CM2 Syllabus 2027: The Five Topics

The CM2 syllabus and its weights

Five topics, weighted by the share of marks they carry. Asset valuations and option theory are the largest, at 30% each.

Topic 1

Rational economic theory, 10%

Topic 2

Measures of investment risk, 10%

Topic 3

Asset valuations, 30%

Topic 4

Liability valuations, 20%

Topic 5

Option theory, 30%

What the topics cover

Questions can draw on any part of the syllabus in any session, so prepare across all of it.

Area	Syllabus objectives
Efficient markets and utility theory	1.1 and 1.2
Measures of investment risk	2.1 and 2.2
Portfolio theory, CAPM and factor models	3.1 to 3.3
Stochastic models of security prices	3.4
Term structure models and credit risk	3.5 and 3.6
Ruin theory	4.1
Run-off triangles and guarantees	4.2 and 4.3
Arbitrage, forwards and option bounds	5.1
Binomial models	5.2
Black-Scholes and the Greeks	5.3

Paper A style · Utility · Straightforward · 8 marks

Three employees of Harrowgate Asset Management make the following claims about shares listed on the London Stock Exchange.

Claim 1 (a technical analyst): "By studying charts of past share prices and trading volumes I can identify patterns that earn returns above those justified by risk."
Claim 2 (a fundamental analyst): "By reading company results and broker reports the moment they are published, I can pick shares that beat the market after allowing for risk."
Claim 3 (a director): "Because I sit on the board of a company in takeover talks that have not yet been announced, I could make abnormal profits by trading its shares."

(i)
Describe the weak, semi-strong and strong forms of the Efficient Markets Hypothesis.
3 marks
(ii)
For each claim, state the weakest form of the hypothesis which, if it held, would mean the claim is false. Give a brief reason in each case.
3 marks
(iii)
Explain one consequence for an investment manager if the semi-strong form holds.
2 marks

Which syllabus applies in 2027?

The syllabus for the 2027 examinations, on the CM2 subject page.