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FinQuiz

Formula Sheet

Reading 5: Time Value of Money

1. Interest Rate (i)


i = Rf + Inf P + Default Risk
P + Liquidity P + Maturity P
Nominal Rf i rate = Real Rf i Rate +
Inf P

i rate as a growth rate = g =

%
!"# #

$"

5.

PV =

-1

!"
&'( #

L
G[&

FVOA =

G 1 +

%
%^_ #

(
1/G

&'( # /&

PV (for more than one Compounding

(
(- /.1
.

7 =
FVN = 1 + 1
FV (for more than one Compounding
per year) = FVN = 1 +

(- .1
.

FV (for Continuous Compounding) =


FVN = (-1

Solving for N =

B1

CD
ED

B1 &'(

(where LN =

natural log)
Stated & Effective Rates
Periodic i Rate =
FGHGIJ KLL M NHGI

6.

PV of Annuity Factor =

HPR = rt =

PVAD =

&/

%
%^_ #

FVAD =

1 + L

3. HPR =

Q!
gNN

$% /$h ' i%
$h

)"h

opf $H(/$(MaI

(1 + ) =

2. IRR (when projects CFs are perpetuity) =


NPV = - IO +

_1

6. Bank Discount Yield = BDY = rBD =


&'( # /&

Reading 6: Discounted Cash Flow Applications


1. NPV =

%
m

TWR (for the year) = rTWR = [(1+R1)


(1+R2) (1+R365)] -1 where R1 =

+ PMT at t =

FVOA (1+r)

Q!Z
L
G[& &'( Z

)"h

)"% /)"h

PVOA + PMT

)"% /)"h

TWR (for more than one periods) =


rTWR = [(1+rt,1) (1+rt,2) (1+rt,n)] -1
Annualized TWR (when investment is
for more than one year)
= 1 + & 1 + k +

PV & FV of Annuity Due

1O OP QO.ROSLJMLT $I(MOJ7 ML ULI VIH(

Effective (or Equivalent) Ann Rate


(EAR = EFF%) = 1 +
. 1

%
_- b#
b
_b

= 0 (IRR

5. TWR:
TWR (when no external CF) = rTWR =

$"

%^

Q!
*
M[f &'gNN Z

represents the MWR)

Size of Annuity Payment = PMT =


&/

$)*

PV of Perpetuity =

&/

4. MMWR =

$" OP KLLSMG` !HaGO(

per year) = PV= FVN 1 +

4.

$)*
L
G[& &'( Z

PVOA =

EAR (with Continuous Compounding)


= EAR = (- 1

PV & FV of Ordinary Annuity


2. PV and FV of CF =

CFA Level I 2016

=0

$H(
L (qr

therefore Price = Par

opf

7. Holding Period Yield = HPY =

$% /$h ' i%
$h

8. Effective Annual Yield = EAY = 1 +


opu/G 1 (Rule: EAY > BDY)
9. Money Market Yield (or CD equivalent
Yield) rMM:

rMM = HPY

rMM = (rBD)

opf
G

!HaI "HwSI OP GxI *(IH7S(` yMww


$S(axH7I $(MaI

FinQuiz

rMM =

Formula Sheet

opf (qr
opf/ G (qr

(Rule: rMM>

rBD)
10. Bond Equivalent Yield = BDY =
Semiannual Yield 2
Reading 7: Statistical Concepts & Market
Returns
1. Range = Max Value Min Value
2. Class Interval = i


z/B
{

where

i = class interval
H = highest value
L = lowest value, k = No. of classes.

3. Absolute Frequency = Actual No of


Observations (obvs) in a given class
interval
4. Relative Frequency =

K|7OwSGI !(I}SILa`

6. Cumulative Relative Frequency = Add up


the Relative Frequencies
7. Arithmetic Mean =

17. Population Var = 2 =

For Odd no. of obvs locate

18. Population S.D = k =

FS. OP O|~7 ML JHGH|H7I


1O.OP O|~7 ML GxI JHGH|H7I

8. Median = Middle No (when observations


are arranged in ascending/descending
order)

median at

# /
%

% /

L/&

9. Mode = obvs that occurs most frequently


in the distribution

m /
%

20. Sample S.D = s =


L
M[& M M

10. Weighted Mean = =


(w1X1+ w2X2+.+ wnXn)
11. Geometric Mean = GM =
with Xi0 for i = 1,2,n.

& k L

!O( Hww

/
L/&

22. Semi-deviation (Semi S.D) =


=

!O( Hww

%
m
%

23. Target Semi-var =


13. Population Mean = =

L/&

=
21. Semi-var =

12. Harmonic Mean = H.M = z =

with M > 0

for i = 1,2,.,.,n.

!O( Hww y

/
L/&

/y
L/&

where B = Target Value


24. Target Semi-Deviation =

14. Sample Mean = =

where n =

number of observation in the sample


15. Measures of Location:
Quartiles =

Quintiles =

Deciles =

Percentiles = Ly = + 1

&f

!O( Hww y

/y
L/&
F

where s= sample S.D and = sample


mean

iM7G(M|SGMOL

u
iM7G(M|SGMOL

25. Coefficient of Variation = CV =

iM7G(M|SGMOL

,
`
&ff

16. Mean Absolute Deviation = MAD =


m
% Z /

L'&

19. Sample Var = s2 =

% /

For Even no of obvs locate


L
median at

*OGHw 1O OP U|~7

5. Cumulative Absolute Frequency = Add up


the Absolute Frequencies

CFA Level I 2016

26. Sharpe Ratio =

)IHL $O(GPOwMO N /)IHL NP N


F.i OP $O(GPOwMO N

27. Excess Kurtosis = Kurtosis 3

FinQuiz

Formula Sheet

28. Geometric Mean R


"H(MHLaI OP N

Reading 8: Probability Concepts


1. Empirical Prob of an event E = P(E) =
$(O| OP I~ILG

CFA Level I 2016

Multiplication Rule for two


independent events = P(A & B) =
P(AB) = P(A) P(B)
Multiplication Rule for three
independent events = P(A and B
and C) = P(ABC) = P(A) P(B)
P(C)

*OGHw $(O|

2. Odds for event E =

$(O| OP
&/$(O| OP

3. Odds against event E =

&/$(O| OP
$(O| OP

4. Conditional Prob of A given that B has


occurred = P(A|B) =

$ Ky
$ y

P(B) 0.

5. Multiplication Rule (Joint probability that


both events will happen):
P(A and B) = P(AB) = P(A|B) P(B)
P(B and A) = P(BA) = P(B|A) P(A)
6. Addition Rule (Prob that event A or B will
occur):
P(A or B) = P(A) + P(B) P(AB)
P(A or B) = P(A) + P(B) (when events are
mutually exclusive because P(AB) = 0)
7. Independent Events:
Two events are independent if:
P(B|A) = P(B) or if P(A|B) =
P(A)

8. Complement Rule (for an event S) = P(S)


+ P(SC) = 1 (where SC is the event not S)
9. Total Probability Rule:
P(A) = P(AS) + P(ASC) = P(A|S)P(S) +
P(A|SC)P(SC)
P(A) = P(AS1) + P(AS2) +.+ P(ASn) =
P(A|S1)P(S1) + P(A|S2)P(S2)
P(A|Sn)P(Sn)
(where S1, S2, ,Sn are mutually exclusive
and exhaustive scenarios)

L
M[&

M M

&k M + kk k + ok o
14. Correlation (b/w two random variables Ri,
Rj) = M =

Cov (Ri Rj) = Cov (Rj Ri)


Cov (R, R) = 2 (R)
12. Portfolio Var = 2 (Rp) =
L
L
M[& [& M M
2 (Rp) = &k k & + kk k k +
ok k o + 2& k & , k +
2& o & , o +
2k o k , o

QO~ N N
N N

15. Bayes Formula =


| =

$ 1I gLPO(.HGMOL|~ILG

$ 1I gLPO(.HGMOL

.
16. Multiplication Rule of Counting = n
factorial = ! = n (n-1)(n-2)(n-3)1.
17. Multinomial Formula (General formula for
labeling problem) =

L!
L% !L !L !

18. Combination Formula (Binomial Formula)


= L ( =

10. Expected R = E(wiRi) = wiE(Ri)


11. Cov (Ri Rj) =

13. Standard Deviation (S.D) =

L
(

L!
L/( !(!

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


of objects selected.
19. Permutation = L ( =

L!
L/( !

Reading 9: Common Probability Distributions


1. Probability Function (for a binomial
random variable) p(x) = p(X=x) =
L

1
L/

L/

==

L!
L/ !!R

(for x = 0,1,2.n)

FinQuiz

Formula Sheet

x = success out of n trials


n-x = failures out of n trials
p = probability of success
1-p = probability of failure
n = no of trials.

6. Roys Safety-Frist Criterion = SF Ratio =


NE /N
E

7. Sharpe Ratio = =

NE /N
E

2. Probability Density Function (pdf) = f(x)


&

|/H

0
F(x) =

=
/H
|/H

< <

3. Normal Density Funct = =


&
k

/(/)
k

for < < +

4. Estimations by using Normal Distribution:


Approximately 50% of all obsv fall in


k

the interval
o

Approx 68% of all obvs fall in the


interval
Approx 95% of all obvs fall in the
interval 2
Approx 99% of all obvs fall in the
interval 3
More precise intervals for 95% of the
obvs are 1.96 and for 99% of the
observations are 2.58.

5. Z-Score (how many S.Ds away from the


mean the point x lies) =
=

(when X is normally distributed)

8. Value at Risk = VAR = Minimum $ loss


expected over a specified period at a
specified prob level.
9. Mean (L) of a lognormal random variable
= exp ( + 0.502)
10. Variance (L2) of a lognormal random
variable = exp (2+ 2) [exp (2) 1].

CFA Level I 2016

14. Continuously compounded return


associated with a holding period from 0 to
T:
R0,T= ln (ST / S0) or f,* = */&,* +
*/k,*/& + + f,&
Where,
rT-I, T = One-period continuously
compounded returns
15. When one-period continuously
compounded returns (i.e. r0,1) are IID
random variables.
f,* = */&,* + */k,*/& +

11. Log Normal Price = ST = S0exp (r0,T)


Where, exp = e and r0,t = Continuously
compounded return from 0 to T
12. Price relative = End price / Beg price =
St+1/ St=1 + Rt, t+1
where,
Rt, t+1 = holding period return on the stock
from t to t + 1.
13. Continuously compounded return
associated with a holding period from t to t
+ 1:

+ f,& = And
= k f,* = k
S.D. = (r0,T) =
16. Annualized volatility = sample S.D. of
one period continuously compounded
returns
Reading 10: Sampling and Estimation
1. Var of the distribution of the sample mean
=

rt, t+1= ln(1 + holding period return) or


rt, t+1 = ln(price relative) = ln (St+1 / St) = ln
(1 + Rt,t+1)

2. S.D of the distribution of the sample mean


=

FinQuiz

Formula Sheet

3. Standard Error of the sample mean:


When the population S.D () is known
= =

known = =

7
L

where s = sample

Reading 11: Hypothesis Testing

k k

'

estimator of common variance =


L% /& F% ' L /& F

where N= population

7.

when Pop S.D is unknown, the standard


error of sample statistic is give by =

5. New Adjusted Estimate of Standard Error


= (Old estimated standard error fpc)

Test Statistic for a test of diff b/wn two


pop means (normally distributed, unequal
and unknown pop var unknown)
t=

% / / % /

6. Construction of Confidence Interval (CI) =


Point estimate (Reliability factor
Standard error)

2.
3.

CI for normally distributed population

with known variance = H/k

Power of Test = 1-Prob of Type II Error


=

/h

CI for normally distributed population


with unknown variance = H/k

4.

= H/k

F
L

x
8. Z-ratio = Z =
/ n

/h
m

(when sample size is large but

pop S.D is unknown where s is sample


S.D)

where S = sample S.D.


7. Students t distribution

5.

L/& =

(when sample size is large or

small but pop S.D is known)

/h
m

8.

%/

% '
m% m

% '
m% m

m%
m
'
m%
m

In this df calculated as

Test Statistic for a test of mean differences


(normally distributed populations,
unknown population variances)
J/h

sample mean difference = =

(when sample size is large or

small and pop S.D is unknown and pop


sampled is normally or approximately
normally distributed)

where = & + k

2.

when Pop S.D is unknown, the standard


error of sample statistic is give by =

where Rk = pooled

%/

L% ' L /k

L/&

4. Finite Population Correction Factor = fpc


1/&

% / / % /
m% m

% /

Test Statistic for a test of diff b/w two pop


means (normally distributed, pop var
unknown but assumed equal)
t=

6.

1. Test Statistic =

S.D estimate of s =

1/L

x
s/ n

When the population S.D () is not

t=

9. t-ratio =

CFA Level I 2016

&
L

FJ

L
M[& M

sample variance = Jk =

sample S.D =

Jk

h J% /J

L/&

FinQuiz

Formula Sheet

sample error of the sample mean


difference = =

8.

F
L

population variance) k =
1 = k =

9.

L/& F
h

where

h /

L/&

Chi Square Confidence Interval for


variance
Lower limit = L =
=U==

L/& F

and Upper limit

L/& F

%/

F%
F

&k = 1 & &k =


2 k
& = & 1
k = k 1
11. Relation between Chi Square and F%

distribution = =

&k

(where V = most recent closing price


and Vx = closing price x days ago)
Alternate Method to calculate M =

12. Spearman Rank Correlation = 7


6 LM[& &k
=1
k 1
For small samples rejection points for
the test based on 7 are found using
table.
For large sample size (e.g. n>30) t-test
can be used to test the hypothesis i.e.
2 &/k 7
=
1 7k &/k

"

&ff
&'NF

RS =

where:

is one chi square random variable


with one m degrees of freedom

3. Simple Moving Average =

' ' .'

4. Momentum Oscillator (or Rate of Change


Oscillator ROC):

Momentum Oscillator Value M = (VVx) 100

where
R axHLTI7
iOL axHLTI7

6. Stochastic Oscillator (composed of two


lines %K and %D):

1. Relative Strength Analysis =

2. Price Target for the


Head and Shoulders = Neckline
(Head Neckline)
Inverse Head and Shoulders =
Neckline + (Neckline Head)

100

5. Relative Strength Index = RSI = 100

Reading 12: Technical Analysis

10. F-test (test concerning differences between


variances of two normally distributed
populations) F =

kk is another chi square random


variable with one n degrees of
freedom

"

Chi Square Test Statistic (for test


concerning the value of a normal

CFA Level I 2016

7.

% = 100

Q/B&
z&/B&

where:

C = latest closing price, L14 = lowest


price in last 14 days, H14 is highest
price in last 14 days
%D = Average of the last three %K
values calculated daily.

Put/Call Ratio (Type of Sentiment


Indicators) =

8. Short Interest Ratio (Type of Sentiment


Indicators) =

9. Arms Index TRIN i.e. Trading Index (Type


of Flow of funds Indicator) =
=
1O.OP KJ~HL g77SI7 1O.OP iIawML g77SI7
"OwS.I OP KJ~HL g77SI7"OwS.I OP iIawML g77SI7

FinQuiz

Formula Sheet

Reading 13: Demand & Supply Analysis:


Introduction

6. Total Surplus = Total value Total


variable cost

1. Slope of the demand curve =

7. Society Welfare = Consumer surplus +


Producer surplus

CFA Level I 2016

3. Slope of Budget Constraint Line =


2. Slope of the supply curve =

8. Price Elasticity of Demand =


%

3. Consumer Surplus = Value that a


consumer places on units consumed
Price paid to buy those units
Area (for calculating Consumer
Surplus) = (Base Height) = (Q0
P 0)

Q2 Q1
1
%Q 2 (Q1 + Q2 )
=
P2 P1
%P
1
2 ( P1 + P2 )
9. Income Elasticity of Demand =
%
%

Q2 Q1
1
%Q 2 (Q1 + Q2 )
=
I 2 I1
%I
1
2 ( I1 + I 2 )

4. Producer Surplus = Total revenue received


from selling a given amount of a good
Total variable cost of producing that
amount

Total revenue = Total quantity sold


Price per unit
Area (for calculating Producer
Surplus) = (Base Height) =
{(Q0) (P0 intercept point on yaxis**)}
**where supply curve intersects y-axis

5. Total Surplus = Consumer surplus +


Producer surplus

4. Marginal Rate of Substitution =

&' "
&' "

Reading 15: Demand & Supply Analysis: The


Firm
1. Profit = Total revenue Total cost
2. Accounting Profit = Total Revenue
Explicit Costs (or Accounting costs)
3. Economic Profit
= Total Revenue Explicit Costs
Implicit Costs or
= Accounting Profit Implicit Costs
or
= Total Revenue Total Economic
Costs

10. Cross Elasticity =


%
%

Reading 14: Demand & Supply Analysis:


Consumer Demand
1. Marginal Utility =
2.

! "
#$

Equation of Budget Constraint Line = (PX


QX ) + (PY QY)

4. Economic costs = Explicit costs + Implicit


costs
5. Normal Profit = Accounting Profit
Economic Profit
6. Accounting profit = Economic Profit +
Normal Profit
7. Economic rent = (New Higher Price
after in Demand Previous Price before
in Demand) QS before in Demand

FinQuiz

Formula Sheet

8. Total Revenue (TR):


= Price Quantity or
= Sum of individual units sold
Respective prices of individual Units
sold = (Pi Qi)
9. Average Revenue (AR) =

! )*

! )*

11. Total Variable Cost = Variable Cost per


unit Quantity Produced
12. Total Cost = Total Fixed + Total Variable
13. Average total cost (ATC) =
! #$

= Avg. Fixed Cost + Avg.

Variable Cost
14. Marginal cost (MC) =

19. Break-even price: P = ATC Output


level where Price = Average Revenue =
Marginal Revenue = Average Total Cost
where, Total Revenue = Total Cost.

26. Least-cost optimization Rule:

20. Firms earn Economic Profits when Price >


Average Total Cost

27. Profit is maximized when: MRP = Price or


cost of the input for each type of resource
that is used in the production process

10. Marginal Revenue (MR) =

CFA Level I 2016

! #$

15. Marginal Variable Cost =

21. Profits occur when Total Revenue (TR)


Total Cost (TC) & when Price = Marginal
Cost firm will continue operating.
22. Losses are incurred when there are
Operating profits (Total Revenue
Variable Cost) but Total Revenue < Total
Fixed Cost + Total Variable Cost AND
when Price = Marginal Cost while losses
are < fixed costs firm will continue
operating.
23. Losses are incurred when there are
Operating losses (Total Revenue
Variable Cost) AND when losses fixed
costs firm will shut down.

16. Marginal revenue (in perfect competition)


= Avg. Revenue = Price = Demand

24. Average Product =

18. Profit can be increased by decreasing


output when MR< MC

-,
&' 2$ #
2 #

28. Marginal Revenue product = Marginal


Product of an input unit Price of the
Product = Price of the input =
! )*

29. Surplus value or contribution of an input to


firms profit = MRP Cost of an input
Reading 16: The firm & Market Structures
1. In perfect competition, Marginal revenue =
Avg. Revenue = Price = Demand
2. Marginal Revenue = Price 1
&
7$

3. Concentration Ratio =

-,

$$ *$ 2 '$ &f $

25. Marginal Product =


! .

17. Profit can be increased by increasing


output when MR> MC

! +, #$

&' -,

/ 01$

!
-,

! &1 $

4. Herfindahl-Hirshman Index = Sum of the


squares of the market shares of the top N
companies in an industry

FinQuiz

Formula Sheet

Reading 17: Aggregate Output, Prices &


Economic Growth

unincorporated business net income + rent


+ indirect business taxes less subsidies

CFA Level I 2016

18. GDP = Household consumption + Private


Sector Saving + Net Taxes

1. Nominal GDP t = Prices in year t


Quantity produced in year t

10. Total Amount Earned by Capital = Profit +


Capital Consumption Allowance

19. Domestic saving = Investment + Fiscal


balance + Trade balance

2. Real GDP t = Prices in the base year


Quantity produced in year t

11. PI = National income Indirect business


taxes Corp income taxes Undistributed
Corp profits + Transfer payments

20. Trade Balance = Exports Imports

3. Implicit price deflator for GDP or GDP


deflator =
* $
* ,$ $

100
4. Real GDP = [(Nominal GDP / GDP
deflator) 100]
5. GDP deflator =

/
)

100

6. GDP = Consumer spending on final good


& services + Gross private domestic invst
+ Govt. spending on final goods & services
+ Govt. gross fixed invst + Exp Imp +
Statistical discrepancy
7. Net Taxes = Taxes Transfer payments
8. GDP = National income + Capital
consumption allowance + Statistical
discrepancy
9. National Income = Compensation of
employees + Corp & Govt enterprise
profits before taxes + Interest income +

12. Personal disposable income (PDI) =


Personal income Personal taxes OR GDP
(Y) + Transfer payments (F) (R/E +
Depreciation) direct and indirect taxes
(R)
13. Business Saving = R/E + Depreciation
14. Household saving = PDI - Consumption
expenditures - Interest paid by consumers
to business - Personal transfer payments to
foreigners
15. Business sector saving = Undistributed
corporate profits + Capital consumption
allowance
16. Total Expenditure = Household
consumption (C) + Investments (I) +
Government spending (G) + Net exports
(X-M)
17. Private Sector Saving = Household Saving
+ Undistributed Corporate Profits +
Capital Consumption Allowance

21. Fiscal balance = Government Expenditure


Taxes = (Savings Investment) Trade
Balance
22. Average propensity to consume (APC) =
8''' #$
)

23. Quantity theory of money equation:


Nominal Money Supply Velocity of
Money = Price Level Real Income or
Expenditure
24. % in unit labor cost = % in nominal
wages - % in productivity
25. Economic growth = Annual % in real
GDP
26. Total Factor Productivity growth = Growth
in potential GDP [Relative share of labor
in National Income (Growth in labor) +
[Relative share of capital in National
Income (Growth in capital)]
27. Growth in potential GDP = Growth in
technology + (Relative share of labor in
National Income Growth in Labor) +

FinQuiz

Formula Sheet

(Relative share of capital in National


Income Growth in capital]

3. Narrow money = M1= currency held


outside banks + checking accounts +
travellers check

28. Capital share =Corporate profits + net


interest income + net rental income +
(depreciation/ GDP)
29. Labor share =

7 #$

5. M3 = M2 + deposits with non-bank


financial institution

Reading 18: Understanding Business Cycles


1. Price index at time t2 =
"HwSI OP GxI QO.7S.RGMOL yH7{IG HG G

100

"HwSI OP GxI QOL7S.RGMOL yH7{IG HG G %


9 k

Inflation Rate =

&ff

2. Fisher Index = (where, IL =


Laspeyres index and Ip = Paasche Index)
3. () =
! , $ 2 <1
. 2 <1

4. Velocity of money =

/
&

Reading 19: Monetary & Fiscal Policy


1. Total Money created = New deposit/
Reserve Req
2. Money Multiplier =
&
)$* )C $*

4. Broad money = M2 = M1 + time deposits


+ saving deposits

6. Quantity Theory of Money = M V = P


Y where,
M = Quantity of money
V = Velocity of circulation of money
P = Average price level
Y = Real output
7. Neutral Rate = Trend Growth + Inflation
Target
8. Impact of Taxes and Government
Spending: The Fiscal Multiplier
The net impact of the government sector
on AD:
G T + B = Budget surplus or Budget
deficit
where, G = government spending , T
=taxes, B =transfer benefits
Disposable income = Income Net
taxes = (1 t) Income
where, Net taxes = taxes transfer
payments, t = net tax rate
9. Fiscal Multiplier (in the absence of taxes)
= 1/(1 - MPC)

CFA Level I 2016

MPS = 1 MPC.
Total increase in income and spending
= Fiscal multiplier G

10. Fiscal Multiplier (in the presence of taxes)


MPC (with taxes) = MPC (1 - t)

Fiscal multiplier =

Total in income and spending =


Fiscal multiplier G
Initial in consumption due to
reduction in taxes = MPC tax cut
amount
Total or cumulative effect of tax cut =
multiplier initial change in
consumption

&
&/)$Q &/G

11. Cumulative multiplier =


* * 2 < $
% OP Di$

Reading 20: International Trade & Capital


Flows
1. Terms of trade =

9$
$

2. Terms of Trade (as an index number) =


8*' 9$
8*' $

3. Net exports = Value of a country's (exports


imports)

FinQuiz

4. Net welfare effect = consumers surplus


loss + producers surplus gain + Govt.
revenue
5. Closed Economys output = Y = C+I+G
6. Open Economys output = Y =
C+I+G+(X-M)
Current Account Balance = X-M = YC+I+G
7. Consumption = Income + transfers taxes
saving

Formula Sheet

4. Change in Real Exchange rate =


1 +

S/R
S/R

where, Sg = Govt savings


Sp = I + CA Sg
Current Account Imbalance CA = Sp
+ Sg I

#R
#S

V< $
&f,fff

$ /

9. To convert spot rate into a forward quote


(when points are represented as %) = Spot
exchange rate (1 + % premium or
discount)
10. Arbitrage relationship is stated as follows:

&
!

In case of indirect quote, Arbitrage


relationship is: 1 + J =
1/P/J 1 + P P/J

Forward rate as a % of spot rate =


!/

FZ^%
FZ

1 = %G'& =

M /M
&'M

Forward points: P/J P/J =


P/J

M /M
&'M X

(where is quoted

interest rate period)


13. Relationship between the trade balance and
expenditure/ saving decisions:
= Ex Im = (Sav Inv) + (T G)
where T= taxes net of transfers
G= government expenditures)
14. Price elasticity of demand = =
% 2' C
% 2'

%
%

&
!/

12. Expected % change in the spot rate =

$ /'(< $/&f,fff)

F/

S/

&

1 + J = 1 + P

11. Return on hedged foreign investment


(with a quoted forward rate) = P/J 1 +
P

8. Forward premium/discount (in %) =

1. Foreign price level in domestic currency =


S/ P

3. Real Exchange Rate $/' =

7. Forward rate = Spot X-rate +

Reading 21: Currency Exchange Rates

S (P /P )

6. Points on a forward rate quote = Fwd Xrate quote Spot X-rate quote

2. Real exchange rate(/) = (S P )/P =

U
&' R
UR
U
&' S
US

5. Direct Quote =

C = Y - Sp =Y+R-T-Sp And,
CA = Sp- I+ Govt surplus (or Govt saving)
= Sp- I+ (T- G- R)Sp + Sg = I + CA

CFA Level I 2016

&'M

15. Expenditure (R) = Price Quantity = P


Q
% in expenditure = % R = % P
+ % Q = (1- ) % P

&'M
&'M
&'M

16. Basic idea of Marshall-Lerner condition =


+ ) ) 1 > 0 where,
x=share of exports
X=price elasticity of foreign demand for
domestic country exports

FinQuiz

M=share of imports
M =price elasticity of domestic country
demand for imports

Formula Sheet

CFA Level I 2016

Reading 25: Understanding Income Statements


1. Revenue recognized on Prorated basis =
! 8 #$

17. Trade balance = Income (GDP)


Domestic expenditure = Absorption
Reading 22: Financial Statement Analysis: An
Introduction
1. Gross Profit = Revenue Cost of sales
2. Operating Profit or EBIT = Gross profit
Operating costs + Other operating income
3. Profit before tax = EBIT Interest expense
4. Profit after tax = Profit before tax
Income tax expense
Reading 23: Financial Reporting Mechanics
1. Owners Equity = Contributed Capital +
R.E
2. End R.E = Beg R.E + Net income
Dividends
3. Assets = Liabilities + Contributed Capital
+ Beg R.E + Revenue Expenses
Dividends

2. Revenue recognized under Percentage-ofCompletion Method = % of Total cost


spent by the firm Total Contract
Revenue
3. Revenue recognized when outcome cannot
be reliably measured = Contract costs
incurred
4. Revenue recognized under installment

$

11. Diluted EPS for preferred stock =

12. Diluted EPS for convertible debt =


/ '8! M
*, ,/ *
0'2 8*' $2$ /$'8 $2$
2 < 2* , $$ *$

13. Diluted EPS using Treasury Stock Method


=
(/ / *$)
[0'2 8*' $2$'(/< $2$ 9$/
2$ 2$ <2 #$2 * 9$ )
( )]

Cash receipt
14. Net Profit Margin =

5. Wgtd Avg cost per unit =


! #$ $ *,
! $ *,

7. COGS using LIFO = Total cost Value of


ending inventory
8. Annual Depreciation Expense (using
Straight-Line Method) =

#$/)$ +
7$ "$ -

9. Annual Depreciation Expense (Declining


&ff%
"$

/
)*

15. Gross Profit Margin =

6. COGS using Wghtd Avg Cost = No of


units sold Wghtd Avg cost per unit

balance method) =
Reading 24: Financial Reporting Standards

/ / *$
0'2 8*' / $2$ $'

/
0'2 8*' / $2$ /$'/< $2$ 2
< 2* , $$ *$

! 2

method =

10. Basic EPS =

Acceleration

factor (say 200% or 2) Net Book Value

$$
)*

16. Comprehensive EPS = EPS + Other


Comprehensive Income per share
Reading 26: Understanding Balance Sheets
1. Percentage of A/C Receivable estimated to
be uncollectible =
8< , 8/#
$$ 8/# )*,

2. Net Identifiable Assets = Fair value of


identifiable assets Fair value of liabilities
& contingent liabilities

FinQuiz

Formula Sheet

3. Amortized cost of PPE = Historical cost


Accumulated depreciation Impairment
losses
4. Carrying value for PPE under revaluation
model
= Fair value at date of revaluation
Accumulated depreciation (if any)
5. Amortized cost of PPE = Historical cost
Accumulated depreciation Impairment
losses
6. Carrying value for PPE under revaluation
model
= Fair value at date of revaluation
Accumulated depreciation (if any)
7. Deferred tax liability = Taxable income <
Reported Financial Statement Income
before taxes
8. Deferred tax liability = Actual income tax
payable in a period < Income tax expense
9. Vertical common-size balance-sheet =
^ $2 8
! 8$$$

10. Current ratio =

# 8$$$
# -,$

11. Quick (acid test) =


#$2'&1, $$')*,$
# -,$

12. Cash ratio =

#$2'&1, $$
# -,$

13. Long-term debt-to-equity =


! '/ ,
! 7C

14. Debt-to-Equity =
15. Total Debt =

! ,
! 7C

! ,

CFA Level I 2016

6. End Inventory = Beg inventory +


Purchases COGS
7. End a/c payable = Beg a/c payable +
Purchases Cash paid to suppliers
8. Cash paid to employees = Salary and
wages expense Increase in salary and
wages payable

! 8$$$

16. Financial Leverage =

! 8$$$
! 7C

Reading 27: Understanding Cash Flow


Statements
1. End Cash = Beg cash + Cash receipts
(from operating, investing, and financing
activities) Cash payments (for operating,
investing, and financing activities)
2. End A/c Receivable = Beg A/c Receivable
+ Revenues Cash collected from
customers
3. Cash received from customers = Revenue
Increase in a/c receivable
4. Purchases from suppliers = COGS +
Increase in inventory
5. Cash paid to suppliers = Cogs + Increase
in inventory Increase in a/c payable

9. End salary and wages payable = Beg salary


and wages payable + Salary and wages
expense cash paid to employees
10. Cash paid for other operating expenses =
Other operating expenses Decrease in
prepaid expenses Increase in other
accrued liabilities
11. Cash paid for interest = Interest expense +
Decrease in interest payable
12. End Interest Payable = Beg interest
payable + Interest expense Cash paid for
interest
13. Cash paid for income taxes = Income tax
expense Increase in income tax payable
14. Historical cost of equipment sold = Beg
balance equipment + Equipment purchased
End balance equipment

FinQuiz

Formula Sheet

15. Accumulated Dep on equipment sold =


Beg balance accumulated dep + Dep
expense End balance accumulated dep
16. Cash received from sale of equipment =
Historical cost of equipment sold
Accumulated dep on equipment sold +
gain on sale of equipment

27. Interest Coverage =

CFA Level I 2016

6. Vertical common size income statement =


$

#V.'$ '!9$

)*

28. Reinvestment =

#V.
#$2 '/ $$$

7. Horizontal common size balance sheet =


^ $2 k

29. Debt payment =

^ $2 &

#V.
#$2 -! ,

8. Inventory turnover =
#$ $$ $ '$ $

17. Dividends paid = Beg balance of R.E +


Net income End balance of R.E
18. FCFF = Net income + Non-cash charges +
Interest expense (1 tax rate) Cap exp
WC expenditures
19. FCFF = CFO + Interest expense (1 Tax
rate) Cap exp
20. FCFE = CFO Cap exp + Net borrowing

30. Dividend payment =

#V.

31. Investing and Financing =


#V.

Reading 28: Financial Analysis Techniques


1. Compound Growth Rate =
%
`a aR bcdeaSf

^' +

21. CF to revenue =
22. Cash ROA =
23. Cash ROE =

#V.
/ )*

2. Combined ratio =

#V.
8*' ! 8$$$

-$$$ 79$$
/ 7

24. Cash to income =

#V.
.'

/ $

10. Receivables Turnover =

)*
8*' )*,$

11. Days of Sales Outstanding (DSO)


=

/ $
)*,$ *

12. Avg A/c Receivable Balance = Avg Days


Credit Sales DSO or
Avg A/c Receivable Balance =
$

3. Operating ROA =

.'

4. ROA =

$
!*

ghi
jkl

8*' ! 8$$$

#V.
8*' $22$_ C

9. Days of Inventory on Hand (DOH) =


* !*

#$2 <$ *$' ' *$

7 +

8*' *

*$

/
8*' ! 8$$$

13. Payables turnover =

or

ROA =
/ '$ 79$ &/!9

2$
8*' ,$

14. No of Days of Payables =

/ $
,$ !*

8*' ! 8$$$

25. Cash flow per share =


#V./ *$
/ $2$ /$

26. Debt Coverage =

#V.
! ,

5. Effective Tax Rate =

!9

15. WC Turnover =

)*
8*' 0#

7'$ , !9

16. Fixed Asset Turnover =

)*
8*' / V9 8$$$

FinQuiz

Formula Sheet

17. Total Asset Turnover =

)*
8*' ! 8$$$

CFA Level I 2016

26. Liquid Asset Requirement =

37. Discretionary CF to Debt =

) &1, $

#V./# 9/*$

$ -,$

! ,

18. Pretax margin =


7'$ , 9 , $
)*

38. Net CF to Capital expenditures =

27. Net Interest Margin =


/ $

VV./*$

! $ 7' 8$$$

# 9

19. Return on Total Capital =


7^!
2 ' , C

20. ROE =

/
8*' ! 7C

ROE = ROA Leverage


ROE = Tax Burden Interest Burden
EBIT Margin Total Asset
Turnover Leverage

21. Return on Common Equity =


/ / *$

28. Sales per Square Meter =

39. Debt to EBITDA =

)*

Income =

40. Total Debt to total debt plus Equity =


29. Average Daily Rate =

30. Occupancy Rate =

) )*

! ,

/ )$ $

! ,'7C

/ )$
/ )$ *,

31. EBIT Interest Coverage =

7^!
$$ $

32. EBITDA Interest Coverage =

7^!8

41. Z-Score = 1.2


3.3

7^!
!8

#8/#!8

+ 0.6

42. Segment margin =

$$ $

44. Segment ROA =

. /

34. Return on Capital =

8*' /

24. Coefficient of Variation of Revenues =

7^!

8*' #
7^!

!8

&+ $1
^+ ,$

' )*
' 8$$$

' (-$$)
' 8$$$

8*' (7C'/ 9$',)

35. FFO to Debt =

45. Segment Debt Ratio =

' -,$
' 8$$$

Reserve Ratio) =

)$*$ 2 $ # ^1
$ -,$

Reading 29: Inventories

VV.
! ,

25. Monetary Reserve Requirement (Cash


36. Free Operating CF to Debt =

+ 1.0

' )*

. )*
8*' )*

' (-$$)

VV.'$ /.' -$ 8m$$

23. Coefficient of Variation of Net Income =

).7

!8

43. Segment turnover =

33. FFO Interest Coverage =

+ 1.4

$$ $

. .'
8*' .'

7^!8

! ) C &$

8*' # 7C

22. Coefficient of Variation of Operating

! ,

#V./# 79
! ,

1. NRA = Estimated Selling Price


Estimated Costs of completion and
disposal

FinQuiz

Formula Sheet

2. Inventory amount net of valuation


allowance = Carrying amount of Inventory
Write downs
3. (NRA Normal Profit Margin) MV
NRA
Reading 30: Long-Lived Assets

6. Impairment Loss (US GAAP) = Assets


Fair Value Carrying Amount .If
Carrying amount > Undiscounted Expected
Future Cash Flows
Reading 31: Income Taxes
1. Deferred tax asset = Companys taxable
income > Accounting profit

1. Dep Exp under Straight-line Method =


, #$

7$ "$ -
n$ #$/7$ )$ $*' +
7$ "$ -

2. Dep Exp under Units-of-Production


Method = Depreciable Cost

2. Tax base of revenue received in advance =


Carrying amount Any amount of revenue
that will not be taxed at a future date
3. Reported Effective Tax Rate =
!9 9$
9 8'

2
7$ * #

3. Carrying amount under cost model =


Historical Cost Accumulated Dep or
Amortization
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

4. Deferred tax liability = Carrying amount


of asset > Tax base of asset
5. Deferred tax asset = Carrying amount of
asset < Tax base of asset
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. Companys tax expense (or credit)
reported on its income statement = Income
tax liability currently payable + in
deferred tax asset / liability
Where,

CFA Level I 2016

Income Tax liability currently


payable = Taxable income Tax
rate
in deferred tax asset / liability =
Diff b/w the balance of the
deferred tax asset / liability for the
current period and the balance of
the previous period.

9. The companys tax expense (or credit)


reported on its income statement = Taxes
payable + ( Deferred tax liability -
Deferred tax asset)
Where,
Income Tax liability currently
payable = Taxable income Tax
rate
Deferred tax liability = (carrying
amount tax base) tax rate
Deferred tax asset = (tax base
carrying amount) tax rate
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

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)
6. Total Interest Expense (in case of discount)
= Periodic interest payments +
Amortization of Discount
7. Total Interest Expense (in case of
premium) = Periodic interest payments Amortization of Premium
8. Amount of Bonds payable reported on the
balance sheet = Historical cost +/Cumulative amortization (or amortization
cost)
9. Amount of Bonds payable initially
reported on the balance sheet under IFRS =
Sales proceeds Issuance costs
10. Amount of Bonds payable initially
reported on the balance sheet under US
GAAP = Sales proceeds
11. Bond i-exp. under effective i-rate method
= Carrying value of the bonds at the beg.
of the period Effective i-rate

Formula Sheet

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
14. Bond Discount/Premium Amortization
under Straight-line Method =
^ $
/ $ $

15. No of shares subscribed when warrants are


exercised =

8''' ,
*

CFA Level I 2016

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
24. Reported pension expense = Pension costs
Expected return on Pension plan assets
25. Funded Status = PV of the Defined benefit
obligations Fair value of the plan assets
Reading 33: Financial Reporting Quality

shares subscribed per lot


16. Carrying amount of the leased asset =
Initial recognition amount Accumulated
depreciation
17. Accumulated depreciation = Prior years
accumulated depreciation + Current years
depreciation expense
18. Interest expense = Lease liability at the beg
of the period interest rate implicit in the
lease

Reading 34: Financial Statement Analysis:


Applications
1. Companys sales = Projected market share
Projected total industry sales
2. Forecast amount of profit for a given
period = Forecasted amount of sales
Forecast of the selected profit margin
3. Retained CF (RCF) / Total debt =
(' #V , 0# 2'$ *$)

19. Sales revenue = lower of the fair value of


the asset and PV of the min lease payments

4.
20. Cost of sales = Carrying amount of the
leased asset PV of the estimated
unguaranteed residual value

) #V/# 9
! ,

FinQuiz

Formula Sheet

5. Inventory value adjusted to FIFO basis =


End Inventory value under LIFO + End
LIFO reserve balance
6. COGS adjusted to a FIFO basis = COGS
under LIFO (End LIFO reserve Beg
LIFO reserve)

15. Price to tangible BV ratio =

CFA Level I 2016


!', ^+

16. Adjusted debt-to-equity ratio =

2. NPV = PV of cash inflows - IO =


n

NPV =
t=1

) ,'+ ' $

base that has passed =

8
$$ 7

) 8$$' + ' $

18. Adjusted Asset Turnover ratio =


$

19. PV of future operating lease payments =


+ $ $

8 9$

! # -$ $

9. Remaining useful life of the asset =

Total Future

Operating Lease Payments

/ 7 ( )
8 9$

10. Avg depreciable life of the assets at


installation =

$$ 7
8 9$

11. % of asset base that is being renewed


through new capital investment =
#9
$$ 7' #9

12. Adjusted BV = Total stockholders equity


Goodwill
13. Adjusted Price to BV ratio =

8*' / & 9$ , $

20. Interest expense = Interest PV of the


lease payments
21. Depreciation expense estimated on
straight-line basis =
+ 2 $ $

4. PI =

8*' ^+ *$
+ #V$
.

=1+

/+
.

5. Value of a company = Value of companys


existing invst + Net PV of all of
companys future invst
Reading 36: Cost of Capital
1. WACC = wdrd (1 t) + wprp + were
2. Debt-to-Equity Ratio conversion into
weight (i.e. Debt / (Debt + Equity) =
jcvw
xyzew{
jcvw
&'
xyzew{

/ $ $ $

22. Adjusted Interest Coverage ratio =


EBIT + rent exp Dep exp
payments + expense

3. Optimal Capital Budget is the point where


MC of capital = Marginal return from
investing

* associated with the operating lease


obligations

4. After-tax cost of debt = Before-tax


Marginal Cost of Debt (1 firms
marginal tax rate)

Reading 35: Capital Budgeting

5. Preferred Stock Price per Share

1 p
8m$ ^+

14. Tangible B.V = Total stockholders equity


Goodwill Other intangible assets

IO

3. Avg Accounting RoR (AAR) =


17. Adjusted debt-to-asset ratio =

) 8*' $$$'+ ' $

8. Avg age of the asset base =

(1+ Req RoR )

) 7C

) ,'+ ' $

7. Useful life of the companys overall asset

AT CFs at time t

1. Incremental CF = CF with a decision - CF


without that decision

1 * 2
#$ 1

FinQuiz

Formula Sheet

6. Expected Return on Stock I (under CAPM)


= E (Ri) = RF + i [E (RM) RF]
7. Expected Return on Stock I = E (Ri) = RF +
i1 (Factor risk premium)1 + i2 (Factor
risk premium)2+..+ij (Factor risk
premium)j
8. Cost of Equity = =

%
h

+g

9. Expected Growth Rate of Dividends


g = (1 -

CFA Level I 2016

15. Sovereign yield spread = Govt bond yield


(denominated in developed countrys
currency) T.B yield on a similar maturity
bond in developed country
16. Country equity premium = Sovereign yield
spread

8 . 7C 9
8 . $*' , &1
$ * 1

17. Cost of equity = Ke= RF + [(E(RM)-RF) +


CRP]

) ROE

11. Unlevered of Comparable Company =


, abdvc
jabdvc
xabdvc

< $ 2 $

19. Cost of Capital (hen flotation costs are in


monetary terms = r =

%
h /V

13. H77IG =

% "$

20. When FC are in terms of % of the share


price: Cost of Equity = r =

DOL=
5. DFL =

#&
#&/ V9 .' #$
% /
% .'
#&/ V9 . #$

or

%
h /V

+g

6. DTL=

% /
% / "$
#&

= DOL DFL =

#&/V9 . #$/V9 V #$

1 R(O

14. I}SMG` = H77IG 1 +

% .' 7^!

#&/V9 . #$/V9 V #$

R(O
R(O

21. If FC are not tax deductible: NPV = PV of


Cash Inflows IO (FC in % New
Equity Capital)

Z
&' &/G

4. DOL =

+g

12. Levered of Project =


B, R(O = , aO.R 1 +

3. Operating income = CM Fixed Operating


Costs

or

8 <22 $_ $ $

10. Companys stock returns = R = a +


bR

&' &/abdvc

1. Contribution Margin (CM) = (# of units


sold) [(price per unit) - (variable cost per
unit)]
2. Per unit CM = Price per unit - Variable
cost per unit

18. Breakpoint =

g = retention rate ROE

", =

Reading 37: Measures of Leverage

22. If FC are tax deductible: NPV = PV of


Cash Inflows IO [(FC in % New
Equity Capital) (1 Marginal Tax Rate)]

23. Asset = (Debt Proportion of Debt) +


(Equity Proportion of Equity)

7. Break-even Revenue = (Variable cost per


unit Break-even Number of Units) +
Fixed Operating costs + Fixed Financial
Cost
8. Breakeven Number of units = QBE =
V9 .' #$$'V9 V #$$
/+, $

9. Operating Breakeven = QOBE =


!MIJ URI(HGMLT QO7G
$(MaI RI( SLMG/"H(MH|wI aO7G RI( SLMG

FinQuiz

Formula Sheet

Reading 38: Dividends & Share Repurchases:


Basics

10. Ex-dividend value of share = Stock price


Dividend per share

1. Companys payout for the year = Cash


dividends + Value of shares repurchased in
any given year

11. Market value of Equity after distribution of


cash dividends =

2. Dividend Payout ratio =

12. Post-repurchase share price =

[(# $2$ /$) (&+ $2) #$2 *]

CFA Level I 2016

6. Wght Avg collection period = wghts


Avg no of days to collect accounts within
each aging category
Where, Weights = % of total receivables in
each category

# $2$ /$

# $2 $2 *$
/ *, $2$

3. EPS after Dividend = EPS before Dividend

2$ /$ , *

# $2$ /$ (&+ $2
<2 2 2$]
( # $2$ /$/# $2$ ( , 2$ , #

Reading 39: Working Capital Management

2$ /$ *

4. Stock Price after Dividend = Stock Price


before Dividend EPS after Dividend
5. Total Market Value after Dividend =
Shares outstanding after Dividend Stock
price after Dividend

1. Operating cycle = No of days of inventory


+ No of days of receivables
2. Net operating cycle = No of days of
inventory + No of days of receivables No
of days payables
3. Money Market Yield =

6. Stock price after 2-for-1 stock split =


1 , $1 $
k

7. EPS after 2-for-1 stock split =


7 , $1 $
k

8. DPS after 2-for-1 stock split =


, $1 $

V */2$
2$
opf

/ $

2$
opu

8*' V

8*' $
8*' V

aw azw aR cf jcbafewcS
`a aR j{f

Where, Float =Amount of money that is in


transit b/w payments (by customers) and
funds (usable by co)
8. Value of stretching payment = A/c payable
Co's opportunity cost for ST funds
9. Cost of Trade Credit = 1 +

ghi

$
&/$

where n = days beyond discount period


10. Cost of Line of Credit =
$'#

4. Bond Equivalent Yield =


V */2$

7. Float Factor =

- 8

11. Bankers Acceptance Cost =

$
/ $

/ $

- /$

5. Discount-basis Yield =
9. EPS after buyback =
7'$/8 9 #$ V$
2$ .$' ^,1

V */2$
V +
opf
/ $

12. Commercial Paper Cost =

$'_ $ $$'^1 $$
- /$

13. Annualized cost = Cost 12

FinQuiz

Formula Sheet

Reading 40: The Corporate Governance of


Listed Companies

Reading 41: Portfolio Management: An


Overview
1. NAV of bond mutual fund =
(* 2 , 2 )

4. 3-Yr HPR = [(1 + R1) (1 + R2) (1 +


R3)]1/3 1

13. (1 + Nominal R) = (1 + Real Rf R) (1 +


Inf) (1 + RP)

5. Arithmetic mean (AM) R = M =

14. (1 + Real R) = (1 + Real Rf R) (1 + RP)

N% 'N ''N.% 'N


*

1 + & 1 + k 1 + L

2. New Shares that need to be created =

3. New NAV of the Fund = NAV or Total


value of a Mutual Fund + Amount to be
invested in the Fund
4. No of shares need to be retired =
8 , <2< 2 V
/8+ ! * & V

*
G[& MG

6. Geometric R for n periods = R DM =

7. IRR =
8 , *$ 2 V

&

15. (1 + Real R) =

/ $2$

/8+ ! * & V

CFA Level I 2016

! #V !
[f &')) w

&

Ann R = (1 + Monthly R) 12 1
52

Ann R = (1 + Daily R) 365 1


Weekly R = (1 + Daily R) 5 1
Weekly R = (1 + Annual R) 1/52 1

Reading 42: Risk Management: An


Introduction

9. Portf R (for Two Assets) = (Wght of Asset


1 R of Asset 1) + (Wght of Asset 2 R
of Asset 2)

Reading 43: Portfolio Risk & Return: Part I

10. Gross R = R Trading exp other exp


directly related to the generation of returns.

1. Total Return = Capital Gain (or Loss) +


Dividend Yield
2. Capital Gain =

w /w%

3. Dividend Yield =

e%

NZ /

)w /)

!/&

ij i j

19. Portfolio Var = k = &k &k + kk kk +


2& k Cov R& , R k = &k &k + kk kk +
2& k &k & k

20. Portfolio S.D. = Portfolio Variance


21. Cov b/w asset 1 & asset 2 = Correlation of
Return b/w two assets S.D. of asset 1
S.D. of asset 2
22. Correlation of Return b/w two assets =
#* ) ,/< < $$$
.. $$ & .. $$ k

11. Net R = Gross R - All managerial and


administrative exp

23. 1 + Expected Return =1 + E R =

12. After-tax nominal R = Total R - Any


allowance for taxes on realized gains

24. Utility of an Invest = Expected Return -

w%

16. Var of a Single Asset = k =

18. Cov of R b/w two assets = Cov (Ri,Rj) =

Ann R = (1 + Quarterly R) 4 1
Ann R = (1 + Weekly R)

(&')

17. Sample Variance = s k =

=0

8. Annual Return (Ann R):

(&'/ ))

1 + r 1 + E 1 + E RP

&
k

Risk Aversion Coefficient

Var of Invest

FinQuiz

Formula Sheet

25. Expected R of Portfolio = E R = & R +


1 & E R

26. Risk of Portfolio = k = &k k +


(1 w& )k k + 2& 1 & &k =
1 & k k & p = (1 w1) i

27. Capital Allocation Line (CAL) = E R =


R +

7 )e /)R
e

28. Portfolio Risk = &k &k + kk kk +


2& k Cov R& , R k

E R =

/
[& E
(//&)

(//&)
/

7 )c /)R
c

7. Assets Beta =
# ,< $$ 1 .. 8$$

>

8. Portfolio Beta = =

[& w ; [& w = 1

11. M = R $ RP
7 )b /)R
b

<,

Reading 44: Portfolio Risk & Return: Part II


1. Total Risk = Systematic risk +
Nonsystematic risk = 2i 2m + 2e
2. Total risk of for a well-diversified portfolio
= Systematic risk = im
3. Multi-Factor Model: M P =
{
[& M ( )
{
[k M ( )

6. R = P + R . P =
= R + w& & + wk k E R R

30. New Asset should be included in the Portf


only if

! &1 )$1

10. Treynor Ratio =

= M . P +

16. Information Ratio =


82
/$$ )$1

! )$1

9. Sharpe Ratio =

Cov

4. Single-Index Model: Ri Rf = i(Rm Rf)


+ ei
5. Factor weight associated with each factor =

.. &1

29. In portfolio of many asset =


CFA Level I 2016

17. Expected Return of Portfolio (under


Arbitrage Pricing Model) = E R = R V +
, + + 1 ,1
18. Return on an Asset in excess of 1-Month
T-Bill Return (under four factor model) =
E R = + ,&! MKT +
,&^ SMB + ,n&- HML + ,"& UMD
Reading 45: Basics of Portfolio Planning &
Construction

)b /)R
b

1. Investors Expected Utility from Portfolio


= Up = E (Rp) 2p

N /N

. P

12. Jansens Alpha = R = R


P + R . P

2. Tactical Asset Allocation (TAA) Return


contribution = Actual return of the
portfolio Return that would have been
earned if the asset class weights were equal
to the policy weights

13. Security Characteristic Line (SCL) = R


R = + R R
14. Weight of Non-market security should be
proportional to
82
/$$ *

= i / 2i

15. Total Weight of Non-market security


should be proportional to =

#
%
#
%

Reading 46: Market Organization & Structure


1. Total return to a Leveraged Stock Purchase
=

)' 7C/.
.

where,

Remaining Equity = IO Purchase


commission + (-) Trading g(l) Margin i
paid + Div received Sales commission
paid
OR

FinQuiz

Formula Sheet

Remaining Equity = Proceeds on sale


Payoff loan Margin i paid + Div received
Sales commission paid
2. ROE (based on leverage alone)
= Leverage (in times) stock price return
(in %)
3. Price of stock below which a margin call
will take place (P):
' $ '(/ 1 )

Over Multiple Time Periods:


7. Value of Price Return index at time t =
VPRIT = VPRI0 (1 + PRI1) (1 + PRI2) (1 +
PRIT)

n P

i i

VPRI =

i =1

For Single Period:


2. % Change in value of Price return of

index Portfolio = PR I =

CFA Level I 2016

VPRI 1 VPRI 0
VPRI 0

8. Value of Total Return index at time t =


VTRIT = V TRI0 (1 + TRI1) (1 + TRI2) (1 +
TRIT)
9. Weight of security i under price weighting
=

$
$ $ $$

Maintenance Margin Requirement (%)


3. Price Return (Ind constituent security):PR I
4. Total cost of placement to the issuing firm
in IPO ($)
= Gross proceeds received by the issuing
firm Net proceeds received by the issuing
firm

Pi1 Pi 0
Pi 0

4. Price return of the index: PR I =


N

5. Total cost of placement to the issuing firm


in IPO (%) =

($$ $ * , V/
/ $ * , V
/ $ * , V

where IF = Issuing firm


6. Max leverage ratio =

&ff%
% 7C

P Pi 0

wi i1

i =1
Pi 0
5. % in value of Total return of Index

VPRI 1 VPRI 0 + IncI


VPRI 0

10. Weight of security i under equal weighting


=

&
/ $$ 2 9

11. Weight of security i under market-cap


weighting =
/f $2$ /$ 2
` / $2$ /$ 2
e

Where Si = Security i
12. Weight of Si under Mkt Cap weighting =
V $2$ /$ 1 $2$
2 $
(V $2$ /$ &1 $2$ /$
2 $ )

13. Fundamental weight on security i =


7. Max leverage ratio for position financed by
min margin requirement =
&
& ' C

Reading 47: Security Market Indices


1. Value of a price return index =

6. Total return of each security = TRi =

P1i P0i + Inci


P0i
N
" P P + Inci %
Total Return wi $ 1i 0i
'
P0i
#
&
i=1

V $p $
`(V $p $ )
e

*Book value, cash flow, revenues, earnings,


dividends, & number of employees.
Reading 48: Market Efficiency

FinQuiz

Formula Sheet

Reading 49: Overview of equity Securities

If an investor intends to buy and hold a share


for 1 yr:

1. Equity securitys Total Return =


$2/2$ $2'$2/$1 *
2$ $2

(&'C )) $1)^&

2. ROE in yr t =
3. Value of a share of stock for n holding
period or investment horizon =

8*' ! ^+ 7C

OR
ROE =

L 79 *
G[& &'C ) $1 w

/ ( . 22$)
22$_ C ,'

3. MV of equity = Mkt price per share


Shares O/s
4. BV of equity per share =
5. Price-to-book ratio =

! n_ C

^+ C $2

6. ROE = Net profit margin Asset turnover


Financial leverage =
/ $$
8*' $$$

79 $
&'C ) $1

4. CFO = NI + Non-cash exp Invst in WC


5. FCFE = CFO FCInv + Net Borrowing

/ '$

/ $$
8*' $$$

8*' C

Reading 50: Introduction to Industry &


Company Analysis

Reading 51: Equity Valuation: Concepts &


Basic Tools
1. Value of a share of stock today =
79 *
[& (&'C ).) $1)^

6. Value of a share for a non-div-paying


stock =

11. Sustainable dividend growth rate =


g = ROE b
where b = earnings retention rate = (1 Dividend payout ratio)
Two-stage valuation model:
12. Value of share today = V0 =
L

2$ /$

&1 $2

10. Value of a share of stock =


D (1 + g )
D1
V0 = 0
=
,
g<r
rg
rg

2. Value of a share of stock today =


79 * & '79 $' &

/ ( . 22$)

CFA Level I 2016

V#V7
[& &'C ) $1 w

f =
M[&

f 1 + 7
(1 + )G

L
(1 + )L

L'&
B
L'& = f (1 + 7 )L 1 + B

L =

13. Justified P/E =

f
7&

% /7%
/'

/'

7. Req RoR on sharei = Current expected Rf


rate + Beta i [MRP]

14. EV = MV of stock + MV of debt Cash


and cash Equivalents

8. Value of a pref stock (non-callable, nonconvertible) =

15. Asset-based value = Value of Equipment


and inventory Value of Liabilities

V0 =

D0 (1 + g ) D0 (1 + 0) D0
=
=
rg
r 0
r

9. Value of a pref stock (non-callable, nonconvertible) with maturity at time n =


L

f =
G/&

+
G
(1 + )
1+

Gordon Growth Model:

Reading 52: Fixed Income Securities: Defining


Elements
1. Inf adj Principal amount of a zero-couponindexed bond
= [Par value (1 + CPI)]
2. Inf adj coupon payment for an interestindexed bond
= [(coupon rate Par value) (1+CPI)]

FinQuiz

Formula Sheet

3. Inf adj Principal amount of a capitalindexed bond


= [Par value (1 + CPI)]

CFA Level I 2016

6. Full price of bond = Flat price of bond +


Accrued interest

(I + Qm) FV (I + QM ) FV
(I + QM ) FV
+ FV
m
m
m
+
+...
+
1
2
N
" I + DM %
" I + DM %
" I + DM %
$1+
'
$1+
'
$1+
'
#
#
#
m &
m &
m &

7. Accrued interest = AI =
4. Inflation adjusted coupon payment for a
capital-indexed bond
= [Par value (1 + CPI)] coupon rate

14. Price of Money Market Instrument =


8. Full price of a fixed-rate bond between
coupon payments = PVFull

Reading 53: Fixed Income Markets: Issuance,


Trading & Funding

Reading 54: Introduction to Fixed Income


Valuation
1. Amount of discount below par value =
Present value of deficiency

(Average yield for 2 year bonds) +

/< /.
.

5. Bond price (given sequence of spot rates)


= PV =

PMT
PMT
PMT + FV
+
+... +
1
2
(1+ Z1 ) (1+ Z 2 )
(1+ Z N ) N

o/k
u/k

(average yield for 5 year bonds average


yield for 2 year bonds)

11.

# FV PV &
%
)
Days $ FV ('

16. Price of Money Market Instrument =

10. Interpolated yield (say for 3-year, given


market discount rates for 2 and 5 yrs) =

3. Bond price =

PMT
PMT
PMT + FV
PV =
+
+... +
1
2
(1+ r) (1+ r)
(1+ r) N

PV (1+ r)t/T

# /&1 $ *

[&
&'&1 $ w

15. Market Discount Rate =

DR = Year

9. Full price of a fixed-rate bond between


coupon payments

2. Present value of deficiency =

4. % Price change =

PMT
PMT
PMT + FV
+
+... +
1t/T
2t/T
(1+ r)
(1+ r)
(1+ r) Nt/T

# Days
&
PV = FV %1
DR (
$ Year
'

! APRm $ ! APRn $
#1+
& = #1+
&
"
m % "
n %

PV =

FV
" Days
%
AOR '
$1+
#
&
Yr

17. Add-on rate =

! Yr $ ! FV PV $
AOR = #
&
&#
" Days % " PV %
Relation b/w two spot rates and Implied
Forward Rate:

12. Current yield =


$ * * 2
V

13. Price of Floating-rate note = PV=

18. (1 + zA)A (1 + IFRA,B-A)B-A = (1 + zB)B


Z-spread over the benchmark spot curve:
Price of a bond =
PMT
PMT
PMT + FV
PV =
+
+... +
(1+ z1 + Z)1 (1+ z2 + Z)2
(1+ zN + Z) N

FinQuiz

19. OAS = Z-spread Option value (bps per


year)

Formula Sheet

20. G-spread = Yield-to-maturity on Corporate


bond Yield-to-maturity on a government
bond
21. Interpolated Spread = I-spread = YTM of
the bond - Linearly interpolated yield to
the same maturity on an appropriate
reference curve
Reading 55: Introduction to Asset Backed
Securities

1. Loan-to-value ratio (LTV) =


8 &''
+


2. Monthly CF for a MPS = Monthly CF of
underlying pool of mortgages - Servicing
fee - Other fees
3. Pass-through rate = Mortgage rate on the
underlying pool of mortgages Servicing
Fee - Other fees
4. SMM = Pre-pmt for month (Beg
mortgage balance for month Scheduled
principal re-pmt for month)
5. CPR = 1 (1 SMM)12
6. CF Construction (Monthly CF for MPS):

Net interest = (Beg mortgage


balance Pass-through rate) / 12
Scheduled principal re-pmt =
Mortgage pmt Gross i- pmt
Gross i- pmt = (Beg mortgage
balance WAC) / 12
Pre-pmt for month = SMM
(Beg mortgage balance for month
Scheduled principal re-pmt for
month)
Total principal re-pmt =
Scheduled principal re-pmt +
Prepayment
Beg mortgage balance for the
following month = Beg mortgage
balance for the month Total
Principal Pmt
Projected CF for MPS = Net ipmt + Total principal re-pmt

7. DSC ratio =

$ /.

CFA Level I 2016

Total Amount of Coupon Pmt = CR Par


value No of periods
RR = Re-invstmnt rate per period
CR = coupon rate
2. Realized RoR on Bond=
%

)*$ #$'
m
) &
^

3. Carrying value of bond (if bond purchased


below par) = Purchase price + Amortized
amount of Discount
4. Carrying value of a bond (if bond
purchased above par) = Purchase price
Amortized amount of Premium
5. Amortized amount for 1st year = Bond
Price after 1-yr - Initial bond price

, $*

Reading 56: Understanding Fixed Income Risk


& Return
1. Interest-on-interest gain from
compounding = Future value of reinvested
coupons - Total amount of coupon
payments
Where,
FV of Reinvested Coupons = [CR(1+
RR)n-1] + [CR(1+RR) n-2] ++ [CR(1+
RR)n-n]

6. Capital g / (l) = Sale price of Bond after n


years Carrying value of Bond after n
years
7. Macaulay Duration =
(
" PMT
*
1t/T
$
*
(1+ r )
MacDur = )(1 t / T )$
$ PV Full
*
$
*+
#

%
" PMT
2t/T
'
$
' + ( 2 t / T )$ (1+ r )
'
$ PV Full
'
$
&
#

%
" PMT + FV %,
Nt/T '*
'
$
' +... + ( N t / T )$ (1+ r )
'*'
$ PV Full '*
'
$
'*
&
#
&.

OR

'
+
)1+ r 1+ r + #$ N ( c r )%& )
MacDur = (

, (t / T )
N
c #$(1+ r ) 1%& + r )
)* r
-

FinQuiz

8. Modified D =

Formula Sheet

&

18. Full price of Bond (in currency units) Money D in annual YTM

&'

9. Annualized Modified D =
&

19.

10. % PVFull = - AnnModDur Yield

(PV ) (PV+ )
2 (Yield) (PV0 )

22. %PV
&

14. Macaulay D for a Zero-coupon bond =

&
k

&+ ^ &

= (-AnnModDur Yield) +

()k

! &+

.'
)*

3. EBITDA = Operating Income + Dep +


Amort

()k

4. FCF = CFO Cap exp Div


23. Approx. Convexity Adjustment =

5. Capital expenditures = Additions to P&E +


Additions to product rights & intangibles
Proceeds of sale of P&E

(PV ) + (PV+ ) [2 (PV0 )]


(Yield)2 (PV0 )
24. Convexity of a zero coupon bond =

6. Total debt = ST debt + Current portion of


LT debt + LT debt

(1+ r)2

7. Capital = Debt + Equity


25. Money Convexity vs Money Duration =
&

17. Money D = Annualized Mod D Full


Bond Price

1. Expected Loss = Default Probability


Loss Severity given Default
2. Operating Profit Margin =

[ N (t / T )] [ N +1 (t / T )]

! &+
&+ ^ /

#$( PV ) + ( PV+ ) [ 2 (PV0 )]%&


2
(Curve) ( PV0 ))

Reading 57: Fundamentals of Credit Analysis

1/G

15. Macaulay D for a Perpetual bond = (1+ r) /


r
16. Avg Mod D for the Portf =
! &+
&+ ^ k

Full

27. Effective Convexity =

28. Duration Gap = Bonds Macaulay


Duration Investment Horizon

Or
%PV Full = (-AnnModDur Yield) +

(PV ) (PV+ )
13. Effective D =
2 (Curve) (PV0 )

+ Mod D of Bond N

(PV ) (PV+ )
2

21. Bloombergs Risk Statistic = PVBP 100

12. Approx Mac Dur = Approx Mod Dur (1


+ r)

+ Mod D of Bond 2

PVBP =

20. Basis Point Value (BPV) = Money


duration 0.0001 (1 bp)

11. Approx Modified D =

Mod D of Bond 1

CFA Level I 2016

PV Full - (MoneyDur Yield) + [


MoneyCon (Yield)2]
26. Money Convexity of bond = Annual
Convexity Full Price

8. Yield on Corp Bond = Rf rate + Expected


Inf rate + Maturity P + Liquidity P+ Credit
spread
9. Yield spread = Liquidity P + Credit spread

FinQuiz

Formula Sheet

10. Return impact for smaller spread %


in price -Modified Duration Spread
11. Return impact for larger spread % in
price - (Modified D Spread) +
&
k

CFA Level I 2016

Short position: Price that would


trigger a margin call = IM req MM
req

5. TED spread = LIBOR T-Bill rate

Convexity (Spread)2

12. Secured debt leverage =

! $ ,
7^!8

13. Senior unsecured leverage =


,' $ ,
7^!8

14. Total Leverage =


15. Net Leverage =

! ,
7^!8

! ,/#$2
7^!8

Reading 58: Derivatives Markets and


Instruments
1. Value of the contract to the Long at
expiration = ST F0(T)
2. Value of the contract to the Short at
expiration = F0(T) ST
3. Margin % in stock market =
&+ 1/&+ ,
&+ 1

4. Margin Call:
Long position: Price that would
trigger a margin call = IM req MM
req

6. At expiration (for option Buyer):


Value of Call option =
CT = Max (0, ST - X)
Profit from Call option =
Max (0, ST - X) C0
Value of Put option = P0 =
Max (0, X- ST)
Profit from Put option =
Max (0, X- ST) P0
7. At expiration (for option Seller):
Profit from Call option =
Max (0, ST - X) + C0
Profit from Put option =
Max (0, X- ST) + P0
8. To eliminate arbitrage opportunity:
Forward Price should be = Spot Price
1 + % G

Reading 59: Basics of Derivative Pricing &


Valuation
1. Pricing of risky assets = S0 =

7 (!)
&''

2. Commodity = F 0, T = S0 e (r )T
where, = Convenience yield Cost of
carry

3. S0 =

7 (!)
&''

where, (theta) = PV of the costs and


(gamma) = PV of benefits
4. Arbitrage and Derivatives = Underlying
asset + Opposite position in derivative =
Underlying payoff Derivative payoff =
Rf return
5. Pricing and Valuation of Forward
Contracts:
At Expiration F (0, T) = S0 (1 + r) T or
S0 = F (0, T) / (1 + r) T
Value of forward (long) during
contract life (where t < T) = Vt (0, T)
= St F (0, T) / (1 + r) (T t)
Value of forward (short) during
contract life (where t < T )
= Vt
(0, T) = F (0, T) / (1 + r) (T t) - St
Value of forward (long) at expiration
(where t = T) = VT (0, T) = ST - F (0,
T)
Value of forward (long) at initiation
(where t = 0) = Vt (0, T) = S0 F (0,
T) / (1 + r) T = 0
Forward price of an asset with benefits
and/or costs = (S0 + ) (1 + r) T =
S0 (1 + r) T ( - ) (1+ r) T
Value of Forward contract with
benefits and/or costs during the life of
the contract = St ( - ) (1 + r) T - F
(T) / (1 + r) (T t)

FinQuiz

6. FRAs: An example of 3 9 FRA (read as


three by nine):
Contract expires in 90 days
Underlying loan settled in 270 days
Underlying rate is 180-day LIBOR
For Synthetic FRA (take long position
in a 300-day Euro$ T.D and short
position in a 30-day Euro$ T.D
For synthetic forward position in a 90day zero-coupon that begins in 30 day
(buy 120 day & sell 30 day (zero
coupon bonds)
7. Pricing and Valuation of Swap Contract (a
fixed for floating swap contract):
Fixed Periodic rate =

RN =

1 - ZN
Z1 + Z 2 +.... + Z N

Formula Sheet

At expiration call option = c T = Max


(0, ST X)
Profit (call buyer) = Max (0, ST X)
c0
Profit (call seller) = -Max (0, ST X)
+ c0

9. Payoff of Put options:




p T = Max (0, X- ST)


Profit (put buyer) = Max (0, X-ST) p0
Profit (put seller) = - Max (0, X ST) +
p0

1
Zn =
1 + ( Ln days / 360)

Max profit of option seller/writer


Option premium.
Max loss of option seller/writer
unlimited.
Max loss of option holder Option
premium

Value of a fixed rate side (per $1 NP)


= V fixed rate = [Fixed payment (

Put-Call Parity

Z1 + Z 2 +.... + Z N )] + ($1 ZN)

11. Protective Put


Value PP = p0 + S0
Payoff at expiration (put out-of-themoney) = ST.
Payoff at expiration (put in-themoney) = (X-ST) + ST = X.

Pricing and valuation of Options:


8. Payoff of Call options:

12. Fiduciary Call

Value FC = c0 + X / (1+r) T
Payoff at expiration (when call out-ofthe-money) = X.
Payoff at expiration (call in-themoney) = X + (ST X) = ST.

13. Put-Call Parity (to avoid arbitrage) = c0 +


X / (1+r) T = p0 + S0

Synthetic long position in a call =

C = p 0 +S 0

10. Max Profit/Loss for Option writer/holder:

Where Zn are n period zero coupon


bonds (i.e. $1 discount factors)

Value of a floating rate side (per $ 1


NP) = V floating rate = ($1 + 1st floating
pmt) Z1

CFA Level I 2016

X
(1+ r)T

Synthetic long position in a put =

p 0 = c 0 S 0 +

Synthetic long position in an


underlying =

X
(1+ r)T

S0 = c 0 +

X
p0
(1+ r)T

Synthetic long position in a riskless


bond =

X
= p 0 +S0 c0
(1+ r)T

14. Put-Call-Forward Parity = F0(T) / (1 + r) T


+ p0 = c0 + X/(1 + r) T
15. Valuing a callable bond using Binomial
Model:


Ru = Rd e2
Value at time 0 = V0 = hS0 c0
Value at time 1 will either V1+ = hS1+ c1+ or V1- = hS1- - c1-

FinQuiz

If the portfolio was hedged, then V+


would equal V-.

Value of the call =

Formula Sheet

2. For Call Option Seller









cT = max (0, ST X)
When ST X cT = 0
When ST > X cT = ST X
Value at expiration = -cT
Profit = cT+ c0
Maximum profit = c0
Maximum loss = no upper limit
Breakeven = ST* = X +c0

3. For Put Option Buyer

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 cT = 0
When ST > X cT = ST X
Value at expiration = cT
Profit = cT c0
Maximum profit = no upper limit
Maximum loss = c0
Breakeven = ST* = X + c0

pT = max (0, X - ST)


When ST < X pT = X - ST
When ST X 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 pT = X ST
When ST X 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 VT = ST
When ST > X 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 VT = ST + X - ST = X
When ST > X 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 = Cos
assets value Cos liabilities value
Real Estate Valuation

FinQuiz

Formula Sheet

3. Direct Cap Approach Valuation of a


property =

1Ug
QHRMGHwMHGMOL NHGI

where

NOI = Gross potential income Estimated


vacancy losses Estimated collective
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 REITs NAV =
Estimated MV of REITs total assets
Value of REITs 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.

10. Sharpe ratio = (Investment return Rf


return) / S.D. of return
11. Sortino Ratio = (Annualized RoR
Annualized Rfe rate)/Downside Deviation

CFA Level I 2016

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