AFA study guide
AFA · Work through your exam, one topic at a time.
The Accredited Financial Analyst (AFA) is an independent professional designation for practitioners who analyse financial statements, value securities, and make or advise on investment decisions. Candidates typically come from corporate finance, equity research, private client advisory, banking, and accounting backgrounds, and many sit the exam while working full time. The AFA study guide has 8 sections and about 2,398 words.
01Ethics and Professional Standards
The Code of Ethics states six principles in broad aspirational language; the Standards of Professional Conduct translate them into enforceable rules. Candidates must know the seven Standards by name and be able to place a fact pattern under the correct one: professionalism (misrepresentation, misconduct, independence), integrity of capital markets (material nonpublic information, market manipulation), duties to clients (loyalty, fair dealing, suitability, performance presentation, confidentiality), duties to employers (loyalty, additional compensation, supervisory responsibilities), investment analysis (diligence, communication, record retention), conflicts of interest (disclosure, priority of transactions, referral fees), and responsibilities as a CFA member or candidate.
366 words, about 2 min02Financial Reporting and Analysis
Start with the conceptual framework: the objective of general-purpose financial reporting, qualitative characteristics (relevance, faithful representation, comparability, verifiability, timeliness, understandability), and the elements of statements. Candidates must be fluent in the mechanics of the balance sheet, income statement, cash flow statement, and statement of changes in equity, and in how the three link through retained earnings and cash.
302 words, about 2 min03Corporate Finance
The core is net present value as the decision rule, with IRR, payback, and profitability index as complements. Know the pitfalls: multiple IRRs with alternating cash flows, the scale and timing problems that make IRR mislead relative to NPV, and the reinvestment assumption embedded in each method.
316 words, about 2 min04Equity Valuation and Analysis
Begin top-down: economic and industry analysis, Porter's five forces, and lifecycle stage, then company analysis of competitive strategy and moat. Valuation models divide into present value (dividend discount, free cash flow to equity, free cash flow to firm), multiplier (P/E, P/B, P/S, EV/EBITDA), and asset-based approaches.
298 words, about 1 min05Fixed Income Analysis
Fixed income questions reward precision about conventions. Bond price is the present value of coupons and principal at the yield to maturity; price and yield move inversely, and the relationship is convex.
250 words, about 1 min06Derivatives and Alternative Investments
Derivatives questions are built on no-arbitrage. A forward price equals the spot price compounded at the risk-free rate minus the future value of carry benefits, plus storage or carry costs.
279 words, about 1 min07Portfolio Management and Wealth Planning
Start with the portfolio perspective: expected return is the weighted average, but risk depends on covariance. The efficient frontier, the capital market line with a risk-free asset, and the security market line for required returns are foundational.
270 words, about 1 min08Quantitative Methods and Economics
Time value of money is the foundation: present and future value, annuities, perpetuities, and uneven cash flows, with correct treatment of beginning- and end-of-period timing. Descriptive statistics require distinguishing mean, median, and mode for skew, and interpreting standard deviation, variance, and coefficient of variation.
317 words, about 2 min