Plain-English definitions of the finance terms for CFA Level I study. Simplified for learning; CFA Institute’s curriculum is authoritative.
| Term | Definition |
|---|---|
| Time value of money | Money today is worth more than the same amount later. |
| Present value (PV) | Today’s value of a future cash flow. |
| Future value (FV) | The value of money at a future date with growth. |
| NPV | Net Present Value — discounted cash flows minus cost. |
| IRR | The discount rate that makes NPV zero. |
| Discount rate | The rate used to convert future cash flows to present value. |
| Equity | Ownership in a company. |
| Fixed income | Debt investments paying defined cash flows. |
| Coupon | The periodic interest a bond pays. |
| Yield to maturity | The total return if a bond is held to maturity. |
| Duration | A bond’s price sensitivity to interest-rate changes. |
| Derivative | A contract whose value derives from an underlying asset. |
| Diversification | Reducing risk by spreading across assets. |
| Alpha | Return above a benchmark. |
| Beta | Sensitivity of an asset’s return to the market. |
| Liquidity | How easily an asset converts to cash. |
| Current ratio | Current assets divided by current liabilities. |
| ROE | Return on equity. |
| Standard deviation | A measure of dispersion, used for risk. |
| Code and Standards | CFA Institute’s ethics rules for members and candidates. |