For investment professionals, the next big step is to become a Chartered Financial Analyst (CFA). The journey to becoming requires that a candidate clear the three CFA levels including the Level I, Level II and Level III exams. Candidates are required to pass in addition to certain work requirements.
The CFA exam is six-hour long divided into a morning and an afternoon session. Each session, three hours long, has 120 questions. Although they are multiple choice questions, each one of them is crafted with intelligence and needs intelligence to get them right. So make sure that you find the right answer.
Basic knowledge and comprehension of the concepts important in portfolio management and investment valuation is essential.
The curriculum includes four important areas, which are divided into ten topics. These include the following for Level 1:
Ethical and Professional Standards: An important section that requires your attention. It has 36 questions and the score here determines whether you will pass the level to move into the next.
Quantitative Methods: This section has a bad reputation but if you can ensure that you have a clear understanding of the following concepts: performance measurement, fixed income, portfolio management, money, equities, statistics, hypothesis testing, linear regression and correlation analysis and probability basics.
Economics: This section tests your understanding of macro- and micro-economic concepts. It is also 10% of the entire syllabus.
Financial Reporting & Analysis: This section is a whopping 20% of the curriculum. Questions include interpretation of financial statements, inventory analysis, taxes, revenue recognition, long-term assets, and other advanced concepts.
Corporate Finance: Corporate Finance is a smaller section but includes crucial topics such as capital management, budgeting, leverage and costing.
Portfolio Management: This section is crucial especially because it serves as a prep for the other levels. Candidates can expect approximately 17 questions on capital asset pricing model and modern portfolio theory.
Equity Investments: Approximately, 10% of the curriculum is dedicated to this section. Candidates can expect questions on analyzing companies and valuing them.
Fixed Income: To test the candidates on fixed income securities, mortgage-backed securities and collateralized mortgage obligations, the CFA exam include questions on fixed income.
Derivatives: The second has little weightage but like the portfolio management section is a prep for the next two levels.
Alternative Investments: The last section includes questions on real estate, commodities, venture capital, distressed securities, private equity and hedge funds. The section is conceptual and usually has eight questions.
So, to clear the CFA first level, this is what you need to prepare yourself.
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