CFA L-2

Syllabus

2025
TABLE OF CONTENT
Subjects 1

Chapters 2

Learning Outcomes 4

-Aswini Bajaj
CA, CS, CFA, FRM, CAIA, CIPM, CFP, RV, CCRA, CIIB, CIRA, AIM
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SYLLABUS
Subjects

Readin LOS No. of

Subject Chapters Weightage
g No. Average Total Questions
1-4 Quantitative Methods 4 10 40 5-10% 4-9
5-6 Economics 2 11 34 5-10% 4-9
7-12 Financial Statement Analysis 6 8 56 10-15% 9-13
13-16 Corporate Issuers 4 8 31 5-10% 4-9
17-22 Equity 6 13 75 10-15% 9-13
23-27 Fixed Income 5 10 50 10-15% 9-13
28-29 Derivatives 2 11 21 5-10% 4-9
30-33 Alternative Investments 4 10 29 5-10% 4-9
34-39 Portfolio 6 9 52 10-15% 9-13
40-42 Ethics 3 2 6 10-15% 9-13
TOTAL 42 92 394 100% 88
- There are 2 sessions of 2:15 mins
- Each session has 44 MCQ
- We have taken the Weightage average for convenience

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SYLLABUS
Chapters

No. of
Subject Reading No Reading Name
LOS
1 Multiple Regression 13

Quantitative 2 Time-Series Analysis 15

Methods 3 Machine Learning 5
4 Big Data Projects 7
5 Currency Exchange Rates-Understanding Equilibrium Value 13
Economics
6 Economic Growth 12
7 Intercorporate Investments 3
8 Employee Compensation-Post-Employment and Share-Based 5

Financial Statement 9 Multinational Operations 10

Analysis 10 Analysis of Financial Institutions 6
11 Evaluating Quality of Financial Reports 13
12 Integration of Financial Statement Analysis Techniques 5
13 Analysis of Dividends and Share Repurchases 14

14 Environmental, Social, and Governance (ESG) Considerations in Investment Analysis 4

Corporate Issuers
15 Cost of Capital-Advanced Topics 6
16 Corporate Restructuring 7

17 Equity Valuation-Applications and Processes 8

18 Discounted Dividend Valuation 16

19 Free Cash Flow Valuation 13
Equity
20 Market-Based Valuation-Price and Enterprise Value Multiples 18
21 Residual Income Valuation 11
22 Private Company Valuation 9
23 The Term Structure and Interest Rate Dynamics 11
24 The Arbitrage-Free Valuation Framework 9
Fixed Income 25 Valuation and Analysis of Bonds with Embedded Options 17
26 Credit Analysis Models 8
27 Credit Default Swaps 5
28 Pricing and Valuation of Forward Commitments 7
Derivatives
29 Valuation of Contingent Claims 14
30 Introduction to Commodities and Commodity Derivatives 10

Alternative 31 Overview of Types of Real Estate Investment 5

Investments 32 Investments in Real Estate through Publicly Traded Securities 5
33 Hedge Fund Strategies 9

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No. of
Subject Reading No Reading Name
LOS
34 Economics and Investment Markets 11
35 Analysis of Active Portfolio Management 6
36 Exchange-Traded Funds-Mechanics and Applications 8
Portfolio
37 Using Multifactor Models 7
38 Measuring and Managing Market Risk 12
39 Backtesting and Simulation 8
40 Code of Ethics and Standards of Professional Conduct 2
Ethics 41 Guidance for Standards I–VII 2
42 Application of the Code and Standards-Level II 2

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Learning Outcome
Readin
Reading Name LOS Learning Outcome
g No.
Quantitative Methods
describe how model misspecification affects the results of a regression analysis and how to avoid
a
common forms of misspecification
b describe influence analysis and methods of detecting influential data points
describe the types of investment problems addressed by multiple linear regression and the
c
regression process
evaluate how well a multiple regression model explains the dependent variable by analyzing
d
ANOVA table results and measures of goodness of fit
e explain the types of heteroskedasticity and how it affects statistical inference
formulate a multiple linear regression model, describe the relation between the dependent variable
f
and several independent variables, and interpret estimated regression coefficients
1 Multiple Regression
g formulate and interpret a multiple regression model that includes qualitative independent variables
formulate hypotheses on the significance of two or more coefficients in a multiple regression model
h
and interpret the results of the joint hypothesis tests
calculate and interpret a predicted value for the dependent variable, given the estimated regression
i
model and assumed values for the independent variable
j explain serial correlation and how it affects statistical inference
explain the assumptions underlying a multiple linear regression model and interpret residual plots
k
indicating potential violations of these assumptions
l formulate and interpret a logistic regression model
m explain multicollinearity and how it affects regression analysis
calculate and evaluate the predicted trend value for a time series, modeled as either a linear trend
a
or a log-linear trend, given the estimated trend coefficients
describe factors that determine whether a linear or a log-linear trend should be used with a
b
particular time series and evaluate limitations of trend models
explain the requirement for a time series to be covariance stationary and describe the significance
c
of a series that is not stationary
describe the structure of an autoregressive (AR) model of order p and calculate one- and two-
d
period-ahead forecasts given the estimated coefficients
explain how autocorrelations of the residuals can be used to test whether the autoregressive model
e
fits the time series
f explain mean reversion and calculate a mean-reverting level
contrast in-sample and out-of-sample forecasts and compare the forecasting accuracy of different
g
time-series models based on the root mean squared error criterion
Time-Series h explain the instability of coefficients of time-series models
2
Analysis describe characteristics of random walk processes and contrast them to covariance stationary
i
processes
describe implications of unit roots for time-series analysis, explain when unit roots are likely to occur
j and how to test for them, and demonstrate how a time series with a unit root can be transformed so it
can be analyzed with an AR model
describe the steps of the unit root test for nonstationarity and explain the relation of the test to
k
autoregressive time-series models
explain how to test and correct for seasonality in a time-series model and calculate and interpret a
l
forecasted value using an AR model with a seasonal lag
m explain autoregressive conditional heteroskedasticity (ARCH) and describe how ARCH models can be
explain how time-series variables should be analyzed for nonstationarity and/or cointegration
n
before use in a linear regression
determine an appropriate time-series model to analyze a given investment problem and justify that
o
choice

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Reading Name LOS Learning Outcome
g No.
a describe supervised machine learning, unsupervised machine learning, and deep learning
b describe overfitting and identify methods of addressing it
describe supervised machine learning algorithms—including penalized regression, support vector
3 Machine Learning c machine, k-nearest neighbor, classification and regression tree, ensemble learning, and random
forest—and determine the problems for which they are best suited
d describe unsupervised machine learning algorithms—including principal components analysis, k-
e describe neural networks, deep learning nets, and reinforcement learning
a identify and explain steps in a data analysis project
b describe objectives, steps, and examples of preparing and wrangling data
c evaluate the fit of a machine learning algorithm
4 Big Data Projects d describe objectives, methods, and examples of data exploration
e describe methods for extracting, selecting and engineering features from textual data
f describe objectives, steps, and techniques in model training
g describe preparing, wrangling, and exploring text-based data for financial forecasting
Economics
calculate and interpret the bid–offer spread on a spot or forward currency quotation and describe
a
the factors that affect the bid–offer spread
identify a triangular arbitrage opportunity and calculate its profit, given the bid–offer quotations
b
for three currencies
c explain spot and forward rates and calculate the forward premium/discount for a given currency
d calculate the mark-to-market value of a forward contract
explain international parity conditions (covered and uncovered interest rate parity, forward rate
e
Currency Exchange parity, purchasing power parity, and the international Fisher effect)
Rates- f describe relations among the international parity conditions
5
Understanding evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered
g
Equilibrium Value interest parity to forecast future spot exchange rates
h explain approaches to assessing the long-run fair value of an exchange rate
describe the carry trade and its relation to uncovered interest rate parity and calculate the profit
i
from a carry trade
j explain how flows in the balance of payment accounts affect currency exchange rates
k explain the potential effects of monetary and fiscal policy on exchange rates
describe objectives of central bank or government intervention and capital controls and describe the
l
effectiveness of intervention and capital controls
m describe warning signs of a currency crisis
a compare factors favoring and limiting economic growth in developed and developing economies
describe the relation between the long-run rate of stock market appreciation and the sustainable
b
growth rate of the economy
c explain why potential GDP and its growth rate matter for equity and fixed income investors
contrast capital deepening investment and technological progress and explain how each affects
d
economic growth and labor productivity
e demonstrate forecasting potential GDP based on growth accounting relations
explain how natural resources affect economic growth and evaluate the argument that limited
f
availability of natural resources constrains economic growth
6 Economic Growth
explain how demographics, immigration, and labor force participation affect the rate and
g
sustainability of economic growth
explain how investment in physical capital, human capital, and technological development affects
h
economic growth
i compare classical growth theory, neoclassical growth theory, and endogenous growth theory
j explain and evaluate convergence hypotheses
describe the economic rationale for governments to provide incentives to private investment in
k
technology and knowledge
describe the expected impact of removing trade barriers on capital investment and profits,
l
employment and wages, and growth in the economies involved

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Reading Name LOS Learning Outcome
g No.
Financial Statement Analysis
describe the classification, measurement, and disclosure under International Financial Reporting
a Standards (IFRS) for 1) investments in financial assets, 2) investments in associates, 3) joint ventures,
4) business combinations, and 5) special purpose and variable interest entities
Intercorporate
7 compare and contrast IFRS and US GAAP in their classification, measurement, and disclosure of
Investments
b investments in financial assets, investments in associates, joint ventures, business combinations, and
special purpose and variable interest entities
analyze how different methods used to account for intercorporate investments affect financial
c
statements and ratios
a contrast types of employee compensation
Employee b explain how share-based compensation affects the financial statements
Compensation-Post- explain how to forecast share-based compensation expense and shares outstanding in a financial
8 c
Employment and statement model and their use in valuation
Share-Based d explain how post-employment benefits affect the financial statements
e explain financial modeling and valuation considerations for post-employment benefits
a compare and contrast presentation in (reporting) currency, functional currency, and local currency
describe foreign currency transaction exposure, including accounting for and disclosures about
b
foreign currency transaction gains and losses
analyze how changes in exchange rates affect the translated sales of the subsidiary and parent
c
company
compare the current rate method and the temporal method, evaluate how each affects the parent
d
company’s balance sheet and income statement, and determine which method is appropriate in
Multinational
9 calculate the translation effects and evaluate the translation of a subsidiary’s balance sheet and
Operations e
income statement into the parent company’s presentation currency
f analyze how the current rate method and the temporal method affect financial statements and ratios
analyze how alternative translation methods for subsidiaries operating in hyperinflationary
g
economies affect financial statements and ratios
h describe how multinational operations affect a company’s effective tax rate
i explain how changes in the components of sales affect the sustainability of sales growth
analyze how currency fluctuations potentially affect financial results, given a company’s countries of
j
operation
a describe how financial institutions differ from other companies
b describe key aspects of financial regulations of financial institutions
explain the CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and
Analysis of c
10 sensitivity) approach to analyzing a bank, including key ratios and its limitations
Financial Institutions
d analyze a bank based on financial statements and other factors
e describe other factors to consider in analyzing a bank
f describe key ratios and other factors to consider in analyzing an insurance company
demonstrate the use of a conceptual framework for assessing the quality of a company’s financial
a
reports
b explain potential problems that affect the quality of financial reports
c describe how to evaluate the quality of a company’s financial reports
d evaluate the quality of a company’s financial reports
e describe indicators of earnings quality
f describe the concept of sustainable (persistent) earnings
Evaluating Quality
11 explain mean reversion in earnings and how the accruals component of earnings affects the speed
of Financial Reports g
of mean reversion
h evaluate the earnings quality of a company
i evaluate the cash flow quality of a company
j describe indicators of balance sheet quality
k evaluate the balance sheet quality of a company
l describe indicators of cash flow quality
m describe sources of information about risk

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Reading Name LOS Learning Outcome
g No.
demonstrate the use of a framework for the analysis of financial statements, given a particular
problem, question, or purpose (e.g., valuing equity based on comparables, critiquing a credit rating,
a
obtaining a comprehensive picture of financial leverage, evaluating the perspectives given in
management’s discussion of financial results)
identify financial reporting choices and biases that affect the quality and comparability of
b
companies’ financial statements and explain how such biases may affect financial decisions
Integration of
evaluate the quality of a company’s financial data and recommend appropriate adjustments to
12 Financial Statement
c improve quality and comparability with similar companies, including adjustments for differences in
Analysis Techniques
accounting standards, methods, and assumptions
evaluate how a given change in accounting standards, methods, or assumptions affects financial
d
statements and ratios
analyze and interpret how balance sheet modifications, earnings normalization, and cash flow
e statement related modifications affect a company’s financial statements, financial ratios, and overall
financial condition
Corporate Issuers
describe the expected effect of regular cash dividends, extra dividends, liquidating dividends, stock
a dividends, stock splits, and reverse stock splits on shareholders’ wealth and a company’s financial
ratios
compare theories of dividend policy and explain implications of each for share value given a
b
description of a corporate dividend action
describe types of information (signals) that dividend initiations, increases, decreases, and omissions
c
may convey
d explain how agency costs may affect a company’s payout policy
e explain factors that affect dividend policy in practice
calculate and interpret the effective tax rate on a given currency unit of corporate earnings under
f
Analysis of double taxation, dividend imputation, and split-rate tax systems
13 Dividends and compare stable dividend with constant dividend payout ratio, and calculate the dividend under each
g
Share Repurchases policy
h describe broad trends in corporate payout policies
i compare share repurchase methods
calculate and compare the effect of a share repurchase on earnings per share when 1) the
j repurchase is financed with the company’s surplus cash and 2) the company uses debt to finance the
repurchase
k calculate the effect of a share repurchase on book value per share
l explain the choice between paying cash dividends and repurchasing shares
m calculate and interpret dividend coverage ratios based on 1) net income and 2) free cash flow
n identify characteristics of companies that may not be able to sustain their cash dividend
Environmental, a describe global variations in ownership structures and the possible effects of these variations on
Social, and b evaluate the effectiveness of a company’s corporate governance policies and practices
14
Governance (ESG) c describe how ESG-related risk exposures and investment opportunities may be identified and
Considerations in d evaluate ESG risk exposures and investment opportunities related to a company
a explain top-down and bottom-up factors that impact the cost of capital
b compare methods used to estimate the cost of debt.
c explain historical and forward-looking approaches to estimating an equity risk premium
Cost of Capital-
15 d compare methods used to estimate the required return on equity
Advanced Topics
e estimate the cost of debt or required return on equity for a public company and a private company
f evaluate a company’s capital structure and cost of capital relative to peers
a explain types of corporate restructurings and issuers’ motivations for pursuing them
b explain the initial evaluation of a corporate restructuring
Corporate c demonstrate valuation methods for, and interpret valuations of, companies involved in corporate
16 demonstrate how corporate restructurings affect an issuer’s EPS, net debt to EBITDA ratio, and
Restructuring d
weighted average cost of capital
e evaluate corporate investment actions, including equity investments, joint ventures, and acquisitions

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Reading Name LOS Learning Outcome
g No.
Corporate f evaluate corporate divestment actions, including sales and spin offs
16
Restructuring g evaluate cost and balance sheet restructurings
Equity
a define valuation and intrinsic value and explain sources of perceived mispricing
b explain the going concern assumption and contrast a going concern value to a liquidation value
describe definitions of value and justify which definition of value is most relevant to public company
c
Equity Valuation- valuation
17 Applications and d describe applications of equity valuation
Processes e describe questions that should be addressed in conducting an industry and competitive analysis
f contrast absolute and relative valuation models and describe examples of each type of model
g describe sum-of-the-parts valuation and conglomerate discounts
h explain broad criteria for choosing an appropriate approach for valuing a given company
compare dividends, free cash flow, and residual income as inputs to discounted cash flow models
a
and identify investment situations for which each measure is suitable
calculate and interpret the value of a common stock using the dividend discount model (DDM) for
b
single and multiple holding periods
calculate the value of a common stock using the Gordon growth model and explain the model’s
c
underlying assumptions
d calculate the value of non-callable fixed-rate perpetual preferred stock
describe strengths and limitations of the Gordon growth model and justify its selection to value a
e
company’s common shares
calculate and interpret the implied growth rate of dividends using the Gordon growth model and
f
current stock price
calculate and interpret the present value of growth opportunities (PVGO) and the component of the
g
leading price-to-earnings ratio (P/E) related to PVGO
Discounted h calculate and interpret the justified leading and trailing P/Es using the Gordon growth model
18
Dividend Valuation
i estimate a required return based on any DDM, including the Gordon growth model and the H-model
evaluate whether a stock is overvalued, fairly valued, or undervalued by the market based on a
j
DDM estimate of value
k explain the growth phase, transition phase, and maturity phase of a business
explain the assumptions and justify the selection of the two-stage DDM, the H-model, the three-stage
l
DDM, or spreadsheet modeling to value a company’s common shares
describe terminal value and explain alternative approaches to determining the terminal value in a
m
DDM
calculate and interpret the value of common shares using the two-stage DDM, the H-model, and the
n
three-stage DDM
o explain the use of spreadsheet modeling to forecast dividends and to value common shares
calculate and interpret the sustainable growth rate of a company and demonstrate the use of DuPont
p
analysis to estimate a company’s sustainable growth rate
compare the free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) approaches to
a
valuation
b explain the ownership perspective implicit in the FCFE approach
explain the appropriate adjustments to net income, earnings before interest and taxes (EBIT),
c earnings before interest, taxes, depreciation, and amortization (EBITDA), and cash flow from
operations (CFO) to calculate FCFF and FCFE
Free Cash Flow
19 d calculate FCFF and FCFE
Valuation
e describe approaches for forecasting FCFF and FCFE
explain how dividends, share repurchases, share issues, and changes in leverage may affect future
f
FCFF and FCFE
g compare the FCFE model and dividend discount models
h evaluate the use of net income and EBITDA as proxies for cash flow in valuation
i explain the use of sensitivity analysis in FCFF and FCFE valuations

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Reading Name LOS Learning Outcome
g No.
explain the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models and
j
justify the selection of the appropriate model given a company’s characteristics
Free Cash Flow k estimate a company’s value using the appropriate free cash flow model(s)
19
Valuation l describe approaches for calculating the terminal value in a multistage valuation model
evaluate whether a stock is overvalued, fairly valued, or undervalued based on a free cash flow
m
valuation model
contrast the method of comparables and the method based on forecasted fundamentals as
a
approaches to using price multiples in valuation and explain economic rationales for each approach
b calculate and interpret a justified price multiple
describe rationales for and possible drawbacks to using alternative price multiples and dividend
c
yield in valuation
d calculate and interpret alternative price multiples and dividend yield
calculate and interpret underlying earnings, explain methods of normalizing earnings per share
e
(EPS), and calculate normalized EPS
f explain and justify the use of earnings yield (E/P)
g describe fundamental factors that influence alternative price multiples and dividend yield
calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and
h
explain limitations to the cross-sectional regression methodology
Market-Based calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-
Valuation-Price and i
20 to-sales ratio (P/S) for a stock, based on forecasted fundamentals
Enterprise Value
j calculate and interpret the P/E-to-growth (PEG) ratio and explain its use in relative valuation
Multiples
calculate and explain the use of price multiples in determining terminal value in a multistage
k
discounted cash flow (DCF) model
evaluate whether a stock is overvalued, fairly valued, or undervalued based on comparisons of
l
multiples
evaluate a stock by the method of comparables and explain the importance of fundamentals in using
m
the method of comparables
explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and
n
describe limitations of each definition
o calculate and interpret EV multiples and evaluate the use of EV/EBITDA
p explain sources of differences in cross-border valuation comparisons
q describe momentum indicators and their use in valuation
explain the use of the arithmetic mean, the harmonic mean, the weighted harmonic mean, and the
r
median to describe the central tendency of a group of multiples
a calculate and interpret residual income, economic value added, and market value added
b describe the uses of residual income models
calculate the intrinsic value of a common stock using the residual income model and compare value
c
recognition in residual income and other present value models
d explain fundamental determinants of residual income
explain the relation between residual income valuation and the justified price-to-book ratio based
e
on forecasted fundamentals
calculate and interpret the intrinsic value of a common stock using single-stage (constant-growth) and
Residual Income f
21 multistage residual income models
Valuation
calculate the implied growth rate in residual income, given the market price-to-book ratio and an
g
estimate of the required rate of return on equity
explain continuing residual income and justify an estimate of continuing residual income at the
h
forecast horizon, given company and industry prospects
i compare residual income models to dividend discount and free cash flow models
explain strengths and weaknesses of residual income models and justify the selection of a residual
j
income model to value a company’s common stock
k describe accounting issues in applying residual income models
Private Company a contrast important public and private company features for valuation purposes
22
Valuation b describe uses of private business valuation and explain key areas of focus for financial analysts

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Reading Name LOS Learning Outcome
g No.
explain cash flow estimation issues related to private companies and adjustments required to
c
estimate normalized earnings
d explain factors that require adjustment when estimating the discount rate for private companies
e compare models used to estimate the required rate of return to private company equity (for
Private Company explain and evaluate the effects on private company valuations of discounts and premiums based on
22 f
Valuation control and marketability
explain the income, market, and asset-based approaches to private company valuation and factors
g
relevant to the selection of each approach
h calculate the value of a private company using income-based methods
calculate the value of a private company using market-based methods and describe the advantages
i
and disadvantages of each method
Fixed Income
describe relationships among spot rates, forward rates, yield to maturity, expected and realized
a
returns on bonds, and the shape of the yield curve
b describe how zero-coupon rates (spot rates) may be obtained from the par curve by bootstrapping
describe the assumptions concerning the evolution of spot rates in relation to forward rates implicit in
c
active bond portfolio management
d describe the strategy of rolling down the yield curve
e explain the swap rate curve and why and how market participants use it in valuation
The Term Structure
f calculate and interpret the swap spread for a given maturity
23 and Interest Rate
Dynamics g describe short-term interest rate spreads used to gauge economy-wide credit risk and liquidity risk
explain traditional theories of the term structure of interest rates and describe the implications of
h
each theory for forward rates and the shape of the yield curve
explain how a bond’s exposure to each of the factors driving the yield curve can be measured and
i
how these exposures can be used to manage yield curve risks
j explain the maturity structure of yield volatilities and their effect on price volatility
explain how key economic factors are used to establish a view on benchmark rates, spreads, and
k
yield curve changes
a explain what is meant by arbitrage-free valuation of a fixed-income instrument
b calculate the arbitrage-free value of an option-free, fixed-rate coupon bond
c describe a binomial interest rate tree framework
d describe the process of calibrating a binomial interest rate tree to match a specific term structure
The Arbitrage-Free describe the backward induction valuation methodology and calculate the value of a fixed-income
e
24 Valuation instrument given its cash flow at each node
Framework compare pricing using the zero-coupon yield curve with pricing using an arbitrage-free binomial
f
lattice
describe pathwise valuation in a binomial interest rate framework and calculate the value of a fixed-
g
income instrument given its cash flows along each path
h describe a Monte Carlo forward-rate simulation and its application
i describe term structure models and how they are used
a describe fixed-income securities with embedded options
explain the relationships between the values of a callable or putable bond, the underlying option-
b
free (straight) bond, and the embedded option
Valuation and c describe how the arbitrage-free framework can be used to value a bond with embedded options
Analysis of Bonds
25
with Embedded d explain how interest rate volatility affects the value of a callable or putable bond
Options explain how changes in the level and shape of the yield curve affect the value of a callable or
e
putable bond
f calculate the value of a callable or putable bond from an interest rate tree
g explain the calculation and use of option-adjusted spreads

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Reading Name LOS Learning Outcome
g No.
h explain how interest rate volatility affects option-adjusted spreads
i calculate and interpret effective duration of a callable or putable bond
j compare effective durations of callable, putable, and straight bonds
describe the use of one-sided durations and key rate durations to evaluate the interest rate
Valuation and k
sensitivity of bonds with embedded options
Analysis of Bonds l compare effective convexities of callable, putable, and straight bonds
25
with Embedded m calculate the value of a capped or floored floating-rate bond
Options n describe defining features of a convertible bond
o calculate and interpret the components of a convertible bond’s value
p describe how a convertible bond is valued in an arbitrage-free framework
compare the risk–return characteristics of a convertible bond with the risk– return characteristics of a
q
straight bond and of the underlying common stock
explain expected exposure, the loss given default, the probability of default, and the credit
a
valuation adjustment
b explain credit scores and credit ratings
c calculate the expected return on a bond given transition in its credit rating
explain structural and reduced-form models of corporate credit risk, including assumptions, strengths,
d
and weaknesses
Credit Analysis
26 calculate the value of a bond and its credit spread, given assumptions about the credit risk
Models e
parameters
f interpret changes in a credit spread
explain the determinants of the term structure of credit spreads and interpret a term structure of
g
credit spreads
h compare the credit analysis required for securitized debt to the credit analysis of corporate debt
describe credit default swaps (CDS), single-name and index CDS, and the parameters that define a
a
given CDS product
b describe credit events and settlement protocols with respect to CDS
Credit Default c explain the principles underlying and factors that influence the market’s pricing of CDS
27
Swaps describe the use of CDS to manage credit exposures and to express views regarding changes in the
d
shape and/or level of the credit curve
describe the use of CDS to take advantage of valuation disparities among separate markets, such as
e
bonds, loans, equities, and equity-linked instruments
Derivatives
describe how equity forwards and futures are priced, and calculate and interpret their no-arbitrage
a
value
b describe the carry arbitrage model without underlying cashflows and with underlying cashflows
Pricing and describe how interest rate forwards and futures are priced, and calculate and interpret their no-
c
Valuation of arbitrage value
28 describe how fixed-income forwards and futures are priced, and calculate and interpret their no-
Forward d
Commitments arbitrage value
e describe how interest rate swaps are priced, and calculate and interpret their no-arbitrage value
f describe how currency swaps are priced, and calculate and interpret their no-arbitrage value
g describe how equity swaps are priced, and calculate and interpret their no-arbitrage value
a describe and interpret the binomial option valuation model and its component terms
describe how the value of a European option can be analyzed as the present value of the option’s
b
expected payoff at expiration
Valuation of c identify an arbitrage opportunity involving options and describe the related arbitrage
29
Contingent Claims calculate the no-arbitrage values of European and American options using a two-period binomial
d
model
e calculate and interpret the value of an interest rate option using a two-period binomial model
f identify assumptions of the Black–Scholes–Merton option valuation model

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Reading Name LOS Learning Outcome
g No.
interpret the components of the Black–Scholes–Merton model as applied to call options in terms of a
g
leveraged position in the underlying
describe how the Black–Scholes–Merton model is used to value European options on equities and
h
currencies
i describe how the Black model is used to value European options on futures
Valuation of
29 describe how the Black model is used to value European interest rate options and European
Contingent Claims j
swaptions
k interpret each of the option Greeks
l describe how a delta hedge is executed
m describe the role of gamma risk in options trading
n define implied volatility and explain how it is used in options trading
Alternative Investments
a compare characteristics of commodity sectors
b compare the life cycle of commodity sectors from production through trading or consumption
c contrast the valuation of commodities with the valuation of equities and bonds
d describe types of participants in commodity futures markets
Introduction to analyze the relationship between spot prices and futures prices in markets in contango and markets
e
Commodities and in backwardation
30
Commodity f compare theories of commodity futures returns
Derivatives describe, calculate, and interpret the components of total return for a fully collateralized commodity
g
futures contract
h contrast roll return in markets in contango and markets in backwardation
i describe how commodity swaps are used to obtain or modify exposure to commodities
j describe how the construction of commodity indexes affects index returns
a compare important real estate investment features for valuation purposes
Overview of Types b explain economic value drivers of real estate investments and their role in a portfolio
31 of Real Estate c discuss the distinctive investment characteristics of commercial property types
Investment d explain the due diligence process and valuation approaches for real estate investments
e discuss real estate investment indexes, including their construction and potential biases
a discuss types of publicly traded real estate securities
justify the use of net asset value per share (NAVPS) in valuation of publicly traded real estate
b
securities and estimate NAVPS based on forecasted cash net operating income
Investments in Real
describe the use of funds from operations (FFO) and adjusted funds from operations (AFFO) in REIT
Estate through c
32 valuation
Publicly Traded
calculate and interpret the value of a REIT share using the net asset value, relative value (price-to-
Securities d
FFO and price-to-AFFO), and discounted cash flow approaches
explain advantages and disadvantages of investing in real estate through publicly traded securities
e
compared to private vehicles
a discuss how hedge fund strategies may be classified
discuss investment characteristics, strategy implementation, and role in a portfolio of equity-related
b
hedge fund strategies
discuss investment characteristics, strategy implementation, and role in a portfolio of event-driven
c
hedge fund strategies
discuss investment characteristics, strategy implementation, and role in a portfolio of relative value
d
hedge fund strategies
Hedge Fund discuss investment characteristics, strategy implementation, and role in a portfolio of opportunistic
33 e
Strategies hedge fund strategies
discuss investment characteristics, strategy implementation, and role in a portfolio of specialist hedge
f
fund strategies
discuss investment characteristics, strategy implementation, and role in a portfolio of multi-manager
g
hedge fund strategies
h describe how factor models may be used to understand hedge fund risk exposures

i evaluate the impact of an allocation to a hedge fund strategy in a traditional investment portfolio

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 Syllabus'25 | CFA L2

Readin
Reading Name LOS Learning Outcome
g No.
Portfolio
a explain the notion that to affect market values, economic factors must affect one or more of the
b explain the role of expectations and changes in expectations in market valuation
explain the relationship between the long-term growth rate of the economy, the volatility of the
c
growth rate, and the average level of real short-term interest rates
explain how the phase of the business cycle affects policy and short-term interest rates, the slope of
d
the term structure of interest rates, and the relative performance of bonds of differing maturities
describe the factors that affect yield spreads between non-inflation-adjusted and inflation-indexed
Economics and e
34 bonds
Investment Markets
f explain how the phase of the business cycle affects credit spreads and the performance of credit-
explain how the characteristics of the markets for a company’s products affect the company’s credit
g
quality
explain the relationship between the consumption hedging properties of equity and the equity risk
h
premium
i explain how the phase of the business cycle affects short-term and long-term earnings growth
j describe cyclical effects on valuation multiples
k describe the economic factors affecting investment in commercial real estate
a describe how value added by active management is measured
b calculate and interpret the information ratio (ex post and ex ante) and contrast it to the Sharpe ratio
describe and interpret the fundamental law of active portfolio management, including its component
c
Analysis of Active terms—transfer coefficient, information coefficient, breadth, and active risk (aggressiveness)
35 Portfolio explain how the information ratio may be useful in investment manager selection and choosing the
d
Management level of active portfolio risk
compare active management strategies, including market timing and security selection, and evaluate
e
strategy changes in terms of the fundamental law of active management
f describe the practical strengths and limitations of the fundamental law of active management
a explain the creation/redemption process of ETFs and the function of authorized participants
b describe how ETFs are traded in secondary markets
Exchange-Traded c describe sources of tracking error for ETFs
36 Funds-Mechanics d describe factors affecting ETF bid–ask spreads
and Applications e describe sources of ETF premiums and discounts to NAV
f describe costs of owning an ETF
g describe types of ETF risk
h identify and describe portfolio uses of ETFs
describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to
a
multifactor models
b define arbitrage opportunity and determine whether an arbitrage opportunity exists
calculate the expected return on an asset given an asset’s factor sensitivities and the factor risk
c
Using Multifactor premiums
37 describe and compare macroeconomic factor models, fundamental factor models, and statistical
Models d
factor models
e describe uses of multifactor models and interpret the output of analyses based on multifactor models
describe the potential benefits for investors in considering multiple risk dimensions when modeling
f
asset returns
g explain sources of active risk and interpret tracking risk and the information ratio
a explain the use of value at risk (VaR) in measuring portfolio risk
b compare the parametric (variance–covariance), historical simulation, and Monte Carlo simulation
estimate and interpret VaR under the parametric, historical simulation, and Monte Carlo simulation
Measuring and c
methods
38 Managing Market d describe advantages and limitations of VaR
Risk e describe extensions of VaR
f describe sensitivity risk measures and scenario risk measures and compare these measures to VaR
demonstrate how equity, fixed-income, and options exposure measures may be used in measuring
g
and managing market risk and volatility risk

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 Syllabus'25 | CFA L2

Readin
Reading Name LOS Learning Outcome
g No.
h describe the use of sensitivity risk measures and scenario risk measures
i describe advantages and limitations of sensitivity risk measures and scenario risk measures
Measuring and
38 Managing Market explain constraints used in managing market risks, including risk budgeting, position limits, scenario
j
Risk limits, and stop-loss limits
k explain how risk measures may be used in capital allocation decision
l describe risk measures used by banks, asset managers, pension funds, and insurers
a describe objectives in backtesting an investment strategy
b describe and contrast steps and procedures in backtesting an investment strategy
c interpret metrics and visuals reported in a backtest of an investment strategy
Backtesting and d identify problems in a backtest of an investment strategy
39
Simulation e evaluate and interpret a historical scenario analysis
f contrast Monte Carlo and historical simulation approaches
g explain inputs and decisions in simulation and interpret a simulation
h demonstrate the use of sensitivity analysis
Ethics
Code of Ethics and
a describe the six components of the Code of Ethics and the seven Standards of Professional Conduct
Standards of
40
Professional explain the ethical responsibilities required of CFA Institute members and candidates in the CFA
b
Conduct Program by the Code and Standards
demonstrate a thorough knowledge of the CFA Institute Code of Ethics and Standards of Professional
a
Guidance for Conduct by applying the Code and Standards to specific situations
41
Standards I–VII recommend practices and procedures designed to prevent violations of the Code of Ethics and
b
Standards of Professional Conduct
evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of
Application of the a
Professional Conduct
42 Code and
explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics
Standards-Level II b
and Standards of Professional Conduct

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