CFA Program Level I

This topic introduces the organization, presentation, and descriptive analysis of investment data, including frequency distributions, charts, and summary statistics. The exam tests both numerical calculation and interpretation of measures of central tendency, location, and dispersion in an investment context.

• Organize and present data using tables, frequency distributions, and appropriate graphical displays for different data types.
• Distinguish between types of data, including cross-sectional and time-series data, and between categorical and numerical variables.
• Calculate and interpret measures of central tendency, including arithmetic mean, geometric mean, weighted mean, median, and mode.
• Calculate and interpret measures of location, including percentiles, quartiles, quantiles, and standardized scores.
• Calculate and interpret measures of dispersion and shape, including range, mean absolute deviation, variance, standard deviation, skewness, and kurtosis.
• Evaluate the advantages and limitations of common descriptive statistics when summarizing investment returns and other financial data.

This topic covers foundational probability concepts and the probability distributions most commonly used in finance, including expected value, covariance, and standard distributional forms. Exam questions typically require candidates to compute probabilities or moments and interpret distributional assumptions in investment applications.

• Explain basic probability concepts, including random variables, mutually exclusive events, exhaustive events, independent events, and conditional probability.
• Apply the addition and multiplication rules of probability and use counting techniques to determine event probabilities.
• Calculate and interpret expected value, variance, standard deviation, covariance, and correlation for probability distributions.
• Describe the properties and applications of discrete and continuous random variables in finance.
• Calculate and interpret probabilities using common distributions, including the uniform, binomial, and normal distributions.
• Explain the standard normal distribution, use z-values to determine probabilities, and describe the role of the lognormal distribution in modeling security prices.

This topic develops statistical inference from samples, including sampling methods, estimators, confidence intervals, and hypothesis testing. The exam emphasizes procedure, calculation, and interpretation of test results in finance and investment decision-making contexts.

• Explain the principles of statistical inference, including populations, samples, parameters, statistics, and sampling error.
• Describe common sampling methods and sampling distributions, including the role of the central limit theorem.
• Calculate and interpret point estimates and confidence intervals for population means under appropriate assumptions.
• Explain the properties of estimators, including unbiasedness, efficiency, and consistency.
• Formulate null and alternative hypotheses, distinguish between one-tailed and two-tailed tests, and explain Type I and Type II errors.
• Conduct and interpret hypothesis tests for population means using test statistics, critical values, and p-values.

This topic covers association and prediction using correlation and simple linear regression, with emphasis on interpreting fitted relationships and diagnostic measures. Exam questions commonly test calculation of correlation or regression outputs and evaluation of the economic meaning and limitations of the results.

• Calculate and interpret the sample correlation coefficient and distinguish correlation from causation.
• Describe the assumptions of simple linear regression and the roles of the dependent and independent variables.
• Estimate and interpret the slope coefficient and intercept in a simple linear regression model.
• Calculate and interpret fitted values, residuals, and the standard error of estimate.
• Evaluate regression results using measures such as the coefficient of determination and assess the statistical significance of regression coefficients.
• Identify limitations of correlation and simple linear regression in investment applications, including sensitivity to outliers and model misspecification.

This topic examines how firms make production and pricing decisions under different market structures and how those structures affect output, profitability, and pricing power. The exam tests recognition of cost and revenue relationships, profit-maximizing conditions, and the distinguishing features of perfect competition, monopolistic competition, oligopoly, and monopoly.

• Explain the economic goal of the firm and distinguish accounting profit from economic profit, including the role of explicit and implicit costs.
• Describe and interpret total, average, and marginal product; total, fixed, variable, average, and marginal cost; and the relationships among short-run cost measures.
• Explain the firm’s short-run and long-run profit-maximizing decisions using marginal revenue and marginal cost and identify shutdown and breakeven conditions.
• Compare the characteristics of perfect competition, monopolistic competition, oligopoly, and monopoly with respect to number of firms, product differentiation, barriers to entry, and pricing power.
• Determine output, price, and profit under different market structures and explain how market structure affects long-run economic profit.
• Evaluate the sources and limits of pricing power, including demand elasticity and barriers to entry, and explain how concentration measures can indicate market competitiveness.

This topic covers the measurement of aggregate output, the drivers of long-run economic growth, and the phases and indicators of business cycles. Exam questions commonly require candidates to interpret real versus nominal GDP, distinguish short-run fluctuations from long-run growth, and assess macroeconomic conditions using cycle indicators.

• Calculate and distinguish nominal GDP and real GDP, explain the use of a GDP deflator, and compare total output with output per capita as measures of economic performance.
• Describe the components of aggregate demand and aggregate supply and explain how shifts in each can affect output, employment, and prices in the short run and long run.
• Explain the determinants of long-run economic growth, including labor inputs, physical capital, human capital, technology, and productivity.
• Compare extensive growth with intensive growth and evaluate the sustainability and policy implications of different growth sources.
• Describe the phases of the business cycle and distinguish leading, coincident, and lagging indicators used to identify current and expected economic conditions.
• Explain how unemployment and inflation relate to the business cycle and interpret broad macroeconomic trends from commonly reported economic data.

This topic examines how central banks and governments use monetary and fiscal tools to influence economic activity, inflation, and employment. On the exam, candidates are expected to identify policy objectives and instruments, assess the likely effects of expansionary or contractionary actions, and recognize implementation limits and trade-offs.

• Describe the objectives of monetary policy and fiscal policy and explain how they are used to influence output, employment, and inflation.
• Explain the monetary transmission mechanism and evaluate the effects of policy rate changes, reserve-related tools, and central bank balance sheet actions on money, credit, and aggregate demand.
• Distinguish expansionary from contractionary monetary policy and fiscal policy and determine their likely effects on real GDP growth, inflation, interest rates, and budget balances.
• Calculate and interpret fiscal deficits and debt-related measures at a basic level and explain the role of automatic stabilizers versus discretionary fiscal policy.
• Explain the challenges and limitations of monetary and fiscal policy, including policy lags, crowding out, debt sustainability concerns, and the zero lower bound or low-rate environment.
• Compare the likely macroeconomic effects of different policy mixes under recessionary, inflationary, or balanced economic conditions.

This topic covers the economic rationale for international trade and capital flows and the determination of exchange rates in spot and forward markets. The exam typically tests comparative advantage, trade restrictions, balance of payments interpretation, and exchange-rate relationships including arbitrage-based parity conditions.

• Explain the benefits of international trade using comparative advantage and identify how differences in resource endowments, technology, and opportunity costs support specialization.
• Evaluate the effects of tariffs, quotas, export subsidies, and other trade restrictions on domestic producers, consumers, and overall welfare.
• Describe the major components of the balance of payments accounts and interpret how current account and capital and financial account balances relate to trade and capital flows.
• Calculate and interpret spot exchange rates, cross-rates, and percentage changes in currency values, using correct base and price currency conventions.
• Explain the market forces that affect exchange rates, including inflation, interest rates, income growth, trade balances, and capital flows under different exchange-rate regimes.
• Explain covered interest rate parity at a basic level and evaluate whether forward premiums or discounts are consistent with observed interest rate differentials and arbitrage conditions.

This topic examines recognition, presentation, and analysis of revenue, expenses, and profitability in the income statement. Exam questions typically require candidates to classify items, compare alternative accounting treatments, and assess effects on margins, earnings trends, and analytical conclusions.

• Explain general principles of revenue recognition and identify how differences in timing and measurement affect reported revenue and earnings.
• Describe the presentation and analysis of operating and non-operating components of the income statement, including unusual or infrequent items and discontinued operations.
• Calculate and interpret measures of profit, including gross profit, operating profit, pretax income, net income, EBITDA, and earnings per share where included in reported disclosures.
• Compare alternative expense recognition methods, including cost classifications by nature and by function, and evaluate their effect on profitability analysis.
• Analyze the effects of accounting choices and estimates for revenue and expense recognition on margins, trend analysis, and earnings quality.
• Interpret common-size income statements and changes in key expense ratios to assess operating performance.

This topic covers recognition, classification, measurement, and analysis of balance sheet items, with emphasis on assets, equity, and short-term financial position. The exam tests candidates on how balance sheet classifications affect liquidity, solvency, book value measures, and cross-firm comparability.

• Describe the structure of the balance sheet and distinguish current from non-current classifications for assets and liabilities.
• Explain the recognition and measurement bases commonly used for assets, liabilities, and equity, including historical cost and fair value where relevant.
• Calculate and interpret working capital, net asset position, book value of equity, and other basic balance sheet measures used in analysis.
• Evaluate a company’s liquidity using balance sheet information, including the classification of receivables, inventories, payables, and short-term financing items.
• Interpret changes in shareholders’ equity, including contributed capital, retained earnings, accumulated other comprehensive income, and treasury stock where applicable.
• Assess how accounting policy choices and valuation methods affect balance sheet comparability and financial analysis.

This topic develops the construction, interpretation, and analytical use of the cash flow statement and links cash flows to accrual-based earnings quality. On the exam, candidates are commonly asked to classify cash flows, convert between direct and indirect formats conceptually, and use cash flow patterns to evaluate sustainability of performance.

• Describe the components of the statement of cash flows and classify cash flows as operating, investing, or financing under IFRS and US GAAP.
• Compare the direct and indirect methods for presenting operating cash flow and explain the reconciliation from net income to cash flow from operations.
• Calculate and interpret free cash flow and other cash-based measures used in evaluating operating performance and financial flexibility.
• Analyze relationships among net income, cash flow from operations, and other cash flow components to assess earnings quality.
• Evaluate how classification choices, non-cash items, and working capital changes affect cash flow analysis and comparability.
• Interpret common cash flow patterns over a firm’s life cycle and assess whether reported cash generation appears sustainable.

This topic covers accounting and analysis for inventories, property, plant and equipment, depreciation and impairment, and identifiable intangible assets and goodwill. Exam questions focus on measurement under IFRS and US GAAP, method comparisons, ratio effects, and the consequences of impairments and capitalization choices.

• Calculate inventory balances and cost of sales using perpetual and periodic systems and common cost formulas, including FIFO and weighted average, and explain the effects of method choice on financial statements and ratios.
• Explain inventory valuation issues, including lower of cost and net realizable value under IFRS and lower of cost or market conventions under US GAAP, and assess the analytical implications of write-downs and reversals where permitted.
• Describe the acquisition, capitalization, depreciation, and derecognition of property, plant, and equipment, and calculate depreciation expense using straight-line and accelerated methods.
• Analyze the effects of capitalization versus expensing, depreciation method choice, and asset disposals on profitability, asset turnover, and cash flow measures.
• Explain impairment testing and accounting for long-lived assets, finite-lived intangible assets, indefinite-lived intangible assets, and goodwill, and compare IFRS and US GAAP treatment where relevant.
• Interpret the analytical effects of internally generated versus acquired intangible assets on comparability, leverage, and performance metrics.

This topic addresses accounting for income taxes and major non-current liabilities, especially deferred taxes, bonds, leases, and pension-related obligations at a Level I depth. The exam tests calculation and interpretation of temporary differences, liability measurement, and the effect of financing obligations on leverage, coverage, and reported performance.

• Explain the difference between accounting profit and taxable income and distinguish permanent differences from temporary differences.
• Calculate and interpret deferred tax assets and deferred tax liabilities arising from temporary differences, and assess the effects of changes in tax rates and valuation allowances where applicable.
• Analyze how deferred tax items affect earnings quality, cash taxes paid, and future profitability expectations.
• Describe the issuance and reporting of long-term debt, including bonds issued at par, discount, or premium, and calculate interest expense and carrying value using the effective interest method at a basic level.
• Explain lease accounting for lessees and analyze the effects of lease-related assets and liabilities on leverage, profitability, and cash flow presentation.
• Interpret the financial statement effects of pension and other non-current liabilities at a Level I analytical depth, including their implications for solvency and coverage analysis.

This topic integrates financial statement information into ratio analysis and evaluates whether reported results faithfully represent underlying economics. On the exam, candidates are asked to compute and interpret major ratios, identify warning signs in reporting quality, and judge the impact of accounting choices on comparisons across firms and time.

• Calculate and interpret ratios used in profitability, liquidity, solvency, efficiency, and valuation analysis using information from the financial statements.
• Use the DuPont framework to decompose return on equity and explain how operating performance, efficiency, leverage, and tax effects drive changes in shareholder returns.
• Prepare and interpret common-size financial statements and trend analysis to compare performance across companies and over time.
• Evaluate the impact of accounting methods, estimates, and alternative classifications on ratio comparability and financial statement analysis.
• Assess financial reporting quality by identifying warning signs related to aggressive revenue recognition, expense capitalization, off-balance-sheet effects, non-recurring items, and cash flow inconsistencies.
• Integrate ratio analysis with broader company and industry context to form a reasoned conclusion about financial condition and performance.

This topic covers the capital budgeting process, project cash flow estimation, and the major criteria used to evaluate investment projects. The exam tests both calculations and interpretation, including NPV, IRR-based decisions, mutually exclusive projects, capital rationing, and project-specific risk considerations.

• Describe the capital budgeting process, including project generation, analysis, selection, implementation, and post-audit.
• Calculate and interpret incremental after-tax cash flows for capital projects, including initial outlay, operating cash flows, terminal value, opportunity costs, externalities, sunk costs, and changes in net working capital.
• Calculate and interpret net present value, internal rate of return, profitability index, payback period, and discounted payback period.
• Apply capital budgeting decision rules to independent and mutually exclusive projects, including the ranking conflicts that can arise between NPV and IRR.
• Explain the effects of project interactions, capital rationing, project sequencing, and unequal lives on capital budgeting decisions.
• Evaluate the impact of inflation, taxation, and project risk on project analysis, and explain the use of scenario analysis, sensitivity analysis, and break-even analysis in assessing project risk.

This topic covers the estimation and use of a firm’s cost of capital and the basic principles of capital structure choice. The exam commonly tests calculation of component costs and WACC, along with interpretation of how leverage, taxes, and financing choices affect firm value and risk.

• Calculate and interpret the cost of debt, preferred stock, and common equity using appropriate market-based approaches.
• Calculate and interpret the weighted average cost of capital for a company using target or market-value weights.
• Explain the marginal cost of capital schedule and its role in evaluating investment opportunities.
• Describe the factors that affect a company’s cost of capital, including business risk, financial risk, tax environment, and market conditions.
• Explain the basic theories and trade-offs of capital structure choice, including the effects of taxes, financial distress costs, agency costs, and asymmetric information.
• Evaluate how changes in capital structure affect company value, cost of capital, and measures of leverage, and describe practical factors that influence financing decisions.

This topic covers operating and financial leverage, their effects on business and earnings risk, and the management of short-term assets and liabilities. The exam tests calculations such as breakeven and degree of leverage as well as applications involving cash, receivables, inventory, payables, and working capital policies.

• Calculate and interpret breakeven quantity and breakeven revenue, and explain the effect of fixed and variable costs on operating risk.
• Calculate and interpret degree of operating leverage, degree of financial leverage, and degree of total leverage.
• Explain how operating leverage and financial leverage affect variability of operating income, net income, and returns to shareholders.
• Describe the primary objectives of working capital management and the trade-off between liquidity and profitability.
• Evaluate working capital policies and the management of cash, marketable securities, receivables, inventory, and trade payables.
• Calculate and interpret common measures used in working capital analysis, including the operating cycle, cash conversion cycle, and related turnover ratios.

This topic covers the construction and uses of security market indexes and the implications of market efficiency for active and passive investing. The exam tests index calculations and interpretations, along with candidates’ ability to explain forms of market efficiency and the limits to informationally efficient prices.

• Calculate and compare index values and returns for price-weighted, equal-weighted, market-capitalization-weighted, and fundamentally weighted indexes.
• Explain index construction choices, including constituent selection, weighting, rebalancing, and reconstitution, and assess how those choices affect index characteristics and performance.
• Describe uses of security market indexes in benchmarking, measuring market performance, asset allocation, investment product creation, and performance evaluation.
• Explain the weak-form, semi-strong-form, and strong-form versions of market efficiency and identify the implications of each for security analysis and portfolio management.
• Discuss market anomalies, behavioral challenges, and limits to arbitrage, and evaluate how they qualify the practical application of the efficient market hypothesis.

This topic introduces the major types of equity securities and the ownership structures through which companies issue them. On the exam, candidates are tested on shareholder rights, differences among public and private company forms, and the risk-return implications of various equity claims.

• Describe the characteristics of common shares, preference shares, and other equity-related securities, including their cash flow claims, voting rights, and priority in liquidation.
• Compare public and private company forms and distinguish key ownership structures, including sole proprietorships, partnerships, corporations, and other organizational forms relevant to equity investors.
• Explain the rights and features attached to common shareholders, including control rights, dividend rights, preemptive rights, and the impact of different share classes.
• Describe how corporate actions and firm life-cycle events, such as stock splits, share repurchases, seasoned offerings, and initial public offerings, affect equity holders.
• Assess differences in risk, return, governance, liquidity, and information availability across equity securities and company types.

This topic covers top-down equity analysis from macroeconomic and industry conditions to company-specific competitive position and financial performance. The exam commonly asks candidates to classify industries, evaluate competitive forces and life-cycle stages, and connect accounting and operating drivers to company prospects.

• Explain how macroeconomic conditions, business cycles, and structural trends affect industries and companies within a top-down equity analysis framework.
• Classify industries using commercially used classification approaches and compare sector, industry, and subsector groupings for investment analysis.
• Analyze industry attractiveness and competitive dynamics using factors such as demand and supply conditions, pricing power, barriers to entry, substitutes, rivalry, and stakeholder influence.
• Describe industry life-cycle stages and evaluate the implications of each stage for growth, competition, capital needs, and valuation.
• Evaluate a company’s competitive position, strategy, business model, and use of financial statement information to identify key value drivers, risks, and sources of sustainable profitability.

This topic covers core equity valuation approaches based on discounted cash flows and market multiples. The exam tests candidates on selecting appropriate valuation models, estimating inputs, calculating intrinsic value, and interpreting whether a stock appears fairly valued, overvalued, or undervalued.

• Apply present value models to estimate the intrinsic value of equity securities, including dividend discount models and free-cash-flow-based approaches using assumptions consistent with firm growth and payout characteristics.
• Calculate value using single-stage, two-stage, and multistage dividend discount models, and determine justified price multiples implied by payout, growth, required return, and profitability relationships.
• Explain and apply free cash flow to equity and free cash flow to the firm valuation approaches, including the use of discount rates consistent with the cash flow definition.
• Calculate and interpret market-based valuation multiples, including price-to-earnings, price-to-book, price-to-sales, enterprise value multiples, and justified leading and trailing multiples.
• Compare present value models and multiple-based models, identify the strengths and limitations of each, and select the most appropriate approach given company characteristics, data availability, and market context.
• Evaluate the sensitivity of equity value estimates to assumptions about growth, margins, payout, discount rates, and terminal value, and interpret the resulting valuation conclusions.

Covers how fixed-income securities are issued, traded, quoted, and financed across primary and secondary markets. The exam tests market terminology, distinctions among market segments and participants, and application of core funding and trading concepts to bond transactions.

• Describe the primary roles of issuers, underwriters, dealers, brokers, investors, and trading venues in fixed-income markets.
• Distinguish primary market issuance methods, including public offering, private placement, shelf registration, and auction procedures commonly used in sovereign markets.
• Compare secondary market structures and trading mechanisms, including over-the-counter dealer markets, electronic trading, bid-offer markets, and order-driven settings where relevant.
• Interpret standard bond quotations and trade information, including prices quoted as a percentage of par and the distinction between clean price, accrued interest, and full price.
• Explain settlement, clearing, and delivery conventions for fixed-income transactions and the basic sources of counterparty and settlement risk.
• Describe fixed-income funding markets and instruments, including repurchase agreements, margin borrowing, and securities lending, and explain how these are used to finance bond positions and support market liquidity.

Covers valuation of plain-vanilla fixed-income securities using discounted cash flow methods, yield measures, and introductory term structure concepts. The exam tests calculations of bond prices and yields and interpretation of spot rates, forward rates, and benchmark yield spreads.

• Calculate the value of a fixed-rate, floating-rate, and zero-coupon bond by discounting expected cash flows at appropriate discount rates.
• Calculate and interpret accrued interest, full price, and clean price for a bond between coupon payment dates.
• Calculate and interpret yield measures, including coupon rate, current yield, yield-to-maturity, semiannual bond basis yields, street convention yield, money market yield, and yield-to-call when applicable.
• Explain the relationship between bond prices, coupon rates, maturity, and market discount rates, including premium, discount, and par bond pricing.
• Describe the term structure of interest rates and calculate or interpret benchmark, par, spot, and forward rates at a basic level.
• Calculate and interpret yield spreads, including benchmark spread, G-spread, I-spread, and Z-spread at an introductory level, and explain what spread differences may indicate about risk and liquidity.

Covers the main sources of fixed-income risk and the standard tools used to measure price sensitivity and realized or expected return. The exam tests duration and convexity-based approximations, credit risk concepts, and analysis of holding period return under changing market conditions.

• Describe major fixed-income risks, including interest rate risk, reinvestment risk, credit risk, liquidity risk, call risk, prepayment risk, and inflation risk.
• Calculate and interpret Macaulay duration, modified duration, money duration, price value of a basis point, and approximate percentage price change for a bond given a change in yield.
• Explain convexity and use duration and convexity together to estimate the price effect of a given change in interest rates.
• Describe the determinants of credit risk, including capacity and willingness to pay, seniority, collateral, leverage, and bond covenants, and interpret credit ratings and credit migration at a basic level.
• Calculate and interpret holding period return and distinguish the effects of coupon income, reinvestment income, capital gain or loss, and currency effects when relevant.
• Explain how yield volatility, maturity, coupon, and embedded options affect a bond’s interest rate sensitivity and return profile.

Covers the structure, cash flow mechanics, and risks of mortgage-backed securities and other asset-backed securities. The exam tests understanding of prepayment-driven cash flows, tranche design, and the comparison of securitized products with conventional bonds.

• Describe the securitization process and the basic structure of mortgage-backed securities and asset-backed securities, including the role of the special purpose vehicle and the cash flow waterfall.
• Explain the characteristics of residential mortgage loans relevant to securitization, including amortization, scheduled principal, unscheduled principal, and prepayments.
• Calculate or interpret the cash flows of pass-through securities, including the effects of prepayments on average life, timing of principal repayment, and investor return.
• Describe prepayment risk, including contraction risk and extension risk, and explain the economic factors that influence mortgage prepayment behavior.
• Compare major mortgage-backed structures, including pass-throughs and collateralized mortgage obligations, and explain the purpose of tranching principal and prepayment exposure.
• Describe common asset-backed securities backed by consumer or commercial receivables and explain the role of credit enhancement and structural protections in supporting the securities’ credit quality.

Covers the mechanics, valuation, and applications of forward and futures contracts, including pricing from spot values and carrying costs and the effects of daily marking to market. The exam tests straightforward calculations of forward/futures prices and values, along with interpretation of hedging uses and contract features.

• compare and contrast forward contracts and futures contracts, including standardization, trading venue, settlement, margin requirements, and counterparty risk
• calculate and interpret the forward price and futures price of an asset using spot price, financing cost, and benefits or costs of carry
• calculate and interpret the value of a forward or futures contract at initiation and during the life of the contract
• describe how marking to market, margin calls, and daily settlement affect futures positions
• explain and apply the use of forward and futures contracts to hedge price risk, interest rate risk, equity market risk, and foreign exchange risk
• distinguish among cash settlement, physical delivery, and contract closeout and explain their implications for users of futures markets

Covers call and put options, moneyness, option exercise and expiration value, payoff/profit patterns, and the basic economic intuition for option value and put-call relationships. On the exam, candidates are tested on computing option payoffs, identifying value drivers, and interpreting simple bounds and parity-based relationships.

• describe the basic features of call and put options, including exercise price, expiration date, premium, American versus European exercise, and long versus short positions
• calculate and interpret the payoff and profit of long and short call and put positions at expiration
• distinguish among in-the-money, at-the-money, and out-of-the-money options and relate moneyness to exercise value and time value
• explain how changes in the underlying price, exercise price, time to expiration, volatility, interest rates, and underlying cash flows affect option values
• calculate and interpret simple upper and lower bounds for option values and apply put-call parity to European options on non-dividend-paying and dividend-paying assets at a basic level
• describe option exercise decisions and the circumstances in which early exercise may or may not be optimal

Covers the structure and uses of swaps, especially plain vanilla interest rate swaps and basic currency swaps, together with introductory derivative-based risk management applications. The exam typically tests the ability to identify swap cash flows, compare swaps with related forward positions, and choose appropriate derivatives for simple hedging situations.

• describe the basic characteristics of swaps and explain how swap cash flows are determined for the counterparties
• calculate and interpret the net cash flows of a plain vanilla fixed-for-floating interest rate swap
• describe the basic structure and uses of currency swaps and compare them with interest rate swaps
• explain how swaps can be viewed as a series of forward commitments and use that intuition to interpret swap pricing and value changes
• apply forwards, futures, options, and swaps to basic risk-management problems involving equity, interest rate, commodity, and foreign exchange exposures
• evaluate the advantages and limitations of using derivatives for hedging, including basis risk, counterparty risk, and the trade-off between cost and protection

This topic covers the economic features, investment methods, return drivers, risks, and valuation approaches for private capital, real estate, and infrastructure. The exam tests both conceptual distinctions across subcategories and practical application of cash flow, fee, leverage, and performance concepts to these private market investments.

• describe private capital investments and distinguish among venture capital, growth equity, buyouts, private debt, and other common private market strategies
• explain the private capital investment process, including capital commitment, capital calls, distributions, lockup features, fund life, and the role of the general partner and limited partners
• calculate and interpret basic private capital performance measures and cash flow patterns, including committed capital, invested capital, distributed capital, residual value, and internal-rate-of-return-style outcomes
• describe the major forms of real estate investment, including direct real estate, private real estate funds, and publicly traded real estate vehicles such as REITs, and compare their liquidity, income, and diversification characteristics
• explain the main sources of real estate return and risk, including rental income, lease structure, operating costs, capital appreciation, leverage, vacancy, and property market conditions
• describe infrastructure investments and distinguish among infrastructure equity and debt, greenfield and brownfield projects, and regulated versus user-pay assets, including their typical cash flow and risk characteristics
• evaluate the key valuation and risk considerations for private capital, real estate, and infrastructure, including leverage, appraisal-based valuation, illiquidity, cyclicality, and manager selection

This topic covers commodity and natural resource investing, including spot and derivative-based exposures, and the main hedge fund strategy groupings and their risk-return characteristics. The exam typically emphasizes sources of return, term-structure effects, strategy classification, and comparison of risks, liquidity, and diversification benefits.

• describe the main ways investors obtain commodity exposure, including direct holdings, futures-based strategies, commodity-linked investments, and equity exposure to commodity-producing firms
• explain the components of commodity returns, including spot return, collateral return, and roll return, and interpret the effects of contango and backwardation
• distinguish between commodities and natural resources investments and explain the return drivers and risks of natural resource investments such as energy, metals, agriculture, timberland, and farmland
• describe the major hedge fund strategy classifications, including event-driven, relative value, macro, equity hedge, and other common groupings, and explain how they seek to generate returns
• compare hedge fund strategies on the basis of directional exposure, leverage, liquidity, use of short selling, and sensitivity to market, credit, and volatility conditions
• evaluate the diversification benefits and major risks of commodities, natural resources, and hedge fund strategies, including liquidity risk, leverage risk, counterparty risk, operational risk, and manager risk

Covers measurement of portfolio return and risk, the effects of asset allocation and correlation, and the mechanics and intuition of diversification. Exam questions typically require calculating expected return and variance-related measures, interpreting covariance and correlation, and evaluating the diversification benefits of combining assets.

• Calculate and interpret expected return, variance, standard deviation, covariance, and correlation for individual assets and portfolios.
• Calculate and interpret the expected return and variance of a two-asset portfolio and explain the role of asset weights, asset risk, and correlation.
• Explain how diversification reduces unsystematic risk and distinguish between diversifiable and non-diversifiable risk.
• Describe the risk aversion framework and explain the relationship between risk, return, and utility for risky portfolios.
• Evaluate the effects of combining a risky asset portfolio with a risk-free asset on expected return and risk.
• Interpret the implications of portfolio statistics for investor decision-making and basic asset allocation choices.

Covers the foundations of capital market theory, the efficient frontier, the capital allocation and capital market lines, and the CAPM relation between systematic risk and expected return. On the exam, candidates are tested on assumptions, graphical interpretation, beta-based required return calculations, and judging whether securities are fairly priced relative to the security market line.

• Describe the assumptions of mean-variance portfolio theory and the characteristics of efficient portfolios and the efficient frontier.
• Explain the Markowitz framework, the global minimum-variance portfolio, and the efficient frontier’s role in portfolio choice.
• Describe the implications of adding a risk-free asset, including the capital allocation line, the optimal risky portfolio, and the capital market line.
• Explain the assumptions and conclusions of capital market theory and identify the market portfolio’s role in equilibrium.
• Define, calculate, and interpret beta as a measure of systematic risk.
• Use the Capital Asset Pricing Model to calculate required return and evaluate whether an asset is underpriced, fairly priced, or overpriced relative to the security market line.

Covers translating investor circumstances into a strategic asset allocation, selecting portfolio construction approaches, and maintaining target exposures through rebalancing. The exam tests candidates on matching portfolio choices to objectives and constraints, distinguishing strategic and tactical decisions, and evaluating time-based versus threshold-based rebalancing methods and trade-offs.

• Explain how investment objectives and constraints guide strategic asset allocation and overall portfolio construction.
• Distinguish between strategic asset allocation and tactical asset allocation and describe the role of active versus passive implementation choices.
• Describe major asset allocation approaches and basic portfolio construction considerations, including concentration, diversification, and benchmark orientation.
• Explain the purpose of rebalancing and the trade-offs among risk control, transaction costs, tax effects, and investor discipline.
• Compare time-based, threshold-based, and hybrid rebalancing approaches and determine when each is most appropriate.
• Evaluate the effects of market movements and cash flows on portfolio weights and recommend appropriate rebalancing actions consistent with policy targets.