What CFA Level 1 Quantitative Methods actually tests
Quantitative Methods is 6-9% of the Level 1 exam:
| Area | What it covers |
|---|---|
| Time Value of Money | PV, FV, annuities, perpetuities, NPV, IRR, holding period return |
| Statistical Concepts | Populations vs. samples, central tendency, dispersion, skewness, kurtosis, Chebyshev's inequality |
| Probability Theory | Conditional probability, Bayes' theorem, counting rules |
| Common Distributions | Uniform, binomial, normal, lognormal, Student's t, chi-square, F |
| Sampling & Estimation | Central Limit Theorem, standard error, confidence intervals, t-tests, z-tests |
| Hypothesis Testing | Type I/II errors, p-values, power of a test |
| Technical Analysis | Trend, support/resistance, chart patterns, Fibonacci retracements |
Why it matters beyond its own 6-9%
Time value of money isn't just its own topic — it's the mechanism behind bond pricing in Fixed Income, dividend discount models in Equity, and NPV-based capital budgeting in Corporate Issuers. A shaky grasp of TVM doesn't just cost marks here; it compounds into every topic that reuses it.
Sample question: Time Value of Money
Quantitative Methods · Medium difficulty
An investor wants to accumulate $50,000 in 5 years by making equal deposits at the end of each year into an account earning 6% annually. What annual deposit is required (to the nearest dollar)?
A. $8,301
B. $8,870
C. $9,434
D. $10,000
The correct answer is B — $8,870.
FV of an ordinary annuity: FV = PMT × [(1+r)ⁿ − 1] / r. Solving for PMT: PMT = 50,000 / [(1.06⁵ − 1) / 0.06] = 50,000 / 5.6371 ≈ $8,870.
Choice D ($10,000) is the naive "just divide by 5" answer that ignores compounding entirely — a common shortcut that overstates the required deposit.
FV of an ordinary annuity: FV = PMT × [(1+r)ⁿ − 1] / r. Solving for PMT: PMT = 50,000 / [(1.06⁵ − 1) / 0.06] = 50,000 / 5.6371 ≈ $8,870.
Choice D ($10,000) is the naive "just divide by 5" answer that ignores compounding entirely — a common shortcut that overstates the required deposit.