The topicaL coverage corresponds with the foLLowing CFA Institute assigned reading:

9. Common Probability Distributions

The candidate should be able to:

a. explain a probability distribution and distinguish between discrete and

continuous random variables. (page 239)

b. describe the set of possible outcomes of a specified discrete random

variable. (page 239)

c. interpret a probability function, a probability density function, and a

cumulative distribution function, and calculate and interpret

probabilities for a random variable, given its cumulative distribution

function. (page 240)

d. define a discrete uniform random variable and a binomial random

variable, calculate and interpret probabilities given the discrete uniform

and the binomial distribution functions, and construct a binomial tree to

describe stock price movement. (page 241)

e. describe the continuous uniform distribution, and calculate and interpret

probabilities, given a continuous uniform probability distribution. (page 246)

f. explain the key properties of the normal distribution, distinguish

between a univariate and a multivariate distribution, and explain the role

of correlation in the multivariate normal distribution. (page 247)

g. construct and interpret a confidence interval for a normally distributed

random variable, and determine the probability that a normally

distributed random variable lies inside a given confidence interval. (page 249)

h. define the standard normal distribution, explain how to standardize a

random variable, and calculate and interpret probabilities using the

standard normal distribution. (page 251)

1. define shortfall risk, calculate the safety-first ratio, and select an optimal

portfolio using Roy's safety-first criterion. (page 257)

j. explain the relationship between normal and lognormal distributions and

why the lognormal distribution is used to model asset prices. (page 259)

k. 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. (page 260)

1. explain Monte Carlo simulation and historical simulation, and describe

their major applications and limitations. (page 262)

The topicaL coverage corresponds with the foLLowing CFA Institute assigned reading:

10. Sampling and Estimation

The candidate should be able to:

a. define simple random sampling, sampling error, and a sampling

distribution, and interpret sampling error. (page 275)

b. distinguish between simple random and stratified random sampling. (page 276)

c. distinguish between time-series and cross-sectional data. (page 277)

d. interpret the central limit theorem and describe its importance. (page 277)

©2008 Schweser Page 9

Ethics and Professional Standards and Quantitative Methods

Readings and Learning Outcome Statements

e. calculate and interpret the standard error of the sample mean. (page 278)

f. distinguish bet\.'een a poim cStil11Jte and ;1 confidence interval estimate

of a population parallleter. (page 280)

g. identify and describe the desirable properries of an estimator. (page 281)

h. explain the constructiOl1 of confidcnce intervals. (page 280)

I. describe the properties of Student's t-distribution, and calculate and

interpret its degrees offreedoill. (page 281)

J. calculate and interpret a confidence interval for a population mean, given

a normal distribution with 1) a known population variance, 2) an

unknown population variance, or 3) an unknown variance and the

sample size is large. (page 284)

k. discuss the issues regarding selection of the appropriate sample size, data•

mining bias, sample seleerion bias, survivors\lip bias, look-ahead bias,

and time-period bias. (page 288)

Page 10

11.

12.

The topical coverage conespollds with the following CFA Imtitute assigned reading:

Hypothesis Testing

The candidate should be able to:

a. define a hypothesis, describe the steps of hypothesis testing, interpret and

discuss the choice of the null hypothesis and alternative hypothesis, and

distinguish between one-tailed and two-tailed tests of hypotheses.

(page 300)

b. define and interpret a test statistic, a l)'pe I and a Type II error, and a

significance level, and explain how significance levels are used in

hypothesis testing. (page 305)

c. define and intetptet a decision rule and the power of a test, and explain

the relation between confidence intervals and hypothesis tests. (page 306)

d. distinguish between a statistical result and an economically meaningful

result. (page 309)

e. identify the appropriate test statistic and interpret the results for a

hypothesis test concerning 1) the population mean of a normally

distributed population with a) known or b) unknown variance, 2) the

equality of the population means of tvm normaJly distributed

populations, based on independent random samples with a) equal or

b) unequal assumed variances, and 3) the mean difference of two

normally distributed populations (paired comparisons test). (page 309)

f. identify the appropriate test statis[ic and interpret the results for a

hypothesis test conceming ]) the variance of a normally distributed

population, and 2) the equality of the variances of two normally

distributed populations, based on two independent random samples.

(page 321)

g. distinguish between parametric and non parametric tests and describe the

situations in which the use of non parametric tests may be appropriate.

(page 328)

The topical coverage conesponds with the following CFA Institute assigned reading:

Technical Analysis

The candidate should be able to:

a. explain the underlying assumptions of tecllllical analysis. (page 340)

b. discuss the advan tages of and challenges to tech nical analysis. (page 341)

c. list and describe examples of each major category of technical trading

rules and indicators. (page 342)

©l008 Schweser

The following is a review of the Ethical and Professional Standards principles designed to address the

learning outcome statements set forth by CFA Institute®. This topic is also covered in:

CFA INSTITUTE CODE OF ETHICS AND

STANDARDS OF PROFESSIONAL

CONDUCT GUIDANCE FOR

STANDARDS I-VII

Study Session 1

EXAM POCUS

In addition to reading this review of the

ethics material, we strongly tecommend

that all candidates for the CFA®

examination read the Standards ofPractice

Handbook 9th Edition (2005) multiple

times. As a registered candidate, it is your

responsibility to own a copy of the Code

and Standards and to comply with the Code and Standards. The Code and Standards are reprinted in Volume 1 of

the CFA Program Curriculum.

CPA INSTITUTE CODE OF ETHICS AND STANDARDS OF PROFESSIONAL

CONDUCT

----------------------------------

LOS l.a: Describe the structure of the CFA Institute Professional Conduct

Program and the process for the enforcement of the Code and Standards.

The CFA Institute Professional Conduct Ptogram is covered by the CFA Institute

Bylaws and the Rules of Procedure for Proceedings Related to Professional Conduct.

The Program is based on the principles of fairness of the process to members and

candidates and maintaining the confidentiality of the proceedings. The Disciplinary

Review Committee of the CPA Institute Board of Governors has overall responsibility

for the Professional Conduct Program and enforcement of the Code and Standards.

The CFA Institute Designated Officer, through the Professional Conduct staff,

conducts inquiries related to professional conduct. Several circumstances can prompt

such an inquiry:

1. Self-disclosure by members or candidates on their annual Professional Conduct

Statements of involvement in civil litigation or a criminal investigation, or that the

member or candidate is the subject of a written complaint.

2. Written complaints about a member or candidate's professional conduct that are

received by the Professional Conducr staff.

3. Evidence of misconduct by a member or candidate that the Professional Conduct

staff received through public sources, such as a media article or broadcast.

4. A report by a CFA exam proctor of a possible violation during the examination.

Page 11

Cross-Reference to CPA Institute Assigned Readings #1 & 2 - Standards of Practice Handbook

Once an inquiry is begun, the Professional Conduct staff may request (in writing) an

explanation from the subject member or candidate, and may: i) interview the subject

member or candidate, ii) interview the complainant or other third parties, and/or iii)

collect documents and records relevant to the investigation.

The Designated Officer may decide: i) that no disciplinary sanctions are appropriate,

ii) to issue a cautionary letter, or iii) to discipline the member or candidate. In a case

where the Designated Officer finds a violation has occurred and proposes a disciplinary

sanction, the member or candidate may accept or reject the sanction. If the member or

candidate chooses to reject the sanction, the matter will be referred to a panel of CFA

Institute members for a hearing. Sanctions imposed may include condemnation by the

member's peers or suspension of candidate's continued participation in the CFA

Program.

LOS l.b: State the six components of the Code of Ethics and the seven

Standards of Professional Conduct.

CODE OF ETHICS

Members of CFA Institute [including Chartered Financial Analyst® (CFA®)

charterholders] and candidates for the CFA designation ("Members and Candidates")

must: 1

• Act with integrity, competence, diligence, respect, and in an ethical manner with

the public, clients, prospective clients, employers, employees, colleagues in the

investment profession, and other participants in the global capital markets.

• Place the integrity of the investment profession and the interests of clients above

their own personal interests.

• Use reasonable care and exercise independent professional judgment when

conducting investment analysis, making investment recommendations, taking

investment actions, and engaging in other professional activities.

• Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.

• Promote the integrity of, and uphold the rules governing, capital markets.

• Maintain and improve their professional competence and strive to maintain and

improve the competence of other investment professionals.

1. Copyright 2005, CFA Institute. Reproduced and republished from "The Code of Ethics," from Standards ofPractice Handbook, 9th Ed., 2005, with permission from CFA Institute. All rights reserved.

Page 12 ©2008 Schweser

Cross-Reference to CFA Institute Assigned Readings #1 & 2 - Standards of Practice Handbook

THE STANDARDS OF PROFESSIONAL CONDUCT

I: Professionalism

II: Integrity of Capital Markets

III: Duties to Clients

IV: Duties to Employers

V: Investment Analysis, Recommendations, and Actions

VI: Conflicts of Interest

VII: Responsibilities as a CFA Institute Member or CFA Candidate

LOS I.e: Explain the ethical responsibilities required by the Code and

Standards, including the multiple subsections of each Standard.

STANDARDS OF PROFESSIONAL CONDUCT 2

I. PROFESSIONALISM

A. Knowledge of the Law. Members and Candidates must understand and

comply with all applicable laws, rules, and regulations (including the CFA

Institute Code ofEthics and Standards ofProfessional Conduct) of any

government, regulatory organization, licensing agency, or professional

association governing their professional activities. In the event of conflict,

Members and Candidates must comply with the more strict law, rule, or

regulation. Members and Candidates must not knowingly participate or assist in any violation of laws, rules, or regulations and must disassociate

themselves from any such violation.

B. Independence and Objectivity. Members and Candidates must use

reasonable care and judgment to achieve and maintain independence and

objectivity in their professional activities. Members and Candidates must

not offer, solicit, or accept any gift, benefit, compensation, or consideration

that reasonably could be expected to compromise their own or another's

independence and objectivity.

C. Misrepresentation. Members and Candidates must not knowingly make any

misrepresentations relating to investment analysis, recommendations,

actions, or other professional activities.

D. Misconduct. Members and Candidates must not engage in any professional

conduct involving dishonesty, fraud, or deceit or commit any act that

reflects adversely on their professional reputation, integrity, or competence.

II. INTEGRITY OF CAPITAL MARKETS

A. Material Nonpublic Information. Members and Candidates who possess

material nonpublic information that could affect the value of an investment

must not act or cause others to act on the information.

2. Ibid.

©2008 Schweser Page 13