CFA Exam is indisputably one of the toughest and most valued financial exams designed to help professionals acquire advanced financial analysis and investment management skills and capabilities. CFA professionals are in great demand in various sub-domains of finance for their expertise and knowledge of financial analysis and related concepts. This certification is awarded by CFA Institute, USA, and is globally acknowledged by top financial institutions and top industry employers. It is a comprehensive certification program consisting of three levels, each one of them focusing on specific knowledge areas to help develop a detailed understanding of the concepts and their practical applications.
Each CFA level represents an important step on the path to become a CFA Charterholder. It must be understood that to complete the certification program and acquire the CFA Charter not only helps validate the financial knowledge, skills and capabilities of professionals but also showcases their ability to work patiently and make determined and well-defined efforts to excel in the domain of their professional pursuit. In the course of this article we will focus on CFA Level I Exam as the first and most important step to acquiring CFA Charter.
- CFA Level 1 Topics / Curriculum
- Important Things to Remember about CFA Level 1 Curriculum
- CFA Level I Subjects
- CFA Level I Exam Details
- Preparing for CFA Level I Exam
- CFA Level I Exam Tips
- Sample Questions of CFA Level 1
CFA Level 1 Topics / Curriculum
CFA Level I is focused on acquiring knowledge of basic concepts in finance. It would be important to gain an understanding of the subject-wise organization of exam. There are basically 10 knowledge areas covered in CFA organized under 4 modules with an increasing level of difficulty from CFA Part I to Part II & III respectively. The four knowledge modules of CFA include ethics and professional standards, investment tools, asset classes and portfolio management and wealth planning.
Here we are providing a tabular representation of the knowledge areas along with their specific weightage for Level I exam.
|Topic Area||Level I|
|Ethical and Professional Standards (total)||15|
|Investment Tools (total)||50|
|Financial Reporting and Analysis||20|
|Asset Classes (total)||30|
|Portfolio Management and Wealth Planning (total)||7|
Important Things to Remember about CFA Level 1 Curriculum
- Financial Reporting / Ethics / Quant makes approx. 50% weightage – It should be apparent from the information presented above that Financial Reporting & Analysis, Ethics and Professional Standards and Quantitative Methods represent about 47% of the exam weightage, taken together. It is clear that if one scores well in these 3 subjects, they stand a good chance of passing Level I Exam. However, it is recommended to not ignore any of the subjects to be able to score well in the exam.
- Non-Finance Graduates to put more efforts in Financial Reporting – CFA Level I may not be nearly as challenging for finance graduates, whereas non-finance graduates might have to put in a greater amount of effort for Financial Reporting & Analysis, but it should not be a major obstacle. Those having completed a MBA in finance or from engineering background could be more comfortable with Financial Reporting and could find their forte in quantitative methods, which can be rather challenging for those from a non-mathematical background.
- Subjects and Modules and mostly common in all 3 Levels – One needs to understand that although the subjects and modules are common to all 3 CFA Levels, the real difference lies in exam weightage which keeps changing with each level. For CFA Level II & III, there is greater stress on more complex areas including derivatives, alternative investments, equity investments and portfolio management and wealth planning. However, there is almost an equal level of stress on the study of ethics in all 3 CFA Levels, which indicates the kind of significance attached to this area of study by CFA Institute.
Next, we provide you an overview of all the 10 knowledge areas covered in CFA Level 1. This should help participants gain an insight into the nature of topics as well as the best strategy to be adopted for successfully covering the CFA Curriculum.
CFA Level I Subjects
Ethics and Professional Standards:
This is one of the most important areas of study in CFA as the certification program is dedicated to the promotion of universal professional ethics. This is evident in subject weightage as well where ethics is one area which receives comparative weightage in all 3 CFA Levels. This subject covers code of ethics, professional standards and Global Investment Professional Standards (GIPS) as larger part of the ethics aspect as applicable to the financial industry.
This section is rather limited in its scope with merely 7% weightage and covers areas related to capital budgeting, NPV IRR, cost of capital, measures of leverage, basics of dividends and share repurchases along with working capital management and corporate governance of listed companies. Some of the problems addressed include agency problems in the context of agency-principal relationship.
This section covers the fundamentals of micro as well as macroeconomics with its primary focus on the latter. It goes without saying that those with an economics background generally tend to do well with macroeconomics and makes it less challenging to assimilate all the information presented with the help of graphical presentations, as is the standard method. This subject has 10% weightage which makes it important enough to be pursued with diligence.
Financial Reporting and Analysis:
As we have already made clear, it has nearly 20% weightage, making it an important enough knowledge area for anyone pursuing CFA. This exam tests the knowledge of financial ratios and financial statements commonly employed for the purpose of financial analysis. Along with this, one should be well-conversant in the concepts of revenue recognition, accounts receivables and inventory analysis along with taxes and long-term assets. It must be kept in mind while preparing for this exam that local accounting practices do not hold much relevance as CFA is more of a global exam and focuses on US GAAP and IFRS practices.
This section is focused on quantitative analysis and mathematically-oriented approaches to address complex financial issues which make this knowledge area of such great value. Some of the most important areas covered in this section include performance measurement, time value of money, statistics and probability basics, sampling and hypothesis testing along with correlation and linear regression analysis. A study of these concepts provides some highly useful tools and techniques for the knowledge areas of fixed income, equities and portfolio management. A proper understanding and grasp of quantitative techniques would help master a good proportion of CFA’s body of knowledge.
This section includes forms of investment not covered under other knowledge areas of CFA. This includes real estate funds, venture capital, hedge funds and commodities. There is a special focus on commodities so it would be helpful for participants to have an in-depth awareness of concepts related to trading in commodities. There could be seven or eight conceptually-oriented questions from this section, some of them specifically related to commodities. Although this section is short on weightage in CFA Level I, but with proper effort, these sections could be mastered with comparative ease.
Derivatives are complex financial instruments and this section deals with them specifically, including the fundamentals of futures, forwards, options, swaps and hedging techniques usually employed. More complex mathematical methods are usually employed for studying these exotic financial instruments but on Level I, most of the material is introductory in nature and the weightage of this section is only 5%, with only about 12 questions in the exam from this section.
This section primarily deals with equity markets and covers various tools and techniques available for valuation of companies – DCF, PE, PBV, PCF etc. This section has nearly 10% weightage with about 25 questions from this section in the exam. Most of the questions could be related to valuation and analysis of companies.
This section covers fixed income markets and instruments and their pricing techniques. Important concepts including yield measures, duration and convexity are discussed. Sequentially, this section deals with bond analysis and valuation before taking up bond’s features before finally moving on to 10 risks related to debt investments. Exam weightage is 10% for this section.
This section deals with fundamental principles of portfolio management and introduces some key concepts including Modern Portfolio Theory and Capital Asset Pricing Model. Section weightage is only 7% which roughly translates to about 17 questions in the exam. However, this section gains increasing significance in Level II and Level III of CFA as the focus shifts to application of available knowledge for efficient portfolio management.
CFA Level I Exam Details
CFA Level I Exam is 6-hour total duration, divided into morning and afternoon sessions of 3-hour duration each. Each of the sessions has 120-multiple choice questions comprising a total of 240 questions in both the sessions. It should be kept in mind that three choices are provided for each of the questions and most of the questions are unrelated to each other. This helps judge the knowledge and capabilities of a test participant in wider range of knowledge areas.
CFA Level I Results & Pass Rates:
Results of CFA Level I Exam are usually announced 60 days after the date of exam. The results can be accessed both on the CFA Institute website and exam participants are also notified by email.
Before detailing on the pass rates, one must understand that CFA Level I exam is conducted twice in a year, in the months of June and December.
CFA Level I Exam 10-year average pass rates:
- In the past 10 years, from 2007-2016, the overall average pass rates for CFA Level I exam are around 39.65%
- The 10 year average pass percentage for June CFA Level I exam is 40.5%
- The 10 year average pass percentage for December CFA Level I exam is around 38.8%
CFA Level 1 Pass Rates in 2015-16:
- In June 2015, the pass rates for CFA Level I exam were 42%.
- In December 2015, the pass rates for CFA Level I exam were 43%.
- In June 2016, pass rates for CFA Level I exam were at 43%.
Declining Pass Rates for CFA Level I Exam:
- It has often been pointed out that pass rates for this exam has been declining for past few years and it could be of help for participants to know the possible reasons behind it.
- It is considered the results of low prerequisites for Level I exam which results in a lot of people appearing for the exam.
- However, only those with good level of preparation make through, thus lowering the pass rates.
- This holds an important message for people with a non-accounting or financial background that CFA might require a good deal of extra effort from them to be able to clear the exam and it would not be intelligent to opt for CFA just because you are eligible to appear for it.
CFA Level I Study Plan Exam
As we have already seen, pass rates for CFA Part I are rather low, in the range of 37-40%. This shows that rather limited number of candidates successfully complete the exam and you really have to make a concerted effort to be able to make it through and earn the coveted CFA Charter. However, at the moment we are focusing on CFA Part I but the same holds good for Part I as well. It is only that the level of difficulty keeps rising with each CFA level.
Developing A CFA Study Plan: 300 Hours
Generally, it is recommended to devote around 300 hours of structured study to be able to complete CFA Level I successfully. It goes without saying that those with a solid background in any of the CFA topics might require lesser amount of time for preparation. It would help to remember that CFA Level I exam covers 10 topics, 18 study sessions and 60 readings. Each study session should be reviewed independently to be able to ascertain the level of familiarity with the topics covered therein.
There are several study plans available to cover CFA curriculum in an effective manner. However, one of the most popular approaches is to consider 300 hours of study time as the benchmark and distribute it over a period of 4 months (120 days) prior to the exam.
Following this plan, you would be required to devote at least 12 hours each week for studying various topics to be able to cover the curriculum within time for the exam. The most logical approach is adhered to in assigning greater number of hours to topics with higher weightage as well as varying levels of complexity.
Here is a general study plan presented in tabular form which might be customized later in keeping with individual time constraints and other factors.
|Topic Area||Weight||Hours based on 300-Hour schedule||Days to allocate|
|Ethical and Professional Standards||15||45||20 days|
|Quantitative Methods||12||36||14 days|
|Financial Reporting and Analysis||20||60||23 days|
|Corporate Finance||7||21||8 days|
|Equity Investments||10||30||12 days|
|Fixed Income||10||30||12 days|
|Alternative Investments||4||12||5 days|
|Portfolio Management and Wealth Planning||7||21||8 days|
- This means that one should start preparation at least 5-6 months before the actual exam date and cover the curriculum well within time and devote the last month to review the exam material.
- This can be crucial to success in the exam as study material is comprehensive and without proper review of entire curriculum, one may not be able to make it through.
- The best way is to start with WallStreetMojo CFA Tutorials and move to Schweser notes such that you ensure you have covered all important concepts from the point of view of exams.
- Thereafter, I would advise you to look at CFA® Blue Box Examples (discussed within the chapters) and then End of Chapter (EOC) Questions. This may take another 80-100 hours.
- However, it is always recommended to have completed the exam preparation at least 1 month is advance of the exam date.
If you have 100-120 hours Exam Preparation Time?
Obviously you know that this you are short of time, however, i think it is just enough give your one best shot. With this I recommend the following –
- Forget about the CFA® Curriculum Books (sorry, but you can’t look at your books now). On an average it takes around 200+ hours to go through CFA Curriculum books. (which obviously you are short of)
- Go through the WallStreetMojo CFA Video Tutorials. This may take at max 40-50 hours and these are a good starting point to prepare yourself for the exam.
- Once you have looked at the videos, go through the Schweser notes in detail. Though these are summary version of CFA® books, however, I feel they are sufficient enough to ensure that you pass the exam. Reading Schweser notes will take around 50-60 hours or so
- The remaining time (if any), you must spend on attempting as many Mock Papers as you can and concept revision.
- Please find enough time to practice 2-3 mock test papers. It is really helpful (Trust me on this!)
- I had only 100-110 hours for CFA® Level 1 exam preparation and used this strategy to pass CFA® level 1 examination.
If you have 200-250 hours for exam preparation?
- If you can spend 200-250 hours preparing for the exam, then you may be in a dilemma – Should i touch complete CFA® curriculum books or not?
- My take would be to selectively work on the CFA curriculum book.
- First step should be to go through the video tutorials of CFA by WallStreetMojo, then move to Schweser notes and later to CFA Curriculum book.
- Within the Curriculum books for CFA Level 1, do have a look at CFA Blue Box Examples (discussed within the chapters) and then End of Chapter (EOC) Questions.
CFA Level I Exam Tips
Map Your Study Progress:
- Create a study schedule on Excel, outlook or another tool and map your progress as you complete each study section.
- This would help complete the curriculum at least a month in advance of the exam.
- During last month review as well, it is advisable to develop and adhere to a study schedule.
Do Not Leave Practice Questions for Later:
- It is highly recommended to attempt all practice questions at the end of each section instead of leaving it for later.
- This will help assess the progress you have made and expose the areas of weakness which might require extra effort and study time to be mastered.
- Practicing questions would also add to your confidence in what you have learnt and help you get a feel of what you might encounter in the exam.
Go by the Definitions of CFA Curriculum:
- It would be important to acquire knowledge of financial concepts and understand several complex terms associated with them ‘as per CFA curriculum.’
- This is because there are a number of complex financial concepts covered in the curriculum and terms are defined in a certain way in the curriculum, while at other places, things may have been defined somewhat differently.
- This can create confusion and lack of clarity and it is recommended to continuously refer to the curriculum to stay on the right track for your exam.
Prepare Well with a Mock Test:
- In the month-long curriculum review period prior to exam, it is generally recommended to practice more questions and appear for a mock exam offered by CFA Institute.
- This would require you to take a 3-hour morning session test followed by a 2-hour break after which another 3-hour long afternoon session would commence.
- This is likely to help you prepare well for the exam psychologically as well apart from helping assess the general level of your performance.
Master All Learning Outcome Statements (LOS):
- CFA Institute clearly defines LOS as “knowledge, skills and capabilities that you should be able to apply after completing each reading and all associated exercises and problems.”
- In order to master the LOS, you can write down the principal concepts, definitions and formulas which would help remember them better.
Additional Learning Techniques:
- You could make flash-cards to be able to instantly review key concepts in the curriculum instead of carrying around comprehensive material.
- This makes it easier to get back to learning and reviewing material in the shortest of available breaks.
- One effective technique could be the use of mnemonic devices and other memory techniques.
Decide What to Study First:
- It would be important to develop an organized approach to study in order to avoid missing out on any concepts and their nuances presented in the CFA Curriculum.
- It is not at all necessary to study subjects in the order they are presented and instead it could be a better approach to start with the sections covering the fundamentals before taking up more advanced topics while preparing.
- One logical way would be to first focus on quantitative methods which might find wider applications in other areas before moving on to financial reporting and analysis and leave more complex and advanced topics like macroeconomics and ethics for later.
- Another approach could be to focus on quantitative topics at one time, understand the concepts and tackle the problems presented and studying qualitative material including ethics and behavioral finance before attempting related problems.
- My personal plan was in this order – Quantitative Analysis -> Financial Reporting -> Ethics -> Corporate Finance -> Fixed Income -> Economics -> Equity Investments -> Derivatives -> Alternative Investments -> Portfolio and then to again Ethics (read twice)
Practice with a CFA-Approved Calculator:
- To ensure you do not lose any time during the exam, it would be best to practice with a CFA approved calculator which can prove to be of great help during the exam.
- The Texas Instruments BA II Plus is the official calculator approved by CFA and it would be useful if you are well acquainted with the functions available for calculating effective yield, capital budgeting and other necessary calculations.
Sample Questions of CFA Level 1
CFA Institute offers a number of sample questions to help students develop an understanding of the kind of questions that might be asked and the format in which they are presented which would help avoid any confusion while tackling questions in the actual exam.
There are primarily two question formats adhered to in CFA Level I exam. This includes questions where you have to study the entire equation presented and figure out how to complete the last sentence of the question with the right option. There is another format where based on the study of the question you have to choose the right option which represents the answer.
For the benefit of readers, we would here include one sample question in each of the formats explained for better understanding.
Sentence Completion Format:
Susan Plumb is the supervisor of her firm’s research department. Her firm has been seeking the mandate to underwrite Wings Industries’ proposed secondary stock offering. Without mentioning that the firm is seeking the mandate, she asks Jack Dawson to analyze Wings common stock and prepare a research report. After reasonable effort, Dawson produces a favorable report on Wings stock. Plumb then adds a footnote describing the underwriting relationship with Wings and disseminates the report to the firm’s clients. According to CFA Institute Standards of Professional Conduct, these actions are:
|A)||not a violation of any Standard.|
|B)||a violation of Standard V(A), Diligence and Reasonable Basis.|
|C)||a violation of Standard VI(A), Disclosure of Conflicts|
Choose the Right Option Format:
Timothy Hooper, CFA, is a security analyst at an investment firm. In his spare time, Hooper serves as a volunteer for City Pride, which collects clothes for the homeless. Hooper has occasionally given some of the clothes to his friends or sold the clothes instead of returning all of the clothing to City Pride. City Pride discovers what he has been doing and dismisses him. Later, City Pride learns that other volunteer organizations have dismissed Hooper for similar actions. Has Hooper violated Standard I(D) on professional misconduct in the CFA Institute Standards of Professional Conduct?
|B)||No, because Hooper’s conduct is unrelated to his professional activities as a security analyst.|
|C)||No, because Hooper volunteers his services to City Pride.|
Related Articles –
CFA Level I exam is certainly not for the faint-hearted or for those casually interested. It is meant for people already working in the field of finance with a good amount of knowledge in a specific domain and willing to develop their expertise and professional skills and capabilities for career advancement. The odds of completing the exam successfully are certainly not insurmountable but participants need to realize that without an organized and dedicated effort, the results may not be favorable. On the positive side, completing CFA Level I exam opens up a whole new world of professional growth opportunities and expands the scope of knowledge and skills for any finance professional. They can then set their sights on earning the much-coveted CFA Charter and put their best foot forward.