FinQuiz Formula Sheet CFA Level I 2016

Reading 5: Time Value of Money * Q!

•   EAR (with Continuous Compounding) 4.   MMWR = M[f &'gNN Z = 0 (IRR
= EAR = 𝑒 (- − 1
represents the MWR)
1.   Interest Rate (i)
•   i = Rf + Inf P + Default Risk 5. PV & FV of Ordinary Annuity
%
5.   TWR:
P + Liquidity P + Maturity P $)*
&/
%^_ #
•   PVOA = L
G[& &'( Z = 𝑃𝑀𝑇 •   TWR (when no external CF) = rTWR =
•   Nominal Rf i rate = Real Rf i Rate + ( )"% /)"h
Inf P 1/G
HPR = rt =
L )"h
% •   FVOA = G[& 𝑃𝑀𝑇G 1 + 𝑟 =
!"# # •   TWR (for more than one periods) =
•   i rate as a growth rate = g = -1 &'( # /&
$" 𝑃𝑀𝑇 rTWR = [(1+rt,1)× (1+rt,2)×… (1+rt,n)] -1
(
•   Size of Annuity Payment = PMT = •   Annualized TWR (when investment is
2.   PV and FV of CF = $" for more than one year)
!" $"  OP  KLLSMG`  !HaGO(
•   PV = = 1 + 𝑅& 1 + 𝑅k … +
&'( # &/
%
_- b×# %
$)* %^
•   PV of Perpetuity = •   PV of Annuity Factor = b 1 + 𝑅L m
_1
( _-
b
•   PV (for more than one Compounding •   TWR (for the year) = rTWR = [(1+R1)×
(- /.×1 (1+R2)×… (1+R365)] -1 where R1 =
per year) = PV= FVN 1 + 6. PV & FV of Annuity Due )"% /)"h
.
%
𝑤ℎ𝑒𝑟𝑒  𝑟7 = 𝑠𝑡𝑎𝑡𝑒𝑑  𝑎𝑛𝑛  𝑖 − 𝑟𝑎𝑡𝑒 &/
%^_ #
)"h
•   PVAD = 𝑃𝑀𝑇 + PMT at t =
•   FVN = 𝑃𝑉 1 + 𝑟 1 (

•   FV (for more than one Compounding PVOA + PMT 6.   Bank Discount Yield = BDY = rBD =
opf $H(/$(MaI
(- .×1 &'( # /&   therefore Price = Par
per year) = FVN = 1 + •   FVAD = 𝑃𝑀𝑇 (1 + 𝑟) = L $H(
. (
L  ×  (qr
•   FV (for Continuous Compounding) = FVOA ×(1+r) 1−
opf
FVN = 𝑃𝑉𝑒 (-×1
B1
CD Reading 6: Discounted Cash Flow Applications 7.   Holding Period Yield = HPY =
$%   /$h '  i%
ED
•   Solving for N = (where LN = $h
B1 &'(
L Q!Z
natural log) 1.   NPV = G[& &'( Z − 𝑐𝑓f
8.   Effective Annual Yield = EAY = 1 +
4. Stated & Effective Rates 𝐻𝑃𝑌 opu/G − 1 (Rule: EAY > BDY)
2.   IRR (when project’s CFs are perpetuity) =
•   Periodic i Rate = Q!
FGHGIJ  KLL  M  NHGI NPV = - IO + =0 9.   Money Market Yield (or CD equivalent
gNN
1O  OP  QO.ROSLJMLT  $I(MOJ7  ML  ULI  VIH( Yield) rMM:
•   Effective (or Equivalent) Ann Rate $%   /$h '  i% opf
3.   HPR = •   rMM = HPY ×  
G
(EAR = EFF%) = 1 + $h
•   rMM = (rBD) ×
𝑃𝑒𝑟𝑖𝑜𝑑𝑖𝑐  𝑖  𝑅𝑎𝑡𝑒 . − 1 !HaI  "HwSI  OP  GxI  *(IH7S(`  yMww
$S(axH7I  $(MaI
 FinQuiz Formula Sheet CFA Level I 2016

opf   (qr # ‰
•   rMM = (Rule: rMM> •   For Even no of obvs locate 17.   Population Var = σ2 = ƒ„% …ƒ /ˆ
opf/ G (qr L 1
median at
rBD) k # … /ˆ ‰
ƒ„% ƒ
10.   Bond Equivalent Yield = BDY = •   For Odd no. of obvs locate 18.   Population S.D = 𝜎 k =
1
L'&
Semiannual Yield × 2 median at
k m ‰
ƒ„% …ƒ /…
19.   Sample Var = s2 =
Reading 7: Statistical Concepts & Market L/&
9.   Mode = obvs that occurs most frequently
Returns in the distribution m … /… ‰
ƒ„% ƒ
20.   Sample S.D = s =
L/&
1.   Range = Max Value – Min Value 10.   Weighted Mean = 𝑋• =   L
M[& 𝑤M 𝑋M =
(w1X1+ w2X2+….+ wnXn) …ƒ /… ‰
2.   Class Interval = i ≥
z/B
where 21.   Semi-var = !O(  Hww  …ƒ ‹… L/&
{
m
•   i = class interval 11.   Geometric Mean = GM = 𝑋& 𝑋k … 𝑋L
22.   Semi-deviation (Semi S.D) =
•   H = highest value with Xi≥0 for i = 1,2,…n.
…ƒ /… ‰
•   L = lowest value, k = No. of classes. 𝑠𝑒𝑚𝑖𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = !O(  Hww  …ƒ ‹…
L L/&
12.   Harmonic Mean = H.M = 𝑋z =   m %
3.   Absolute Frequency = Actual No of ƒ„% ‚
ƒ
…ƒ /y ‰
Observations (obvs) in a given class 23.   Target Semi-var = !O(  Hww  …ƒ ‹y L/&
m
interval ƒ …ƒ where B = Target Value
13.   Population Mean = µ = with 𝑋M > 0
1

K|7OwSGI  !(I}SILa`
for i = 1,2,.,.,n.
4.   Relative Frequency = 24.   Target Semi-Deviation =
*OGHw  1O  OP  U|~7
m
ƒ …ƒ
𝑡𝑎𝑟𝑔𝑒𝑡  𝑠𝑒𝑚𝑖𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 =
14.   Sample Mean = 𝑋 =     where n =
L
5.   Cumulative Absolute Frequency = Add up …ƒ /y ‰
number of observation in the sample !O(  Hww  …ƒ ‹y L/&
the Absolute Frequencies

15.   Measures of Location: F

6.   Cumulative Relative Frequency = Add up iM7G(M|SGMOL 25.   Coefficient of Variation = CV =
…
the Relative Frequencies •   Quartiles =
‡ where s= sample S.D and 𝑋 = sample
iM7G(M|SGMOL
•   Quintiles = mean
FS.  OP  O|~7  ML  JHGH|H7I u
7.   Arithmetic Mean = iM7G(M|SGMOL
1O.OP  O|~7  ML  GxI  JHGH|H7I •   Deciles = ,
&f )IHL  $O(GPOwMO  N /)IHL  NP  N
` 26.   Sharpe Ratio =
•   Percentiles = Ly = 𝑛 + 1 F.i  OP  $O(GPOwMO  N
8.   Median = Middle No (when observations &ff

are arranged in ascending/descending 27.   Excess Kurtosis = Kurtosis – 3

16.   Mean Absolute Deviation = MAD =
order) m
ƒ„% …Z /…
L
 FinQuiz Formula Sheet CFA Level I 2016

28.   Geometric Mean R ≈ •   Multiplication Rule for two 13.   Standard Deviation (S.D) =
"H(MHLaI  OP  N
𝐴𝑟𝑖𝑡ℎ𝑚𝑒𝑡𝑖𝑐  𝑀𝑒𝑎𝑛  𝑅 − independent events = P(A & B) = 𝑤&k 𝑅M + 𝑤kk 𝑅k + 𝑤ok 𝑅o
k
P(AB) = P(A)× P(B)
Reading 8: Probability Concepts •   Multiplication Rule for three 14.   Correlation (b/w two random variables Ri,
independent events = P(A and B QO~   Nƒ N˜
Rj) = 𝜌 𝑅M 𝑅” =
1.   Empirical Prob of an event E = P(E) = and C) = P(ABC) = P(A) × P(B) ™Nƒ ×™N˜

$(O|  OP  I~ILG  • × P(C)

*OGHw  $(O| 15.   Bayes’ Formula =
8.   Complement Rule (for an event S) = P(S) 𝑃 𝐸𝑣𝑒𝑛𝑡|𝑁𝑒𝑤  𝐼𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛 =
$(O|  OP  •
2.   Odds for event E =
&/$(O|  OP  •
+ P(SC) = 1 (where SC is the event not S)  
$ 1I•  gLPO(.HGMOL|•~ILG
 ×
$ 1I•  gLPO(.HGMOL
 𝑃 𝑃𝑟𝑖𝑜𝑟  𝑝𝑟𝑜𝑏. 𝑜𝑓  𝐸𝑣𝑒𝑛𝑡
&/$(O|  OP  • 9.   Total Probability Rule:
3.   Odds against event E =
$(O|  OP  •   P(A) = P(AS) + P(ASC) = P(A|S)×P(S) +
16.   Multiplication Rule of Counting = n
P(A|SC)×P(SC)
4.   Conditional Prob of A given that B has factorial = 𝑛! = n (n-1)(n-2)(n-3)…1.
P(A) = P(AS1) + P(AS2) +….+ P(ASn) =
$ Ky
occurred = P(A|B) = → P(B) ≠ 0. P(A|S1)×P(S1) + P(A|S2)×P(S2)…
$ y 17.   Multinomial Formula (General formula for
P(A|Sn)×P(Sn) L!
labeling problem) =  
5.   Multiplication Rule (Joint probability that L% !L‰ !…Lž !

both events will happen): (where S1, S2, …,Sn are mutually exclusive
and exhaustive scenarios) 18.   Combination Formula (Binomial Formula)
L L!
P(A and B) = P(AB) = P(A|B) × P(B) = L  𝐶( = (
=
L/( !(!
P(B and A) = P(BA) = P(B|A) × P(A) 10.   Expected R = E(wiRi) = wiE(Ri)

L where n = total no. of objects and r = no.

6.   Addition Rule (Prob that event A or B will 11.   Cov (Ri Rj) = M[& 𝑝 𝑅M − 𝐸𝑅M 𝑅” −
of objects selected.
occur): 𝐸𝑅”
Cov (Ri Rj) = Cov (Rj Ri) L!
19.   Permutation = L  𝑃( =
P(A or B) = P(A) + P(B) – P(AB) Cov (R, R) = σ2 (R) L/( !

P(A or B) = P(A) + P(B) (when events are

mutually exclusive because P(AB) = 0) 12.   Portfolio Var = σ2 (Rp) = Reading 9: Common Probability Distributions
L L
M[& ”[& 𝑤M 𝑤” 𝐶𝑜𝑣 𝑅M 𝑅”
7.   Independent Events: 1.   Probability Function (for a binomial
σ2 (Rp) = 𝑤&k 𝜎 k 𝑅& + 𝑤kk 𝜎 k 𝑅k + random variable) p(x) = p(X=x) =
•   Two events are independent if: 𝑤ok 𝜎 k 𝑅o + 2𝑤& 𝑤k 𝐶𝑜𝑣 𝑅& , 𝑅k + L L!
P(B|A) = P(B) or if P(A|B) = Ÿ
𝑝Ÿ 1 − 𝑝 L/Ÿ
== 1−
2𝑤& 𝑤o 𝐶𝑜𝑣 𝑅& , 𝑅o + L/Ÿ !Ÿ!R
P(A) 𝑝 L/Ÿ
(for x = 0,1,2….n)
2𝑤k 𝑤o 𝐶𝑜𝑣 𝑅k , 𝑅o
 FinQuiz Formula Sheet CFA Level I 2016

•   x = success out of n trials

•   n-x = failures out of n trials 6.   Roy’s Safety-Frist Criterion = SF Ratio = 14.   Continuously compounded return
• NE /N³ associated with a holding period from 0 to
•   p = probability of success
™E
•   1-p = probability of failure T:
•   n = no of trials. • NE /N´
7.   Sharpe Ratio = = R0,T= ln (ST / S0) or 𝑟f,* = 𝑟*/&,* +
™E
2.   Probability Density Function (pdf) = f(x) 𝑟*/k,*/& + ⋯ + 𝑟f,&
&
8.   Value at Risk = VAR = Minimum $ loss
= |/H 𝑓𝑜𝑟  𝑎 ≤ 𝑥 ≤ 𝑏 = Where,
0           expected over a specified period at a
Ÿ/H specified prob level. rT-I, T = One-period continuously
F(x) = 𝑓𝑜𝑟  𝑎 < 𝑥 < 𝑏
|/H   compounded returns
9.   Mean (µL) of a lognormal random variable
3.   Normal Density Funct = 𝑓 𝑥 = 15.   When one-period continuously
& /(Ÿ/ˆ)‰
= exp (µ + 0.50σ2)
𝑒𝑥𝑝 for − ∞ < 𝑥 < +  ∞ compounded returns (i.e. r0,1) are IID
™ k¤ k™ ‰
10.   Variance (σL2) of a lognormal random random variables.
4.   Estimations by using Normal Distribution: variable = exp (2µ+ σ2) × [exp (σ2) – 1].
𝐸 𝑟f,* = 𝐸 𝑟*/&,* + 𝐸 𝑟*/k,*/& +
•   Approximately 50% of all obsv fall in 11.   Log Normal Price = ST = S0exp (r0,T) ⋯ + 𝐸 𝑟f,& = 𝜇𝑇 And
the interval 𝜇 ± 𝜎
k Where, exp = e and r0,t = Continuously
o
compounded return from 0 to T 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 =   𝜎 k 𝑟f,* = 𝜎 k 𝑇
•   Approx 68% of all obvs fall in the
interval 𝜇 ± 𝜎 12.   Price relative = End price / Beg price =
•   Approx 95% of all obvs fall in the S.D. = σ (r0,T) = σ 𝑇
St+1/ St=1 + Rt, t+1
interval 𝜇 ± 2𝜎
•   Approx 99% of all obvs fall in the 16.   Annualized volatility = sample S.D. of
where,
interval 𝜇 ± 3𝜎 one period continuously compounded
Rt, t+1 = holding period return on the stock
•   More precise intervals for 95% of the returns × 𝑇
from t to t + 1.
obvs are 𝜇 ± 1.96𝜎 and for 99% of the
observations are 𝜇 ± 2.58𝜎. Reading 10: Sampling and Estimation
13.   Continuously compounded return
associated with a holding period from t to t
5.   Z-Score (how many S.Ds away from the 1.   Var of the distribution of the sample mean
+ 1:
™‰
mean the point x lies) 𝑧 = =
L
𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑  𝑛𝑜𝑟𝑚𝑎𝑙  𝑟𝑎𝑛𝑑𝑜𝑚  𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 = rt, t+1= ln(1 + holding period return) or 2.   S.D of the distribution of the sample mean
…/ˆ
  (when X is normally distributed) rt, t+1 = ln(price relative) = ln (St+1 / St) = ln ™‰
™ =
(1 + Rt,t+1) L
 FinQuiz Formula Sheet CFA Level I 2016

3.   Standard Error of the sample mean: x−µ 6. Test Statistic for a test of diff b/w two pop
•   When the population S.D (σ) is known 9.   t-ratio = t= means (normally distributed, pop var
™ s/ n unknown but assumed equal)
= 𝜎…   =  
L
•   When the population S.D (σ) is not Reading 11: Hypothesis Testing …% /…‰ / ˆ% /ˆ‰
known = 𝑠…   =  
7
where s = sample t= %/‰ where 𝑆Rk = pooled
Ή ‰
Ï ÎÏ
L '
m% m‰
S.D estimate of s = 1.   Test Statistic =
𝑺𝒂𝒎𝒑𝒍𝒆  𝑺𝒕𝒂𝒕𝒊𝒔𝒕𝒊𝒄  𝑯𝒚𝒑𝒐𝒕𝒉𝒆𝒔𝒊𝒛𝒆𝒅  𝑽𝒂𝒍𝒖𝒆  𝒐𝒇  𝒑𝒐𝒑  𝒑𝒂𝒓𝒂𝒎𝒆𝒕𝒆𝒓   estimator of common variance =
𝑠𝑎𝑚𝑝𝑙𝑒  𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = 𝒔𝒕𝒂𝒏𝒅𝒂𝒓𝒅  𝒆𝒓𝒓𝒐𝒓  𝒐𝒇  𝒔𝒂𝒎𝒑𝒍𝒆  𝒔𝒕𝒂𝒕𝒊𝒔𝒕𝒊𝒄  ∗ L% /& F%‰ '   L‰ /& F‰‰
m
ƒ„% …ƒ /…
‰ where 𝑑𝑓 = 𝑛& +   𝑛k −
  𝑠 k    𝑤ℎ𝑒𝑟𝑒  𝑠 k = L% '  L‰ /k
L/& *
when Pop S.D is unknown, the standard 2.
4.   Finite Population Correction Factor = fpc error of sample statistic is give by 𝑆…   =
 
F 7. Test Statistic for a test of diff b/wn two
1/L L
= where N= population pop means (normally distributed, unequal
1/&
*
and unknown pop var unknown)
when Pop S.D is unknown, the standard
5.   New Adjusted Estimate of Standard Error error of sample statistic is give by 𝜎…   = …% /…‰ / ˆ% /ˆ‰
= (Old estimated standard error × fpc) ™ t= ‰ %/‰
In this df calculated as
  Ή
% ' Ή
L
m% m‰

6.   Construction of Confidence Interval (CI) = Ή ‰ ‰

%  ' Ή
2. Power of Test = 1-Prob of Type II Error m% m‰
Point estimate ± (Reliability factor × 𝑑𝑓 =   ‰ ‰
Ή Ή
Standard error) %
m% m‰
‰
…/ˆh
3. 𝑧 =   Í (when sample size is large or m%
'
m‰
m
•   CI for normally distributed population
™
small but pop S.D is known)
with known variance = 𝑥 ± 𝑧H/k 8. Test Statistic for a test of mean differences
L
…/ˆh
(normally distributed populations,
•   CI for normally distributed population 4. 𝑧 =   (when sample size is large but
F
- unknown population variances)
with unknown variance = 𝑥 ± 𝑧H/k m
L pop S.D is unknown where s is sample
where S = sample S.D. J/ˆÐh
S.D) •   𝑡 =  
FJ
•   sample mean difference =  𝑑   =
7.   Student’s t distribution …/ˆh &
F 5. 𝑡L/& =   - (when sample size is large or   L
M[& 𝑑M
µ = 𝑋 ± 𝑡H/k m L
L m ‰
ƒ„h J% /J
small and pop S.D is unknown and pop •   sample variance = 𝑆Jk =  
L/&
sampled is normally or approximately
x−µ •   sample S.D = 𝑆Jk
8.   Z-ratio = Z = normally distributed)
σ/ n
 FinQuiz Formula Sheet CFA Level I 2016

•   sample error of the sample mean •   𝑋kk is another chi square random (where V = most recent closing price
FÐ variable with one n degrees of and Vx = closing price x days ago)
difference = 𝑠  𝑑   =  
L
freedom •   Alternate Method to calculate M =
"
8. Chi Square Test Statistic (for test ×100
"
12. Spearman Rank Correlation = 𝑟7
concerning the value of a normal
L/& F ‰
6 LM[& 𝑑&k
population variance) 𝑋 k = where =1− 5.   Relative Strength Index = RSI = 100 −
™h‰ 𝑛 𝑛k − 1 &ff
  where
𝑛 − 1 = 𝑑𝑓  𝑎𝑛𝑑  𝑆 k = •   For small samples rejection points for &'NF
m ‰ ÝR  axHLTI7  
𝑠𝑎𝑚𝑝𝑙𝑒  𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 =     ƒ„h …ƒ /… the test based on 𝑟7 are found using RS =
iO•L  axHLTI7
L/&
table.
•   For large sample size (e.g. n>30) t-test 6.   Stochastic Oscillator (composed of two
9. Chi Square Confidence Interval for
can be used to test the hypothesis i.e. lines %K and %D):
variance
L/& F ‰
𝑛 − 2 &/k 𝑟7
Lower limit = L = and Upper limit 𝑡 =  
‰
…Ñ/‰ 1 − 𝑟7k &/k Q/B&‡
•   %𝐾 = 100   where:
z&‡/B&‡
L/& F ‰
=U== ‰ C = latest closing price, L14 = lowest
…%ÒÑ/‰ Reading 12: Technical Analysis
price in last 14 days, H14 is highest
10. F-test (test concerning differences between 1.   Relative Strength Analysis = price in last 14 days
variances of two normally distributed 𝑷𝒓𝒊𝒄𝒆  𝒐𝒇  𝒂𝒔𝒔𝒆𝒕   •   %D = Average of the last three %K
F%‰
𝑷𝒓𝒊𝒄𝒆  𝒐𝒇  𝒕𝒉𝒆  𝑩𝒆𝒏𝒄𝒉𝒎𝒂𝒓𝒌  𝑨𝒔𝒔𝒆𝒕 values calculated daily.
populations) F =
F‰‰
2.   Price Target for the 7.   Put/Call Ratio (Type of Sentiment
𝑆&k = 1𝑠𝑡  𝑠𝑎𝑚𝑝𝑙𝑒  𝑣𝑎𝑟  𝑤𝑖𝑡ℎ  𝑛&  𝑜𝑏𝑠   𝑆&k = •   Head and Shoulders = Neckline – Indicators) =
𝑽𝒐𝒍𝒖𝒎𝒆  𝒐𝒇  𝑷𝒖𝒕  𝑶𝒑𝒕𝒊𝒐𝒏𝒔  𝑻𝒓𝒂𝒅𝒆𝒅
𝑽𝒐𝒍𝒖𝒎𝒆  𝒐𝒇  𝑪𝒂𝒍𝒍  𝑶𝒑𝒕𝒊𝒐𝒏𝒔  𝑻𝒓𝒂𝒅𝒆𝒅
2𝑛𝑑  𝑠𝑎𝑚𝑝𝑙𝑒  𝑣𝑎𝑟  𝑤𝑖𝑡ℎ  𝑛k  𝑜𝑏𝑠 (Head – Neckline)
𝑑𝑓& =   𝑛& − 1  𝑛𝑢𝑚𝑒𝑟𝑎𝑡𝑜𝑟  𝑑𝑓   •   Inverse Head and Shoulders =
8.   Short Interest Ratio (Type of Sentiment
𝑑𝑓k =   𝑛k − 1  𝑑𝑒𝑛𝑜𝑚𝑖𝑛𝑎𝑡𝑜𝑟  𝑑𝑓 Neckline + (Neckline– Head)
𝑺𝒉𝒐𝒓𝒕  𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕
Indicators) =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆  𝑫𝒂𝒊𝒍𝒚  𝑻𝒓𝒂𝒅𝒊𝒏𝒈  𝑽𝒐𝒍𝒖𝒎𝒆
𝑷𝟏 '𝑷𝟐 '𝑷𝟑 ….'𝑷𝒏
11. Relation between Chi Square and F- 3.   Simple Moving Average =
𝑵
…%‰ 9.   Arms Index TRIN i.e. Trading Index (Type
.
distribution = 𝐹 =   … ‰ where: of Flow of funds Indicator) =
‰
L 4.   Momentum Oscillator (or Rate of Change
•   𝑋&kis one chi square random variable Oscillator ROC): 𝐴𝑟𝑚  𝐼𝑛𝑑𝑒𝑥  𝑜𝑟  𝑇𝑅𝐼𝑁 =  
1O.OP  KJ~HL  g77SI7  ÷1O.OP  iIawML  g77SI7
with one m degrees of freedom "OwS.I  OP  KJ~HL  g77SI7÷"OwS.I  OP  iIawML  g77SI7
•   Momentum Oscillator Value M = (V-
Vx)  ×100
 FinQuiz Formula Sheet CFA Level I 2016

Reading 13: Demand & Supply Analysis: 6.   Total Surplus = Total value – Total ∆  éê  ï%
3.   Slope of Budget Constraint Line = =
∆  éê  ï‚
Introduction variable cost ë‚  
ë%
1.   Slope of the demand curve = 7.   Society Welfare = Consumer surplus +
∆  éê  ëìéíî Producer surplus ∆  éê  ï%
∆  éê  ïðñêòéòó  ôîõñêöîö
4.   Marginal Rate of Substitution =  =
∆  éê  ï‚
&ñì'éêñù  "òéùéòó  ûü  ýûûö  þ
8.   Price Elasticity of Demand = &ñì'éêñù  "òéùéòó  ûü  ýûûö  ÿ
2.   Slope of the supply curve = %  ∆  éê  ïðñêòéòó  ôîõñêöîö
∆  éê  ëìéíî
%  ∆    éê  ëìéíî
∆  éê  ïðñêòéòó  ÷ðøøùéîö Reading 15: Demand & Supply Analysis: The
Q2 − Q1
Firm
3.   Consumer Surplus = Value that a %ΔQ 2 (Q1 + Q2 )
1
=
consumer places on units consumed – %ΔP P2 − P1 1.   Profit = Total revenue – Total cost
Price paid to buy those units
2 ( P1 + P2 )
1
•   Area (for calculating Consumer 2.   Accounting Profit = Total Revenue –
Surplus) = ½ (Base × Height) = ½ (Q0 Explicit Costs (or Accounting costs)
9.   Income Elasticity of Demand =
× P 0) %  ∆  éê  ïðñêòéòó  ôîõñêöîö
= 3.   Economic Profit
%  ∆  éê  úêíûõî  
4.   Producer Surplus = Total revenue received Q2 − Q1 •   = Total Revenue – Explicit Costs –
from selling a given amount of a good – Implicit Costs or
%ΔQ 2 (Q1 + Q2 )
1
Total variable cost of producing that = •   = Accounting Profit – Implicit Costs
amount %ΔI I 2 − I1
or
2 ( I1 + I 2 )
1
•   = Total Revenue – Total Economic
•   Total revenue = Total quantity sold × Costs
Price per unit 10.   Cross Elasticity =
%  ∆éê  ïðñêòéòó  ôîõñêöîö  ûü  ýûûö  þ
•   Area (for calculating Producer 4.   Economic costs = Explicit costs + Implicit
%  ∆  éê  ëìéíî  ûü  ýûûö  ÿ
Surplus) = ½ (Base × Height) = ½ costs
{(Q0) × (P0 – intercept point on y- 5.   Normal Profit = Accounting Profit –
Reading 14: Demand & Supply Analysis:
axis**)} Economic Profit
Consumer Demand

**where supply curve intersects y-axis ∆  éê  !ûòñù  "òéùéòó 6.   Accounting profit = Economic Profit +
1.   Marginal Utility =
∆  éê  ïðñêòéòó  #ûê$ðõîö Normal Profit
5.   Total Surplus = Consumer surplus +
Producer surplus 2.   Equation of Budget Constraint Line = (PX 7.   Economic rent = (New “Higher” Price
× QX ) + (PY × QY) after ↑ in Demand – Previous Price before
↑ in Demand) × QS before ↑ in Demand
 FinQuiz Formula Sheet CFA Level I 2016

8.   Total Revenue (TR): 19.   Break-even price: P = ATC è Output 26.   Least-cost optimization Rule:
level where Price = Average Revenue = &ñì'éêñù  ëìûöðíò  ûü  -ñ,ûì  
•   = Price × Quantity or =
ëìéíî  ûü  -ñ,ûì  
•   = Sum of individual units sold × Marginal Revenue = Average Total Cost &ñì'éêñù  ëìûöðíò  ûü  ë2ó$éíñù  #ñøéòñù
è where, Total Revenue = Total Cost.  
Respective prices of individual Units ëìéíî  ûü  ë2óéíñù  #ñøéòñù

sold = Σ (Pi × Qi)

20.   Firms earn Economic Profits when Price > 27.   Profit is maximized when: MRP = Price or
9.   Average Revenue (AR) =
!ûòñù  )î*îêðî Average Total Cost cost of the input for each type of resource
ïðñêòéòó
that is used in the production process
21.   Profits occur when Total Revenue (TR) ≥
∆  éê  !ûòñù  )î*îêðî
10.   Marginal Revenue (MR) = Total Cost (TC) & when Price = Marginal 28.   Marginal Revenue product = Marginal
∆  éê  ïðñêòéòó
Costè firm will continue operating. Product of an input unit × Price of the
11.   Total Variable Cost = Variable Cost per Product = Price of the input =
22.   Losses are incurred when there are ∆    éê  !ûòñù  )î*îêðî
unit × Quantity Produced
∆  éê  ïðñêòéòó  ûü  úêøðò  îõøùûóîö
Operating profits (Total Revenue ≥
12.   Total Cost = Total Fixed + Total Variable Variable Cost) but Total Revenue < Total
29.   Surplus value or contribution of an input to
Fixed Cost + Total Variable Cost AND
firm’s profit = MRP – Cost of an input
13.   Average total cost (ATC) = when Price = Marginal Cost while losses
!ûòñù  #û$ò are < fixed costs è firm will continue
= Avg. Fixed Cost + Avg. Reading 16: The firm & Market Structures
ïðñêòéòó  ëìûöðíîö operating.
Variable Cost
1.   In perfect competition, Marginal revenue =
23.   Losses are incurred when there are
∆  éê  !ûòñù  #û$ò Avg. Revenue = Price = Demand
14.   Marginal cost (MC) = Operating losses (Total Revenue ≤
∆  éê  ïðñêòéòó  ëìûöðíîö
Variable Cost) AND when losses ≥ fixed
costs è firm will shut down. 2.   Marginal Revenue = Price  × 1 −
15.   Marginal Variable Cost =
&
∆  éê  !ûòñù  +ñìéñ,ùî  #û$ò  
∆  éê  ïðñêòéòó  ëìûöðíîö !ûòñù  ëìûöðíò ëìéíî  7ùñ$òéíéòó  ûü  ôîõñêö
24.   Average Product =
ïðñêòéòó  ûü  -ñ,ûì 3.   Concentration Ratio =
÷ðõ  ûü  $ñùî$  *ñùðî$  ûü  ò2î  ùñì'î$ò  &f  üéìõ$
16.   Marginal revenue (in perfect competition) !ûòñù  &ñì1îò  ÷ñùî$
∆  éê  !ûòñù  ëìûöðíò
= Avg. Revenue = Price = Demand 25.   Marginal Product = =
∆  éê  ïðñêéòó  ûü  -ñ,ûì
∆  éê  !ûòñù  .ðòøðò 4.   Herfindahl-Hirshman Index = Sum of the
17.   Profit can be increased by increasing ∆  éê  /û  ûü  0ûì1îì$
squares of the market shares of the top N
output when MR> MC companies in an industry

18.   Profit can be increased by decreasing

output when MR< MC
 FinQuiz Formula Sheet CFA Level I 2016

Reading 17: Aggregate Output, Prices & unincorporated business net income + rent 18.   GDP = Household consumption + Private
Economic Growth + indirect business taxes less subsidies Sector Saving + Net Taxes

1.   Nominal GDP t = Prices in year t × 10.   Total Amount Earned by Capital = Profit + 19.   Domestic saving = Investment + Fiscal
Quantity produced in year t Capital Consumption Allowance balance + Trade balance

2.   Real GDP t = Prices in the base year × 11.   PI = National income – Indirect business 20.   Trade Balance = Exports – Imports
Quantity produced in year t taxes – Corp income taxes – Undistributed
Corp profits + Transfer payments 21.   Fiscal balance = Government Expenditure
3.   Implicit price deflator for GDP or GDP – Taxes = (Savings – Investment) – Trade
deflator = 12.   Personal disposable income (PDI) = Balance
*ñùðî  ûü  íðììîêò  óì  ûðòøðò  ñò  íðììîêò  óì  øìéíî$ Personal income – Personal taxes OR GDP 22.   Average propensity to consume (APC) =
×
*ñùðî  ûü  íðììîêò  óì  ûðòøðò  ñò  ,ñ$î  óì  øìéíî$ 8''ìî'ñòî  #ûê$ðõøòéûê
(Y) + Transfer payments (F) – (R/E +
100 )îñù  úêíûõî
Depreciation) – direct and indirect taxes
(R)
4.   Real GDP = [(Nominal GDP / GDP 23.   Quantity theory of money equation:
deflator) ÷ 100] Nominal Money Supply × Velocity of
13.   Business Saving = R/E + Depreciation
Money = Price Level × Real Income or
5.   GDP deflator =
/ûõéêñù  ýôë
 ×100 Expenditure
)îñù  ýôë   14.   Household saving = PDI - Consumption
expenditures - Interest paid by consumers
24.   %  ∆ in unit labor cost = %  ∆  in nominal
6.   GDP = Consumer spending on final good to business - Personal transfer payments to
wages - %  ∆  in productivity
& services + Gross private domestic invst foreigners
+ Govt. spending on final goods & services
25.   Economic growth = Annual %  ∆  in real
+ Govt. gross fixed invst + Exp – Imp + 15.   Business sector saving = Undistributed
GDP
Statistical discrepancy corporate profits + Capital consumption
allowance
26.   Total Factor Productivity growth = Growth
7.   Net Taxes = Taxes – Transfer payments
in potential GDP – [Relative share of labor
8.   GDP = National income + Capital 16.   Total Expenditure = Household
in National Income × (Growth in labor) +
consumption allowance + Statistical consumption (C) + Investments (I) +
[Relative share of capital in National
discrepancy Government spending (G) + Net exports
Income × (Growth in capital)]
(X-M)
9.   National Income = Compensation of
27.   Growth in potential GDP = Growth in
employees + Corp & Govt enterprise 17.   Private Sector Saving = Household Saving
technology + (Relative share of labor in
profits before taxes + Interest income + + Undistributed Corporate Profits +
National Income × Growth in Labor) +
Capital Consumption Allowance
 FinQuiz Formula Sheet CFA Level I 2016

(Relative share of capital in National 3.   Narrow money = M1= currency held •   MPS = 1 – MPC.
Income × Growth in capital] outside banks + checking accounts + •   Total increase in income and spending
traveller’s check = Fiscal multiplier × G
28.   Capital share =Corporate profits + net
interest income + net rental income + 4.   Broad money = M2 = M1 + time deposits 10.   Fiscal Multiplier (in the presence of taxes)
(depreciation/ GDP) + saving deposits
•   MPC (with taxes) = MPC × (1 - t)
7õøùûóîî  #ûõøîê$ñòéûê   5.   M3 = M2 + deposits with non-bank &
29.   Labor share = •   Fiscal multiplier =
ýôë &/)$Q   &/G
financial institution
•   Total ↑ in income and spending =
Reading 18: Understanding Business Cycles Fiscal multiplier × G
6.   Quantity Theory of Money = M × V = P ×
Y where, •   Initial ↑ in consumption due to
1.   Price index at time t2 = reduction in taxes = MPC × tax cut
"HwSI  OP  GxI  QO.7S.RGMOL  yH7{IG  HG  G  ‰ M = Quantity of money
×100 V = Velocity of circulation of money amount
"HwSI  OP  GxI  QOL7S.RGMOL  yH7{IG  HG  G  %
ëìéíî  úêöî9  ñò  òéõî  òk   P = Average price level •   Total or cumulative effect of tax cut =
Inflation Rate = −1
&ff multiplier × initial change in
Y = Real output
consumption
2.   Fisher Index = 𝐼𝑝  ×𝐼𝐿 (where, IL =
7.   Neutral Rate = Trend Growth + Inflation
Laspeyres index and Ip = Paasche Index) Target 11.   Cumulative multiplier =
íðõðùñòé*î  îüüîíò  ûê  ìîñù  ýôë  û*îì  ò2î  ò<û  óîñì$
%  OP  Di$
3.   𝑈𝑛𝑖𝑡  𝑙𝑎𝑏𝑜𝑟  𝑐𝑜𝑠𝑡  (𝑈𝐿𝐶)  𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟   = 8.   Impact of Taxes and Government
!ûòñù  ùñ,ûì  íûõøîê$ñòéûê  øîì  2ûðì  øîì  <ûì1îì  
Spending: The Fiscal Multiplier
.ðòøðò  øîì  2ûðì  øîì  <ûì1îì Reading 20: International Trade & Capital
The net impact of the government sector
Flows
/ûõéêñù  ýôë on AD:
4.   Velocity  of  money   =  
&ûêîó  ÷ðøøùó •   G – T + B = Budget surplus or Budget ëìéíî  ûü  î9øûìò$
1.   Terms of trade =
deficit ëìéíî  ûü  éõøûìò$
Reading 19: Monetary & Fiscal Policy where, G = government spending , T
=taxes, B =transfer benefits 2.   Terms of Trade (as an index number) =
1.   Total Money created = New deposit/ •   Disposable income = Income – Net 8*'  øìéíî  ûü  î9øûìò$
8*'  øìéíî  ûü  éõøûìò$
Reserve Req taxes = (1 – t) Income
where, Net taxes = taxes – transfer
2.   Money Multiplier = 3.   Net exports = Value of a country's (exports
payments, t = net tax rate
& –imports)
 )î$îì*î  )îC  ûì  ìî$îì*î  ìñòéû  
9.   Fiscal Multiplier (in the absence of taxes)
= 1/(1 - MPC)
 FinQuiz Formula Sheet CFA Level I 2016

4.   Net welfare effect = consumer’s surplus 4.   Change  in  Real  Exchange  rate = 11.   Return on hedged foreign investment
∆U
loss + producer’s surplus gain + Govt. ∆÷S/R &' R
UR
(with a quoted forward rate) = 𝑆P/J 1 +
revenue   1 + × ∆U −1 &
÷S/R &' S
US 𝑖P
!´/Ð

5.   Closed Economy’s output = Y = C+I+G &

5.   Direct Quote = 12.   Expected % change in the spot rate =
úêöéìîíò  ïðûòî
6.   Open Economy’s output = Y = FZ^% M´ /MÐ
6.   Points on a forward rate quote = Fwd X- − 1 = %∆𝑆G'& =
FZ &'MÐ
C+I+G+(X-M) rate quote –Spot X-rate quote
•   Current Account Balance = X-M = Y-
Vûì<ñìö  øûéêò$ •   Forward points: 𝐹P/J − 𝑆P/J =
C+I+G 7.   Forward rate = Spot X-rate +
&f,fff M´ /MÐ
𝑆P/J 𝜏 (where 𝜏 is quoted
&'MÐ X
7.   Consumption = Income + transfers – taxes interest rate period)
8.   Forward  premium/discount  (in  %)   =
– saving $øûò  þ/ìñòî'(üûì<ñìö  øûéêò$/&f,fff)
  −1
$øûò  þ/ìñòî 13.   Relationship between the trade balance and
d
C = Y - Sp =Y+R-T-Sp And, expenditure/ saving decisions:
CA = Sp- I+ Govt surplus (or Govt saving) 9.   To convert spot rate into a forward quote = Ex – Im = (Sav – Inv) + (T – G)
= Sp- I+ (T- G- R)Sp + Sg = I + CA (when points are represented as %) = Spot
exchange rate × (1 + % premium or where T= taxes net of transfers
where, Sg = Govt savings discount) G= government expenditures)
Sp = I + CA – Sg
•   Current Account Imbalance CA = Sp 10.   Arbitrage relationship is stated as follows: 14.   Price elasticity of demand = Ԑ =
+ Sg – I %  í2ñê'î  éê  Cðñêòéòó %  ∆  ï
•   1 + 𝑖J = 𝑆´ 1 + 𝑖P
& =–
%  í2ñê'î  éê  øìéíî %  ∆  ë
Ð
!´
Reading 21: Currency Exchange Rates Ð
•   In case of indirect quote, Arbitrage 15.   Expenditure (R) = Price × Quantity = P ×
1.   Foreign  price  level  in  domestic  currency = relationship is: 1 + 𝑖J = Q
Sö/ü ×Pü 1/𝑆P/J 1 + 𝑖P 𝐹P/J •   % ∆ in expenditure = % ∆ R = % ∆ P
&'M´ + % ∆ Q = (1- Ԑ) % ∆ P
•   𝐹´ = 𝑆´
Ð Ð
&'MÐ
2.   Real  exchange  rate(ô/ü) = (Sö ü ×Pü )/Pö =
•   Forward rate as a % of spot rate = 16.   Basic idea of Marshall-Lerner condition =
Sö ü ×(Pü /Pö ) !´/Ð &'M´
= 𝜔Ÿ 𝜀Ÿ + 𝜔) 𝜀) − 1 > 0 where,
F´/Ð &'MÐ
3.   Real  Exchange  Rate  öûõî$òéí/üûìîé'ê =
#ëúR
ɷx=share of exports
Sö/ü × ԐX=price elasticity of foreign demand for
#ëúS
domestic country exports
 FinQuiz Formula Sheet CFA Level I 2016

ɷM=share of imports Reading 25: Understanding Income Statements /îò  úêíûõî/ëìîüîììîö  ôé*éöîêö$
10.   Basic EPS =
0'2ò  8*'  /û  ûü  $2ñìî$  ûðò$òñêöéê'
ԐM =price elasticity of domestic country
demand for imports 1.   Revenue recognized on Prorated basis =
!ûòñù  8õûðêò  ûü  #û$ò   11.   Diluted EPS for preferred stock =
/îò  úêíûõî
!éõî  ûü  ò2î  íûêòìñíò
17.   Trade balance = Income (GDP) – 0'2ò  8*'  /û  ûü  $2ñìî$  û/$'/î<  íûõõûê  $2ñìî$  ò2ñò  
<ûðùö  2ñ*î  ,îîê  é$$ðîö  ñò  íûê*îì$éûê
Domestic expenditure = Absorption
2.   Revenue recognized under Percentage-of-
Completion Method = % of Total cost 12.   Diluted EPS for convertible debt =
Reading 22: Financial Statement Analysis: An /îò  éêíûõî  '8!  M  ûê
spent by the firm × Total Contract íûê*îìòé,ùî  öî,ò/ëìîüîììîö  ôé*
Introduction
Revenue 0'2ò  8*'  ûü  $2ñìî$  û/$'8ööéòéûêñù  íûõõûê  $2ñìî$  
ò2ñò  <ûðùö  2ñ*î  ,îîê  é$$ðîö  ñò  íûê*îì$éûê
1.   Gross Profit = Revenue – Cost of sales
3.   Revenue recognized when outcome cannot
13.   Diluted EPS using Treasury Stock Method
be reliably measured = Contract costs
2.   Operating Profit or EBIT = Gross profit – =
incurred (/îò  úêíûõî/ëìîüîììîö  öé*éöîêö$)
Operating costs + Other operating income [0'2ò  8*'  ûü  $2ñìî$'(/î<  $2ñìî$  ñò  ûøòéûê  î9îìíé$î/
÷2ñìî$  øðìí2ñ$îö  <éò2  #ñ$2  ìîíîé*îö  ðøûê  î9îìíé$î  )  ×
4.   Revenue recognized under installment (ëìûøûìòéûê  ûü  ÿì)]
3.   Profit before tax = EBIT – Interest expense ëìûüéò  
method =   ×  Cash receipt
÷ñùî$
/îò  úêíûõî
4.   Profit after tax = Profit before tax – 5.   Wgtd Avg cost per unit = 14.   Net Profit Margin =
)î*îêðî
Income tax expense !ûòñù  #û$ò  ûü  ýûûö$  ñ*ñéùñ,ùî  üûì  ÷ñùî
!ûòñù  ðêéò$  ñ*ñéùñ,ùî  üûì  ÷ñùî ýìû$$  ëìûüéò
15.   Gross Profit Margin =
)î*îêðî
Reading 23: Financial Reporting Mechanics
6.   COGS using Wghtd Avg Cost = No of
units sold × Wghtd Avg cost per unit 16.   Comprehensive EPS = EPS + Other
1.   Owner’s Equity = Contributed Capital +
Comprehensive Income per share
R.E
7.   COGS using LIFO = Total cost – Value of
ending inventory Reading 26: Understanding Balance Sheets
2.   End R.E = Beg R.E + Net income –
Dividends
8.   Annual Depreciation Expense (using 1.   Percentage of A/C Receivable estimated to
#û$ò/)î$éöðñù  +ñùðî
Straight-Line Method) = be uncollectible =
3.   Assets = Liabilities + Contributed Capital 7$òéõñòîö  "$îüðù  -éüî
8ùùû<ñêíî  üûì  ôûð,òüðù  8/#
+ Beg R.E + Revenue – Expenses – ýìû$$  ñõûðêò  ûü  8/#  )îíîé*ñ,ùî
Dividends 9.   Annual Depreciation Expense (Declining
&ff%
balance method) = × Acceleration 2.   Net Identifiable Assets = Fair value of
"$îüðù  ùéüî
Reading 24: Financial Reporting Standards factor (say 200% or 2) × Net Book Value identifiable assets – Fair value of liabilities
& contingent liabilities
 FinQuiz Formula Sheet CFA Level I 2016

3.   Amortized cost of PPE = Historical cost – #ñ$2'&ñì1îòñ,ùî  $îíðìéòéî$   6.   End Inventory = Beg inventory +
12.   Cash ratio =
#ðììîêò  -éñ,éùéòéî$
Accumulated depreciation – Impairment Purchases – COGS
losses
13.   Long-term debt-to-equity =
!ûòñù  ùûê'/òîìõ  öî,ò 7.   End a/c payable = Beg a/c payable +
4.   Carrying value for PPE under revaluation !ûòñù  7Cðéòó Purchases – Cash paid to suppliers
model
= Fair value at date of revaluation – !ûòñù  ôî,ò 8.   Cash paid to employees = Salary and
14.   Debt-to-Equity =
!ûòñù  7Cðéòó
Accumulated depreciation (if any) wages expense – Increase in salary and
!ûòñù  ôî,ò
wages payable
5.   Amortized cost of PPE = Historical cost – 15.   Total Debt =
!ûòñù  8$$îò$
Accumulated depreciation – Impairment 9.   End salary and wages payable = Beg salary
losses !ûòñù  8$$îò$ and wages payable + Salary and wages
16.   Financial Leverage =
!ûòñù  7Cðéòó
expense – cash paid to employees
6.   Carrying value for PPE under revaluation
Reading 27: Understanding Cash Flow
model 10.   Cash paid for other operating expenses =
Statements
= Fair value at date of revaluation – Other operating expenses – Decrease in
Accumulated depreciation (if any) prepaid expenses – Increase in other
1.   End Cash = Beg cash + Cash receipts
accrued liabilities
(from operating, investing, and financing
7.   Deferred tax liability = Taxable income <
activities) – Cash payments (for operating,
Reported Financial Statement Income 11.   Cash paid for interest = Interest expense +
investing, and financing activities)
before taxes Decrease in interest payable

2.   End A/c Receivable = Beg A/c Receivable

8.   Deferred tax liability = Actual income tax 12.   End Interest Payable = Beg interest
+ Revenues – Cash collected from
payable in a period < Income tax expense payable + Interest expense – Cash paid for
customers
interest
9.   Vertical common-size balance-sheet =
^ñùñêíî  $2îîò  8õûðêò 3.   Cash received from customers = Revenue
13.   Cash paid for income taxes = Income tax
!ûòñù  8$$îò$ – Increase in a/c receivable
expense – Increase in income tax payable
#ðììîêò  8$$îò$
10.   Current ratio = 4.   Purchases from suppliers = COGS +
#ðììîêò  -éñ,éùéòéî$ 14.   Historical cost of equipment sold = Beg
Increase in inventory
balance equipment + Equipment purchased
11.   Quick (acid test) = – End balance equipment
#ñ$2'&ñì1îòñ,ùî  $îíðìéòéî$')îíîé*ñ,ùî$ 5.   Cash paid to suppliers = Cogs + Increase
#ðììîêò  -éñ,éùéòéî$ in inventory – Increase in a/c payable
 FinQuiz Formula Sheet CFA Level I 2016

15.   Accumulated Dep on equipment sold = 27.   Interest Coverage = 6.   Vertical common size income statement =
Beg balance accumulated dep + Dep #V.'úêòîìî$ò  øñéö'!ñ9î$  øñéö úêíûõî  $òñòîõîêò  úòîõ
úêòîìî$ò  øñéö )î*îêðî
expense – End balance accumulated dep #V.
28.   Reinvestment =
#ñ$2  øñéö  üûì  ùûê'/òîìõ  ñ$$îò$
7.   Horizontal common size balance sheet =
16.   Cash received from sale of equipment = ^ñùñêíî  $2îîò  éòîõ  éê  ÿîñì  k
Historical cost of equipment sold – 29.   Debt payment = ^ñùñêíî  $2îîò  éòîõ  éê  ÿîñì  &
Accumulated dep on equipment sold + #V.
#ñ$2  øñéö  üûì  -!  öî,ò  ìîøñóõîêò 8.   Inventory turnover =
gain on sale of equipment
#û$ò  ûü  $ñùî$  ûì  íû$ò  ûü  'ûûö$  $ûùö
#V. 8*'  úê*îêòûìó
17.   Dividends paid = Beg balance of R.E + 30.   Dividend payment =
ôé*éöîêö$  øñéö
Net income – End balance of R.E
9.   Days of Inventory on Hand (DOH) =
31.   Investing and Financing = /û  ûü  ôñó$  éê  øîìéûö
18.   FCFF = Net income + Non-cash charges + #V.   úê*îêòûìó  !ðìêû*îì
Interest expense (1 – tax rate) – Cap exp – #ñ$2  ûðòüùû<$  üûì  éê*î$òéê'  ñêö  üéêñêíéê'  ñíòé*éòéî$ )î*îêðî
10.   Receivables Turnover =
8*'  )îíîé*ñ,ùî$
WC expenditures
19.   FCFF = CFO + Interest expense (1 – Tax Reading 28: Financial Analysis Techniques
11.   Days of Sales Outstanding (DSO)
rate) – Cap exp /û  ûü  ôñó$  éê  ëîìéûö
1.   Compound Growth Rate = =
)îíîé*ñ,ùî$  òðìêû*îì
%
20.   FCFE = CFO – Cap exp + Net borrowing 7êö  +ñùðî `a  aR  bcdeaSf
−  1
^î'  +ñùðî 12.   Avg A/c Receivable Balance = Avg Days’
#V. Credit Sales × DSO or
21.   CF to revenue =
/îò  )î*îêðî -û$$î$  ñêö  79øîê$î$ ÷ñùî$
2.   Combined ratio = Avg A/c Receivable Balance = =
/îò  ëìîõéðõö  7ñìêîö !ðìêû*îì
#V. ÷ñùî$
22.   Cash ROA = ghi
8*îìñ'î  !ûòñù  8$$îò$ .øîìñòéê'  úêíûõî jkl
3.   Operating ROA =
8*'  !ûòñù  8$$îò$
#V.
23.   Cash ROE = ëðìí2ñî$  
8*îìñ'î  $2ñìî2ûùöîì$_ îCðéòó /îò  úêíûõî
13.   Payables turnover =
8*'  òìñöî  øñóñ,ùî$
4.   ROA = or
8*'  !ûòñù  8$$îò$
#V. ROA =
24.   Cash to income = 14.   No of Days of Payables =
/û  ûü  ôñó$  éê  øîìéûö
.øîìñòéê'  éêíûõî /îò  úêíûõî'úêòîìî$ò  79øîê$î   &/!ñ9  ìñòî ëñóñ,ùî$  !ðìêû*îì
8*'  !ûòñù  8$$îò$
25.   Cash flow per share = )î*îêðî
#V./ëìîüîììîö  ôé*éöîêö$ úêíûõî  !ñ9
15.   WC Turnover =
8*'  0#
5.   Effective Tax Rate =
/û  ûü  íûõõûê  $2ñìî$  û/$ 7ñìêéê'$  ,îüûìî  !ñ9
)î*îêðî
#V.
16.   Fixed Asset Turnover =
8*'  /îò  Vé9îö  8$$îò$
26.   Debt Coverage =
!ûòñù  ôî,ò
 FinQuiz Formula Sheet CFA Level I 2016

)î*îêðî 26.   Liquid Asset Requirement = 37.   Discretionary CF to Debt =

17.   Total Asset Turnover =
8*'  !ûòñù  8$$îò$ )îñöéùó  &ñì1îòñ,ùî  ÷îíðìéòéî$ #V./#ñø  î9ø/ôé*éöîêö$  øñéö  
÷øîíéüéîö  ôîøû$éò  -éñ,éùéòéî$ !ûòñù  öî,ò
18.   Pretax margin =
7ñìêéê'$  ,îüûìî  òñ9  ,ðò  ñüòîì  éêòîìî$ò 27.   Net Interest Margin = 38.   Net CF to Capital expenditures =
)î*îêðî /îò  úêòîìî$ò  úêíûõî VV./ôé*éöîêö$  
!ûòñù  úêòîìî$ò  7ñìêéê'  8$$îò$ #ñø  î9ø
19.   Return on Total Capital =
7^ú! !ûòñù  öî,ò
28.   Sales per Square Meter = 39.   Debt to EBITDA =
÷2ûìò  ñêö  ùûê'  òîìõ  öî,ò  ñêö  îCðéòó 7^ú!ô8
)î*îêðî
!ûòñù  )îòñéù  ÷øñíî  éê  ÷Cðñìî  &îòîì$
/îò  úêíûõî 40.   Total Debt to total debt plus Equity =
20.   ROE =
8*'  !ûòñù  7Cðéòó !ûòñù  öî,ò
)ûûõ  )î*îêðî
•   ROE = ROA × Leverage 29.   Average Daily Rate = !ûòñù  öî,ò'7Cðéòó
/û  ûü  )ûûõ$  $ûùö
•   ROE = Tax Burden × Interest Burden
#8/#- ).7
× EBIT Margin × Total Asset 41.   Z-Score = 1.2 × + 1.4 × +
/û  ûü  )ûûõ$  ÷ûùö !8 !8
Turnover × Leverage 30.   Occupancy Rate = 7^ú! &+  ûü  $òûí1
/û  ûü  )ûûõ$  ñ*ñéùñ,ùî 3.3 × + 0.6 × + 1.0
!8 ^+  ûü  ùéñ,éùéòéî$
÷ñùî$
21.   Return on Common Equity = 7^ú! ×
/îò  úêíûõî/ëìîüîììîö  ôé*éöîêö$
31.   EBIT Interest Coverage = !8
ýìû$$  úêòîìî$ò  
8*'  #ûõõûê  7Cðéòó
÷î'õîêò  ëìûüéò  (-û$$)
7^ú!ô8 42.   Segment margin =
32.   EBITDA Interest Coverage = ÷î'õîêò  )î*îêðî
22.   Coefficient of Variation of Operating ýìû$$  úêòîìî$ò  
÷.ô  ûü  .øîìñòéê'  úêíûõî
Income = ÷î'õîêò  )î*îêðî
8*'  .øîìñòéê'  úêíûõî 33.   FFO Interest Coverage = 43.   Segment turnover =
÷î'õîêò  8$$îò$
VV.'úêòîìî$ò  ëñéö/.øîìñòéê'  -îñ$î  8ömð$òõîêò$  
ýìû$$  úêòîìî$ò  
23.   Coefficient of Variation of Net Income = ÷î'õîêò  ëìûüéò  (-û$$)
÷.ô  ûü  /îò  úêíûõî
44.   Segment ROA =
÷î'õîêò  8$$îò$
7^ú!
8*'  /îò  úêíûõî 34.   Return on Capital = =
8*'  #ñøéòñù
7^ú! ÷î'õîêò  -éñ,éùéòéî$
45.   Segment Debt Ratio =
24.   Coefficient of Variation of Revenues = 8*'  (7Cðéòó'/ûê  íðììîêò  öîüîììîö  òñ9î$'öî,ò) ÷î'õîêò  8$$îò$
÷.ô    ûü  )î*îêðî
8*'    )î*îêðî VV. Reading 29: Inventories
35.   FFO to Debt =
!ûòñù  ôî,ò
25.   Monetary Reserve Requirement (Cash 1.   NRA = Estimated Selling Price –
)î$îì*î$  2îùö  ñ$  #îêòìñù  ^ñê1 #V./#ñø  79ø
Reserve Ratio) = 36.   Free Operating CF to Debt = Estimated Costs of completion and
÷øîíéüéîö  ôîøû$éò  -éñ,éùéòéî$   !ûòñù  ôî,ò
disposal
 FinQuiz Formula Sheet CFA Level I 2016

2.   Inventory amount net of valuation 6.   Impairment Loss (US GAAP) = Asset’s •   Income Tax liability currently
allowance = Carrying amount of Inventory Fair Value – Carrying Amount …….If payable = Taxable income × Tax
– Write downs Carrying amount > Undiscounted Expected rate
Future Cash Flows •   ∆in deferred tax asset / liability =
3.   (NRA – Normal Profit Margin) ≤ MV ≤ Diff b/w the balance of the
NRA Reading 31: Income Taxes deferred tax asset / liability for the
current period and the balance of
Reading 30: Long-Lived Assets 1.   Deferred tax asset = Company’s taxable the previous period.
income > Accounting profit
1.   Dep Exp under Straight-line Method = 9.   The company’s tax expense (or credit)
ôîøìîíéñ,ùî  #û$ò 2.   Tax base of revenue received in advance =
= reported on its income statement = Taxes
7$òéõñòîö  "$îüðù  -éüî
né$òûìéíñù  #û$ò/7$òéõñòîö  )î$éöðñù   $ñù*ñ'î +ñùðî Carrying amount – Any amount of revenue payable + (∆ Deferred tax liability - ∆
7$òéõñòîö  "$îüðù  -éüî that will not be taxed at a future date Deferred tax asset)
3.   Reported Effective Tax Rate = Where,
2.   Dep Exp under Units-of-Production úêíûõî  !ñ9  î9øîê$î
•   Income Tax liability currently
ëìî  òñ9  éêíûõî  ûì  8ííûðêòéê'  ëìûüéò
Method = Depreciable Cost × payable = Taxable income × Tax
ëìûöðíòéûê  éê  ò2î  ëîìéûö  
7$òéõñòîö  ëìûöðíòé*î  #ñøñíéòó   4.   Deferred tax liability = Carrying amount rate
of asset > Tax base of asset •   Deferred tax liability = (carrying
3.   Carrying amount under cost model = amount – tax base) × tax rate
Historical Cost – Accumulated Dep or 5.   Deferred tax asset = Carrying amount of •   Deferred tax asset = (tax base –
Amortization asset < Tax base of asset carrying amount) × tax rate

4.   Carrying amount under revaluation model
= Fair value at the date of revaluation –
Any subsequent Accumulated Dep or
Amortization
5.   Impairment Loss (IFRS) = Recoverable
Amount – Net Carrying Amount
Where, Recoverable amount = Max [(Fair
value – Costs to sell); Value in Use)] and
Value in use = PV of Expected Future CFs
6.   Deferred tax asset = Carrying amount of
liability > Tax base of asset
7.   Deferred tax liability = Carrying amount of
liability < Tax base of asset
8.   Company’s tax expense (or credit)
reported on its income statement = Income
tax liability currently payable + ∆ in
deferred tax asset / liability
Where,
10.   Tax base of a liability = Carrying amount
of the liability – Amounts that will be
deductible for tax purposes in the future
Reading 32: Non-current (Long-term)
Liabilities
1.   Annual Interest Payment = Face Value ×
Coupon Rate
2.   Sale proceeds of bond = Sum of PV of
Interest Payments + PV of Face value of
Bond
 FinQuiz Formula Sheet CFA Level I 2016

3.   When Face value - Sale proceed is > zero,
discount
4.   When Face value – Sale proceed is < zero,
premium
5.   Bond payable = Face value – (+) Discount
(Premium)
12.   Bond Interest Payment under effective
interest rate method = Face value of the
bonds × Contractual (coupon) rate
13.   Amortization of the discount or premium
under effective interest rate method =
Bond interest expense – Bond interest
payment
21.   Interest Revenue = Lease receivable at the
beg of the period × Interest rate
22.   Net interest expense = Beg Net pension
liability × Discount rate
23.   Net Interest income = Beg Net Pension
asset × Discount rate

6.   Total Interest Expense (in case of discount) 14.   Bond Discount/Premium Amortization 24.   Reported pension expense = Pension costs
= Periodic interest payments + under Straight-line Method = – Expected return on Pension plan assets
Amortization of Discount ^ûêö  ôé$íûðêò  ûì  øìîõéðõ     25.   Funded Status = PV of the Defined benefit
/û  ûü  úêòîìî$ò  ëîìéûö$
obligations – Fair value of the plan assets
15.   No of shares subscribed when warrants are
7.   Total Interest Expense (in case of 8''ìî'ñòî  øìéêíéøñù  ñõûðêò  ûü  öî,ò  
premium) = Periodic interest payments - exercised = Reading 33: Financial Reporting Quality
ëñì  *ñùðî  ûü  ñ  ùûò
Amortization of Premium × shares subscribed per lot

8.   Amount of Bonds payable reported on the 16.   Carrying amount of the leased asset = Reading 34: Financial Statement Analysis:
balance sheet = Historical cost +/- Initial recognition amount – Accumulated Applications
Cumulative amortization (or amortization depreciation
cost) 1.   Company’s sales = Projected market share
17.   Accumulated depreciation = Prior year’s × Projected total industry sales
9.   Amount of Bonds payable initially accumulated depreciation + Current year’s
reported on the balance sheet under IFRS = depreciation expense 2.   Forecast amount of profit for a given
Sales proceeds – Issuance costs period = Forecasted amount of sales ×
18.   Interest expense = Lease liability at the beg Forecast of the selected profit margin
10.   Amount of Bonds payable initially of the period × interest rate implicit in the
reported on the balance sheet under US lease 3.   Retained CF (RCF) / Total debt =
GAAP = Sales proceeds (ûøîìñòéê'  #V  ,îüûìî  0#  í2ñê'î$  –  öé*éöîêö$)    
19.   Sales revenue = lower of the fair value of òûòñù  öî,ò

11.   Bond i-exp. under effective i-rate method the asset and PV of the min lease payments
)îòñéêîö  #V/#ñø  î9ø
= Carrying value of the bonds at the beg. 4.  
!ûòñù  ôî,ò
of the period × Effective i-rate 20.   Cost of sales = Carrying amount of the
leased asset – PV of the estimated
unguaranteed residual value
 FinQuiz Formula Sheet CFA Level I 2016

5.   Inventory value adjusted to FIFO basis = ëìéíî   2.   NPV = PV of cash inflows - IO =

15.   Price to tangible BV ratio =
!ñê'é,ùî  ^+
End Inventory value under LIFO + End n
AT CFs at time t
LIFO reserve balance NPV = ∑ t
− IO
16.   Adjusted debt-to-equity ratio = t=1 (1+ Req RoR )
)îøûìòîö  öî,ò'ë+  ûü  ûøîìñòéê'  ùîñ$î
6.   COGS adjusted to a FIFO basis = COGS )îøûìòîö  7Cðéòó
under LIFO – (End LIFO reserve – Beg 3.   Avg Accounting RoR (AAR) =
LIFO reserve) 17.   Adjusted debt-to-asset ratio = 8*'  /ú  ñüòîì  öîø  &  òñ9î$   ,îüûìî  éêòîìî$ò
)îøûìòîö  öî,ò'ë+  ûü  ûøîìñòéê'  ùîñ$î 8*'  ^+  ûü  úê*$ò
)îøûìòîö  8$$îò'  ë+  ûü  ûøîìñòéê'  ùîñ$î ë+  ûü  üðòðìî  #V$ /ë+
7.   Useful life of the company’s overall asset 4.   PI = =1+
ú. ú.
8ííðõðùñòîö  ôîø     18.   Adjusted Asset Turnover ratio =
base that has passed = ÷ñùî$
ýìû$$  ëë7
)îøûìòîö  8*'  òûòñù  ñ$$îò$'ë+  ûü  ûøîìñòéê'  ùîñ$î   5.   Value of a company = Value of company’s
8.   Avg age of the asset base = existing invst + Net PV of all of
8ííðõðùñòîö  ôîø     19.   PV of future operating lease payments = company’s future invst
8êêðñù  ôîø  î9øîê$î ë+  ûü  íñøéòñù  ùîñ$î  øñóõîêò$
× Total Future
!ûòñù  #ñøéòñù  -îñ$î  øñóõîêò$
Reading 36: Cost of Capital
9.   Remaining useful life of the asset = Operating Lease Payments
/îò  ëë7  (êîò  ûü  ñííðõðùñòîö  öîø)    
1.   WACC = wdrd (1 – t) + wprp + were
8êêðñù  öîø  î9øîê$î 20.   Interest expense = Interest × PV of the
lease payments 2.   Debt-to-Equity Ratio conversion into
10.   Avg depreciable life of the assets at
ýìû$$  ëë7       weight (i.e. Debt / (Debt + Equity) =
installation = 21.   Depreciation expense estimated on jcvw
8êêðñù  ôîø  î9øîê$î
xyzew{
straight-line basis = jcvw  
ë+  ûü  ò2î  ùîñ$î  øñóõîêò$ &'  
xyzew{
11.   % of asset base that is being renewed /û  ûü  óì$  ûü  üðòðìî  ùîñ$î  øñóõîêò$
through new capital investment =
#ñøî9    
3.   Optimal Capital Budget is the point where
ýìû$$  ëë7'  #ñøî9
22.   Adjusted Interest Coverage ratio = MC of capital = Marginal return from
  EBIT +  rent  exp ∗   −Dep  exp ∗ investing
12.   Adjusted BV = Total stockholders’ equity 𝑖  payments + 𝑖  expense ∗    
– Goodwill 4.   After-tax cost of debt = Before-tax
* associated with the operating lease Marginal Cost of Debt × (1 – firm’s
13.   Adjusted Price to BV ratio = obligations marginal tax rate)
ëìéíî   õñì1îò  íñøéòñùépñòéûê
8ömð$òîö  ^+ Reading 35: Capital Budgeting 5.   Preferred Stock Price per Share
ëìîü    ÷òûí1  ôé*  øîì  ÷2ñìî
=
14.   Tangible B.V = Total stockholders’ equity 1.   Incremental CF = CF with a decision - CF #û$ò  ûü  ëìîü  ÷òûí1

– Goodwill – Other intangible assets without that decision

 FinQuiz Formula Sheet CFA Level I 2016

6.   Expected Return on Stock I (under CAPM) 15.   Sovereign yield spread = Govt bond yield Reading 37: Measures of Leverage
= E (Ri) = RF + βi [E (RM) – RF] (denominated in developed country’s
currency) – T.B yield on a similar maturity 1.   Contribution Margin (CM) = (# of units
7.   Expected Return on Stock I = E (Ri) = RF + bond in developed country sold) × [(price per unit) - (variable cost per
βi1 (Factor risk premium)1 + βi2 (Factor unit)]
risk premium)2+…..+βij (Factor risk 16.   Country equity premium = Sovereign yield 2.   Per unit CM = Price per unit - Variable
premium)j 8êê  ÷.ô  ûü  7Cðéòó  éêöî9
cost per unit
spread ×   8êê  ÷.ô  ûü  $û*îìîé'ê  ,ûêö  &1ò  éê  
ô% òîìõ$  ûü  öî*îùûøîö  õ1ò  íðììîêíó
8.   Cost of Equity = 𝐫𝐞 = +g 3.   Operating income = CM – Fixed Operating
ëh
Costs
17.   Cost of equity = Ke= RF + β[(E(RM)-RF) +
9.   Expected Growth Rate of Dividends CRP] %  ∆  éê  .øîìñòéê'  úêíûõî   7^ú!
ô 4.   DOL =
g = (1 - ) × ROE %  ∆  éê  "êéò$  ÷ûùö
7ë÷
18.   Breakpoint = or
g = retention rate × ROE #&
8õûðêò  ûü  íñøéòñù  ñò  <2éí2  $ûðìíî_ $  íû$ò  ûü  íñø  ∆   DOL=
ëìûø  ûü  êî<  íñø  ìñé$îö  üìûõ  ò2î  $ûðìíî #&/  Vé9îö  .øîìñòéê'  #û$ò
10.   Company’s stock returns = R éò = a +
bR õò %  ∆  éê  /îò  úêíûõî
19.   Cost of Capital (hen flotation costs are in 5.   DFL = or
%  ∆  éê  .øîìñòéê'  úêíûõî
ô%
monetary terms = rî = +g #&/  Vé9îö  .ø  #û$ò  
11.   Unlevered β of Comparable Company = ëh /V
#&/Vé9îö  .ø  #û$ò/Vé9îö  Véê  #û$ò
€•,  ‚aƒb„d„v…c
β",  íûõøñ = j‚aƒb„d„v…c 20.   When FC are in terms of % of the share %  ∆  éê  /îò  úêíûõî
&' &/ò‚aƒb„d„v…c 6.   DTL= = DOL × DFL =
x‚aƒb„d„v…c ô% %  ∆  éê  /û  ûü  "êéò$  ÷ûùö
price: Cost of Equity = rî = +g #&
ëh /V
#&/Vé9îö  .ø  #û$ò/Vé9îö  Véê  #û$ò
12.   Levered β of Project =
𝐷R(O” 21.   If FC are not tax deductible: NPV = PV of
𝛽B,  R(O” = 𝛽Ý,  aO.R 1 + 1 − 𝑡R(O” Cash Inflows – IO – (FC in % × New 7.   Break-even Revenue = (Variable cost per
𝐸R(O”
Equity Capital) unit × Break-even Number of Units) +
ˆ‰Š‹ƒZŒ
Fixed Operating costs + Fixed Financial
13.   𝛽H77IG = r Cost
&' &/G
•
22.   If FC are tax deductible: NPV = PV of
Cash Inflows – IO – [(FC in % × New
i Equity Capital) × (1 – Marginal Tax Rate)] 8.   Breakeven Number of units = QBE =
14.   𝛽I}SMG` = 𝛽H77IG 1 + 1−𝑡 Vé9îö  .øîìñòéê'  #û$ò$'Vé9îö  Véêñêíéñù  #û$ò$
•
ëìéíî  øîì  ðêéò/+ñìéñ,ùî  íû$ò  øîì  ðêéò
23.   Asset β = (Debt β × Proportion of Debt) +
(Equity β × Proportion of Equity) 9.   Operating Breakeven = QOBE =
!MŸIJ  URI(HGMLT  QO7G
$(MaI  RI(  SLMG/"H(MH|wI  aO7G  RI(  SLMG
 FinQuiz Formula Sheet CFA Level I 2016

Reading 38: Dividends & Share Repurchases: 10.   Ex-dividend value of share = Stock price – 6.   Wght Avg collection period = wghts ×
Basics Dividend per share Avg no of days to collect accounts within
each aging category
1.   Company’s payout for the year = Cash 11.   Market value of Equity after distribution of
dividends + Value of shares repurchased in cash dividends = Where, Weights = % of total receivables in
any given year [(#  ûü  $2ñìî$  û/$)  ×  (&+  $2ñìî)  –  #ñ$2  öé*] each category
#  ûü  $2ñìî$  û/$  

2.   Dividend Payout ratio = 12.   Post-repurchase share price = 8*'    ôñéùó  Vùûñò
7.   Float Factor = =
#ûõõûê  $2ñìî  íñ$2  öé*éöîêö$   #ûü  $2ñìî$  û/$ ×  (&+  $2ñìî –   8*'  ôñéùó  ôîøû$éò
<ûìò2  ûü  ÷2ñìî  ìîøðìí2ñ$î] 8*'  ôñéùó  Vùûñò
/îò  úêíûõî  ñ*ñéùñ,ùî  òû  íûõõûê  $2ñìî$  
( #  ûü  $2ñìî$  û/$/#  ûü  $2ñìî$  (íñê  ,î  ìîøðìí2ñ$îö  ,ó  ñ  #û •aw„…  •ƒaz‘w  aR  ’“c‚”f  jcbafewcS
`a  aR  j„{f
3.   EPS after Dividend = EPS before Dividend
÷2ñìî$  û/$  ,îüûìî  ôé*éöîêö Reading 39: Working Capital Management
× Where, Float =Amount of money that is in
÷2ñìî$  û/$  ñüòîì  ôé*éöîêö
transit b/w payments (by customers) and
1.   Operating cycle = No of days of inventory
funds (usable by co)
4.   Stock Price after Dividend = Stock Price + No of days of receivables
before Dividend × EPS after Dividend
8.   Value of stretching payment = A/c payable
2.   Net operating cycle = No of days of
× Co's opportunity cost for ST funds
5.   Total Market Value after Dividend = inventory + No of days of receivables – No
Shares outstanding after Dividend × Stock of days payables
price after Dividend 9.   Cost of Trade Credit = 1 +
ghi
3.   Money Market Yield = ôé$íûðêò ‘
6.   Stock price after 2-for-1 stock split = Vñíî  *ñùðî/ëðìí2ñ$î  øìéíî   −1
× &/ôé$íûðêò
ëðìí2ñ$î    øìéíî
÷òûí1  øìéíî  ,îüûìî  $òûí1  $øùéò where n = days beyond discount period
k opf
/û  ûü  öñó$  òû  õñòðìéòó
10.   Cost of Line of Credit =
7.   EPS after 2-for-1 stock split = úêòîìî$ò'#ûõõéòõîêò  üîî
7ë÷  ,îüûìî  $òûí1  $øùéò 4.   Bond Equivalent Yield = -ûñê  8õûðêò
k Vñíî  *ñùðî/ëðìí2ñ$î  øìéíî úêòîìî$ò  
× 11.   Bankers Acceptance Cost = =
ëðìí2ñ$î    øìéíî /îò  øìûíîîö$  
opu úêòîìî$ò  
8.   DPS after 2-for-1 stock split =
/û  ûü  öñó$  òû  õñòðìéòó -ûñê  ñõûðêò/úêòîìî$ò
ôë÷  ,îüûìî  $òûí1  $øùéò
k
5.   Discount-basis Yield = 12.   Commercial Paper Cost =
9.   EPS after buyback = Vñíî  *ñùðî/ëðìí2ñ$î  øìéíî úêòîìî$ò'ôîñùîì_ $  íûõõé$$éûê'^ñí1ðø  íû$ò$
×
7ñìêéê'$/8üòîì  òñ9  #û$ò  ûü  Vðêö$ Vñíî  +ñùðî -ûñê  ñõûðêò/úêòîìî$ò
opf
÷2ñìî$  .ðò$òñêöéê'  ñüòîì  ^ðó,ñí1
/û  ûü  öñó$  òû  õñòðìéòó
13.   Annualized cost = Cost × 12
 FinQuiz Formula Sheet CFA Level I 2016

Reading 40: The Corporate Governance of 4.   3-Yr HPR = [(1 + R1) × (1 + R2) × (1 + 13.   (1 + Nominal R) = (1 + Real Rf R) × (1 +
Listed Companies R3)]1/3 – 1 Inf) × (1 + RP)

5.   Arithmetic mean (AM) R = 𝑅M = 14.   (1 + Real R) = (1 + Real Rf R) × (1 + RP)

Nƒ% 'Nƒ‰ '⋯'Nƒ.•Ò% 'Nƒ• & *
Reading 41: Portfolio Management: An = G[& 𝑅MG
* *
(&'/ûõéêñù  ))
Overview 15.   (1 + Real R) =  
(&'úêü)
6.   Geometric R for n periods = R DM = •
NZ /ˆ ‰

1.   NAV of bond mutual fund = & 16.   Var of a Single Asset = 𝜎 k = ƒ„%
*
1 + 𝑅& 1 + 𝑅k … 1 + 𝑅L L −1
(*ñùðî  ûü  îñí2  ,ûêö  éê  ò2î  øûìòüûùéû)
/û  ûü  $2ñìî$ •
)w /) ‰

7.   IRR = ! #V  ñò  !éõî  ò

=0 17.   Sample Variance = s k = e„%
!/&
ò[f &'ú)) w
2.   New Shares that need to be created =
8õûðêò  òû  ,î  úê*î$òîö  éê  ò2î  Vðêö 18.   Cov of R b/w two assets = Cov (Ri,Rj) =
/8+  ûì  !ûòñù  *ñùðî  ûü  ñ  &ðòðñù  Vðêö
8.   Annual Return (Ann R):
ρij× σi × σj
•   Ann R = (1 + Quarterly R) 4 – 1
3.   New NAV of the Fund = NAV or Total •   Ann R = (1 + Monthly R) 12 – 1 19.   Portfolio Var = σkë = ω&k σ&k + ωkk σkk +
value of a Mutual Fund + Amount to be 52 2ω& ωk Cov R& , R k = ω&k σ&k + ωkk σkk +
•   Ann R = (1 + Weekly R) –1
invested in the Fund 2ω& ωk ρ&k σ& σk
•   Ann R = (1 + Daily R) 365 – 1
4.   No of shares need to be retired = •   Weekly R = (1 + Daily R) 5 – 1
20.   Portfolio S.D. = Portfolio  Variance
8õûðêò  òû  ,î  <éò2öìñ<ê  üìûõ  ò2î  Vðêö
•   Weekly R = (1 + Annual R) 1/52 – 1
/8+  ûì  !ûòñù  *ñùðî  ûü  ñ  &ðòðñù  Vðêö
21.   Cov b/w asset 1 & asset 2 = Correlation of
9.   Portf R (for Two Assets) = (Wght of Asset Return b/w two assets × S.D. of asset 1 ×
Reading 42: Risk Management: An
1 × R of Asset 1) + (Wght of Asset 2 × R S.D. of asset 2
Introduction
of Asset 2)
22.   Correlation of Return b/w two assets =
10.   Gross R = R – Trading exp – other exp #û*ñìéñêíî  ûü  )îòðìê  ,/<  ò<û  ñ$$îò$
Reading 43: Portfolio Risk & Return: Part I
directly related to the generation of returns. ÷.ô.ûü  ñ$$îò  &  ×  ÷.ô.ûü  ñ$$îò  k

1.   Total Return = Capital Gain (or Loss) + 23.   1 + Expected Return =1 + E R =

11.   Net R = Gross R - All managerial and
Dividend Yield 1 + rìü × 1 + E π × 1 + E RP
ëw /ëwÒ%
administrative exp
2.   Capital Gain =
ëwÒ%
12.   After-tax nominal R = Total R - Any 24.   Utility of an Invest = Expected Return -
&
3.   Dividend Yield =
ô•
−1 allowance for taxes on realized gains  ×Risk  Aversion  Coefficient  ×
k
ëh
Var  of  Invest    
 FinQuiz Formula Sheet CFA Level I 2016

25.   Expected R of Portfolio = E R ø = ω& R ü + 4.   Single-Index Model: Ri – Rf = βi(Rm – Rf) 16.   Information Ratio =
1 − ω& E R é + ei 8ùø2ñ  ûü  ÷îíðìéòó  é
/ûê$ó$òîõñòéí  )é$1  ûü  ÷îíðìéòó  é
5.   Factor weight associated with each factor =
26.   Risk of Portfolio = σkø = ω&k σkü + !ûòñù  ÷îíðìéòó  )é$1
!ûòñù  &ñì1îò  )é$1 17.   Expected Return of Portfolio (under
(1 − w& )k σké + 2ω& 1 − ω& ρ&k σü σé =
1 − ω& k σké & σp = (1 – w1) σi
Arbitrage Pricing Model) = E R ø = R V +
6.   𝐸 𝑅R =   𝑅P   + 𝛽R 𝐸 𝑅. − 𝑅P =   λù βø,ú + ⋯ + λ1 βø,1
27.   Capital Allocation Line (CAL) = E R ë =
7 )e /)R = R ü + w& β& + wk βk E R õ − R ü
Rü + σë
œe
18.   Return on an Asset in excess of 1-Month
7.   Asset’s Beta = T-Bill Return (under four factor model) =
28.   Portfolio Risk = ω&k σ&k + ωkk σkk + #ûììîùñòéûê  ,îò<îîê  ñ$$îò  ñêö  õñì1îò  ×÷.ô.ûü  8$$îò
E R éò = αé + βé,&¥! MKTò +
2ω& ωk Cov R& , R k ÷.ô.ûü  &ñì1îò
8.   Portfolio Beta = βø = βé,÷&^ SMBò + βé,n&- HMLò + βé,"&ô UMDò
ê ê
29.   In portfolio of many asset = é[& wé βé ; é[& wé = 1
Reading 45: Basics of Portfolio Planning &
•   E Rø = /
é[& ωé E Ré )b /)R Construction
9.   Sharpe Ratio =
œ‰ (//&) œb
•   σkë = + Cov
/ /
1.   Investor’s Expected Utility from Portfolio
NÏ /N´
œ‰ (//&) 10.   Treynor Ratio = = Up = E (Rp) – λσ2p
•   σë = + ρσk ˆÏ
/ /
k ™b
11.   M = R $ − RP − 𝑅. − 𝑅P 2.   Tactical Asset Allocation (TAA) Return
™Ï
30.   New Asset should be included in the Portf contribution = Actual return of the
7 )‘c• /)R 7 )b /)R
only if > ×ρêî<,ø 12.   Jansen’s Alpha = 𝛼R = 𝑅R − portfolio – Return that would have been
œ‘c• œb
𝑅P + 𝛽R 𝑅. − 𝑅P earned if the asset class weights were equal
to the policy weights
Reading 44: Portfolio Risk & Return: Part II
13.   Security Characteristic Line (SCL) = R é −
R ü = αé + βé R õ − R ü
1.   Total Risk = Systematic risk +
Reading 46: Market Organization & Structure
Nonsystematic risk = β2i σ2m + σ2e 14.   Weight of Non-market security should be
proportional to
1.   Total return to a Leveraged Stock Purchase
2.   Total risk of for a well-diversified portfolio 8ùø2ñ  ûü  ÷îíðìéòó  é
= α i / σ 2i )îõñéêéê'  7Cðéòó/ú.  
= Systematic risk = βi×σm /ûê$ó$òîõñòéí  *ñìéñêíî  ûü  ÷îíðìéòó  é =  where,
ú.
Remaining Equity = IO – Purchase
3.   Multi-Factor Model: 𝐸 𝑅M − 𝑅P = 15.   Total Weight of Non-market security commission + (-) Trading g(l) – Margin i
#
{ ƒ„% ¢ƒ £ƒ paid + Div received – Sales commission
”[& βM” 𝐸(𝐹” ) = βMù 𝐸 𝑅. − 𝑅P + should be proportional to = # ¢‰ ™ ‰
ƒ„% ƒ ƒ
{ paid OR
”[k βM” 𝐸(𝐹” )
 FinQuiz Formula Sheet CFA Level I 2016

Remaining Equity = Proceeds on sale – N Over Multiple Time Periods:

Payoff loan – Margin i paid + Div received
– Sales commission paid
∑n P
i =1
i i 7.   Value of Price Return index at time t =
VPRIT = VPRI0 (1 + PRI1) (1 + PRI2) … (1 +
VPRI =
D PRIT)
2.   ROE (based on leverage alone)
= Leverage (in times) × stock price return For Single Period: 8.   Value of Total Return index at time t =
(in %) 2.   % Change in value of Price return of VTRIT = V TRI0 (1 + TRI1) (1 + TRI2) … (1 +
TRIT)
VPRI 1 − VPRI 0
3.   Price of stock below which a margin call
will take place (P): index Portfolio = PR I =
VPRI 0 9.   Weight of security i under price weighting
úêéòéñù  õñì'éê   $ '(ë/  úêéòéñù  ÷òûí1  ëìéíî)   ëìéíî  ûü  $îíðìéòó  é    
= =
÷ðõ  ûü  ñùù  øìéíî$  ûü  íûê$òéòðîêò  $îíðìéòéî$  
ë
Maintenance  Margin  Requirement  (%)
3.   Price Return (Ind constituent security):PR I 10.   Weight of security i under equal weighting
4.   Total cost of placement to the issuing firm Pi1 − Pi 0 =
&
= /û  ûü  $îíðìéòéî$  éê  ò2î  éêöî9
in IPO ($)
= Gross proceeds received by the issuing
Pi 0
11.   Weight of security i under market-cap
firm – Net proceeds received by the issuing
weighting =
firm 4.   Price return of the index: PR I =
/f  ûü  $2ñìî$  û/$  ûü  ÷é  ×  ÷2ñìî  øìéíî  ûü  ÷é
N ` /û  ûü  $2ñìî$  û/$  ûü  ÷é  ×  ÷2ñìî  øìéíî  ûü  ÷é
⎛ P − Pi 0 ⎞ e
5.   Total cost of placement to the issuing firm ∑ wi ⎜⎜ i1 ⎟⎟ Where Si = Security i
(ýìû$$  øìûíîîö$  ìîíîé*îö  ,ó  úV/ i =1 ⎝ Pi 0 ⎠
/îò  øìûíîîö$  ìîíîé*îö  ,ó  úV
in IPO (%) = 12.   Weight of Si under Mkt Cap weighting =
/îò  øìûíîîö$  ìîíîé*îö  ,ó  úV
where IF = Issuing firm 5.   % ∆in value of Total return of Index Vìñíòéûê  ûü  $2ñìî$  û/$  õ1ò  üùûñò  ×  ûü  $2ñìî$  ÷é  ×
÷2ñìî  øìéíî  ûü  $îíðìéòó  é
VPRI 1 − VPRI 0 + IncI (Vìñíòéûê  ûü  $2ñìî$  û/$  &1ò  üùûñò  ×  ûü  $2ñìî$  û/$  ûü  ÷é  ×
&ff% ÷2ñìî  øìéíî  ûü  $îíðìéòó  é)
6.   Max leverage ratio =
%  ûü  7Cðéòó VPRI 0
13.   Fundamental weight on security i =
7.   Max leverage ratio for position financed by 6.   Total return of each security = TRi = Vðêöñõîêòñù  $épî  õîñ$ðìî  ûü  íûõøñêó  é∗
`(Vðêöñõîêòñù  $épî  õîñ$ðìî  ûü  íûõøñêó  é)
min margin requirement = P1i − P0i + Inci e
&
&éê  õñì'éê  ìîCðéìîõîêò P0i *Book value, cash flow, revenues, earnings,
dividends, & number of employees.
Reading 47: Security Market Indices
N " P − P + Inci %
Total Return∑ wi $ 1i 0i '
i=1 # P0i & Reading 48: Market Efficiency
1.   Value of a price return index =
 FinQuiz Formula Sheet CFA Level I 2016

Reading 49: Overview of equity Securities If an investor intends to buy and hold a share 10.   Value of a share of stock =
for 1 yr: D (1 + g ) D1
V0 = 0 = , g<r
1.   Equity security’s Total Return = r−g r−g
÷ñùî  ë  ûü  ñ  $2ñìî/ëðì2ñ$î  ëûü  ñ  $2ñìî'íñ$2/$òûí1  ôé* 2.   Value of a share of stock today =
ëðìí2ñ$î  øìéíî  ûü  ñ  $2ñìî 79øîíòîö  ôé*  éê  &  óì  '79øîíòîö  $îùùéê'  øìéíî  éê  &  óîñì
11.   Sustainable dividend growth rate =
(&'ìîC  )û)  ûê  $òûí1)^&
g = ROE × b
2.   ROE in yr t =
/ú  (üûì  .ìöéêñìó  ÷2ñìî2ûùöîì$)  éê  óì  ò where b = earnings retention rate = (1 -
3.   Value of a share of stock for n holding
8*'  !ûòñù  ^+  ûü  7Cðéòó Dividend payout ratio)
period or investment horizon =
OR L 79øîíòîö  ôé*  éê  óì  ò
/ú  (üûì  .ìöéêñìó  ÷2ñìî2ûùöîì$)  éê  óì  ò G[& &'ìîC  )  ûê  $òûí1 w +
ROE = Two-stage valuation model:
÷2ñìî2ûùöîì$_ îCðéòó  ñò  ,î'  ûü  óì  ò 79øîíòîö  øìéíî  éê  ê  øîìéûö$
  12.   Value of share today = V0 =
&'ìîC  )  ûê  $òûí1 ‘ L
G
3.   MV of equity = Mkt price per share × 𝐷f 1 + 𝑔7 𝑉L
𝑉f = +
Shares O/s 4.   CFO = NI + Non-cash exp – Invst in WC (1 + 𝑟)G (1 + 𝑟)L
M[&
𝐷L'&
!ûòñù  ÷n_ îCðéòó
𝑉L =
4.   BV of equity per share = 5.   FCFE = CFO – FCInv + Net Borrowing 𝑟 − 𝑔B
÷2ñìî$  û/$
𝐷L'& = 𝐷f (1 + 𝑔7 )L 1 + 𝑔B
6.   Value of a share for a non-div-paying
&ñì1îò  øìéíî  øîì  $2ñìî
5.   Price-to-book ratio = stock = - V#V7  éê  óîñì  ò ëf ô% /7% ø
^+  ûü  îCðéòó  øîì  $2ñìî ò[& &'ìîC  )  ûê  $òûí1 w 13.   Justified P/E = = =
7&   ì/' ì/'

6.   ROE = Net profit margin × Asset turnover 7.   Req RoR on sharei = Current expected Rf 14.   EV = MV of stock + MV of debt – Cash
/îò  îñìêéê'$
× Financial leverage = × rate + Beta i [MRP] and cash Equivalents
/îò  $ñùî$
/îò  $ñùî$ 8*'  òûòñù  ñ$$îò$  
×
8*'  òûòñù  ñ$$îò$ 8*'  íûõõûê  îCðéòó 8.   Value of a pref stock (non-callable, non- 15.   Asset-based value = Value of Equipment
convertible) = and inventory – Value of Liabilities
Reading 50: Introduction to Industry &
D0 (1 + g ) D0 (1 + 0) D0
Company Analysis V0 = = =
r−g r −0 r Reading 52: Fixed Income Securities: Defining
Elements
9.   Value of a pref stock (non-callable, non-
Reading 51: Equity Valuation: Concepts & 1.   Inf adj Principal amount of a zero-coupon-
convertible) with maturity at time n =
Basic Tools L indexed bond
𝐷f 𝐹
𝑉f = G
+ L
= [Par value × (1 + CPI)]
1.   Value of a share of stock today = (1 + 𝑟) 1+𝑟
G/& 2.   Inf adj coupon payment for an interest-
- 79øîíòîö  öé*éöîêö  éê  óì  ò
ò[& (&'ìîCðéìîö  ).)  ûê  $òûí1)^ò indexed bond
Gordon Growth Model: = [(coupon rate × Par value) × (1+CPI)]
 FinQuiz Formula Sheet CFA Level I 2016

3.   Inf adj Principal amount of a capital- 6.   Full price of bond = Flat price of bond + (I + Qm) × FV (I + QM ) × FV (I + QM ) × FV
+ FV
indexed bond Accrued interest m + m +... + m
1 2 N
" I + DM % " I + DM % " I + DM %
= [Par value × (1 + CPI)] $1+ ' $1+ ' $1+ '
G
# m & # m & # m &
7.   Accrued interest = AI   =   ×𝑃𝑀𝑇
*  
4.   Inflation adjusted coupon payment for a
14.   Price of Money Market Instrument =
capital-indexed bond
8.   Full price of a fixed-rate bond between # Days &
= [Par value × (1 + CPI)] × coupon rate PV = FV × %1− × DR (
coupon payments = PVFull
$ Year '
PMT PMT PMT + FV
Reading 53: Fixed Income Markets: Issuance, = 1−t/T
+ 2−t/T
+... +
Trading & Funding (1+ r) (1+ r) (1+ r) N−t/T 15.   Market Discount Rate =
# FV − PV &

Reading 54: Introduction to Fixed Income

9.   Full price of a fixed-rate bond between
coupon payments
(
DR = Year ) ×%
Days $ FV ('
Valuation PV × (1+ r)t/T
16.   Price of Money Market Instrument =
1.   Amount of discount below par value = 10.   Interpolated yield (say for 3-year, given FV
PV =
Present value of deficiency market discount rates for 2 and 5 yrs) = " Days %
o/k
$1+ × AOR '
(Average yield for 2 year bonds) + × # Yr &
2.   Present value of deficiency = u/k

ê #ûðøûê  ìñòî/&ñì1îò  öé$íûðêò  ìñòî ×ëñì  *ñùðî (average yield for 5 year bonds – average
ò[& &'&ñì1îò  öé$íûðêò  ìñòî w yield for 2 year bonds) 17.   Add-on rate =
! Yr $ ! FV − PV $
3.   Bond price = m n AOR = # &×# &
! APRm $ ! APRn $ " Days % " PV %
PMT PMT PMT + FV 11.   #1+ & = #1+ &
PV = 1
+ 2
+... + " m % " n %
(1+ r) (1+ r) (1+ r) N Relation b/w two spot rates and Implied
12.   Current yield = Forward Rate:
/î<  øìéíî/.ùö  øìéíî
4.   % Price change = ÷ðõ  ûü  íûðøûê  øñóõîêò$  ìîíîé*îö  û*îì  ò2î  óîñì
.ùö  øìéíî
Vùñò  øìéíî 18.   (1 + zA)A × (1 + IFRA,B-A)B-A = (1 + zB)B
5.   Bond price (given sequence of spot rates)
13.   Price of Floating-rate note = PV= Z-spread over the benchmark spot curve:
= PV =
Price of a bond =
PMT PMT PMT + FV
1
+ 2
+... + PV =
PMT
+
PMT
+... +
PMT + FV
(1+ Z1 ) (1+ Z 2 ) (1+ Z N ) N (1+ z1 + Z)1 (1+ z2 + Z)2 (1+ zN + Z) N
 FinQuiz Formula Sheet CFA Level I 2016

19.   OAS = Z-spread – Option value (bps per •   Net interest = (Beg mortgage Total Amount of Coupon Pmt = CR × Par
year) balance × Pass-through rate) / 12 value × No of periods
•   Scheduled principal re-pmt =
20.   G-spread = Yield-to-maturity on Corporate Mortgage pmt – Gross i- pmt RR = Re-invstmnt rate per period
bond – Yield-to-maturity on a government •   Gross i- pmt = (Beg mortgage CR = coupon rate
bond balance × WAC) / 12
•   Pre-pmt for month = SMM × 2.   Realized RoR on Bond=
%
21.   Interpolated Spread = I-spread = YTM of (Beg mortgage balance for month ÷ðõ  ûü  )îéê*î$òîö  #ûðøûê$' m
the bond - Linearly interpolated yield to – Scheduled principal re-pmt for )îöîõøòéûê  ûü  ëìéêíéøñù  ñò  &ñòðìéòó
−  1
^ûêö  ëìéíî
the same maturity on an appropriate month)
reference curve •   Total principal re-pmt =
Scheduled principal re-pmt + 3.   Carrying value of bond (if bond purchased
Reading 55: Introduction to Asset Backed Prepayment below par) = Purchase price + Amortized
Securities •   Beg mortgage balance for the amount of Discount
following month = Beg mortgage
1.   Loan-to-value ratio (LTV) = balance for the month – Total 4.   Carrying value of a bond (if bond
8õûðêò  ûü  &ûìò'ñ'î purchased above par) = Purchase price –
ëìûøîìòó  +ñùðî
Principal Pmt
Amortized amount of Premium
•   Projected CF for MPS = Net i-
2.   Monthly CF for a MPS = Monthly CF of pmt + Total principal re-pmt
5.   Amortized amount for 1st year = Bond
underlying pool of mortgages - Servicing
ëìûøîìòó’$  ñêêðñù  /.ú Price after 1-yr - Initial bond price
fee - Other fees 7.   DSC ratio =
ôî,ò  $îì*éíî  
6.   Capital g / (l) = Sale price of Bond after n
3.   Pass-through rate = Mortgage rate on the Reading 56: Understanding Fixed Income Risk years – Carrying value of Bond after n
underlying pool of mortgages – Servicing & Return years
Fee - Other fees
1.   Interest-on-interest gain from 7.   Macaulay Duration =
4.   SMM = Pre-pmt for month ÷ (Beg compounding = Future value of reinvested ( " PMT % " PMT % " PMT + FV %,
* $ ' $ ' $ N−t/T '*
mortgage balance for month – Scheduled
1−t/T 2−t/T
* (1+ r ) ' + ( 2 − t / T )$ (1+ r ) ' +... + ( N − t / T )$ (1+ r ) '*-
coupons - Total amount of coupon MacDur = )(1− t / T )$
* $ PV Full ' $ PV Full ' $ PV Full '*
principal re-pmt for month) payments *+ $
#
'
&
$
#
'
&
$
#
'*
&.

Where, OR
5.   CPR = 1 − (1 − SMM)12 FV of Reinvested Coupons = [CR×(1+
RR)n-1] + [CR×(1+RR) n-2] +…+ [CR×(1+ ' +
6.   CF Construction (Monthly CF for MPS): )1+ r 1+ r + #$ N × ( c − r )%& )
RR)n-n] MacDur = ( − , − (t / T )
c × #$(1+ r ) −1%& + r )
N
)* r -
 FinQuiz Formula Sheet CFA Level I 2016

&ñíôðì 18.   ∆ Full price of Bond (in currency units) ≈ - 27.   Effective Convexity =
8.   Modified D =
&'ì
Money D × ∆ in annual YTM #$( PV− ) + ( PV+ ) − [ 2 × (PV0 )]%&
9.   Annualized Modified D = 2
&ûöéüéîö  ôðìñòéûê (PV− ) − (PV+ ) (ΔCurve) × ( PV0 ))
ëîìéûöéíéó  ûü  øñóõîêò  éê  ñ  óîñì 19.   PVBP =
2
28.   Duration Gap = Bond’s Macaulay
10.   % Δ PVFull = - AnnModDur × ΔYield Duration – Investment Horizon
20.   Basis Point Value (BPV) = Money
duration × 0.0001 (1 bp)
11.   Approx Modified D = Reading 57: Fundamentals of Credit Analysis
(PV− ) − (PV+ ) 21.   Bloomberg’s Risk Statistic = PVBP × 100
2 × (ΔYield) × (PV0 ) 1.   Expected Loss = Default Probability ×
22.   %∆PV Full
= (-AnnModDur × ∆Yield) + Loss Severity given Default
&
12.   Approx Mac Dur = Approx Mod Dur × (1  ×𝐴𝑛𝑛𝐶𝑜𝑛𝑣𝑒𝑥𝑖𝑡𝑦  ×(∆𝑌𝑖𝑒𝑙𝑑)k .øîìñòéê'  úêíûõî
k
+ r) 2.   Operating Profit Margin =
)î*îêðî

Or
(PV− ) − (PV+ ) %∆PV Full = (-AnnModDur × ∆Yield) + 3.   EBITDA = Operating Income + Dep +
13.   Effective D = & Amort
2 × (ΔCurve) × (PV0 )  ×𝐴𝑛𝑛𝐶𝑜𝑛𝑣𝑒𝑥𝑖𝑡𝑦  ×(∆𝑌𝑖𝑒𝑙𝑑)k
k

4.   FCF = CFO – Cap exp– Div

1/G
14.   Macaulay D for a Zero-coupon bond =
* 23.   Approx. Convexity Adjustment =
5.   Capital expenditures = Additions to P&E +
(PV− ) + (PV+ ) −[2 × (PV0 )] Additions to product rights & intangibles –
15.   Macaulay D for a Perpetual bond = (1+ r) /
r (ΔYield)2 × (PV0 ) Proceeds of sale of P&E
16.   Avg Mod D for the Portf = 24.   Convexity of a zero coupon bond =
&+  ûü  ^ûêö  & 6.   Total debt = ST debt + Current portion of
Mod  D  of  Bond  1  ×  
!ûòñù  &+ûü  ëûìòü
[ N − (t / T )] × [ N +1− (t / T )] LT debt + LT debt
+ Mod  D  of  Bond  2  ×  
&+  ûü  ^ûêö  k
+ (1+ r)2
!ûòñù  &+  ûü  ëûìòü
&+  ûü  ^ûêö  / 7.   Capital = Debt + Equity
…+ Mod  D  of  Bond  N  ×  
!ûòñù  &+  ûü  ëûìòü 25.   Money Convexity vs Money Duration =
& 8.   Yield on Corp Bond = Rf rate + Expected
∆PV Full ≈ - (MoneyDur × ∆Yield) + [ ×
17.   Money D = Annualized Mod D × Full k
Inf rate + Maturity P + Liquidity P+ Credit
Bond Price MoneyCon × (∆Yield)2]
spread
26.   Money Convexity of bond = Annual
9.   Yield spread = Liquidity P + Credit spread
Convexity × Full Price
 FinQuiz Formula Sheet CFA Level I 2016

10.   Return impact for smaller spread ∆≈ % ∆ 7  (÷!)

•   Short position: Price↑ that would 3.   S0 = –θ+γ
&'ì'² •
in price ≈ -Modified Duration × ∆Spread trigger a margin call = IM req – MM
where, θ (theta) = PV of the costs and γ
req
(gamma) = PV of benefits
11.   Return impact for larger spread ∆ ≈ % ∆ in
price ≈ - (Modified D × ∆Spread) + 5.   TED spread = LIBOR – T-Bill rate
& 4.   Arbitrage and Derivatives = Underlying
Convexity × (∆Spread)2 asset + Opposite position in derivative =
k
6.   At expiration (for option Buyer):
Underlying payoff – Derivative payoff =
!ûòñù  $îíðìîö  öî,ò •   Value of Call option =
12.   Secured debt leverage = Rf return
7^ú!ô8 CT = Max (0, ST - X)
•   Profit from Call option = 5.   Pricing and Valuation of Forward
13.   Senior unsecured leverage = Max (0, ST - X) – C0
÷îíðìîö  öî,ò'÷îêéûì  ðê$îíðìîö  öî,ò Contracts:
7^ú!ô8 •   Value of Put option = P0 = •   At Expiration F (0, T) = S0 (1 + r) T or
Max (0, X- ST) S0 = F (0, T) / (1 + r) T
!ûòñù  öî,ò •   Profit from Put option =
14.   Total Leverage = •   Value of forward (long) during
7^ú!ô8
Max (0, X- ST) – P0 contract life (where t < T) = Vt (0, T)
15.   Net Leverage =
!ûòñù  öî,ò/#ñ$2 = St – F (0, T) / (1 + r) (T – t)
7^ú!ô8 7.   At expiration (for option Seller):
•   Value of forward (short) during
•   Profit from Call option = contract life (where t < T ) = Vt
Reading 58: Derivatives Markets and – Max (0, ST - X) + C0 (0, T) = F (0, T) / (1 + r) (T – t) - St
Instruments •   Profit from Put option = •   Value of forward (long) at expiration
– Max (0, X- ST) + P0 (where t = T) = VT (0, T) = ST - F (0,
1.   Value of the contract to the ‘Long’ at
T)
expiration = ST – F0(T) 8.   To eliminate arbitrage opportunity:
•   Value of forward (long) at initiation
Forward Price should be = Spot Price
2.   Value of the contract to the ‘Short’ at (where t = 0) = Vt (0, T) = S0 – F (0,
×   1 + 𝑖  𝑟𝑎𝑡𝑒  %   G
T) / (1 + r) T = 0
expiration = F0(T) – ST
•   Forward price of an asset with benefits
3.   Margin % in stock market = and/or costs = (S0 – γ + θ) (1 + r) T =
Reading 59: Basics of Derivative Pricing &
&+  ûü  ÷òûí1/&+  ûü  ôî,ò S0 (1 + r) T – (γ - θ) (1+ r) T
Valuation
&+  ûü  ÷òûí1 •   Value of Forward contract with
7  (÷!)
benefits and/or costs during the life of
4.   Margin Call: 1.   Pricing of risky assets = S0 = the contract = St – (γ - θ) (1 + r) T - F
&'ì'² •
•   Long position: Price ↓ that would 2.   Commodity = F 0, T = S0 e (r – δ)T (T) / (1 + r) (T – t)
trigger a margin call = IM req – MM where, δ = Convenience yield − Cost of
req carry
 FinQuiz Formula Sheet CFA Level I 2016

6.   FRAs: An example of 3 × 9 FRA (read as •   At expiration call option = c T = Max •   Value FC = c0 + X / (1+r) T
three by nine): (0, ST –X) •   Payoff at expiration (when call out-of-
•   Contract expires in 90 days •   Profit (call buyer) = Max (0, ST – X) – the-money) = X.
•   Underlying loan settled in 270 days c0 •   Payoff at expiration (call in-the-
•   Underlying rate is 180-day LIBOR •   Profit (call seller) = -Max (0, ST – X) money) = X + (ST – X) = ST.
•   For Synthetic FRA (take long position + c0
in a 300-day Euro$ T.D and short 13.   Put-Call Parity (to avoid arbitrage) = c0 +
position in a 30-day Euro$ T.D 9.   Payoff of Put options: X / (1+r) T = p0 + S0
•   For synthetic forward position in a 90-
day zero-coupon that begins in 30 day •   p T = Max (0, X- ST) •   Synthetic long position in a call =
(buy 120 day & sell 30 day (zero •   Profit (put buyer) = Max (0, X-ST) – p0 X
coupon bonds) •   Profit (put seller) = - Max (0, X – ST) + C = p 0 +S 0 −
(1+ r)T
p0
7.   Pricing and Valuation of Swap Contract (a •   Synthetic long position in a put =
fixed for floating swap contract): 10.   Max Profit/Loss for Option writer/holder: X
p 0 = c 0 −S 0 +
•   Fixed Periodic rate = (1+ r)T
1 - ZN •   Max profit of option seller/writer è •   Synthetic long position in an
RN =
Z1 + Z 2 +.... + Z N Option premium.
X
•   Where Zn are n period zero coupon •   Max loss of option seller/writer è underlying = S0 = c 0 + − p0
unlimited. (1+ r)T
bonds (i.e. $1 discount factors)
•   Max loss of option holder èOption •   Synthetic long position in a riskless
1
Zn = premium X
1 + ( Ln × days / 360) bond = = p 0 +S0 − c0
(1+ r)T
•   Value of a fixed rate side (per $1 NP) Put-Call Parity
= V fixed rate = [Fixed payment × (
14.   Put-Call-Forward Parity = F0(T) / (1 + r) T
Z1 + Z 2 +.... + Z N )] + ($1 × ZN) 11.   Protective Put
+ p0 = c0 + X/(1 + r) T
Value of a floating rate side (per $ 1 •   Value PP = p0 + S0
•   15.   Valuing a callable bond using Binomial
NP) = V floating rate = ($1 + 1st floating •   Payoff at expiration (put out-of-the-
Model:
pmt) × Z1 money) = ST.
•   Payoff at expiration (put in-the-
•   Ru = Rd × e2σ 𝑡
Pricing and valuation of Options: money) = (X-ST) + ST = X.
•   Value at time 0 = V0 = hS0 − c0
•   Value at time 1 will either V1+ = hS1+ -
8.   Payoff of Call options: 12.   Fiduciary Call
c1+ or V1- = hS1- - c1-
 FinQuiz
•   If the portfolio was hedged, then V+
would equal V-.
•   Value of the call =
•   Value of the put =
Reading 60: Risk Management Applications of
Option Strategies
1.   For Call Option Buyer
•   cT = max (0, ST –X)
•   When ST ≤ X àcT = 0
•   When ST > X àcT = ST – X
•   Value at expiration = cT
•   Profit = cT – c0
•   Maximum profit = ∞è no upper limit
•   Maximum loss = c0
•   Breakeven = ST* = X + c0
Formula Sheet
2.   For Call Option Seller
•   cT = max (0, ST –X)
•   When ST ≤ X àcT = 0
•   When ST > X àcT = ST –X
•   Value at expiration = -cT
•   Profit = –cT+ c0
•   Maximum profit = c0
•   Maximum loss = ∞è no upper limit
•   Breakeven = ST* = X +c0
3.   For Put Option Buyer
•   pT = max (0, X - ST)
•   When ST < X àpT = X - ST
•   When ST ≥ X àpT = 0
•   Value at expiration = pT
•   Profit = pT – p0
•   Maximum profit = X – p0
•   Maximum loss = p0
•   Breakeven = ST* = X –p0
4.   For Put Option Seller
•   pT = max (0, X –ST)
•   When ST < X àpT = X – ST
•   When ST ≥ X àpT = 0
•   Value at expiration = –pT
•   Profit = –pT + p0
•   Maximum profit = p0
•   Maximum loss = X - p0
  Breakeven = ST* = X - p0
•
CFA Level I 2016
5.   Covered Call = Long stock position +
Short call position
•   Value at expiration = VT = ST – max
(0, ST – X)
•   When ST ≤ X àVT = ST
•   When ST > X àVT = ST - ST +X = X
•   Profit = VT – S0 + c0
•   Maximum Profit = X – S0 + c0
•   Maximum Loss = S0 – c0
•   Breakeven =ST* = S0 – c0
6.   Protective Put = Long stock position +
Long Put position
•   Value at expiration: VT = ST + max (0,
X - S T)
•   When ST ≤ X àVT = ST + X - ST = X
•   When ST > X àVT = ST
•   Profit = VT – S0 - p0
•   Maximum Profit = ∞
•   Maximum Loss = S0 + p0 – X
•   Breakeven =ST* = S0 + p0
Reading 61: Introduction to Alternative
Investments
1.   Total Return = Alpha R + Beta R
2.   Asset Based Valuation = Co value = Co’s
assets value – Co’s liabilities value
Real Estate Valuation
 FinQuiz Formula Sheet CFA Level I 2016

3.   Direct Cap Approach → Valuation of a 10.   Sharpe ratio = (Investment return – Rf

1Ug return) / S.D. of return
property = where
QHRMGHwM³HGMOL  NHGI
NOI = Gross potential income –Estimated
11.   Sortino Ratio = (Annualized RoR –
vacancy losses – Estimated collective
Annualized Rfe rate)/Downside Deviation
losses – Insurance – Property Taxes –
Utilities – Repairs, maintenance exp.

4.   Income Based Approach → FFO = NI +

Dep exp on R.E + Def Tax charges – Gains
from sales of R.E + losses from sale of R.E

5.   AFFO = FFO – Recurring Cap exp

6.   Asset based Approach → REIT’s NAV =

Estimated MV of REIT’s total assets –
Value of REIT’s total liabilities.

7.   Pricing of Commodity Futures Contracts:

Futures price ≈ Spot price (1 +r) + Storage
costs – Convenience yield

8.   Roll yield = Spot price of a commodity –

Futures contract price
or
Roll yield = Futures contract price with
expiration date ‘X’– Futures contract price
with expiration date ‘Y.

9.   Returns on a passive investment in

commodity futures
= Return on the collateral + RP or
convenience yield net of storage costs.