CFA Program Level I — Equity, Fixed Income, Derivatives & Portfolio flashcards

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Orders and margin, index weighting, market efficiency, DDM, multiples and industry analysis, bond pricing, duration and convexity, credit, the yield curve and MBS, forwards, swaps and options, alternatives, and portfolio theory, CAPM and biases.

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Learn deck · part of CFA Program Level I · written against: CFA Program Level I curriculum topics; Standards of Practice Handbook, 12th edition (2024), including Standard I(E) Competence. Updated 2026-10-10.

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How does a limit order differ from a market order?

A market order executes immediately at the best available price; a limit order sets the worst price the trader will accept, so it may not fill at all.

Watch out: a buy limit at or above the best offer is marketable and fills at once; one below the best bid is behind the market and may never fill.
Market Organization
In a price-weighted index, which stocks have the most influence, and what happens when one stock splits?

Higher-priced stocks dominate, regardless of company size; after a split the divisor is adjusted so the index level is unchanged, and the split stock's weight falls.
Security Market Indexes
What does a dividend discount model say a share is worth?

The present value of all expected future dividends, discounted at the investor's required return on equity.

Watch out: it suits companies that pay steady dividends linked to earnings; free cash flow models suit those that do not.
Equity Valuation
How is the price of an option-free bond calculated from its yield to maturity?

As the present value of its coupons and principal, all discounted at the YTM. In symbols, $P = \sum_{t=1}^{N} \frac{C}{(1 + y)^t} + \frac{F}{(1 + y)^N}$ ⁠.
Bond Pricing
What does Macaulay duration measure?

The weighted average time until a bond's cash flows are received, with each period weighted by its share of the bond's present value.

Watch out: a zero-coupon bond's Macaulay duration equals its maturity.
Duration and Convexity
How do futures contracts differ from forward contracts?

Futures are standardized, exchange-traded, cleared through a clearinghouse and marked to market daily with margin; forwards are private, customized OTC contracts that carry counterparty risk and usually settle only at expiry.
Derivatives
How do venture capital and leveraged buyouts differ within private equity?

Venture capital funds young, high-growth companies, mostly with equity; leveraged buyouts acquire mature companies using substantial debt.
Alternative Investments
What does the utility function used in portfolio theory imply about a more risk-averse investor?

A higher risk-aversion coefficient $A$ means each unit of variance costs more utility, so the investor needs a bigger return to accept risk. In symbols, $U = E(R) - \frac{1}{2} A \sigma^2$ ⁠.
Portfolio Risk and Return
What objectives and constraints does an investment policy statement set out?

Return and risk objectives, plus constraints on liquidity, time horizon, taxes, legal and regulatory factors, and unique circumstances.

Mnemonic: RRTTLLU: return, risk, time horizon, taxes, liquidity, legal and regulatory, unique circumstances.
Planning and Behavioral Finance
What are contraction risk and extension risk in a mortgage-backed security?

Contraction risk: when rates fall, prepayments speed up and principal returns early, to be reinvested at lower rates. Extension risk: when rates rise, prepayments slow and the security's life lengthens just as its value falls.
Securitization

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About these cards

Review status: Second-reader reviewed, with corrections applied.

Checked against:

Checked against standard texts: Bodie, Kane & Marcus, Investments; Fabozzi, Bond Markets, Analysis, and Strategies; and Hull, Options, Futures, and Other Derivatives (reference only; no text copied).

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