Your Chartered Financial Analyst (CFA) career begins with passing Level 1 of the CFA Exam. Becoming proficient at the core elements of the CFA Program helps establish you as an insightful and credentialed investment professional.
The CFA Level 1 Exam’s ten topics are divided into four Functional Areas:
- Ethical and Professional Standards
- Portfolio Management and Analysis
The Exam is divided into two sessions: Ethical and Professional Standards and Tools are covered in the first session, and Portfolio Management and Analysis and Assets are covered in the second. Your final score is based on correct answer weights throughout the ten topics in the Level 1 exam. Breaking down the four Functional Areas into their ten separate topics can help you prepare for your test.
How much of the Level 1 exam includes Ethics and Professional Standards?
CFA Institute emphasizes Ethics, and doing well on this topic can determine whether you pass if you are on the “pass-no pass” cusp. Ethics and Professional Standards distinguish CFA charterholders as individuals committed to maintaining a high degree of professionalism for the investment industry. Accordingly, this Functional Area section is a whole topic on its own. It accounts for the most significant exam weight of 15-20%.
Which Investment Tools are covered?
The second Functional Area, Tools, consists of three topics:
- Quantitative Methods
- Financial Reporting and Analysis
Your understanding of how Quantitative Methods are used in financial analysis and investment management comprises 8-12% of your exam weight.
Economics also accounts for 8-12% of the Exam. Be prepared to answer questions concerning microeconomics, macroeconomics, and foreign exchange.
The third topic in the Tools section, Financial Reporting and Analysis, makes up the second-largest exam weight, with 13-17% of the questions addressing this topic. These questions cover how to analyze, interpret, and evaluate corporate financial statements.
What Portfolio Management and Analysis topics are tested?
There are two topics in the Portfolio Management and Analysis section: Corporate Issuers and Portfolio Management.
Corporate Issuers covers corporate governance and issues relating to how entities both raise and use capital. This section comprises 8-12% of the Exam.
Questions on Portfolio Management cover broad issues relating to wealth management for individual and institutional investors. This topic’s weight is between 5 and 8% of the Exam.
What topics are covered under the Assets area?
The four Asset Functional Area topics covered are:
- Equity Investments
- Fixed Income
- Alternative Investments
Equity Investments accounts for 10-12% of your final score. The questions are related to the valuation and analysis of corporate shares.
The Fixed Income topic also comprises 10-12% of the Exam. The questions cover how this asset class is valued and includes government and corporate bonds.
The Derivatives topic is weighted between 5 and 8%. This asset class includes complex securities that derive value from an underlying security. Often used as a financial hedge, derivatives include options, forward contracts, and swaps.
The Alternative Investments topic tests your comprehension of investments such as private equity funds, real estate, and commodities. This topic also comprises 5-8% of the Exam.
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