FREE CFA Level 1 Study Guide 2026: All 10 Topics, Built to the Exam

This free CFA Level 1 study guide teaches to the CFA Program Level I exam — all 10 topic areas the CFA Institute tests, organized the way the exam is built.^[1] It is one of the broadest and most rigorous exams in finance, so this guide is deep: real teaching, worked formulas, and the high-yield rules that decide pass/fail — not a summary.

And it’s interactive, not a wall of text: every topic has a built-in checkpoint quiz, hover-able glossary terms, and concept questions, so you learn by doing.

Read it topic by topic, test yourself at each checkpoint, then round out your free CFA Level 1 study resources with our practice questions and flashcards.

CFA Level 1 Exam Snapshot

The exam weights some topics far more heavily than others — spend your time accordingly. Ethics, Financial Statement Analysis, Equity, and Fixed Income together make up roughly half the exam, and ethics carries the single largest weight:^[1]

CFA Institute publishes the topic weights as ranges, not fixed numbers, so the exact mix shifts slightly each window. This guide groups the 10 topics into 8 study modules — Ethics stands alone, and the two smallest related pairs (Fixed Income with Derivatives, Alternatives with Portfolio Management) are taught together — but all 10 official topics are covered.^[1]

1 · Ethical & Professional Standards

15–20% of the exam — the single largest topic. Ethics is also the tiebreaker: CFA Institute uses strong ethics performance to decide borderline pass/fail outcomes, so you cannot afford to be weak here. The good news is that the content is finite and stable.

The Code of Ethics

The Code of Ethics is six high-level commitments: act with integrity, competence, diligence, respect, and in an ethical manner; place the integrity of the profession and the interests of clients above your own; use reasonable care and exercise independent professional judgment; practice and encourage others to practice professionally; promote the integrity of capital markets; and maintain and improve your competence.^[2] The Code states the principles; the Standards make them enforceable.

The 7 Standards of Conduct

Memorize the seven Standards in order — the exam tests the sub-standards by scenario, asking which one a member violated:

Material Nonpublic Information & Markets

Standard II(A) forbids acting (or causing others to act) on material nonpublic information. Information is material if a reasonable investor would want it or it would move the price, and nonpublic until disseminated.

The mosaic theory is a defense: combining public data with nonmaterial nonpublic pieces into a conclusion is acceptable. Standard II(B) prohibits market manipulation — transaction-based (creating false volume/price) or information-based (spreading false rumors).

Duties to Clients

Standard III is the heart of client work: Loyalty, Prudence, and Care(act for the client’s benefit; the client’s interest comes first); Fair Dealing (treat all clients fairly — equal, not necessarily identical, treatment in disseminating recommendations); Suitability(match recommendations to the client’s written objectives and constraints); Performance Presentation (fair, accurate, complete); and Confidentiality.

GIPS & Performance Presentation

The Global Investment Performance Standards are voluntary, ethical standards for calculating and presenting investment results so they are fair and comparable across firms.^[3] Key ideas: only an entire firm (not a product or individual) can claim compliance; results must be grouped into composites by strategy; and a minimum performance history must be shown when a firm first claims compliance. Verification by an independent third party is recommended but not required.

2 · Quantitative Methods

6–9% of the exam, but the toolkit (time value of money, return measures, statistics) recurs across Equity, Fixed Income, and Portfolio Management — so the payoff is much larger than the weight suggests. Master the time value of money first.

Time Value of Money

The time value of money is the most-used skill on the exam. Compounding moves a present value forward; discounting brings a future value back:

Return Measures

Two returns you must distinguish: the time-weighted return (compound growth of one unit, removing cash-flow timing — used to judge a manager) versus the money-weighted return(the portfolio’s internal rate of return, which reflects when the investor added or withdrew money). Also know holding period return, the difference between the arithmetic and geometric mean (geometric is always ≤ arithmetic), and that a perpetuity is PMT ÷ r.

Statistics & Distributions

The normal distribution is symmetric, fully described by its mean and variance: about 68% / 95% / 99% of observations fall within one, two, and three standard deviations. A z-score standardizes any value to standard-deviation units.

Sampling, Hypothesis Tests & Regression

By the central limit theorem, the distribution of sample means approaches normal as the sample grows. In hypothesis testing, a Type I error rejects a true null (its probability is the significance level, α) and a Type II error fails to reject a false null. Simple linear regression fits $Y = b_0 + b_1 X + \varepsilon$; the slope $b_1$ is how much Y changes per unit of X, and $R^2$is the share of Y’s variation the model explains.

3 · Economics

6–9% of the exam. A mix of micro (firms and markets) and macro (the whole economy), plus international trade and exchange rates. Focus on the relationships, not memorizing graphs.

Microeconomics & Market Structures

Demand slopes down, supply slopes up, and price moves to clear the market. Elasticity measures responsiveness: demand is elastic(value > 1) when buyers are price-sensitive. The four market structures range from many price-taking firms to a single price-setter:

Macroeconomics & the Business Cycle

GDP is the market value of all final goods and services produced in an economy. The business cycle runs expansion → peak → contraction → trough. Know the indicator types: leading (stock prices, building permits, the yield curve) predict; coincident (GDP, payrolls) confirm the present; and lagging (unemployment duration, CPI) confirm the past.

Monetary & Fiscal Policy

Monetary policyis the central bank’s control of the money supply and interest rates; fiscal policy is government taxing and spending.^[8] Expansionary monetary policy lowers rates and buys securities (open-market operations are the main tool); expansionary fiscal policy cuts taxes or raises spending. The two can reinforce or offset each other.

Exchange Rates

A direct quote is units of domestic currency per one unit of foreign currency; an indirect quote is the reverse. A currency appreciates when it buys more of another. Higher relative interest rates and lower relative inflation tend to strengthen a currency.

4 · Financial Statement Analysis

11–14% of the exam — one of the big four. You must read the three statements, compute and interpret ratios, and spot accounting choices that distort earnings. This is heavily tested and rewards practice.

The Three Financial Statements

The statements are linked, not independent — net income flows into equity, and the cash flow statement reconciles accrual income to actual cash:^[7]

The income statement uses accrual accounting (revenue when earned, expenses when incurred). The cash flow statement has three sections — Operating, Investing, and Financing — and can be built by the direct or indirect method (the indirect method starts from net income).

Ratio Analysis & DuPont

DuPont analysis decomposes return on equity into three drivers — net profit margin × asset turnover × financial leverage — so you can see whether a high ROE comes from profitability, efficiency, or borrowing.

Inventory & Long-Lived Assets

Inventory cost flow is a favorite trap. In a period of rising prices: FIFO gives higher ending inventory and higher net income; LIFO gives higher cost of goods sold, lower net income, and lower taxes (but understated inventory).

IFRS prohibits LIFO. For long-lived assets, depreciation method (straight-line vs accelerated) shifts the timing of expense and therefore early-year earnings.

Quality of Earnings

High-quality earnings are sustainable and backed by cash. Watch for red flags: earnings growing far faster than operating cash flow, aggressive revenue recognition, frequent “one-time” charges, and capitalizing costs that should be expensed. Compare a firm to peers and to its own history.

5 · Corporate Issuers

6–9% of the exam. How companies are governed and financed, and how they decide which projects to fund. The cost of capital ties this topic to Equity and Portfolio Management.

Governance & Stakeholders

Corporate governance is the system of controls that aligns managers with owners. Stakeholder groups — shareholders, the board, management, creditors, employees, customers, suppliers, and regulators — have differing interests, and the classic conflict is the principal-agent problem between owners (principals) and managers (agents). Strong governance (an independent board, aligned incentives, transparency) reduces it.

Leverage & Working Capital

Operating leverage comes from fixed operating costs and magnifies how a change in sales affects operating income; financial leverage comes from debt and magnifies how operating income affects net income. Together they create total leverage. Working-capital management keeps enough liquidity to operate — managing the cash conversion cycle (receivables + inventory − payables).

Cost of Capital (WACC)

The weighted average cost of capitalis the firm’s hurdle rate — the blended return it must earn:

Capital Budgeting

Rank projects by net present value — accept positive-NPV projects. The internal rate of return (IRR) is the rate that sets NPV to zero; for independent projects NPV and IRR agree, but for mutually exclusive projects, follow NPV when they conflict. Use only incremental, after-tax cash flows, and ignore sunk costs.

6 · Equity Investments

11–14% of the exam — one of the big four. How markets and indexes work, whether prices are efficient, and how to value a share of stock.

Markets, Indexes & Efficiency

Securities trade in primary markets (new issues) and secondary markets (existing shares). Indexes can be price-weighted (a high price dominates, like the Dow), value- (market-cap-) weighted (most common), or equal-weighted.

The efficient market hypothesis has three forms: weak (past prices are reflected — technicals fail), semi-strong (all public info is reflected — fundamentals fail), and strong (even private info is reflected). Evidence supports weak and semi-strong, not strong.

The Dividend Discount Model

The dividend discount model values a stock as the present value of its expected dividends. The constant-growth (Gordon) version is the most-tested equity formula:

$V_0 = \dfrac{D_1}{r - g}$, where $D_1 = D_0 \times (1 + g)$.

Multiples & Relative Valuation

Relative valuation compares a stock to peers using multiples: P/E (price ÷ earnings), P/B (price ÷ book value), P/S (price ÷ sales), and EV/EBITDA, which uses enterprise value (equity + debt − cash) so it is capital-structure neutral. A justified P/E from the Gordon model is $\dfrac{D_1/E_1}{r - g}$ (the payout ratio over r − g).

7 · Fixed Income & Derivatives

Fixed Income is 11–14% (a big four topic) and Derivatives is 5–8%. They are taught together here because both turn on the same idea: how a price responds to a change in rates and the no-arbitrage logic that links related instruments.

Bond Features & Pricing

A bond’s price is the present value of its coupons plus its par value, discounted at the market yield. The most fundamental relationship on the exam is the inverse link between price and yield:^[5]

A bond trades at a premium when its coupon exceeds the market yield, at par when they are equal, and at a discount when the coupon is below the yield. Yield to maturity is the single rate that equates price to the present value of cash flows.

Duration, Convexity & Credit Risk

Durationmeasures a bond’s price sensitivity to rates in years; modified duration estimates the percentage price change for a 1% yield move. Longer maturity, lower coupon, and lower yield all raiseduration — and a zero-coupon bond’s duration equals its maturity.

Convexitycorrects duration’s straight-line estimate for large moves. Credit risk (default, downgrade, spread) is captured by ratings — investment grade (BBB−/Baa3 and above) versus high yield below it.

Forwards, Futures, Options & Swaps

A forward is a customized, over-the-counter agreement to trade later at a set price; a future is the standardized, exchange-traded version that is marked to market daily and backed by a clearinghouse. An option gives the right, not the obligation: a call to buy, a put to sell. A swap exchanges cash-flow streams (for example, fixed for floating interest) and is like a series of forwards.

Arbitrage & Put-Call Parity

Derivatives are priced by no-arbitrage: if a portfolio can be replicated, the two must cost the same or a riskless profit exists. The forward price of an asset with no cash flows is $F_0 = S_0 \times (1 + r)^T$. For European options, put-call parity links calls and puts:

$c + \dfrac{X}{(1+r)^T} = p + S_0$

Rearranging it builds synthetic positions — a synthetic call equals a put plus the stock minus the present value of the strike.

8 · Alternatives & Portfolio Management

Alternative Investments is 7–10% and Portfolio Management is 8–12%. Both are about building and judging a whole portfolio — what goes in it, how risk and return combine, and how to price risk.

Alternative Investments

Alternatives sit outside traditional stocks and bonds: real estate, private equity (venture capital and buyouts), hedge funds, commodities, and infrastructure. They offer diversification and potentially higher returns but bring illiquidity, high fees(the classic hedge-fund “2 and 20”), and complex valuation. In commodity futures, the curve is in contango (upward — negative roll yield) or backwardation (downward — positive roll yield).

Risk, Return & Diversification

A portfolio’s expected return is the weighted average of its holdings, but its risk is not — combining assets with correlation below 1 lowers portfolio standard deviation. That is diversification at work: it removes unsystematic risk (company-specific), leaving only systematic risk (market-wide), measured by beta.

CAPM & the Security Market Line

The Capital Asset Pricing Modelprices systematic risk: an asset’s required return rises with its beta along the Security Market Line:

Written out, $E(R_i) = R_f + \beta_i \, (E(R_m) - R_f)$. The market portfolio has a beta of 1.0; an asset plotting above the SML is underpriced (it offers more return than its risk requires).

The Investment Policy Statement

The Investment Policy Statementis the blueprint for managing a client’s money. It sets objectives (return and risk) and lists the constraints — a useful mnemonic is RR-TTLLU:

How to Use This Study Guide

A study guide is a map, not the whole territory — use it alongside the CFA Program curriculum and our practice tools, weighting your time toward the heaviest topics. With pass rates historically around 35–45%, disciplined, spaced practice is what separates a pass from a fail.

CFA Level 1 Glossary

Quick definitions for the terms you’ll see most across the CFA Level 1 exam:

Accrual accounting

Recording revenue when earned and expenses when incurred, regardless of when cash changes hands. The basis of the income statement.

Annuity due

A series of equal payments made at the beginning of each period. Its value equals the ordinary-annuity value times (1 + i).

Backwardation

A futures curve where futures prices are below the spot price, producing a positive roll yield for a long position.

Beta

A measure of a security's systematic risk relative to the market. The market's beta is 1.0; a beta above 1 means greater systematic risk.

CAPM

Capital Asset Pricing Model — required return = risk-free rate + beta × (market return − risk-free rate). Prices only systematic risk.

Code of Ethics

CFA Institute's six aspirational ethical principles. Members and candidates must act with integrity, competence, diligence, and respect, and place the integrity of the investment profession and clients' interests above their own.

Coefficient of variation

Standard deviation ÷ mean. A measure of risk per unit of return; lower is better for comparing dispersion across data with different means.

Contango

A futures curve where futures prices exceed the expected spot price, producing a negative roll yield for a long position.

Convexity

The curvature of the price-yield relationship; it corrects duration's straight-line estimate for large rate changes.

Dividend discount model

Valuing a stock as the present value of its expected future dividends. The constant-growth (Gordon) version is V = D1 ÷ (r − g).

DuPont analysis

Decomposing return on equity into net profit margin × asset turnover × financial leverage, to see what drives a firm's ROE.

Duration

A bond's price sensitivity to interest-rate changes, in years. Longer maturity, lower coupon, and lower yield all increase duration.

Elasticity

The percentage change in quantity demanded or supplied for a 1% change in a driver such as price or income. Demand is elastic if the value exceeds 1.

Enterprise value

Market value of equity + debt − cash. The cost to acquire the whole firm, used in multiples like EV/EBITDA.

FIFO

First-in, first-out inventory: the earliest costs flow to cost of goods sold, so ending inventory reflects recent prices. In rising prices it raises net income.

Financial leverage

The use of fixed financing costs (debt), which magnifies the effect of a change in operating income on net income.

Fiscal policy

Government taxation and spending decisions used to influence the economy, set by the legislature and executive.

GIPS

Global Investment Performance Standards — voluntary, ethical standards for calculating and presenting investment performance so results are fair and comparable across firms.

Investment Policy Statement (IPS)

A written plan stating a client's return objective, risk tolerance, and constraints (time horizon, taxes, liquidity, legal, and unique circumstances).

LIFO

Last-in, first-out inventory: the latest costs flow to cost of goods sold, so net income and taxes are lower in rising prices. Prohibited under IFRS.

Market efficiency

The degree to which prices reflect available information. Weak form reflects past prices, semi-strong reflects all public information, strong reflects even private information.

Material nonpublic information (MNPI)

Information not yet disseminated that a reasonable investor would want, or that would affect a security's price. Standard II(A) forbids acting or causing others to act on it.

Monetary policy

A central bank's management of the money supply and interest rates to influence inflation and growth (in the U.S., the Federal Reserve).

Money-weighted return

The internal rate of return on a portfolio, reflecting the size and timing of investor cash flows. It measures the investor's experience, not manager skill.

Mosaic theory

Combining public information with nonmaterial nonpublic information to reach an investment conclusion. It is permitted and is a defense against an insider-trading allegation.

Net present value (NPV)

The sum of a project's discounted cash inflows minus its initial outlay. A positive NPV adds value; it is the preferred capital-budgeting rule.

Operating leverage

The use of fixed operating costs, which magnifies the effect of a change in sales on operating income.

Put-call parity

For European options, c + PV(X) = p + S — a call plus the present value of the strike equals a put plus the underlying. Enforced by arbitrage.

Security Market Line (SML)

The graph of CAPM: required return plotted against beta. A security plotting above the line is undervalued.

Sharpe ratio

(Portfolio return − risk-free rate) ÷ standard deviation. A measure of return earned per unit of total risk.

Standard deviation

A measure of total volatility — the dispersion of returns around the mean. The square root of variance.

Standards of Professional Conduct

The seven enforceable Standards (I–VII) that operationalize the Code. They cover Professionalism, Integrity of Capital Markets, Duties to Clients, Duties to Employers, Investment Analysis, Conflicts of Interest, and Responsibilities as a Member or Candidate.

Systematic risk

Non-diversifiable, market-wide risk measured by beta. It is the only risk the market rewards with higher expected return.

Time value of money

The principle that a dollar today is worth more than a dollar later because it can earn a return. Solved with five variables: N, I/Y, PV, PMT, and FV.

Time-weighted return

The compound growth rate of one unit of money invested, independent of cash-flow timing. It is the standard for evaluating manager performance and for GIPS.

Unsystematic risk

Company- or industry-specific risk that diversification can largely eliminate; it is not rewarded with extra return.

WACC

Weighted average cost of capital — the blended after-tax cost of debt and cost of equity, weighted by their share of the capital structure; the firm's hurdle rate.

Yield to maturity (YTM)

The single discount rate that makes a bond's price equal the present value of its cash flows, assuming it is held to maturity.

Free CFA Level 1 Study Materials & Resources

Everything you need to prepare for the CFA Level 1 exam is free here — no paywall, no sign-up. This guide is the foundation; pair it with the rest of our free CFA Level 1 study materials for active recall, timed practice, and last-minute review:

• CFA Level 1 Practice Test — exam-style questions across all 10 topics, with explanations.
• CFA Level 1 Flashcards — active-recall decks for the high-yield formulas, ethics rules, and concepts.

CFA Level 1 Study Guide FAQ

References

1. 1.CFA Institute. “CFA Program — Become a Chartered Financial Analyst.” CFA Institute. ↑
2. 2.CFA Institute. “Code of Ethics and Standards of Professional Conduct (Guidance).” CFA Institute. ↑
3. 3.CFA Institute. “Global Investment Performance Standards (GIPS).” CFA Institute. ↑
4. 4.CFA Institute. “CFA Program — Exam Fees and Payment.” CFA Institute. ↑
5. 5.U.S. Securities and Exchange Commission. “Interest Rate Risk — When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall.” SEC.gov. ↑
6. 6.U.S. Securities and Exchange Commission. “Diversification — Investor.gov.” Investor.gov. ↑
7. 7.U.S. Securities and Exchange Commission. “Beginners' Guide to Financial Statements.” Investor.gov. ↑
8. 8.Board of Governors of the Federal Reserve System. “What is the difference between monetary policy and fiscal policy?.” Federal Reserve. ↑
9. 9.U.S. Securities and Exchange Commission. “Assessing Your Risk Tolerance — Investor.gov.” Investor.gov. ↑
10. 10.U.S. Securities and Exchange Commission. “The Laws That Govern the Securities Industry.” SEC.gov. ↑

Sources for the concept answers

Every answer in the CFA Level 1 concept questions above is drawn from an official primary source:

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