#CFA Revision

1. Revise entire CFA syllabus 6 days
Ethics and Corporate Finance
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2. Tips-n-Tricks : Ethics
•Never judge an ethical case keeping your own self in the shoe of the subject. Your ethical values
might not be impacted in the given situation but that is not a general situation.
•Always remember, in cases where more than one country’s laws and the CFA Program standards
apply, you must follow the strictest law.
•Participation in IPO is another confusing area in ethics. Please remember CFA Program Institute
doesn’t prohibit portfolio managers or anyone else from participating in IPOs as long as pro-rata
allocation is ensured for all clients by some pre-determined logic. At the same time, one needs to be
mindful of any country specific rule which may prohibit participation in IPOs, in that case stricter rule
will follow.
•You must remember that trading based on ONLY Material Non-Public information is NOT allowed.
Seeing the senior management of two companies that might be candidates for a merger together
having dinner at a restaurant is non-material. Trading based on that information IS allowed.
•You can NEVER take any client information or any financial models or documents you made, once
you resign from a company. You cannot take a client’s non-public contact information. However,
you can use the knowledge and skills you have developed in the next job.
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3. Tips-n-Tricks : Ethics: Contd…
•Remember, using third party research to base investment decisions is allowed under standard V (A) –
Diligence and Reasonable Basis. However, the analyst MUST first analyze (i) the underlying assumptions (ii)
understand how rigorous the analysis is (iii) Identify the timeliness of the report (iv) the independence and
objectivity of the research recommendation. If these are not mentioned, that means it is a violation of this
standard.
•Violations related to plagiarism are under standard I C) Professionalism - Misrepresentation. Often people
confuse it with II Integrity of Capital Markets or IV Investment Analysis, Recommendations & Actions.
•Look at the closest possible match for the violation from all the standards and sub-standards. Eg Even
though cheating in the CFA examination (or any other exam) is a Misconduct, it is considered a violation of
Standard VII- Responsibility as a CFA Institute member which specifically covers cheating, rather than the
substandard Misconduct which falls under Standard I Professionalism.
•Standard III B- Fair Dealing- Fairly doesn’t mean equally. Its ok to have different service levels as long as its
disclosed to all the clients.
•Ethical values are means and not end. Never judge an ethics case by its outcome. Even if a particular act
gives a positive result but is done unethically its still unethical
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4. Tips-n-Tricks : Corporate Finance
•In this session, we will take a look at the Commandments and Sins of Corporate Finance.
•General Tip – revise your financial calculator formula for PV; IR; NPV very thoroughly as few
questions will be answered directly based on it. The BA II Plus Professional has a built-in option to
calculate the PB and DBP but BA II Plus doesn’t . So learn how to calculate these manually as well.
•Corporate Finance is linked to Equity, FRA, Ethics and Fixed Income. So its much easier to do it once
you have already done the other parts.
•If we are asked to choose 1 project among 2 where the decision based on NPV and IRR conflicts,
chose the project that has the higher NPV.
•While calculating the cost of capital, remember to always consider the after tax cost of debt.
Remember the WACC formula.
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5. Tips-n-Tricks : Corporate Finance Contd…
•Treatment of Flotation Costs – Adjust them to the initial project cost and not added to cost of
capital, since it’s a one-time cost and not a recurring one.
•Country Risk Premium = Sovereign Yield Spread * (std dev Equity Index of Developing Country/std
dev Sovereign Bond in terms of the developed market currency)
•The revised CAPM formula: Cost of Equity = Rf + B(E(Rm)-Rf + CRP)
•Remember that while calculating interest rate in PV formula, PV should be negative and FV should
be positive. If you keep both as the same sign, you get “Error 7” on the calculator.
•h) Don’t confuse between opportunity costs and Sunk costs. Sunk costs are not considered for
capital budgeting decisions while opportunity costs always are.
•i) Operating & Financial leverage and Break-even Point formula is very important. Expect 2-3
questions solely based on formula. Similarly expect 1-2 question on DDM formula
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CFA-I Exam - Mock Tests & Questions to check your Preparation Level
•2 Proctored Mock Tests
•Question bank with 1500+ Q & As
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7. Thank You !
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