Examining the CFA Level 1 Syllabus: What are the Essential Exam Topics?

CFA Level 1 is the first exam you will overlook in the CFA exam journey.

We cover the exam format, structure, and recorded pass rate in CFA Level 1 overview. This post concentrates on the CFA level 1 curriculum and outlines the 10 topic areas.

CFA Level 1 Syllabus Breakdown

1. Honest and Professional Standards (Developing the Technique for CFA Level 1 Syllabus)

Ethics is one of the considerable significant CFA Level 1 topics representing 15% at this level. It encircles two major areas:

• CFAI Professional Code Program
• Global Investment Performance Standards (GIPS)

The syllabus covers the structure of the Program, the nature of the codes and standards, as well the enforcement, application, and recommended procedures.

There are also examples of how the codes and standards can be applied, and recommended procedures should violations are made.

On GIPS, the syllabus covers the experience, key components, how they are executed, and what to do if there is a conflict between GIPS and local regulations.

2. Quantitative Methods

Quantitative methods represent 12% of all CFA Level 1 exam topics. It introduces the time value of money, descriptive statistics, and probability as tools for quantitative methods.

Time value of money

Time value of money calculations is basic tools used to support corporate finance decisions and to estimate the fair value of fixed income, equity, and other securities or investments.

Candidates should understand interest and discount rates in the context of the time value of money, and be able to perform various calculations e.g. discovering the coming value and current value, DCF, NPV, and IRR.

Descriptive statistics

This section covers basic statistical concepts, such as defining a parameter and a frequency distribution, calculating percentiles, coefficients, and Sharpe ratios, and interpreting standard deviations and skewness. It also covers applications such as sampling, estimation, and hypothesis testing.

Probability

Candidates will be tested on basic probability concepts, such as defining a random variable or outcome, distinguishing different types of probabilities and rules, calculating joint probability, explaining the tree diagram, and interpreting covariance and correlation

3. Economics

This topic area represents 10% of the CFA Level 1 syllabus. It covers the introductory concepts students typically learn in their first year of college.

Microeconomic analysis

Microeconomics is the study of the market behavior of consumers and firms through the basic principle of demand and supply.

Macroeconomics analysis

Macroeconomics looks at the bigger picture, looking at the aggregate output and income measurement, factors on economic growth, business cycles, as well as how monetary and fiscal policies are used to mitigate economic fluctuations.

We also consult economics in a global context, notably international trade, capital flows, and currency trade rates.

4. Financial Reporting and Research

Financial reporting and analysis is the heavyweight in Level 1 representing 20% of the exam.

This is basically financial accounting 101 (or a briefer version of FAR in the CPA exam). It begins with the introduction of principal financial reports: the income statement, balance sheet, cash flow statement, and statement of changes in owners’ equity, together with letters to those words, and management discussion and analysis of outcomes. Further financial analysis techniques are covered as nicely.

It also touches on financial reporting mechanisms, such as the basic concepts of accounting equations and accruals. The roles of financial reporting standard-setting bodies and regulatory authorities are also discussed.

5. Corporate Finance

Corporate finance is relatively small representing 7% of the CFA level 1 syllabus.

This section introduces the concept of capital budgeting, determining the required rate of return for a project, leveraging, alternative means of distributing earnings, and short-term liquidity and working capital management.

6. Portfolio Management

Although Portfolio management is not heavily weighted in Level 1 (7%), this is an important section that sets the framework for later chapters. It also builds a good foundation for portfolio management in Levels 2 and 3.

Comparable to most topic areas, Level 1 portfolio management is ideational in nature. It especially presents the concept of a portfolio technique for investments. It also resembles the kinds of pooled, risk management, portfolio risk, investment management products, and returns measures, as well as current portfolio theory.