CFA Level 1 Curriculum Changes from 2018 to 2019

For 2019, the major change is the addition of one reading – Fintech – in the Portfolio Management study session. This reading summarizes new technologies in the investment world such as big data, machine learning, distributed ledgers, and even Bitcoin.

There has also been the deletion of the Financial Reporting Mechanics reading, which should not have a material impact for candidates re-taking the exam in 2019.

The area weights have also changed slightly. Most candidates will be happy to see that Financial Reporting and Analysis is now worth 5% less in the exam:

TOPIC
AREA
2019 2018
Ethics & Professional Standards 15% 15%
Quantitative Methods 10% 12%
Economics 10% 10%
Financial Reporting & Analysis 15% 20%
Corporate Finance 10% 7%
Equity Investments 11% 10%
Fixed Income 11% 10%
Derivative Investments 6% 5%
Alternative Investments 6% 4%
Portfolio Management & Wealth Management 6% 7%

 

Apart from that, here are some LOS changes that the candidate should take into account while preparing for the exam. (Deletions are in red and additions are in green.)

 

Reading 22 – Financial Reporting Mechanics (deleted)

 

2018 Curriculum

2019 Curriculum

Reading 10 – Common Probability Distributions

LOS 10a: define a probability distribution and distinguish between discrete and continuous random variables and their probability functions LOS 10a: define a probability distribution and distinguish between discrete and continuous random variables and their probability functions
LOS 10b: describe the set of possible outcomes of a specified discrete random variable LOS 10b: describe the set of possible outcomes of a specified discrete random variable
LOS 10c: interpret a cumulative distribution function LOS 10c: interpret a cumulative distribution function
LOS 10d: calculate and interpret probabilities for a random variable, given its cumulative distribution function LOS 10d: calculate and interpret probabilities for a random variable, given its cumulative distribution function
LOS 10e: define a discrete uniform random variable, a Bernoulli random variable, and a binomial random variable LOS 10e: define a discrete uniform random variable, a Bernoulli random variable, and a binomial random variable
LOS 10f: calculate and interpret probabilities given the discrete uniform and the binomial distribution functions LOS 10f: calculate and interpret probabilities given the discrete uniform and the binomial distribution functions
LOS 10g: construct a binomial tree to describe stock price movement LOS 10g: construct a binomial tree to describe stock price movement
LOS 10h: calculate and interpret tracking error LOS 10h: define the continuous uniform distribution and calculate and interpret probabilities, given a continuous uniform distribution
LOS 10i: define the continuous uniform distribution and calculate and interpret probabilities, given a continuous uniform distribution LOS 10i: explain the key properties of the normal distribution
LOS 10j: explain the key properties of the normal distribution LOS 10j: distinguish between a univariate and a multivariate distribution and explain the role of correlation in the multivariate normal distribution
LOS 10k: distinguish between a univariate and a multivariate distribution and explain the role of correlation in the multivariate normal distribution LOS 10k: determine the probability that a normally distributed random variable lies inside a given interval
LOS 10l: determine the probability that a normally distributed random variable lies inside a given interval LOS 10l: define the standard normal distribution, explain how to standardize a random variable, and calculate and interpret probabilities using the standard normal distribution
LOS 10m: define the standard normal distribution, explain how to standardize a random variable, and calculate and interpret probabilities using the standard normal distribution LOS 10m: define shortfall risk, calculate the safety-first ratio, and select an optimal portfolio using Roy’s safety-first criterion
LOS 10n: define shortfall risk, calculate the safety-first ratio, and select an optimal portfolio using Roy’s safety-first criterion LOS 10n: explain the relationship between normal and lognormal distributions and why the lognormal distribution is used to model asset prices
LOS 10o: explain the relationship between normal and lognormal distributions and why the lognormal distribution is used to model asset prices LOS 10o: distinguish between discretely and continuously compounded rates of return and calculate and interpret a continuously compounded rate of return, given a specific holding period return
LOS 10p: distinguish between discretely and continuously compounded rates of return and calculate and interpret a continuously compounded rate of return, given a specific holding period return LOS 10p: explain Monte Carlo simulation and describe its applications and limitations
LOS 10q: explain Monte Carlo simulation and describe its applications and limitations LOS 10q: compare Monte Carlo simulation and historical simulation
LOS 10r: compare Monte Carlo simulation and historical simulation

Reading 20 – Currency Exchange Rates

LOS20a: define an exchange rate and distinguish between nominal and real exchange rates and spot and forward exchange rates LOS20a: define an exchange rate and distinguish between nominal and real exchange rates and spot and forward exchange rates
 LOS20b: describe functions of and participants in the foreign exchange market  LOS20b: describe functions of and participants in the foreign exchange market
LOS20c: calculate and interpret the percentage change in a currency relative to another currency LOS20c: calculate and interpret the percentage change in a currency relative to another currency
LOS20d: calculate and interpret currency cross-rates LOS20d: calculate and interpret currency cross-rates
LOS20e: convert forward quotations expressed on a points basis or in percentage terms into an outright forward quotation LOS20e: convert forward quotations expressed on a points basis or in percentage terms into an outright forward quotation
 LOS20f: explain the arbitrage relationship between spot rates, forward rates, and interest rates  LOS20f: explain the arbitrage relationship between spot rates, forward rates, and interest rates
 LOS20g: calculate and interpret a forward discount or premium  LOS20g: calculate and interpret a forward discount or premium
LOS20h: calculate and interpret the forward rate consistent with the spot rate and the interest rate in each currency LOS20h: calculate and interpret the forward rate consistent with the spot rate and the interest rate in each currency
LOS20i: describe exchange rate regimes LOS20i: describe exchange rate regimes
LOS 20j: explain the effects of exchange rates on countries’ international trade and capital flows

Reading 40  – Portfolio Risk and Return Part II

LOS 40a: describe the implications of combining a risk-free asset with a portfolio of risky assets LOS 41a: describe the implications of combining a risk-free asset with a portfolio of risky assets
 LOS 40b: explain the capital allocation line (CAL) and the capital market line (CML)  LOS 41b: explain the capital allocation line (CAL) and the capital market line (CML)
 LOS 40c: explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk  LOS 41c: explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk
 LOS 40d: explain return generating models (including the market model) and their uses  LOS 41d: explain return generating models (including the market model) and their uses
 LOS 40e: calculate and interpret beta  LOS 41e: calculate and interpret beta
LOS 40f: explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML) LOS 41f: explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML)
 LOS 40g: calculate and interpret the expected return of an asset using the CAPM  LOS 41g: calculate and interpret the expected return of an asset using the CAPM
 LOS 40h: describe and demonstrate applications of the CAPM and the SML  LOS 41h: describe and demonstrate applications of the CAPM and the SML
LOS 41i: calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen’s alpha

Reading 43  – Fintech in Investment Management

LOS 43a: describe “fintech”
  LOS 43b: describe Big Data, artificial intelligence, and machine learning
   LOS 43c: describe fintech applications to investment management
   LOS 43d: describe financial applications of distributed ledger technology

Reading 49 – Equity Valuation – Concepts and Basic Tools

 LOS 49a: evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market  LOS 49a: evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market
 LOS 49b: describe major categories of equity valuation models  LOS 49b: describe major categories of equity valuation models
LOS 49c: explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models LOS 49c: describe regular cash dividends, extra dividends, stock dividends, stock splits, reverse stock splits, and share repurchases
LOS 49d: calculate the intrinsic value of a non-callable, non-convertible preferred stock LOS 49d: describe dividend payment chronology
LOS 49e: calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate LOS 49e: explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
LOS 49f: identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate LOS 49f: calculate the intrinsic value of a non-callable, non-convertible preferred stock
 LOS 49g: explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables LOS 49g: calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
 LOS 49h: calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value LOS 49h: identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
LOS 49i: describe enterprise value multiples and their use in estimating equity value  LOS 49i: explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables
 LOS 49j: describe asset-based valuation models and their use in estimating equity value  LOS 49j: calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value
 LOS 49k: explain advantages and disadvantages of each category of valuation model LOS 49k: describe enterprise value multiples and their use in estimating equity value
 LOS 49l: describe asset-based valuation models and their use in estimating equity value
 LOS 49m: explain advantages and disadvantages of each category of valuation model

Reading 51 – Fixed Income Markets: Issuance, Trading, and Funding

LOS 51a: describe classifications of global fixed-income markets LOS 51a: describe classifications of global fixed-income markets
 LOS 51b: describe the use of interbank offered rates as reference rates in floating-rate debt  LOS 51b: describe the use of interbank offered rates as reference rates in floating-rate debt
LOS 51c: describe mechanisms available for issuing bonds in primary markets LOS 51c: describe mechanisms available for issuing bonds in primary markets
LOS 51d: describe secondary markets for bonds LOS 51d: describe secondary markets for bonds
 LOS 51e: describe securities issued by sovereign governments  LOS 51e: describe securities issued by sovereign governments
 LOS 51f: describe securities issued by non-sovereign governments, quasi-government entities, and supranational agencies  LOS 51f: describe securities issued by non-sovereign governments, quasi-government entities, and supranational agencies
 LOS 51g: describe types of debt issued by corporations  LOS 51g: describe types of debt issued by corporations
LOS 51h: describe short-term funding alternatives available to banks LOS 51h: describe structured financial instruments
LOS 51i: describe repurchase agreements and the risks associated with them LOS 51i: describe short-term funding alternatives available to banks
LOS 51j: describe repurchase agreements and the risks associated with them

Reading 52: Introduction to Fixed Income Valuation

LOS 52a: calculate a bond’s price given a market discount rate LOS 52a: calculate a bond’s price given a market discount rate
 LOS 52b: identify the relationships among a bond’s price, coupon rate, maturity, and market discount rate (yield-to-maturity)  LOS 52b: identify the relationships among a bond’s price, coupon rate, maturity, and market discount rate (yield-to-maturity)
 LOS 52c: define spot rates and calculate the price of a bond using spot rates  LOS 52c: define spot rates and calculate the price of a bond using spot rates
LOS 52d: describe and calculate the flat price, accrued interest, and the full price of a bond LOS 52d: describe and calculate the flat price, accrued interest, and the full price of a bond
LOS 52e: describe matrix pricing LOS 52e: describe matrix pricing
LOS 52f: calculate and interpret yield measures for fixed-rate bonds, floating-rate notes, and money market instruments LOS 52f: calculate and interpret yield measures for fixed-rate bonds, floating-rate notes, and money market instruments
 LOS 52g: define and compare the spot curve, yield curve on coupon bonds, par curve, and forward curve  LOS 52g: define and compare the spot curve, yield curve on coupon bonds, par curve, and forward curve
 LOS 52h: define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates  LOS 52h: define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates
LOS 52i: compare, calculate, and interpret yield spread measures.

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