CFA Level I study guide
CFA Level I · Work through your exam, one topic at a time.
The CFA Level I exam is the entry point to the CFA Program, the professional credential offered by CFA Institute for people building careers in investment management, research, banking, and related fields. Candidates often sit it while working full time and frequently without a finance degree, because the curriculum is built from foundations rather than assuming prior training. The CFA Level I study guide has 10 sections and about 2,615 words.
01Ethical and Professional Standards
The Code of Ethics is aspirational; the seven Standards of Professional Conduct are enforceable and are the source of most exam questions. Know each standard and its subsections: I Professionalism (knowledge of the law, independence and objectivity, misrepresentation, misconduct); II Integrity of Capital Markets (material nonpublic information, market manipulation); III Duties to Clients (loyalty, prudence and care; fair dealing; suitability; performance presentation; confidentiality); IV Duties to Employers (loyalty, additional compensation, supervisory responsibility); V Investment Analysis, Recommendations and Actions (diligence and reasonable basis, communication with clients, record retention); VI Conflicts of Interest (disclosure of conflicts, priority of transactions, referral fees); VII Responsibilities as a CFA Institute Member or Candidate.
290 words, about 1 min02Quantitative Methods
Core blocks: time value of money (PV/FV, annuities, NPV vs IRR, money-weighted vs time-weighted return); descriptive statistics (arithmetic, geometric and harmonic means, median, range, mean absolute deviation, variance, standard deviation, coefficient of variation, skewness, kurtosis); probability (addition and multiplication rules, conditional probability, Bayes, expected value, covariance, correlation); sampling and estimation (central limit theorem, standard error, confidence intervals, hypothesis testing with Type I and Type II errors and p-values); and regression (slope interpretation, R-squared, t-tests, assumptions). (1) Pick the right mean: arithmetic for a one-period expected return, geometric for compound multi-period growth, harmonic for average cost per share with fixed dollar purchases.
272 words, about 1 min03Economics
Microeconomics: demand and supply, elasticity (price, income, cross), consumer and producer surplus, and market structures (perfect competition, monopolistic competition, oligopoly, monopoly) with their pricing and output implications. Macroeconomics: GDP measurement, inflation (CPI versus GDP deflator), unemployment, business cycles, monetary and fiscal policy transmission, the Phillips curve, and international economics - exchange-rate quoting conventions, interest rate parity, purchasing power parity, and the balance of payments.
263 words, about 1 min04Financial Statement Analysis
The reporting framework (balance sheet, income statement, cash flow statement, statement of changes in equity, notes), IFRS versus US GAAP differences, revenue recognition, inventory cost-flow methods, long-lived assets and depreciation, impairment, leases, income taxes, pensions, the indirect-method cash flow statement, and ratio analysis including DuPont decomposition. (1) LIFO is permitted only under US GAAP; with rising prices it produces lower inventory, higher cost of goods sold, lower taxable income and therefore higher operating cash flow.
273 words, about 1 min05Corporate Issuers
Capital budgeting (NPV, IRR, payback, discounted payback, profitability index), cost of capital (after-tax cost of debt, CAPM-based cost of equity, WACC, marginal cost of capital and break points), capital structure theory (Modigliani-Miller with and without taxes, static trade-off, pecking order), leverage measures (degree of operating and financial leverage), dividend and share-repurchase policy, working capital management, corporate governance, and ESG considerations. (1) WACC uses market-value target weights and the after-tax cost of debt, kd x (1 - t).
260 words, about 1 min06Equity Investments
Market organisation and trading (order types, margin, short selling), equity indexes and their weighting schemes, market efficiency in weak, semi-strong and strong forms, and equity valuation: dividend discount models including Gordon growth and multistage, price multiples (P/E, P/B, P/S, EV/EBITDA), free cash flow models, and residual income. Also industry analysis (Porter's five forces, life-cycle stages) and company analysis.
250 words, about 1 min07Fixed Income
Bond features and indenture provisions, including embedded options (callable, putable, convertible); pricing as the present value of cash flows discounted at the market yield; yield measures (current yield, yield to maturity, yield to call); the term structure and spot, forward and par rates; duration (Macaulay, modified, money duration, PVBP) and convexity; credit risk (ratings, spreads, recovery, seniority); and securitisation. (1) Price and yield move inversely; a premium bond (coupon above yield) pulls toward par as maturity nears.
235 words, about 1 min08Derivatives
Forwards, futures, options and swaps: payoffs and profits, determination of forward and futures prices, the value of a forward at initiation (zero) versus later, option payoffs, intrinsic versus time value, put-call parity, binomial option pricing in a risk-neutral framework, and swap pricing as a series of forward contracts. Understand margin, daily settlement for futures, and the role of credit default swaps.
268 words, about 1 min09Alternative Investments
The major categories - hedge funds, private equity (buyout and venture), real estate, infrastructure, commodities and natural resources - and their return sources, liquidity, leverage and fee structures. Understand fund-of-funds layering, due diligence, valuation approaches (market comparable, income/DCF, cost/appraisal), commodity exposure through roll yield, and how alternative investments affect a portfolio's risk and return.
258 words, about 1 min10Portfolio Management
Portfolio risk and return: expected return as a weighted average, portfolio variance including covariance, the efficient frontier, the capital market line, the capital asset pricing model and the security market line. Understand systematic versus unsystematic risk, diversification, investor types and the investment policy statement (return objective plus liquidity, time horizon, tax, legal and unique constraints), behavioural biases, risk management (VaR, stress testing) and performance measurement (Sharpe, Treynor, Jensen's alpha, M-squared).
246 words, about 1 min