Posted By: Dr. Doug Van Eaton, CFA
Updated: February 12, 2019
If you are a candidate for CFA® Program, you need a study plan that will allow you succeed. Join Dr. Doug Van Eaton, CFA as he discusses the CFA Program Level I curriculum and study strategies that have been proven to work.
Hi, I’m Doug Van Eaton. I’m a Level I CFA Program Manager with Kaplan Schweser. And in this video, I’m going to address a question that is probably at the top of a lot of your minds, and that is how am I going to pass this Level I CFA Program exam? What do I have to do to pass this thing? Well, let’s take a look at that. Here’s an outline of what I’m going to cover here.
First, we’re going to look at the CFA Program curriculum, the structure and the content of it, and the curriculum topics, and their exam weights. Take a look at pass rates on the past exams to motivate you a little bit, and then get into the exam structure and the format of the questions. And then we’ll move into how to prepare for and pass the exam, and efficient and effective study with Schweser, and talk a little bit about how the Schweser materials that we’ve designed to fit in with what we know as educators about efficient and effective learning.
So first let’s look at the curriculum. The curriculum at Level I is divided into 18 Study Sessions, and each Study Session has one or more readings. Each reading has multiple Learning Outcome Statements. We refer to these as LOS. There are approximately 60 readings and 530 Learning Outcome Statements for the Level I CFA Program exam. As the curriculum changes a little from year to year, these change a little but those are pretty close in any given year.
So getting down to the Study Session level, here’s the readings that comprise Study Session 2: Quantitative Methods: Basic Concepts. So we’ve got the time value of money, discounted cash flow applications, statistical concepts and market returns, and probability concepts.
Together with Study Session 3, Quantitative Methods: Applications, these make up the topic area of Quantitative Methods. So there’s two Study Sessions in Quantitative Methods. And it’s exam weight is 12%. So 12% of the exam questions and points will be based on these Learning Outcome Statements from Quantitative Methods.
So let’s take a look at the individual Learning Outcome Statements. As an example, we’ve got reading 7 here, Discounted Cash Flow Applications, and the Learning Outcome Statements say candidates should be able to calculate and interpret the net present value and internal rate of return of an investment.
LOS 7B: Contrast the net present value rule to the internal rate of return rule, and identify problems associated with the internal rate of return rule. And LOS C: Calculate and interpret a holding period return or total return. Well, you can see that last one is pretty straightforward. It’s just a percentage change in a number over time, right? Buy a stock for 10, sell it for 12, you made 20%, that’s your holding period return. So that’s what I’d consider a fairly narrow Learning Outcome Statement. Others will be broader. I think there’s one that says something like, understand and interpret a company balance sheet. Well, that’s much broader than this. So expect quite a range of kind of the amount of material covered by each Learning Outcome Statement.
Now, the purpose of these Learning Outcome Statements is to focus you on the relevant material for the exam. They indicate the skill, the knowledge, the technique that you should have, that you should take away from the reading. So it focuses your study. And it indicates the depth of your topic knowledge required, and we’ll see that in the command words. If it’s a calculation, it’ll say, “Calculate.” It may say, “Describe.” It may say, “Explain. Contrast. Differentiate.” These are the types of command words. So always look at those to get a good indication of what it is that you’re supposed to take away from the curriculum for that particular Learning Outcome Statement.
Because each exam question on the Level I exam will be based on one or more of these Learning Outcome Statements, specifically. And in my experience and knowledge, CFA Institute has adhered very closely to that.
The Level I curriculum, and, therefore, the Learning Outcome Statements and exam questions all begin with the candidate body of knowledge. CFA Institute gets feedback, survey information from practitioners and employers, and to some extent academics. The idea being, what do you want a beginning analyst, a generalist, to know. And so that’s what starts the body of knowledge. It really comes from industry.
And these Learning Outcome Statements, we believe, are tested on a cycle. So the important point to remember is any Learning Outcome Statement is fair game for the exam. There are some Learning Outcome Statements we can be pretty certain will be addressed one way or another on the exam. I mean, we’ve got a lot of information in accounting on lease accounting. Are there are going to be questions on lease accounting? Almost assuredly so. There may be another Learning Outcome Statement where you go, “Well, this is kind of a stand-alone, you know, doesn’t show up again at Level II or III. So maybe it’s a little less important in that aspect. But can it be on the exam? Can there be exam questions from it?” You bet. Just remember, every Learning Outcome Statement is fair game for the exam.
Now here’s our 10 topic areas: Ethical and Professional Standards; Quantitative Methods, which we mentioned; then Economics, a little micro, a little macro, a little international economics; Financial Reporting and Analysis that comprises four Study Sessions, quite a bit of material; Corporate Finance, a couple of Study Sessions there; Study Session on Portfolio Management; Securities Markets and Equity Investments; Fixed Income Securities; Derivatives; and finally, Alternative Investments. So quite a range of topics.
Here’s the weights for the exam. Ethics is 15% of the exam. An exam is 240 questions. So that means 36 of the questions will be on ethics. The other one in red there, financial reporting, got a pretty heavy weight at the 20% of the exam. You’re going to get 48 questions on financial reporting and analysis. Quantitative methods, pretty good size there at 12%, and econ at 10%. And then for the rest of it here, you can see some 10% weights on equity and fixed income, debt securities, and smaller weights of derivatives and finally, 4% for Study Session 18, alternative investments.
You need to keep this in mind while you’re studying. Not that you can allocate your time exactly like this. In financial statement analysis, if you don’t have any background in that, that may take you quite a bit of time. But just remember, if you take ethics, 15%, and financial reporting and analysis, 20%, why you’re at 35% right there. Throw in quant and equity, and you’re up to 57% of the exam right there. So there are some areas, these heavily weighted ones, which you really want to put some significant efforts into.
Pass rates on a Level I exam are not high. Over the last few years, they’ve averaged 43%. Now, this is the percent of the candidates who actually show up and take the exam, not of those that are registered for the exam. And remember, that includes those taking the exam for the second or third or more times that they’ve had to pass it.
Now Level I exam, as I mentioned, is 240 questions. There’s a morning session with 120 questions, an afternoon session with 120 questions. Three hours each, so that’s a minute and a half per question. It’s all multiple choice with only three answer choices. So just by random, we would expect a chimpanzee to be able to get 33.3%. Unfortunately, that’s not a passing score.
Now, old exams are not available. We haven’t seen an actual CFA exam since 1997. So we can’t draw much from that. And candidates are prohibited from talking in any kind of detail about what was and wasn’t tested or the content of any particular exam question. So it’s a little bit of a black box in that aspect.
So both the morning and afternoon sessions cover all the topics. So you can’t go, “Oh, they didn’t test equities in the morning. I better study that one at lunch or whatever.” No, that’s not going to work. They cover all the topics according to their weights in the morning session and all of them by their weights in the afternoon session, and they go in that order. At least they always have historically. Start with ethics, then econ, then financial reporting, etcetera, right down through the list. So the questions are divided, clearly, by topic area.
Well, I’ve taken a few exams in my lifetime. I think I went to 23rd grade. So I’ve had some exams and professional exams as well. So here’s some exam tips from an old exam taker.
Come early. Don’t get caught up in traffic or worrying if you’re going to get there, or trying to find a parking spot or trying to find the room. Don’t do any of that. Your goal is to stay calm. Be well rested. Don’t let your eyes wander around the room. Every exam, there’s a good number of students who have their exams invalidated for giving the appearance of looking at the exam of another candidate. And that would just be the worst. If you’re just staring off into space trying to collect your thoughts, and the proctor sees you, he’ll make a note. Won’t even address you then. You’ll hear about it later. Very uncomfortable, unproductive situation.
So if you need to take a break from staring at your exam, and we all do in a three-hour exam, look up, look at the front of the room, just be very careful about that. And stop immediately when the proctor says, “Time.” You can’t be going, “Oh, I just…I’ve got the answers here. I just haven’t filled in these bubbles.” If your pen’s on that…pencil, excuse me, if your pencil is on that paper after they call time, they’ll invalidate your exam. Just no question about it, and it happens to people every time no matter how much we tell them. Be very careful about that. Don’t waste all this time and effort.
Read the Standards of Practice Handbook, that’s the ethic stuff, one more time the day before the exam. That’s my suggestion, and I’ve gotten a lot of good feedback that says, “Yeah, that works.” Look, there’s a lot of memory material in there. And so you might as well put it in your brain one more time the day before the exam. And it’s also the first topic you’re going to run into on the exam. And maybe if you see a couple of questions then you say, “Oh, I read that example yesterday.” Build some confidence, get you on the right track for a long day of test taking.
Now you can write in the exam book, but you’re not allowed to have any scratch paper, but you can write on your exam booklet. One thing I used to do taking tests is if there was a formula I needed to remember for the exam, and I thought maybe it would slip away three or four hours into the exam, I just jot it down. Once they start the exam, you’re free to write on your exam book. If you want to write down the Black-Scholes formula for option pricing, so it’ll be there later in the day, you’re free to do that. Just don’t make any stray marks on your answer sheet.
Now, let’s get into some nuts and bolts of preparing for this exam. Here’s what we think we know about learning and learning science. What you really want to be doing is engaged learning. Someone tells me, “Oh, I spend 20 hours. I read this three times, and I couldn’t pass the self-test quiz at the end.” Well, reading isn’t learning. Learning is hard work. You’ve got to put the effort in, the mental effort. We’ve referred to this as engaged learning. Where you’re really wrestling with the concepts to understand them and be able to tell yourself the same story and have it make sense to you. That’s engaged learning. If you’re relating the new material, you’re learning things that you already know or things that you already know about, and seeing kind of the compare and contrast, “Well, what’s different about this? Why does this have a different name than this?” All of that is engaged learning, and that’s what works for retention, and also the ability to use that. Make it applicable knowledge. Where you’re given a different question, something you’ve never seen before, you can use that knowledge and draw on it to answer the question.
Repetition really helps long-term memory. Studying something, a period of time passes, you go back and study it again or review it again or take a quiz on it again, that increases your retention period. And that’s really helpful because you’re going to be studying over maybe a six or seven month period, maybe six months between when you study quant and when you take the exam. And so that you don’t have to relearn it in May right before the exam, revisiting it over time can increase that retention and make it so you know all these different topic areas concurrently on exam day.
It also helps to study across topic areas. Now when we get to a new topic, you’re going to focus on that, and go through it, and study it. But as we get further into the curriculum, we want you to intersperse that with going back and taking a quiz or doing a review, looking at the key topics, going through your flashcards, whatever it is, for an earlier topic area. And so this is going to help your learning, and it’s also going to improve your retention.
The Test Effect has been well known in education for decades with some refinement and some new knowledge along the way, but it turns out that rereading material has really little or no additional benefit, at least as demonstrated in a number of studies. They’re divided into two groups, and one group takes a quiz, and the other group they say, “Okay, read it again. Get the stuff you didn’t get last time.” The ones that take the test do better later on on the real test. And this doesn’t matter if they pass the test, they don’t pass the test, or if we don’t even give them the answers in some studies. There’s still a great benefit from taking this test.
Because now you’ve put this knowledge in your brain, and you’re looking at it, and saying, “Is that important?” Your brain doesn’t know. Well, you go and take a quiz or a test, and you have to draw on this information. Well, that’s going to tell your brain or trick your brain, if you will, into believing this is really important stuff. Boy, he wants to know this all the time. I better put it in some place real handy and file it away real well and real securely. So the Test Effect really does work.
I myself have had great benefit studying from writing and remembering. And some of the studies show that, yeah, writing stuff down for in-group tests or for large groups really didn’t do that much. I’m thinking that it kind of depends on the writing. If in doing the writing, we’re doing what we said about engaged learning, that is trying to distill this down to their basic elements and understand them and make them clear so you can write down notes that you’re talking to yourself, and constructing a set of review notes that you know are really going to resonate with you, that can be the beneficial part of it all. The wrestling, and clarifying, and getting it down to its essential elements, and then writing it down. Try it for yourself. It can be very helpful. And the importance of review, and this goes back to that same idea of returning to it, returning to it, to improve your memory, your grasp on it and your retention.
So for real efficient learning, here’s our steps. Know your extent of the material and the format and topic weights for your exam. Know what you’re up against, and then just jump in and learn and understand the CFA Program curriculum, concepts, definitions, and techniques. You’ll be taking practice quizzes to learn and retain the material. And you’ll also be learning how to take the exam successfully. Remember, that’s what you’re going to do on exam day or game day, if you will, is answer 240 multiple choice questions.
So studying the material is not enough. The quizzes have their own learning benefits, but there’s also skills and experience from taking practice exams and doing lots of questions. This is just going to make you a better exam taker on exam day, your timing will be down better, you won’t be spending too long on questions and run out of time, you won’t be going too fast so you end up with time left over. You’ll get your timing right, you’ll get your skills down. So you really need to work on this, especially the last month before the exam, on how to take the exam successfully.
And then during that period, in your final preparations, we’ve got some tools for filling in the gaps of your knowledge in a very efficient way to getting you really exam ready by the day of the actual CFA Program exam.
So we’ve broken it down here into five steps. Summarize what we’ve said.
STEP 1: Number one, learn about the exam for your level, its topic weights, and its question formats. It’s different at different levels. Understand what it is you must accomplish then formulate your study plan and then the hard part, stick to it.
STEP 2: Second step here. Learn the exam curriculum. One LOS, one Study Session, one topic area at a time. There’s no other way around it. You need to read the Schweser Notes. You need to complete our end of reading concept checkers and learn from your errors. Make sure you list your first pass, “Yeah, I understand it. I can get this stuff right.” Watch the On-Demand Video Lectures or attend the Online Class or one of our Live Instruction Classes. Live classroom classes around the world.
STEP 3: Third step. Learn and retain. Take quizzes from our SchweserPro Question Bank. I think we’ve got just shy of 4,000 questions in the Level I QBank, and bring in previous topics for review as I mentioned. Complete all of the end-of-reading questions in the CFA Institute books, Level I curriculum books, and take our Schweser self-assessment test from your online account at the end of each topic area.
These self-assessment tests are designed to be very exam-like. We’ve got exam-like timing on them. I think all together they make up a half exam presented at the end of each topic area. But this is to give you feedback on how your study has gone. I don’t want to hear at the end of the season, “Yeah, I studied real hard all through and then I took a practice exam and got a 52.” No. We want better results than that even on your first practice exam. So you take these at the end of the topic area, and they give you immediate feedback on how effective your study has been. So you can make adjustments throughout the term course of the study.
STEP 4: Number four. This is to learn how to take the exam part. You’ve got our Schweser Exam Review Workshops. These specifically have time, maybe half the time, give or take, depending on where we are in the season with these. But just doing questions, and having your instructor in the classroom take you through the questions, what are the important points you should have seen? What’s the distinction being made? How can I tell what they’re asking here? And just practice and answering questions correctly.
Our Schweser Practice Exams are very exam-like. Maybe just a bit harder than the actual exam according to feedback we get. There’s six of those exams in two volumes, and each is a full 240-question six-hour exam. We’ve got 101 Must Knows for the Level I exam. These are 101 questions, but it’s not a quiz, it’s not timed. You can take some now and some later. But they’re just things I think are really, really likely to come up on the exam in some manner or another.
And so the questions are difficult. Test your knowledge, but for each one, there’s a separate tutorial. Sometimes a couple of minutes, sometimes four or five minutes, depending on the complexity of the underlying material. But it’s a tutorial, not just on the question, but the underlying theory, and the concepts, and everything that supports that question. And so that’s what I mean by an efficient way of filling in the gaps in your knowledge. You’re going through 101 must-knows, and you go, “Yeah. I got that. I understand that.” And then you get to one you don’t, you just click on the tutorial, spend three, four, five minutes, get all refreshed, reviewed, up to speed. Very efficient way for your last month of test preparation. So we review the answer explanation in the Schweser Notes, the video lectures, the on-demand class archives, or the CFA Program curriculum books.
STEP 5: And our fifth step, our final preparations the last two weeks. Time to take the Schweser Live Mock Exam if you can. It’s offered in well over 120 locations around the world. If you can’t get to a live location, which are often offered by CFA societies, mostly offered by CFA societies, you can take these online. Then it has a Multimedia Tutorial, not quite as extensive as the tutorials on 101 things, but certainly, take you through each question and where the answer comes from or the calculations or what’s the specific term that we’re trying to get you…test you on right here. And that also helps fill in the gaps. So that’s a full six-hour mock exam.
And, as I mentioned, read the Standards of Practice Handbook one more time. You’ll need to read that, the actual handbook itself, multiple times. Remember, ethics is 15% of the exam. There’s a lot of memory stuff in that ethics, and reading it again the day before the exam can lead to, at least marginally if not significantly, better results.
So a little wrap up here. Learn the exam format, topic weights. Learn the material. Practice and retain. Get exam ready. And then your last couple of weeks, fill in the gaps in your knowledge in the most efficient way possible to give you the absolute best shot at passing that exam on exam day that you can have.
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