal Portfolios Summary Practice Problems Solutions Learning Module 3 Portfolio Risk and Return: Part II Introduction Capital Market Theory: Risk-Free and Risky Assets Portfolio of Risk-Free and Risky Assets Capital Market Theory: The Capital Market Line Passive and Active Portfolios What Is the “Market”? The Capital Market Line (CML) Capital Market Theory: CML - Leveraged Portfolios Leveraged Portfolios with Different Lending and Borrowing Rates Systematic and Nonsystematic Risk Systematic Risk and Nonsystematic Risk Return Generating Models Return-Generating Models Decomposition of Total Risk for a Single-Index Model Return-Generating Models: The Market Model Calculation and Interpretation of Beta Estimation of Beta Beta and Expected Return Capital Asset Pricing Model: Assumptions and the Security Market Line Assumptions of the CAPM The Security Market Line Capital Asset Pricing Model: Applications Estimate of Expected Return Beyond CAPM: Limitations and Extensions of CAPM Limitations of the CAPM Extensions to the CAPM Portfolio Performance Appraisal Measures The Sharpe Ratio The Treynor Ratio M2: Risk-Adjusted Performance (RAP) Jensen’s Alpha Applications of the CAPM in Portfolio Construction Security Characteristic Line Security Selection Implications of the CAPM for Portfolio Construction Summary References Practice Problems Solutions CFA® program curriculum 2024 : level I. Vol. 5, Derivatives, alternative investments