How to conquer the CFA exam level 1

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The Level I CFA exam is the first hurdle on the way to charterholder status and arguably the toughest to get through. Only 42% of candidates passed in June 2015 and the six hours of questions is a tough mental test. Add in the fact that 2015 has brought changes to the curriculum and you need to know what you’re getting into in order to enhance your prospects for passing.

This is what you need to know about successfully getting through the CFA exam and passing Level I.

In the exam should I start with the subject areas I’m most comfortable with and skip the ones I can’t solve in the allotted time?

Some questions are relatively straightforward, some are moderately difficult, and some are very challenging (difficult, require long calculations, or contain so much information that reading them takes a long time). Still, it should take you 1.5 minutes on average to answer each question.

Have a first pass through the CFA exam and answer the questions you think you know, but are unlikely to take you very long. But, do not skip pencilling in the bubbles. Select your favourite answer from the A-C choices and move on. Then go through a second time and tackle the questions you think you know, but will likely take a long time.

For example:

  • Calculating forward rates from spot rates and vice versa
  • 2-stage of growth valuation formula
  • Standard deviation of a 2-asset portfolio

This is also a good time to answer the questions you really don’t have a clue on – just take your best guess and move on.

If you’ve prepared well you may even finish early, so go back and double check.  Put an asterisk in the margin adjacent to the question on the question booklet, but never write anything on the answer booklet other than filling in the bubbles.

How are the topic areas sequenced in the Level I CFA exam? Do they appear in the same order as the curriculum?

Ethics has historically been the first topic examined and so the first 18 questions you should expect to see - in the AM and PM sections – are on this topic. I have asked the CFA Institute, but they would not give me any further details in this regard. They would only tell me that candidates should expect all topics to be roughly evenly split between the two sections.

Is it a good idea to attempt economics at the end of the exam?

Yes it is. There are a number of reasons to be aware of Economics as a subject area. For a start, it accounts for 10% of the total weight of the exam, but requires three study sessions. Spending time on it at the expense of other topics is simply not efficient. Here’s the weight to study session ratio:

Even students with an advanced degree in economics struggle – one reason that is often cited is that it’s down to the way the CFA Institute ask the questions. Some topics, such as calculation of elasticity, are different from how some of us learned it at university.

Can I come back to the very first question when I take a final review of my answers?

If you write (and review) 3-6 mock exams, your speed will improve to the point where you will have roughly 30 minutes to do your 2nd pass. Candidates who write in excess of 6 practice exams tend to have anywhere from 5-15 minutes for a 3rd pass.

Does Ethics boost your score for CFA Level I?

It’s possible. As I’ve said, it accounts for the first 18 questions and nailing these straight out of the gate will do wonders for your confidence. In 2015, we expect Ethics to account for 15% - an increase on previous years.

What other weightings have changed for the CFA Level I exams?

Hot topics, or topics recently introduced into the programme, seem to make their way onto the exam with greater regularity than other concepts. It therefore might not be a bad idea to pay more attention to Alternative Investments and Portfolio Management.

The following weightings have changed: Fixed Income decreased to 10% (from 12%), while corporate finance went from 8% to 7%. Meanwhile Alternative Investments is up to 4% (from 3% previously) and Portfolio Management has jumped from 5% to 7%.

What are the most challenging topics?

I’ve mentioned that economics causes a lot of headaches, but there are others. In Fixed Income, deriving forward rates from spot rates (and vice versa) is a problem and thank goodness they’ve removed bootstrapping from the Level I curriculum this year!

Remembering the differences between IFRS and U.S. GAAP is challenging in the FRA section, and in portfolio management, differentiating between the efficient frontier, CAL, CML, SML, CAPM, etc causes candidates problems.

In Quantitative Methods, knowing when to use what return measure - arithmetic vs. geometric, IRR vs. NPV, IRR vs. time-weighted return is also important.

Will there be a clock or timer visible in the exam room?

Not everywhere - in testing rooms that do not have clocks the timekeeper will mark time remaining on a chalkboard or flip chart in every 30 minutes until the final hour when they will update it every 15 minutes. There’s a verbal announcement every quarter of an hour once there’s only 30 minutes to go.

Darren Degraaf, CFA, CPA (US), CMA, PRM is a Virtual Classroom instructor for Level I CFA Exam Review at Wiley. For more CFA exam day tips, resources and free trials visit

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