Lesson 13.2: Managing Hard Items and Flagging

Introduction

In the CFA Level I exam, one of the most critical skills you'll develop is the ability to manage your time effectively while maintaining accuracy throughout the test. This lesson focuses on strategies for managing hard items and using flagging efficiently. You will learn how to triage difficult questions to protect your overall time budget, as well as how to utilize educated guessing effectively since there is no penalty for incorrect answers. By the end of this lesson, you will be equipped with techniques that maximize your chances of scoring well on challenging questions, ensuring you can complete both sessions of the exam successfully.

Learning Objectives

By the end of this lesson, you should be able to:

• Triage difficult items to protect the overall time budget.
• Use flag-and-return and educated guessing given the absence of a wrong-answer penalty.
• Strategically guess on remaining items to maximize potential points.
• Use flagging to revisit items efficiently and effectively.

Understanding Time Management

Time management is crucial for the CFA exam, which consists of two 135-minute sessions filled with 240 multiple-choice questions. To perform your best, you should aim to spend about 90 seconds on each question. An effective way to manage your time is to become adept at recognizing when a question is too difficult and how to handle it without derailing your entire time budget.

Triage Difficult Items

Triage refers to the process of categorizing questions based on their difficulty level. The strategy you need to adopt is as follows:

1. As you move through the exam, quickly assess each question's challenge level based on your preparedness and familiarity with the topic.
2. Use a simple coding system to denote whether you feel confident, unsure, or completely lost with a question. You could use a flag system (e.g., flags for easy, medium, hard).

Worked Example 1: Triage in Action

Imagine you are working through a section of questions on bond valuation. You encounter three questions:

• Question 1: What is the present value of a $1,000 bond that pays $50 annually for 5 years, discounted at 5%?
• Question 2: Explain the differences between nominal and real interest rates.
• Question 3: A bond is selling at a discount. Explain what this indicates about its yield.

As you attempt to address these questions:

• You find Question 1 straightforward and calculate it within 80 seconds, feeling confident.
• Question 2 takes longer, and you find it challenging, so you opt to flag it for review. You spend 2 minutes on it.
• For Question 3, you have no idea how to approach the question, so you decide to move on and flag it as well.

By flagging Questions 2 and 3, you protect your overall time and ensure you can revisit them later or guess intelligently if time allows.

Utilizing Flagging Effectively

Flagging questions is an essential strategy that allows you to manage your time tightly. Use the flag-and-return method where you mark difficult questions to return to if time allows. Here’s how to implement this approach:

1. As you go through the exam, mark any questions you are unsure about using the flag system.
2. If you reach the end of the session and have time left, return to the flagged items, prioritizing them based on your initial assessment.

Worked Example 2: Implementing Flagging

Let’s say you use your total time wisely and flag 5 questions throughout your first session:

• You get through 40 questions and flag 5, returning to them in the last 10 minutes of the session.
• By rounding back to the flagged items, you focus first on the ones you ranked as medium difficulty.
• After attempting to answer two flagged questions in right order, you can finalize your guesses for the remaining three questions in case you run out of time.

Educated Guessing Strategies

Since the CFA Level I exam does not penalize you for incorrect answers, it's essential to learn how to make educated guesses on questions that you were unable to answer originally. Here are steps to increase your chances of guessing correctly:

1. Eliminate clearly incorrect answers. Start by reviewing the answer choices and ruling out options you know are wrong.
2. Analyze the remaining choices. Oftentimes, the majority of the remaining options have certain clues about the right answer.
3. Select the option that seems most probable based on your analysis.

Worked Example 3: Making Educated Guesses

Suppose you come across the following question:

• What is the primary function of the central bank?

1. Finance government projects
2. Control inflation
3. Determine fiscal policy
4. Manage public debt

In this instance, if you don't know the answer directly, you can analyze:

• Option 1: Financing government projects does not represent the primary objective of a central bank.
• Option 3: Determining fiscal policy is managed by the government, not the central bank.
• Option 4: Managing public debt is also not a primary control of a central bank.

Now you are left with Option 2, which relates to controlling inflation. You select this as your educated guess since it is the most plausible answer based on your understanding.

Conclusion

Managing hard items and effectively using flagging strategies is essential for success in the CFA Level I exam. By investing a few moments to triage questions based on difficulty, you protect your available time and ensure that you can maximize your score. Utilize flagging to revisit challenging questions and adopt educated guessing techniques to allow yourself the best opportunity for potential points. The skills you develop in this lesson could make the difference between passing and failing the exam.

Study Notes

• Understand the importance of managing time: approximately 90 seconds per question.
• Triage difficult items by flagging them for review.
• Utilize a flagging system to manage high-difficulty questions effectively.
• Leverage educated guessing since there is no penalty for incorrect answers.
• Aim to maximize the total score by addressing easy and medium-difficulty questions first.