Ethics
15-20%of exam
CodeStandardsGIPSMNPIConflicts
Quant
6-9%of exam
TVMReturnsStatisticsProbabilityRegression
Economics
6-9%of exam
DemandMarket StructuresGDPPolicyFX
Financial Statement Analysis
11-14%of exam
StatementsCash FlowInventoriesTaxesRatios
Corporate Issuers
6-9%of exam
GovernanceWorking CapitalNPVWACCLeverage
Equity
11-14%of exam
MarketsIndexesEMHDDMMultiples
Fixed Income
11-14%of exam
BondsYieldsDurationConvexityCredit
Derivatives
5-8%of exam
ForwardsFuturesSwapsOptionsArbitrage
Alternatives
7-10%of exam
Hedge FundsPrivate CapitalReal EstateCommoditiesInfrastructure
Portfolio Management
8-12%of exam
Quick Facts
- Exam
- CFA Level I
- Format
- 180 MCQ
- Sessions
- 2 x 135 min
- Choices
- A/B/C
- Pacing
- 90 sec/question
- PSM
- Required for results
- MPS
- Not fixed public
- Study
- 300+ hours avg
Seven Standards
Pro Markets Clients Employers Analysis Conflicts CFA
I: professionalismII: marketsIII: clientsIV: employersV: analysisVI: conflictsVII: CFA
Client vs Employer
Client
- Loyalty first
- Suitability
- Confidentiality
Employer
- No harm
- No stolen work
- Disclose compensation
Client first, employer next
Ethics Action Picker
- Law conflict→Stricter rule(Minimum conduct)
- Received MNPI→Do not trade(Restrict list)
- Client gift→Employer disclosure(After gift)
- Extra compensation→Written consent(Before work)
- Unsuitable request→Update IPS(Client profile)
- Allocation issue→Fair process(Not equal)
Ethics Standards
- I(A)
- Know applicable law
- I(B)
- Protect objectivity
- I(C)
- No misrepresentation
- I(D)
- Avoid professional misconduct
- I(E)
- Maintain competence
- II(A)
- No MNPI trading
- II(B)
- No market manipulation
- VII(A)
- Protect exam integrity
MNPI vs Mosaic
MNPI
- Material
- Nonpublic
- No trading
Mosaic
- Public data
- Immaterial nonpublic
- Reasoned conclusion
Inside fact vs analysis
Client Duties
- III(A)
- Client loyalty first
- III(B)
- Fair client dealing
- III(C)
- Check suitability
- III(D)
- Fair performance claims
- III(E)
- Preserve confidentiality
- VI(A)
- Disclose conflicts
- VI(B)
- Client trades first
- VI(C)
- Disclose referral fees
TWR vs MWR
TWR
- Manager performance
- Removes cash timing
- Chain returns
MWR
- Investor return
- Cash timing matters
- IRR method
Manager vs investor
Quant Formulas
- FV
- PV(1+r)^N
- EAR
- (1+APR/m)^m-1
- HPY
- (P1-P0+D)/P0
- TWR
- Chain subperiod returns
- MWR
- Portfolio IRR
- CV
- s/mean
- z
- (x-mean)/s
- R2
- Explained variation
Economics Map
- Elasticity
- %Qd/%P
- MR=MC
- Profit-max output
- GDP
- C+I+G+NX
- AD
- Total demand
- SRAS
- Sticky input costs
- LRAS
- Potential output
- PPP
- Inflation drives FX
- IRP
- Rates drive forwards
CFO Signs
Assets up subtract; liabilities up add
AR up: subtractInventory up: subtractAP up: addDepreciation: add
FIFO vs LIFO
FIFO
- Old COGS
- High EI
- Higher profit
LIFO
- Recent COGS
- Low EI
- Lower taxes
Rising prices assumption
FSA Picker
- Liquidity question→Current ratio(Short-term)
- Cash conversion→CFO(Operating quality)
- Rising prices→FIFO high EI(Low COGS)
- Tax timing→DTL/DTA(Temporary)
- Leverage risk→Coverage(Interest safety)
- ROE drivers→DuPont(Margin-turn-leverage)
FSA Core
- Assets
- Resources controlled
- Liabilities
- Present obligations
- Equity
- Residual interest
- Revenue
- Earned inflows
- Expense
- Used benefits
- CFO
- Operating cash
- CFI
- Investing cash
- CFF
- Financing cash
DuPont
ROE = Margin x Turnover x Leverage
Margin: profitabilityTurnover: efficiencyLeverage: financing
FSA Ratios
- Current
- CA/CL
- Quick
- (Cash+AR)/CL
- Gross margin
- Gross profit/Sales
- ROA
- NI/Avg assets
- ROE
- NI/Avg equity
- Turnover
- Sales/Avg assets
- Debt/equity
- Debt/Equity
- Coverage
- EBIT/Interest
NPV vs IRR
NPV
- Value added
- Dollar measure
- Best rule
IRR
- Rate measure
- Scale problem
- Multiple roots
Value beats rate
Corporate Formulas
- NPV
- PV inflows - outlay
- IRR
- NPV = 0
- PI
- PV inflows/outlay
- WACC
- wD rd(1-t)+wE re
- DOL
- %EBIT/%Sales
- DFL
- %EPS/%EBIT
- CCC
- DSO+DIO-DPO
- NWC
- Current assets - liabilities
Valuation Picker
- Stable dividends→DDM(Equity cash)
- Constant growth→GGM(g < r)
- Negative earnings→P/S(Sales positive)
- Asset-heavy firm→P/B(Book useful)
- Peer comparison→Multiples(Relative value)
- Control value→DCF(Intrinsic value)
Equity Valuation
- DDM
- PV expected dividends
- GGM
- D1/(r-g)
- P/E
- Price/EPS
- P/B
- Price/Book
- P/S
- Price/Sales
- EV/EBITDA
- Enterprise multiple
- EMH weak
- Prices reflect history
- EMH semi
- Prices reflect public
Duration vs Convexity
Duration
- Slope
- Linear estimate
- First order
Convexity
- Curvature
- Large moves
- Second order
Line vs curve
Rate Risk Picker
- Single cash flow→PV/FV(TVM)
- Uneven cash flows→NPV/IRR(Calculator CF)
- Bond price→PV coupons(Plus par)
- Yield change→Duration(Linear)
- Large yield move→Convexity(Curved)
- Credit event→CDS(Default protection)
Fixed Income Risk
- Coupon
- Periodic interest
- YTM
- Bond IRR
- Spot rate
- Zero-coupon yield
- Forward rate
- Implied future rate
- Duration
- Price-yield sensitivity
- Convexity
- Curvature adjustment
- OAS
- Option-adjusted spread
- CDS
- Credit protection
Option Rights
Call buys; put sells
Long: rightShort: obligationPremium: option price
Forward vs Future
Forward
- OTC
- Custom terms
- Counterparty risk
Future
- Exchange traded
- Standardized
- Daily settlement
Custom vs standardized
Derivatives Map
- Forward
- Custom OTC commitment
- Future
- Exchange-traded commitment
- Swap
- Exchange cash flows
- Call
- Right to buy
- Put
- Right to sell
- Long
- Own option right
- Short
- Option obligation
- Arbitrage
- Riskless mispricing trade
Alternatives Map
- Hedge fund
- Flexible active strategy
- Private equity
- Nonpublic ownership
- Venture capital
- Early-stage equity
- Buyout
- Control acquisition
- Real estate
- Property income
- Commodity
- Physical exposure
- Infrastructure
- Long-life assets
- NAV
- Asset value estimate
CAPM
Required return = rf + beta premium
rf: timebeta: market riskMRP: reward
Strategic vs Tactical
Strategic
- Long-run policy
- Risk targets
- IPS anchor
Tactical
- Short-run tilts
- Market views
- Active bet
Policy vs tilt
Portfolio Core
- Risk
- Return uncertainty
- Variance
- Squared dispersion
- Correlation
- -1 to +1
- Beta
- Systematic risk
- CAPM
- rf + beta(MRP)
- Sharpe
- Excess return/sigma
- IPS
- Policy roadmap
- SAA
- Long-run allocation
Common Traps
MPS vs pass rate
MPS is hidden ≠ Pass rate is outcome
Fair vs equal
Fair process required ≠ Equal treatment unnecessary
Client gift timing
Before: written consent ≠ After: employer disclosure
FIFO inventory
Rising prices: high EI ≠ LIFO: high COGS
IRR ranking
IRR ignores scale ≠ NPV adds value
Duration sign
Rates up ≠ Bond price down
American option
Exercise anytime ≠ European at expiry
Correlation limit
Minimum is -1 ≠ Maximum is +1
Last Minute
- 1.Weights: 15-20 ethics first
- 2.Session split: 90 + 90
- 3.No penalty for guessing
- 4.PSM required for results
- 5.Stricter law controls conduct
- 6.MNPI blocks trading
- 7.TWR removes cash timing
- 8.CFO: assets up subtract
- 9.NPV beats IRR conflicts
- 10.Rates up, bonds down
- 11.Call buys; put sells
- 12.CAPM prices systematic risk
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