That was the end of fixed income, and we have now finally arrived at the very last reading of the curriculum. Before we move on, let’s have another look at the program that we have progressed through over the previous 14 weeks:
Source: Financial Exam Academy (Based on the CFA® exam – level 1 curriculum – December 2013 Exam)
The week to come:
Even though it may appear daunting to get through an entire book (Derivatives and Alternative Investments) in the upcoming week, a quick glance at the table above should reassure you that you have coped with more intense weekly challenges before (remember micro economics?), as a matter of fact the session is only 10 pages longer than the 2nd fixed income session that you completed last week. That said our final weekly challenge is one of the toughest in the program, as the content is fairly mathematical and each page may take a little bit of time to digest.
The fist topic (Derivatives) is clearly one of the more quant oriented in the curriculum, so depending on your personal preferences you’ll probably either love it or hate it. The topic is confined to one study session made up of 6 relatively short readings. The topic is expected to take up a guideline 5% of the level 1 exam, and it’s weighting in the curriculum is roughly a reflection of that. The first reading (31 pages) provides a high level introduction to derivative markets and instruments. Next up are two super short readings (18 and 32 pages respectively) about forward and futures markets. The next reading (50 pages) covers option markets. The 5th reading (26 pages) is about SWAP markets and the final reading (26 pages) in the study session covers risk management and option strategies. This study session clearly covers a lot of ground in very little space, and as such the topic very much works as a high level introduction and primer for more to come at level 2 and 3.
Alternative Investments is the smallest topic area at level 1 at just under 100 pages or 3% of the curriculum. The topic is expected to carry a matching weight on the exam. The topic is organized as one short study session divided into 2 readings. The first reading (78 pages) is a new reading at level 1 this year. The reading introduces various alternative investments including real estate, private equity, hedge funds etc. The final reading of the curriculum (14 pages) describes commodity investment strategies.
Tip:
A few of the derivatives readings (Derivative Markets & Instruments and Swap Markets & Contracts) appear to be slightly more testable (judging by the ratio of end of chapter questions to curriculum pages) than others. As always, take this information with “a pinch of salt”, as the CFA Institute is free to skew the exam towards any reading they like, and as such there is really no way around you having to be familiar with all corners of the curriculum. The is not much value-add from analyzing the Alternative Investments topic area (given how short it is) but the first reading is definitely the meatiest. Also the second reading is not accompanied by any end of chapter questions at all.
Let’s have a final look at our beloved study approach (you are going to miss it!):
- Please ensure that you attempt the end of chapter questions as the first thing when going through each reading. As you answer the questions make a list of the most difficult ones (especially whenever you resort to guessing). When you are done with the questions, review your answers thoroughly (particularly those that you got wrong) and add these questions to your list as well.
- Also please ensure that you write down and answer the LOS as you work your way through each reading. The combined effort of question practice and LOS statement “hunting” will ensure that you are focused on seeking out the most important information as you progress through each reading.
- Lastly as you wrap up each reading attempt only the challenging end of chapter questions from your list. Remove those answers that you can now confidently answer correctly from the list, and if there are any questions left read the explanations thoroughly before you redo them. Continue this process until you have mastered all of the end of chapter questions in the reading. Save away the full list of difficult questions for the upcoming revision process.