Friday, October 19, 2012

How To Study for The Quantitative Methods of the CFA Level I and II?

The quantitative methods section of the CFA level I is placed second in the CFA curriculum just after the ethics section, it consists of the following section : basic quantitative concepts which are very useful and used as a background for the calculations that are in the following parts of the CFA curriculum such as the time value of money, and all the related calculations in the discounted cash flows, variance and various returns measurements in the portfolio management section.

Following the basic quantitative concepts, you will have to go through slighty more advanced concept but nothing too complicated especially for those who majored in finance during college, you do not need a Phd in mathematics to understand quant topics of the CFA, here you will learn:
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• Probability concepts
•  Sampling methods
•  Hypothesis testing, correlation and regression.
At the end, there is one chapter on technical analysis which is quite interesting. If you are not a quant specialist or if you do not like mathematics and stats some of the topics above can seem quite tough but you cannot skip any of this, as the quantitative methods section accounts for about 10 to 15% of the multiple choice you better get a solid understanding and it will also help you for the following levels.

In my opinion you should not spend too much time on the quant basics  but just read and understand it in order to be fully efficient and dedicated on the harder sections of quantitative methods. There are no real shortcuts for this topic, except that you should do tons of practice problems for it, also get to know how to draw graph to have an idea of what you are doing while practicing hypothesis testing exercices, don't forget to dedicate only 2 min per question when you practice, you will have 1.5 min only during the real CFA examination.

Taking Notes for the CFA is a must as it will save precious time when you will revise it just before the CFA examination, if you decide to study for quantitative methods as the last part of your CFA level I learning process and you run out of time, you can skip the technical analysis as it is quite straightforward and it has not a big weight for the exam.

It is vital for you to determine what are your weaknesses in the CFA curriculum so you can study at first the parts you know the best and dedicate more time to the harder sections at the end.

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Paramdeep singh said...

Nice article and I can't agree more. I believe that CFA Level-I quants is perhaps the most important topic from the CFA program perspective because it builds a good foundations for various other subjects not only in Level-I but also in Level-II and Level-III exams. In my experience, candidates especially from non-mathematics background should spend considerable time efforts for Level-I quants because master quants today would eventually save your preparation time in the long run.

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