CFA Level 1 Hub
Review CFA Level 1 formulas, ethics, accounting, fixed income, equity, portfolio, and quantitative finance foundations.
Hub concepts directory
Click any element to see exact definitions, formulas, and real-world examples.
Alpha
Alpha measures excess return generated relative to a benchmark or risk-adjusted expected return — the value added by active management.
Asset Allocation
Asset allocation is the strategic distribution of investments across asset classes (stocks, bonds, real estate, alternatives) to balance risk and return according to investor goals.
CFA (Chartered Financial Analyst)
The CFA designation is a globally recognized professional credential for investment management professionals, awarded by the CFA Institute.
Capital Asset Pricing Model (CAPM)
CAPM describes the relationship between systematic risk (beta) and expected return: Expected Return = Risk-Free Rate + Beta × (Market Return - Risk-Free Rate).
Convexity
Convexity measures the curvature in the relationship between bond prices and yields, refining duration's linear approximation.
Correlation
Correlation measures the degree to which two securities move in relation to each other, ranging from -1 (perfect negative) to +1 (perfect positive).
Cost of Equity
Cost of equity is the return required by equity investors given the risk of owning a company's shares — the opportunity cost of investing elsewhere.
Credit Spread
Credit spread is the yield difference between a corporate bond and a risk-free benchmark (usually Treasury) of similar maturity, compensating for default risk.
Current Yield
Current yield is the annual income from a bond (coupon payment) divided by its current market price, ignoring capital gains/losses at maturity.
Debt-to-Equity Ratio
D/E compares a company's total liabilities to shareholders' equity, indicating the relative proportion of financing from debt vs. equity.
Distribution Waterfall
A distribution waterfall is the method by which private equity and hedge fund distributions are allocated between limited partners (LPs) and the general partner (GP) in a specific sequence.
Diversification
Diversification is the strategy of combining various investments to reduce unsystematic (idiosyncratic) risk without sacrificing expected returns.
Dividend Yield
Dividend yield is a financial ratio showing how much a company pays in dividends annually relative to its stock price: Annual Dividends per Share / Price per Share.
Duration
Duration measures the sensitivity of a bond's price to changes in interest rates, expressed in years. It represents the weighted average time until cash flows are received.
Earnings Per Share (EPS)
EPS is the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of profitability.
Efficient Frontier
The efficient frontier is the set of optimal portfolios offering the highest expected return for a defined level of risk — or lowest risk for a given return.
Equity Value
Equity value (or market cap) is the value attributable solely to shareholders: Enterprise Value - Debt + Cash - Minority Interest - Preferred Stock.
Fund Accounting
Fund accounting is a specialized accounting system used by investment funds to track the financial activities and calculate the NAV of investment portfolios.
High-Yield Bonds
High-yield or 'junk' bonds are corporate bonds rated below investment grade (BB+ or lower by S&P, Ba1 or lower by Moody's), offering higher yields to compensate for default risk.
Modern Portfolio Theory (MPT)
MPT, developed by Harry Markowitz (Nobel 1990), is a mathematical framework for assembling portfolios to maximize expected return for a given risk level.
Price-to-Book Ratio (P/B)
P/B compares a company's market capitalization to its book value, indicating how much investors pay for each dollar of net assets.
Price-to-Earnings Ratio (P/E)
The P/E ratio measures a company's current share price relative to its earnings per share (EPS).
Private Equity
Private equity involves investing directly in private companies or taking public companies private, with the goal of improving operations and selling for profit.
Rebalancing
Rebalancing is the process of realigning portfolio weights back to target allocations by buying and selling assets as market movements cause drift.
Return on Equity (ROE)
ROE measures how effectively a company uses shareholders' equity to generate profits, calculated as Net Income divided by Shareholders' Equity.
Security Market Line (SML)
The SML is a graphical representation of CAPM, plotting expected return against systematic risk (beta), with the line starting at risk-free rate and sloping upward by the market risk premium.
Strategic Asset Allocation
Strategic asset allocation (SAA) sets long-term target allocations to asset classes based on investor goals, risk tolerance, and time horizon — the policy portfolio.
Stress Testing
Stress testing evaluates portfolio or institution resilience under extreme but plausible adverse scenarios — market crashes, rate spikes, or economic shocks.
TIPS (Treasury Inflation-Protected Securities)
TIPS are US Treasury bonds whose principal value adjusts with inflation (CPI), providing protection against purchasing power erosion.
Tactical Asset Allocation
Tactical asset allocation (TAA) involves actively deviating from strategic targets to exploit short-term market opportunities or avoid perceived risks.
Value at Risk (VaR)
VaR estimates the maximum potential loss of a portfolio over a specific time period at a given confidence level (e.g., 'We have 95% confidence losses won't exceed $10M in one day').
Weighted Average Cost of Capital (WACC)
WACC represents a company's blended cost of capital across all sources, including equity and debt, weighted by their proportion in the capital structure.
Yield to Maturity (YTM)
YTM is the total return anticipated on a bond if held until maturity, expressed as an annual rate. It equates the present value of all future cash flows to the current price.
Mean Variance Optimization - Beginner Guide
Mean Variance Optimization is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Total Return - Beginner Guide
Total Return is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Factor Investing - Beginner Guide
Factor Investing is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Key Rate Duration - Beginner Guide
Key Rate Duration is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Capital Market Line - Beginner Guide
Capital Market Line is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Haircut - Beginner Guide
Haircut is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Benchmarking - Beginner Guide
Benchmarking is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Private Equity - Beginner Guide
Private Equity is a key Alternative Investments concept used to build a clear foundation in practical finance workflows.
Alternative Allocation - Beginner Guide
Alternative Allocation is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Multi Factor Model - Beginner Guide
Multi Factor Model is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Spot Rate - Beginner Guide
Spot Rate is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Duration Gap - Beginner Guide
Duration Gap is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Convertible Bond - Beginner Guide
Convertible Bond is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Equity Financing - Beginner Guide
Equity Financing is a key Corporate Finance concept used to build a clear foundation in practical finance workflows.
Equity Risk - Beginner Guide
Equity Risk is a key Risk Management concept used to build a clear foundation in practical finance workflows.
Active Share - Beginner Guide
Active Share is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Contribution to Risk - Beginner Guide
Contribution to Risk is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Target Date Fund - Beginner Guide
Target Date Fund is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Covenant Analysis - Beginner Guide
Covenant Analysis is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Wash Sale - Beginner Guide
Wash Sale is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Coupon Bond - Beginner Guide
Coupon Bond is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
ETF Portfolio - Beginner Guide
ETF Portfolio is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Municipal Bond - Beginner Guide
Municipal Bond is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Credit Spread - Beginner Guide
Credit Spread is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Tracking Difference - Beginner Guide
Tracking Difference is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Yield to Maturity - Beginner Guide
Yield to Maturity is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Inflation Linked Bond - Beginner Guide
Inflation Linked Bond is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Momentum Factor - Beginner Guide
Momentum Factor is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Mortgage Backed Security - Beginner Guide
Mortgage Backed Security is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Portfolio Diversification - Beginner Guide
Portfolio Diversification is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Spread Duration - Beginner Guide
Spread Duration is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Risk Attribution - Beginner Guide
Risk Attribution is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Forward Rate - Beginner Guide
Forward Rate is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Immunization - Beginner Guide
Immunization is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Break Even Inflation - Beginner Guide
Break Even Inflation is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Convexity - Beginner Guide
Convexity is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Recovery Rate - Beginner Guide
Recovery Rate is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Seniority - Beginner Guide
Seniority is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Asset Allocation - Beginner Guide
Asset Allocation is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Performance Attribution - Beginner Guide
Performance Attribution is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Core Satellite - Beginner Guide
Core Satellite is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Equity Swap - Beginner Guide
Equity Swap is a key Derivatives concept used to build a clear foundation in practical finance workflows.
Turnover Ratio - Beginner Guide
Turnover Ratio is a key Portfolio Management concept used to build a clear foundation in practical finance workflows.
Z Spread - Beginner Guide
Z Spread is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Long Short Equity - Beginner Guide
Long Short Equity is a key Alternative Investments concept used to build a clear foundation in practical finance workflows.
Bullet Strategy - Beginner Guide
Bullet Strategy is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
Callable Bond - Beginner Guide
Callable Bond is a key Fixed Income concept used to build a clear foundation in practical finance workflows.
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