Groundlearn / Glossary / Cash flow additivity
Cash flow additivity
A CFA term, defined in plain English with the distinction examiners test.
What it means
The principle that the value of a set of cash flows equals the sum of the values of its parts, so two ways of reaching the same future cash flow must cost the same today.
The exam angle
The basis of no-arbitrage pricing at Level I: implied forward rates, forward exchange rates and option values via replication all follow from it.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- DerivativesCFA Level I · exam weight 6–9% · Forwards, futures, swaps, options and arbitrage-free pricing.
Related terms
- Lognormal distributionThe distribution of a variable whose natural logarithm is normally distributed.
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- AnnuityA series of equal cash flows at equal intervals.
- Arithmetic meanThe sum of the observations divided by their number.
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Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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