CFA Level I Book: Your Gateway to the CFA® Program

Welcome to the Foundation of Your CFA® Path

If you’re exploring the CFA Program, Level I is your first critical milestone. It’s here that you’ll develop fluency in topics ranging from fundamental ethics principles to the building blocks of financial analysis. Our content is crafted to demystify challenging concepts thoroughly and make your study both rewarding and efficient.

What Makes This Book Different?

1. Exceptional Clarity
   Each topic is presented in simple language with step‐by‐step walkthroughs. You’ll find charts, illustrations, and real‐world scenarios that cement crucial ideas.

2. 10 FREE Sample Questions per Page
   Practice is everything—especially in finance. That’s why every page includes 10 meticulously designed questions that reflect real exam difficulty.

3. Thousands of Quizzes
   With a massive question bank, you can reinforce your understanding topic by topic, ensuring you retain the material long‐term and build confidence one quiz at a time.

4. Open Source & Community‐Driven
   Our source code is available on GitHub, and we welcome all contributions. Help us refine explanations, correct errors, or author new practice questions. Your feedback guides continuous improvement for learners everywhere.

Topics Covered

We align every chapter of this book with the official CFA Level I curriculum—including Ethics, Quantitative Methods, Economics, Financial Statement Analysis, Corporate Issuers, Equity Investments, Fixed Income, Derivatives, Alternative Investments, and Portfolio Management. Each chapter is further divided into streamlined topics to help you organize your study.

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• Collaborative Learning: Your shared insights, examples, and real‐life applications help shape the most relevant and dynamic study resource.
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• Build Expertise: Explaining finance concepts to others is often the best way to increase your own mastery.

Take the Next Step

1. Start Exploring: Dive into any chapter to begin studying core topics.
2. Practice Continuously: Take advantage of the free quizzes to test your knowledge after each section.
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Together, We’ll Build Your CFA® Foundations

Harness the power of clarity, practice, and collaboration. Whether you’re aiming for a firmer understanding of core principles or gearing up for the final stage of your Level I exam prep, this open‐source book stands ready to guide you—free of charge and united by a community of learners and contributors.

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Explore the chapters, take the quizzes, and discover the confidence that comes from genuinely mastering the fundamentals of CFA Level I.

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In this section

• Chapter 1: Ethical and Professional Standards
  • Ethics and Trust in the Investment Profession
    Discover how ethical principles and trust form the backbone of a credible investment profession, supporting fair markets and sustainable growth.
  • Code of Ethics and Standards of Professional Conduct
    A comprehensive look at the CFA Institute Code of Ethics, the Seven Standards of Professional Conduct, and the Professional Conduct Program, offering insights, examples, and practical guidance for investment professionals and CFA candidates.
  • Guidance for Standards I–VII
    Explore practical guidance for CFA® Standards I–VII, focusing on real-world scenarios that illustrate how to navigate material nonpublic information, conflicts of interest, client confidentiality, and other key ethical obligations.
  • Introduction to the Global Investment Performance Standards (GIPS)
    Explore GIPS, a set of ethical principles and guidelines for transparent, consistent investment performance reporting that fosters trust between managers and investors.
  • Ethics Application
    Explore multi-faceted ethical scenarios faced by investment professionals, leveraging scenario analysis and case studies to develop a professional reflex aligned with the CFA Institute Code of Ethics and Standards of Professional Conduct.
• Chapter 2: Quantitative Methods
  • Rates and Returns
    Explore how interest rates function as a required rate of return, discount rate, and opportunity cost, understand nominal vs. real rates and various risk premiums, and learn about essential return measures such as HPR, TWRR, MWRR, and continuous compounding for robust portfolio performance evaluation.
  • Time Value of Money in Finance
    Learn how to calculate present and future values, annuities, perpetuities, and effectively discount or compound cash flows to manage investments more confidently.
  • Statistical Measures of Asset Returns
    Dive into key statistical measures—mean, median, dispersion, skewness, and kurtosis—essential for evaluating and interpreting asset return data in finance.
  • Probability Trees and Conditional Expectations
    Explore the fundamentals of probability trees, conditional expectations, and their practical applications in investment decision-making and risk management.
  • Portfolio Mathematics
    Explore the core concepts and mathematical framework behind portfolio returns, variance, correlation, diversification, shortfall risk, and safety-first principles to design resilient investment portfolios.
  • Simulation Methods
    Explore Monte Carlo techniques, bootstrap resampling, and the differences between normal and lognormal distributions, and learn how to apply simulation methods in finance for pricing, risk assessment, and portfolio analysis.
  • Estimation and Inference
    Explore core sampling methods, the Central Limit Theorem, resampling techniques, and confidence intervals to build reliable financial estimations and inferences.
  • Hypothesis Testing
    Explore the fundamentals of hypothesis testing, from formulating null and alternative hypotheses to interpreting p-values, avoiding errors, and applying confidence intervals in financial decision-making.
  • Parametric and Non-Parametric Tests of Independence
    Learn how parametric and non-parametric tests help evaluate independence in financial data, including t-tests, Spearman’s rank correlation, and chi-square methods.
  • Simple Linear Regression
    Learn how Simple Linear Regression uses Ordinary Least Squares (OLS) to estimate relationships between a single independent variable and a dependent variable. Explore key assumptions, interpret coefficients, and evaluate model fit using R², SEE, and ANOVA.
  • Introduction to Big Data Techniques
    Explore how Big Data reshapes modern finance, distinguish AI from ML, and learn the essential machine learning approaches. Discover how data science powers predictive analytics, algorithmic trading, and more.
• Chapter 3: Economics
  • The Firm and Market Structures
    Discover how firms operate in different market structures, from perfect competition to monopoly, and learn about pricing strategies, breakeven points, shutdown points, and more.
  • Understanding Business Cycles
    Explore the phases of the business cycle, learn how credit conditions shape economic activity, and discover key economic indicators for recognizing turning points.
  • Fiscal Policy
    An in-depth look at how government spending and taxation influence economic stability, growth, and the debt-to-GDP debate.
  • Monetary Policy
    Explore the objectives of central banks, tools of monetary policy, transmission mechanisms, and real-world challenges in implementing effective monetary policy frameworks.
  • Introduction to Geopolitics
    Explore how nations cooperate and compete on the global stage, influenced by geography, economic interdependence, and international organizations. Understand the nature of geopolitical risk, sanctions, tariffs, and alliances, and their effects on global investment strategies.
  • International Trade
    Explore how international trade fosters global collaboration through specialization, comparative advantage, and efficient resource use, while also examining trade barriers, trading blocs, and their socioeconomic impacts.
  • Capital Flows and the FX Market: Key Drivers of Global Currency Flows
    A comprehensive exploration of foreign exchange markets, exchange rate regimes, currency valuations, and the interplay of capital flows in shaping global economies.
  • Exchange Rate Calculations
    Explore cross-rates, spot and forward relationships, interest rate parity, and exchange rate forecasts with practical examples and informal insights.
• Chapter 4: Financial Statement Analysis
  • Introduction to Financial Statement Analysis
    Gain a comprehensive understanding of why and how to analyze financial statements, exploring frameworks, regulatory filings, and best practices that guide stakeholders in making informed decisions.
  • Analyzing Income Statements
    Explore revenue recognition principles, expense matching, non-recurring items, EPS calculations, and key ratios in income statement analysis.
  • Analyzing Balance Sheets
    A deep dive into balance sheet components, focusing on intangible assets, goodwill, financial instrument disclosures, non-current liabilities, common-size analysis, and key ratios.
  • Analyzing Statements of Cash Flows I
    Discover how the statement of cash flows interlinks with balance sheets and income statements, the difference between direct and indirect methods, common pitfalls, and best practices to accurately measure a firm's liquidity and cash-generating ability.
  • Analyzing Statements of Cash Flows II
    Explore advanced techniques for evaluating and interpreting statements of cash flows, including common-size analysis, free cash flow metrics, cash flow-based ratios, and the sustainability of cash flows.
  • Analysis of Inventories
    Explore key inventory valuation methods (FIFO, LIFO, and average cost), understand how IFRS and US GAAP differ in inventory accounting, and learn how to analyze and interpret inventory on financial statements.
  • Analysis of Long-Term Assets
    Explore the nuances of intangible assets (internally developed, purchased, or acquired), PP&E accounting models, and impairment considerations under IFRS and US GAAP. Dive into depreciation methods, key disclosures, and real-world examples to enhance your financial statement analysis skills.
  • Topics in Long-Term Liabilities and Equity
    An in-depth exploration of lease accounting, pension plans, stock-based compensation, and related disclosures for long-term liabilities and equity, comparing IFRS and US GAAP perspectives.
  • Analysis of Income Taxes
    Discover the key distinctions between accounting profit and taxable income, learn how deferred tax items arise, and explore critical tax rates and disclosures to master financial statement analysis of corporate taxes.
  • Financial Reporting Quality
    Discover the essentials of high-quality financial reporting, explore common manipulation tactics, and learn how to spot warning signs in financial statements.
  • Financial Analysis Techniques
    Master the core tools for effective financial analysis, including ratio analysis, DuPont decomposition, and benchmarking methods, to better interpret financial statements and assess company performance.
  • Introduction to Financial Statement Modeling
    Learn how to build pro forma income statements and balance sheets, forecast operating assumptions, and factor in behavioral biases and industry forces for robust financial models.
• Chapter 5: Corporate Issuers
  • Organizational Forms, Corporate Issuer Features, and Ownership
    Explore key organizational forms, their features, and how ownership structures and corporate governance shape business operations and investor interests.
  • Investors and Other Stakeholders
    Investors and Other Stakeholders examines the diverse groups with vested interests in corporate issuers, exploring their motivations, claims, conflicts, and alignment methods. This chapter highlights ESG considerations and illustrates how strong stakeholder relationships can boost firm value.
  • Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
    Explore the principal-agent relationship, common conflicts, and the organizational mechanisms that guide effective corporate governance.
  • Working Capital and Liquidity
    Explore the fundamentals of working capital, liquidity management, and the cash conversion cycle, with practical strategies for short-term financing and day-to-day operations.
  • Capital Investments and Capital Allocation
    Learn key principles of corporate finance, including NPV, IRR, real options, and strategic alignment through real-world examples, practical insights, and best practices to guide capital allocation decisions.
  • Capital Structure
    Explore the core principles of capital structure, including WACC, Modigliani–Miller propositions, trade-off theory, signaling insights, and key considerations for optimal debt-equity mixes.
  • Business Models
    Explore how companies create, deliver, and capture value by examining various business model types, their key features, sustainability, and the link to financial performance.
• Chapter 6: Equity Investments
  • Market Organization and Structure
    Discover how financial markets function, the roles of key participants, and the various structures that support the efficient trading of assets and allocation of capital.
  • Security Market Indexes
    Gain a comprehensive understanding of how security market indexes are constructed, maintained, and used, with insights into different weighting methodologies, index rebalancing, and reconstitution for performance benchmarking and investment decisions.
  • Market Efficiency
    Discover how market prices reflect available information, explore forms of efficiency, and understand anomalies and behavioral biases in financial markets.
  • Overview of Equity Securities
    Explore the essential characteristics of equity ownership, including common vs. preferred shares, public vs. private equity, global depositary receipts, and the key roles equity plays in corporate financing and investor returns.
  • Company Analysis: Past and Present
    Learn how to analyze companies by examining their historical evolution and current positioning. Explore financial statements, business models, ESG factors, and more to gain a holistic view of an organization's past performance and future potential.
  • Industry and Competitive Analysis
    Explore the purpose, frameworks, and methodologies for analyzing industries and competitive forces, including classification methods, Porter’s Five Forces, PESTLE analysis, and competitive strategies.
  • Company Analysis: Forecasting
    Explore both top-down and bottom-up forecasting approaches, revenue projections, operating expense estimates, capital structure considerations, and scenario analyses to build robust company forecasts.
  • Equity Valuation: Concepts and Basic Tools
    Explore how to evaluate a stock’s intrinsic value using present value models, market multiples, and asset-based approaches. Understand dividend mechanics, assumptions behind valuation methods, and practical insights for applying these tools in real-world scenarios.
• Chapter 7: Fixed Income
  • Fixed-Income Instrument Features
    Explore the foundational elements of fixed-income securities, including bond indentures, covenants, legal structures, and the roles of various stakeholders who protect investor interests.
  • Fixed-Income Cash Flows and Types
    Explore how different bond structures—bullet, amortizing, sinking fund, floating-rate, step-up, and more—shape the nature and timing of cash flows and the allocation of risks between issuers and investors.
  • Fixed-Income Issuance and Trading
    Explore how bonds are brought to market and traded, including the roles of underwriters, syndicates, and secondary market structures, along with practical examples and best practices.
  • Fixed-Income Markets for Corporate Issuers
    Learn how corporate issuers tap the fixed-income markets through various debt instruments, from short-term commercial paper to long-term bonds, and explore risk, credit ratings, and covenant considerations.
  • Fixed-Income Markets for Government Issuers
    Explore how sovereign and non-sovereign governments, as well as quasi-government entities, issue debt, the unique credit considerations involved, the auction processes, and common instruments such as T-bills, gilts, bunds, and JGBs.
  • Fixed-Income Bond Valuation: Prices and Yields
    Learn how to value bonds by discounting future cash flows, calculate accrued interest, and understand the bond price–yield relationship.
  • Yield and Yield Spread Measures for Fixed-Rate Bonds
    Explore different yield calculations, spreads, and practical insights for analyzing fixed-rate bonds. Understand yield-to-maturity, yield-to-call, nominal spread, z-spread, option-adjusted spread, and more.
  • Yield and Yield Spread Measures for Floating-Rate Instruments
    Discover the mechanics behind floating-rate notes, including how their coupons reset and how to calculate discount margin, with practical examples and best practices.
  • The Term Structure of Interest Rates: Spot, Par, and Forward Curves
    Dive deep into spot, par, and forward rates, learn how to build these curves using no-arbitrage arguments, and understand the key theories behind yield curve shapes.
  • Interest Rate Risk and Return
    Explore how bond returns break down into coupon income, price shifts from yield movement, and reinvestment income, with a special focus on the interaction between investment horizons and Macaulay duration.
  • Yield-Based Bond Duration Measures and Properties
    Dive into Modified Duration, Money Duration, and Price Value of a Basis Point (PVBP). Discover how coupon rate, yield, and time to maturity influence a bond’s interest rate sensitivity, and explore practical tips and examples for applying duration measures in fixed-income management.
  • Yield-Based Bond Convexity and Portfolio Properties
    Explore how bond convexity refines duration-based price estimates, the difference between positive and negative convexity, and how to incorporate these measures into portfolio-level duration and convexity management.
  • Curve-Based and Empirical Fixed-Income Risk Measures
    Explore how curve-based risk measures like key rate duration and empirical (regression) duration refine portfolio management by isolating interest rate risks at specific maturity points, with a focus on bonds that feature embedded options.
  • Credit Risk
    Explore key elements of credit risk, encompassing probability of default, loss given default, and the role of credit spreads in fixed income investing.
  • Credit Analysis for Government Issuers
    A comprehensive guide to evaluating sovereign and non-sovereign government debt, focusing on macro indicators, policy frameworks, political stability, and repayment structures.
  • Credit Analysis for Corporate Issuers
    Explore how to evaluate the creditworthiness of corporate issuers by examining both qualitative and quantitative factors, assessing industry and macroeconomic impacts, and understanding key financial ratios and capital structures.
  • Fixed-Income Securitization
    Explore how securitization transforms illiquid assets into tradable securities, the roles of various stakeholders, and the unique risks and benefits of these fixed-income instruments.
  • Asset-Backed Security (ABS) Instrument and Market Features
    A comprehensive guide to non-mortgage asset-backed securities, covering credit enhancements, repayment structures, asset-specific risks, and prepayment considerations.
  • Mortgage-Backed Security (MBS) Instrument and Market Features
    Explore Residential and Commercial Mortgage-Backed Securities, prepayment risk, pass-through structures, and key valuation drivers in this comprehensive guide.
• Chapter 8: Derivatives
  • Derivative Instrument and Derivative Market Features
    Explore the fundamentals of derivatives, their key features, and the distinctive characteristics of OTC and exchange-traded derivative markets. Understand contractual structures, margin requirements, and best practices for managing risk in these dynamic financial instruments.
  • Forward Commitment and Contingent Claim Features and Instruments
    Learn the foundations of forward commitments (forwards, futures, swaps) and contingent claims (options), their features, valuations, and real-world applications in derivatives markets.
  • Derivative Benefits, Risks, and Issuer and Investor Uses
    Explore the advantages of using derivatives for hedging, speculation, arbitrage, and price discovery, along with associated risks—plus how issuers and investors utilize these powerful financial instruments.
  • Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
    Explore how the Law of One Price shapes arbitrage, how replication strategies price derivatives, and why the cost of carry is central to forward and futures valuation.
  • Pricing and Valuation of Forward Contracts and Underlying with Varying Maturities
    Dive into forward contracts and discover how to price and value them for assets with varying maturities. This inclusive CFA Level I guide covers cost of carry, interest rates, convenience yields, real-world examples, and best practices.
  • Pricing and Valuation of Futures Contracts
    Explore the fundamentals of futures contracts, their distinguishing features from forwards, the process of marking to market, the concept of convergence, cost-of-carry pricing relationships, and how daily margin settlements affect a futures contract’s value mid-life.
  • Pricing and Valuation of Interest Rates and Other Swaps
    Explore the mechanics, valuation, and real-world applications of interest rate and other swaps, including practical examples and illustrative case studies.
  • Pricing and Valuation of Options
    Discover in-depth insights into option pricing, covering moneyness, intrinsic versus time value, and the essential factors affecting option valuations, along with practical applications and illustrative examples.
  • Option Replication Using Put–Call Parity
    Explore how the put–call parity relationship in European options enables the replication of calls and puts, reveals arbitrage opportunities, and underpins forward-based pricing. Learn how to construct synthetic positions, spot mispricings, and build a deeper understanding of derivatives pricing.
  • Valuing a Derivative Using a One-Period Binomial Model
    Learn how to use the one-period binomial model to value derivatives, explore risk-neutral probabilities, and apply real-world examples in a simplified lattice approach.
• Chapter 9: Alternative Investments
  • Alternative Investment Features, Methods, and Structures
    Learn the unique characteristics, techniques, and organizational forms of alternative investments, from private equity and hedge funds to real estate, commodities, and more. Discover motivations for investing, typical compensation structures, and key concepts like lock-up periods and hurdle rates.
  • Alternative Investment Performance and Returns
    Discover how to measure and evaluate the performance of alternative investments, focusing on IRR, MOIC, time- vs. money-weighted returns, fee structures, and benchmarking challenges.
  • Investments in Private Capital: Equity and Debt
    Discover the diverse world of private capital, exploring both equity and debt structures, key strategies, and the potential rewards and risks these investments offer.
  • Real Estate and Infrastructure
    Unlock in-depth insights into real estate investments, including direct property ownership, REITs, and private funds, as well as infrastructure assets such as roads, bridges, and utilities. Explore how these tangible, long-term assets can provide stable income, diversification, and unique risk-return profiles in an investment portfolio.
  • Natural Resources
    Explore raw land, timberland, farmland, and commodities as an alternative investment category, uncovering their unique characteristics, benefits, and risks.
  • Hedge Funds: Strategies, Fees, and Private Investments
    A thorough exploration of hedge funds—covering their structure, strategies, fees, and performance—ideal for learners seeking a solid foundation in alternative investments.
  • Introduction to Digital Assets
    Discover the fundamentals of cryptocurrencies, tokens, stablecoins, and the transformative impact of blockchain technology on modern finance.
• Chapter 10: Portfolio Management
  • Portfolio Risk and Return: Part I
    Explore key concepts such as major asset classes, risk aversion, utility theory, and the efficient frontier in portfolio management to optimize risk-return outcomes.
  • Portfolio Risk and Return: Part II
    Explore the Capital Allocation Line, systematic vs. nonsystematic risk, the CAPM, performance evaluation measures, and more in a comprehensive yet friendly deep dive into modern portfolio theory.
  • Portfolio Management: An Overview
    Discover how portfolios are constructed, managed, and monitored to meet diverse investment goals, highlighting the significance of diversification, strategic and tactical allocation, and key investor considerations.
  • Basics of Portfolio Planning and Construction
    Explore the essentials of creating a tailored portfolio plan, from the role of an Investment Policy Statement (IPS) to risk-return objectives, constraints, and asset allocation principles.
  • The Behavioral Biases of Individuals
    Explore core behavioral biases – from loss aversion to herding – and discover how these emotional and cognitive influences shape investment decisions and drive market anomalies.
  • Introduction to Risk Management
    Learn key concepts of risk management, including risk frameworks, risk governance, risk tolerance, and practical methods to measure and modify risk exposures, for a solid foundation in CFA Level I studies.