LEVEL 2 BOOK 0: CONTENTS Foreword 2.2. eseeeeeeeeeeeee 2 Exhies (Study Sessions 1 & 2) 3 ‘Quantitative Methods (Study Session 3). . Boe Economics (Study Session 4) ...- Financial Statement Analysis (Study Sessions 5, 6, 8 7) eee Corporate Finance (Study Sessions 8 & 9) . - 50 Equity Investments (Study Sessions 10-13)... 0.0.0.0 ccc cece 54 Fixed Income (Study Sessions 14 815) ...00000..c0c0eeeeeeeeeeres OI Derivative Investments (Study Sessions 16 & 17) . sees 76 Portfolio Management (Study Session 18) 5 a Required CEA Insitue® disdimer: “CFA® and Chartered Financial Analyst ae ademarks ‘owned by the CFA Irtitue®, CFA stitute doesnot endorse, promote, review, accuracy ofthe prods or services offered by Schweser.” warn the ‘These materials may not be copied withour written permission fom the author. The unauthorized duplication ofthese materials isa violation of lobal copyright aws and the CFA Institue® Code of Echis. Your asstance in pursuing potential violators of these awsis ready appreciated. Dischimer:SchweserS Level 2 Book 0 should be used in conjunction withthe orginal readings as set forth by CFA Insute® in che 2008 CFA Level 2 Seudy Guide. The information coneained in this book covers pics contained in the readings referenced by CFA Institte® and is believed to be accurate. However is accuracy cannot be guaranteed nor is any waranty conveyed 38 to your ulate cram success. The authors ofthe referenced readings have not endorsed or sponcored this book, nor ate chy affliated with SchweserFOREWORD ‘Welcome to Book 0 for 2008! Level 2 Book 0 is a review of the topics from Level 1 that provide a foundation for Level 2—topics that the writers of the 2008 Level 2 exam assume you are familiar with when you study for and then sit for the exam. Our intention in this book is te show you how those concepts relate to material in the Level 2 curriculum. For example, the Level 2 quantitative methods material assumes that you remember hypothesis testing from Level 1. To set you up for success at Level 2, Book 0 contains a tharough review of the key quantitative methods, economics, financial statement analysis, corporate finance, Fixed income, derivatives, and portfolio management concepts from Level 1 You will see concepts on the Level 2 exam that you saw at Level 1, but they will be tested from a different perspective. Remember, Level 1 is all about foundation and Level 2is all about valuation. Your understanding of how all 18, of the Level 2 study sessions relate to one another is much mote vital this year than it was at Level 1 ‘As you read through Book 0, it may seem like there isa great quantity of review material, and there is ~ neatly all the 2008 Level 2 study sessions are represented. This is because a majority of the material at Level 2 builds on ‘material from Level 1. For example, che derivatives material at Level 2 assumes that you remember the payoffs co call and put options and can apply that knowledge to value those options. Icis important co mention thac the format of the Level 2 exam is different from that at Level 1. The Level 2 exam isall item set, meaning a vignette allowed by six multiple choice questions on the informacion in that vignette. There are 10 jem sets in the moraing session and 10 item sets in the afternoon session, for a total of 120 questions worth three points ezch. You will not see Level 1 concepts tested at Level 2, but an understanding of Level 1 concepts is necessary to master che Level 2 concepts you need to know to be successful at Level 2 ‘The Level 2 CFA exam is 2 grueling mental as well as physical challenge thac is not to be taken lightly. However, your hard work and dedication combined with our high-quality study materials are your key to exam-day success. We wish you all the best for your studies at Level 2. De. Tie Swaby Gadi foackioe Ds. Tim Smaby, CFA Jedi Joachim, CFA, Senior Vice President and Level 2 Manager Director of Content Development and Level 2 Content Specialist Schvweser, a Kaplan Professional Company _Schweset,a Kaplan Professional Company (2008 SchererLeveL 2 Book 0 ey aS STO) a ‘At Level 2, your knowicdge of the cthics material temains extremely ‘important ro your overall success on the exam. The core of the ethics material, the Code and Standards, remains the same as it was at Level 1, $0 ‘We recommend spending about 80% of your ethics seudy time on the ‘Standards of Professional Conduct. However, there are two imporiant differences in ethics from Level 1. At Level 2: + ‘There is asecond Bthics Study Session (#2) at Level 2 that contains some - addicional readings that may be tested, including the CFA lastitute Soft ‘Dollac Standards, the CPA Insticire Research Objectivicy Standards, and. the New. Prudent Investor Rule. Spend the other 20% of your ethics study time on these topics. + ‘Thete are no L.O8 related to Global Investment Performance Standards (GPse) “Afyout have not caken a CFA exam since 2006, be aware that there is a now a 9th edition of the Standards of Practice Handbook. As always, we ‘ccomiidend that you purchase the original Standards of Practice Handbook ‘or download ic fom CFA Inscinute's website. ‘©2008 Schweser