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CFA Level 1 - 101 Must Knows questions and answers rated A+ 2025/2026
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CFA Level 1 - 101 Must KnowsAddition Rule of Probability
ADDITION: P(A or B) = P(A) + P(B) - P(AB)
Roy's Safety First Criterion
Safety First Ratio = (E(R) - Rₜ) / σ
Larger ratio is better
If (Rₜ) is chance loose fee, then it turns into Sharpe Ratio
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6 Ways to Show Appreciation for Your Child's Teacher
Sharpe Ratio
Sharpe Ratio = (E(R) - RFR) / σ
Larger ratio is higher
If (Rt) is higher than RFR, then it becomes Safety First Ratio
Central Limit Theorem
If we take samples of a population, with a large sufficient sample size, the distribution of all
pattern way is ordinary with:
- A suggest identical to the population imply
- A variance equal to the populace variance divided by means of pattern length (σ² / n)
Standard Error of Sample Mean
σ / n^½
Binomial Probability
One of viable outcomes (i.E. Fulfillment/failure)
,Possible results can be confirmed in binomial tree
Use "nCr" on calculator to resolve:
nCr = P(success)^x * P(failure)^(n-x)
P - Value
Based on a calculated check statistic, in place of a significance stage (which is chosen)
p-cost = smallest significance level at which an analyst can reject the null speculation
one-tailed take a look at - "much less than or same to"
-tailed check - "identical to"
Cumulative Distribution Function
Gives the possibility that a random variable will have an final results less than or equal to a
selected fee (represented by means of F(x))
F(x) = opportunity of an outcome less than or identical to x
Standard everyday desk (z) shows cumulative possibilities
Effective Annual Yield
EAY = (1 + (i/n))^n - 1
Stated Rate = (EAY^(1/n) - 1) * n
Continuous Compounding
ln(EAY) = constantly compounded stated rate
e^(constantly compounded said price) = EAY
Type I Error
Incorrectly rejecting a true null speculation
(convicting an innocent man or woman is Type I)
Type II Error
,Failure to reject a false null speculation
(failure to convict a responsible person is Type II)
Significance Level / Power of a Test
Significance Level = Probability of Type I
Power of a Test = (1 - Probability of Type I)
Covariance (Probability Model)
Covariance of random variables A and B from probability model
On the calculator:
1) Enter returns for set A and joint possibilities for AB; locate mean A
2) Enter returns for set B and joint probabilities for AB; locate suggest B
3) Multiply each joint probability AB with the aid of every set's returns minus means
(ex: P(AB1)(A1 - Mean A)(B1 - Mean B) + P(AB2)(A2 - Mean A)(B2 - Mean B) + ... + P(ABn)(An
- Mean A)(Bn - Mean B))
4) The summed total is your covariance
Covariance (Sample)
Covariance of random variables A and B from sample with historic statistics with n observations
Correlation Coefficient
COVab / σaσb
Bank Discount Yield (Discount basis)
(Discount / Face Value) * (360 / Days)
Money Market Yield
(HPY) * (360 / Days)
Bond Equivalent Yield
(HPY) * (365 / Days)
Most suitable for evaluating yields!
, Technical Analysis Indicators
Continuation:
TRIANGLE (or pennant) = Suggests a pause in the inventory rate movement so as to be
followed by means of a continuation of the previous trend
Reversal:
HEAD AND SHOULDERS = Suggests a destiny decline in the inventory fee no matter prior
trend
DOUBLE BOTTOM = Increasing inventory fee in the future (reversal of a downtrend)
Trendlines:
SUPPORT / RESISTANCE = Range that stock charge trades in based totally on deliver/call for.
Stock is "supported" from going underneath a positive low price, and "resists" going above a
sure excessive rate
Price Elasticity
%ΔQuantity / %ΔPrice = (ΔQ / ΔP) * (P₀ / Q₀)
Demand is elastic if much less than -1
Demand is inelastic if zero to -1
Income Elasticity
%ΔQuantity / %ΔIncome
Positive for ordinary top
Negative for inferior correct
Cross-Price Elasticity
%ΔQuantity / %ΔPriceʳᵉˡᵃᵗᵉᵈ ᵍᵒᵒᵈ
Positive for substitutes
Negative for complements
Sources of Economic Growth
Increases in:
- Labor
- Physical Capital
- Technology
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