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CFA Quant Study Tips for Level 1 and 2

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The CFA quant section is the most mathematical and formula-driven part of the CFA exam. Plus, quantitative methods are also important in the first two levels of the CFA exam, representing 6-9% in Level 1 and 5-10% in Level 2.

In Level 1, candidates are expected to know the basics of quantitative methods. They should be able to interpret the normal distribution and how that relates to quantifying risk. Furthermore, test-takers should be very comfortable with covariance, correlation, confidence intervals, and expected value.

And be warned: the graphics in the readings (such as the histograms, distributions, and cumulative distributions) can be tested on a few of the CFA questions as well.

In Level 2, the focus shifts to hypothesis testing, which is considerably more complex and builds on the knowledge in Level 1.

Quant Level 1 Syllabus

The CFA exam has two long study sessions covering the basics of quantitative analysis.

Basic concepts (study session 2)

  • The time value of money
  • Discounted cash flow application, which is built on the time value of money concepts
  • Statistical concepts and market returns
  • Probability concepts

Application (study session 3)

  • Common probability distribution
  • Sampling and estimation
  • Hypothesis testing
  • Technical analysis

SS3 is considerably more difficult. It is not a particularly long read, but there are more end-of-chapter questions than SS2.

CFA Quant Study Tips

1.Build a Good Foundation

Concepts like the time value of money and DCF are basic for many candidates. However, it is important to truly understand how they work, because they lay the foundation for the equity and fixed-income valuation sections. Furthermore, these sections are big topics in Level 2.

2. Manage your progress

You should aim at mastering the CFA quant section because it is a big section in Level 1. What’s more, understanding the Level 1 materials is crucial for tackling Level 2.

Having said that, if you don’t have the background in statistics, it may take up a lot of studying time.

Be conscious of how much time you have spent. If necessary, speed up the readings and save time for practice questions. Don’t let the quant section derail your study plan.

3. Focus on the logic, not memorizing the formulas

Don’t get stressed on the formulas in your first reading, as you are going to forget most of them. Focus on the logic behind the formulas and how the concepts relate to each other.

You can try setting up the formulas in an excel sheet so you can plug in various numbers and see how they work.

4. Watch the Khan Academy channel

If there is a concept you don’t understand, check out the Khan Academy. This website covers every topic that you can imagine, and it’s all free. Youtube may have similarly helpful videos as well.

5. Practice, practice, and practice

This tip is the same throughout your CFA prep, but it is especially true for the CFA quantitative sections. If you want to really master the CFA questions, you should practice as many as you can before exam day. By answering tons of practice questions, you’ll understand the concepts better. Plus, you’ll have a better grasp of how the examiners will test you.

The best way to get ready for the CFA exam quants section is to study with one of the top-rated CFA study courses.

Practice in quantitative methods means getting familiar with how the calculator works as well.

6. Allow time for quick review

As mentioned above, there are lots of formulas in the CFA exam quantitative methods questions. By the time you finish reading FRA, you might have forgotten 90% of it. Make sure you allow a couple of hours going through those formulas again.

Some readers suggest writing the formulas on flashcards and review them from time to time. Writing notes is time and effort consuming but this method has good pay off in the long run. The CFA exam is a marathon, so it’s worth the effort in my opinion.

Conclusions about CFA Quant Sessions – CFA Levels 1 and 2

The CFA quant session could be Goliath to candidates without statistics background. Having said that, most are “light bulb” topics, meaning when the concept clicks (the ah-ha! moment), it will be easy going forward.

For Your Further Reading

Here are more tips on these topic areas:

topic-cfa-ethics CFA Quant study tips topic-cfa-economics topic-cfa-fra topic-cfa-corporate-finance
topic-cfa-equity topic-fixed-income topic-cfa-derivatives topic-cfa-alt-investments topic-cfa-portfolio-management

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