Monday, October 1, 2012

3 month Study Plan to Prepare For The CFA Level I

3 month study plan schedule for the CFA level I examination
 The next CFA level I examination is on the 1st december 2012, which leaves you exactly 2 months to prepare for it, if you feel that you haven't prepared efficiently for it, here is a study plan which is based on a 3 month schedule.

The first point is to make some flash cards with the CFA formulas you have learnt til now so you can carry it everywhere and use transportation time to revize it, there is a also a nice CFA app that has all the formulas.
Moreover, I highly advise you to buy the CFA Schweser notes and question bank, indeed those are very important for your success in the CFA level I and will make your preparation more efficient.

 3 month Study plan:
-15 days for Quantitative, Economics and Ethics:

Ethics part will teach you the standards and code of the CFA and will account for 10 to 15 of the questions, ethics is often what will make you pass or fail the examination, I highly advise to read it everyday and to download the Schweser CFA application which is very useful and will prepare you well for the ethics part ( the ethics content will be the same for the CFA level I, II and III so better study hard for it).
Quantitative part is considered by many level I candidates as a very challenging topic, but those with backgrounds in finance, statistics and Maths won't have any problem with it, as it is just a review of what you have studied in undergrad, 10 to 15% of the CFA level I will be on quant.
You should understand fully the concepts of standard deviation, confidence intervals, hypothesis testing, sharpe ratio, correlation, covariance and everything to measure risk in a portfolio, the key to success for quant is to practice, practice and practice and as it will be the base of what you will learn in level II and III, you better understand it now.
Economics is not really difficult in my opinion,just a review of Microeconomics an Macro concepts from undergraduate, and the amount of questions in the CFA level I will be about 10%. Concepts such as efficiency, elasticity, as well as the impact of government actions on firms should be mastered, and concerning the very conceptual macro: supply and demand curves, monetary and fiscal policy effects.

-25 days for Corporate Finance and Financial Statements Analysis

I recommend you to study those two topics at the same time as there are some interrelated concepts and it accounts for 25 to 30% of the CFA level I questions.
You will learn here how to analyse and interpret financial statements: balance sheet, income statement and Cash Flow statement, and some more advances concepts such as the calculations for diluted shares, free cash flow to firm and equity.
You will aslo have to study very carefully the analysis of financing liabilities, leases, which I find really tricky  and the ratios ( the ratios formulas are simple but the list is endless).
Once you have done this you can start the Corporate finance, it covers everything from capital budgeting, cost of capital (WACC) and corporate goverance, you should really understand the different methodologies for capital budgeting, and the +/- for each.

-20 days for Equity and Fixed Income:

The equity part is about 10 to 15% of the CFA level I questions, one part is about understanding how the exchanges, indexes work, as well as the efficient market hypothesis which is really just a review if you come from a finance background. The second part is about valuation models, calculations of the required rate of return and industry analysis.
Fixed Income is also about 10 to 15 of the examination and you will have to understand everything from the basic features of fixed income securities and how to calculate underlying risk. Get familiar with CDOs and how to measure duration and convexity (those are super important, and you will hear about it again and again). The calculations of spread analysis, spot and forward rates are also included. Financial calculator will be your best friend for the fixed income preparation, but make sure the it is approved by the CFA institute.

-15 days for Derivatives, Portfolio Management and Alternative Investments:

I know this is pretty short to cover those 3 topics which are not really easy to understand, so the earlier you start the better it is for you, although derivatives will just cover the basics and you will get into more details during the CFA level II and III ( CFA level I: 5% of the questions), you will learn about forward, futures, swaps and options, and the put-call parity, payoff graph will really help you to understand how it works.
Portfolio Management is also about 5% of the CFA level I, you will already have covered some formulas from the quantitative part like the variance of the 2 asset portfolio, moreover you will learn about CAPM model, capital market line and security market line, this is just the beginning of what you will learn in L2 and L3.
Finally Alternative Investments which accounts for the last 5%, is more about concepts and will teach you about the different types of investments alternatives, and some real estate valuation.

The last 15 days will leave you time for a nice and heavy review, it would be good if you can take 2 weeks-off so you can focus on the CFA only, now that you know the concepts use that time to practice problems in the morning, practice problems in the aternoon and practice problems in the evening. It would be good if you can simulate CFA exams conditions at least twice with applying strictly the time constraints.

CFA examination day:

Get there early enough, passport and financial calculator (make sure they approve your model).
Answer the questions you are familiar with and don't spend unnecessary time on the question wher you have no clue, give it a try but don't spend 30 minute on a question, note it and get back to it at the end if you have time.



Martin said...

This is quite similar to my current preparation of the CFA level 2, but there is no secret to become Chartered Financial analyst, you don't need to be einstein but you need to work your ... Off everyday til the exam day, I failed the cfa level 1 on my first attempt due to my lack of motivation and late preparation ( a bit more than 2 months before the exam), I also didn't want to give up my weekend studying for The cfa, result: big mistake and failed badly, for my second attempt of the cfa l1 I started 6 months earlier with both schweser books and cfa curriculum, also armed with all the cfa mock exams I could find, result; easy to pass. I can't say anything about the level 2 as I am still preparing for it , but I think I am on the right way.

Ivan Selnik said...

Nice laid out study plan, and a recipe for success on the exam if you follow it. I completely disagree with people who say that you cannot pass CFA Level 1 without 4-5 months of preparation. My belief is that discipline is one of the more important things regarding your CFA Exam preparation, and since I see you cover iOS CFA apps on this blog I have to say that TimePrep for CFA Level 1 Exam is an app that really helps you discipline yourself - it creates a daily/weekly routine based on your inputs and your learning strategy preferences, and it tracks your progress continuously.

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