FinQuiz

Formula Sheet

Reading 5: Time Value of Money

1. Interest Rate (i)

i = Real 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.

-1

FVOA =

L
G\&

PV (for more than one Compounding

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

Solving for N =

(where LN =

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

Size of Annuity Payment = PMT =

PV of Annuity Factor =

%
`- c#
%_
c
`c

&/

PVAD =

= PVOA + PMT
FVAD =

%
%_` #

+ PMT at t = 0

FVOA (1+r)N
Reading 6: Discounted Cash Flow Applications
R![
L
G\d &'( [

1O. OQ RO.SOTLJMLU $I(MOJ7 ML VLI WIH(

Effective (or Equivalent) Ann Rate

(EAR = EFF%) = 1 +
. 1

2. IRR (when projects CFs are perpetuity) =

NPV = - IO +

R!
fNN

=0

d = 0 (IRR

represents the MWR)

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

(1 + r )N 1
N
PMT
(1 + r ) =
r

1. NPV =

R![
*
M\d &'fNN [

)"% /)"g
)"g

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 + l +
1 + L

PV & FV of Annuity Due

(- .1

FV (for Continuous Compounding) =

FVN = (-1
CD
B1
ED

6.

$g

HPR = rt =

(- /.1
.

$% /$g ' h%

&/

%
%_` #

[PMT (1 + r ) ]

$)*
(

&/

&'( # /&

$"

PV of Perpetuity =

N t

$" OQ KLLTMGa !HbGO(

per year) = PV= FVN 1 +

4.

$)*
L
G\& &'( [

&'( #

PVOA =

PV =

3. HPR =

4. MWR =

PV & FV of Ordinary Annuity

!"

EAR (with Continuous Compounding)

= EAR = (- 1

2. PV and FV of CF =

CFA Level I 2015

%
n

_1

TWR (for the year when valuation is

daily) = rTWR = [(1+R1) (1+R2)
(1+R365)] -1 where R1 =

)"% /)"g
)"g

6. Bank Discount Yield = BDY = rBD =

pqd $H(/$(MbI
L
$H(
L (rs

therefore Price = Par 1

pqd

7. Holding Period Yield = HPY =

$% /$g ' h%
$g

8. Effective Annual Yield = EAY = 1 +

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

rMM = HPY

pqd
G

FinQuiz

Formula Sheet

rMM = (rBD)
!HbI "HxTI OQ GyI *(IH7T(a zMxx

rMM =

$T(byH7I $(MbI
pqd (rs
pqd/ G (rs

(Rule: rMM>

rBD)
10. Bond Equivalent Yield = BEY =
Semiannual Yield 2

8. Median = Middle No (when observations

are arranged in ascending/descending
order)
For Even no of obvs locate
L
median at mean of and
(L'l)
l

Reading 7: Statistical Concepts & Market
Returns
1. Range = Max Value Min Value
2. Class Interval = i =

{/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}7OxTGI !(I~TILba
*OGHx 1O OQ V}7

5. Cumulative Absolute Frequency = Add up

the Absolute Frequencies
6. Cumulative Relative Frequency = Add up
the Relative Frequencies
7. Arithmetic Mean =

FT. OQ O}7 ML JHGH}H7I

1O.OQ O}7 ML GyI JHGH}H7I

CFA Level I 2015

median at

L
M\& M M

10. Weighted Mean = =

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

Quintiles =

hM7G(M}TGMOL

hM7G(M}TGMOL
v

# /
%

L/&
n /
%

L/&

& l L
!O( Hxx

/
L/&

L
%
n
%

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

=

!O( Hxx

where N is the

number of observation in the sample

Quartiles =

% /

where n =

15. Measures of Location:

% /

18. Population S.D = l =

19. Sample Var = s2 =

number of observations in the entire

population and Xi is the ith observation

16. Mean Absolute Deviation = MAD =

21. Semi-var =

&dd

20. Sample S.D = s =

12. Harmonic Mean = H.M = { =

14. Sample Mean = =

Position of a percentile = Ly =
a
+1

17. Population Var = 2 =

9. Mode = obvs that occurs most frequently

in the distribution

13. Population Mean = =

&d

position

Deciles =

n
% [ /

For Odd no. of obvs locate

L'&

hM7G(M}TGMOL

23. Target Semi-var =

!O( Hxx z

where B = Target Value

24. Target Semi-Deviation =
=
!O( Hxx z

/z
L/&

/
L/&

/z
L/&

FinQuiz

Formula Sheet

25. Coefficient of Variation = CV =

where s= sample S.D and = sample

mean
26. Sharpe Ratio =

)IHL $O(GQOxMO N /)IHL NQ N

F.h OQ $O(GQOxMO N

27. Excess Kurtosis = Kurtosis 3

28. Geometric Mean R

"H(MHLbI OQ N
l

Reading 8: Probability Concepts

1. Empirical Prob of an event E = P(E) =

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)
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)

$(O} OQ IILG
*OGHx $(O}

2. Odds for event E =

$(O} OQ
&/$(O} OQ

3. Odds against event E =

&/$(O} OQ
$(O} OQ

4. Conditional Prob of A given that B has

occurred = P(A|B) =

$ Kz
$ z

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):

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)
10. Expected R = E(wiRi) = wiE(Ri)
11. Cov (Ri Rj) = M M
Cov (Ri Rj) = Cov (Rj Ri)
Cov (R, R) = 2 (R)

CFA Level I 2015

12. Portfolio Var = 2 (Rp) =

L
L
M\& \& M M
2 (Rp) = &l l & + ll l l +
pl l p + 2& l & , l +
2& p & , p +
2l p l , p
13. Standard Deviation (S.D) =

l $

14. Correlation (b/w two random variables Ri,

Rj) = M =

RO N N
N N

15. Bayes Formula =

| =

$ 1I fLQO(.HGMOL|ILG
$ 1I fLQO(.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( =

L
(

L!
L/( !(!

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

of objects selected.
19. Permutation = L( =

L!
L/( !

FinQuiz

Formula Sheet

Reading 9: Common Probability Distributions

1. Probability Function (for a binomial

random variable) p(x) = p(X=x) =
L

L/

==

L!
L/ !!

L/ (for x = 0,1,2.n)
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.
2. Probability Density Function (pdf) = f(x)
&
}/H
=
0
/H
F(x) =
< < (cumulative

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)

6. Roys Safety-Frist Criterion = SF Ratio =

NE /N
E

7. Sharpe Ratio = =

}/H

distribution)
3. Normal Density Funct = =
&
l

/(/)
l

for < < +

4. Estimations by using Normal Distribution:

l
p

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].

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:
rt, t+1= ln(1 + holding period return) or
rt, t+1 = ln(price relative) = ln (St+1 / St) = ln
(1 + Rt,t+1)
14. Continuously compounded return
associated with a holding period from 0 to
T:
r0,T= ln (ST / S0) or d,* = */&,* +
*/l,*/& + + d,&
Where,
rT-I, T = One-period continuously
compounded return
15. When one-period continuously
compounded returns (i.e. r0,1) are IID
random variables.

Approximately 50% of all obsv fall in

the interval

NE /N
E

CFA Level I 2015

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

11. Lognormal 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

d,* = */&,* + */l,*/& +

+ d,& = And
= l d,* = l
S.D. = (r0,T) =

where,

FinQuiz

Formula Sheet

16. Annualized volatility = sample S.D. of

one period continuously compounded

CFA Level I 2015

CI for normally distributed population

with known variance = H/l

CI for normally distributed population

3.

returns

with unknown variance = H/l

Reading 10: Sampling and Estimation

4.

7. Students t distribution

= H/l

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

=

8. Z-ratio =

3. Standard Error of the sample mean:

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

9. t-ratio =

5.

X
n

known = =

S.D estimate =

where s = sample
n

% /

X
s n

6.

Reading 11: Hypothesis Testing

1/&

5. New Adjusted Estimate of Standard Error

= (Old estimated standard error fpc)
6. Construction of Confidence Interval (CI) =
Point estimate (Reliability factor
Standard error)

when Pop S.D is known, the standard

error of sample statistic is given by =

2.

Power of Test = 1-Prob of Type II Error

(when sample size is large or

% / / % /
%/

'
n% n

L% ' L /l

where Sl = pooled

where = & + l

2.

/g

L% /& F% ' L /& F

when Pop S.D is unknown, the standard

error of sample statistic is given by =

(when sample size is large but

estimator of common variance =

where N= population size

Test Statistic for a test of diff b/wtwo pop

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

L/&

/g

L/& =

t=

1. Test Statistic =

4. Finite Population Correction Factor = fpc

1/L

small and pop S.D is unknown and

popsampled is normally or approximately
normally distributed)

When the population S.D () is not

l l =

z=
t=

(when sample size is large or

pop S.D is unknown where s is sample

S.D)

1. Var of the distribution of the sample mean

/g

small but pop S.D is known)

where S = sample S.D.

=

7.

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

means (normally distributed, unequal and
unknown pop var)

FinQuiz

t=

% / / % /

8.

%/

% '
n% n

% '
n% n

n%
n
'
n%
n

Formula Sheet

In this df calculated as

=U=

J/g

sample mean difference = =

&
L

FJ

L
M\& M
n

% J /J

sample variance = Jl =

sample S.D =

sample error of the sample mean

L/&

and Upper limit

Reading 12: Technical Analysis

L/& F

1. Relative Strength Analysis =

%/

L/& 7
g

where 1 = l =
=

10. F-test (test concerning differences between

variances of two normally distributed
populations) F =

F%
F

&l = 1 & & &l

= 2 l
& = & 1
l = l 1
11. Relation between chi-square and F%

Chi Square Test Statistic (for test

concerning the value of a normal
populations variance)

9.

2. Price Target for the

Head and Shoulders = Neckline
(Head Neckline)
Inverse Head and Shoulders =
Neckline + (Neckline Head)
3. Simple Moving Average =

% /

L/&

Chi Square Confidence Interval for

variance

&l

is one chi-square random variable

with one m degrees of freedom
ll is another chi-square random
variable with one n degrees of
freedom

Momentum Oscillator Value M = (VVx) 100

(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\& Ml
=1
l 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 &/l 7
=
1 7l &/l

' ' .'

4. Momentum Oscillator (or Rate of Change

Oscillator ROC):

distribution = = . where:

Jl

difference = J =
8.

L/& F

Test Statistic for a test of mean differences

(normally distributed populations,
unknown population variances)

Lower limit = L =

CFA Level I 2015

100

5. Relative Strength Index = RSI = 100

&dd
&'NF

where

RS =
S byHLUI7 JT(MLU bOL7MJI(IJ SI(MOJ
hOL byHLUI7 JT(MLU bOL7MJI(IJ SI(MOJ

6. Stochastic Oscillator (composed of two

lines - %K and %D):

FinQuiz

7.

% = 100

Formula Sheet

R/B&
{&/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) =

1O.OQ KJHL f77TI7 1O.OQ hIbxML f77TI7

"OxT.I OQ KJHL f77TI7"OxT.I OQ hIbxML f77TI7

Reading 13: Demand & Supply Analysis:

Introduction

Total revenue = Total quantity sold

Price per unit
Area (for calculating Producer
Surplus) = (Base Height) =
{(Q0) (P0 intercept point on yaxis**)}

2. Slope of the supply curve =

3. Consumer Surplus = Value that a

consumer places on units consumed
Price paid to buy those units

%
%

Q2 Q1
(Q1 + Q2 )
%Q
=
P2 P1
%P
1
2 ( P1 + P2 )
1
2

10. Income Elasticity of Demand =

%
%

Q x
%Q x
Qd x
=
I
%I
I
d

**where supply curve intersects y-axis

11. Cross Elasticity =
%

5. Total Surplus = Consumer surplus +

Producer surplus

6. Total Surplus = Total value to buyers

Total variable cost

Reading 14: Demand & Supply Analysis:

Consumer Demand

7. Society Welfare =Consumer surplus +

Producer surplus

1. Marginal Utility =

8. Own-Price Elasticity of Demand =

2.

1. Slope of the demand curve =

9. Arc Elasticity of Demand =

4. Producer Surplus = Total revenue received

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

9. Arms Index or TRIN i.e. Trading Index

(Type of Flow of funds Indicator) =
=

Area (for calculating Consumer

Surplus) = (Base Height) = [Qd
(Price intercept P1)]

8. Short Interest Ratio (Type of Sentiment

Indicators) =

CFA Level I 2015

E d px =

%Q x Q x Px
d
=
%Px

P
x Q x

! "
#$

Equation of Budget Constraint Line = (PX

QX) + (PY QY)

3. Slope of Budget Constraint Line =

where X and Y is measured on the

horizontal and vertical axis, respectively.

FinQuiz

4. Marginal Rate of Substitution =

Formula Sheet

&' "
&' "

CFA Level I 2015

= Sum of individual units sold

Respective prices of individual Units
sold = (Pi Qi)
! )*

Reading 15: Demand & Supply Analysis: The

Firm

9. Average Revenue (AR) =

1. Profit = Total revenue Total cost

10. Marginal Revenue (MR) =

! )*

11. Total Variable Cost = Variable Cost per

unit Quantity Produced

3. Economic Profit
= Total Revenue Explicit Costs
Implicit Costs or
= Accounting Profit Implicit Costs
or
= Total Revenue Total Economic
Costs

12. Total Cost = Total Fixed + Total Variable

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
8. Total Revenue (TR):
= Price Quantity or

13. Average total cost (ATC) =

! #$

= Avg. Fixed Cost + Avg.

Variable Cost
14. Marginal cost (MC) =

20. Firms earn Economic Profits when Price >

Average Total Cost

2. Accounting Profit = Total Revenue

Explicit Costs(or Accounting costs)

19. Break-even price: P = ATC Output

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

! #$

15. Marginal Variable Cost =

! +, #$

16. Marginal revenue (in perfect competition)

= Avg. Revenue = Price regardless of
Demand

21. Profits occur when Total Revenue (TR)

Total Cost (TC) & when Price = Marginal
revenue 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 Revenue 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.
24. Average Product =

!
-,

25. Marginal Product =

17. Profit can be increased by increasing
output when MR> MC
18. Profit can be increased by decreasing
output when MR< MC

! .
/ 01$

!
-,

FinQuiz

Formula Sheet

26. Least-cost optimization Rule:

&' -,

-,
&' 2$ #
2 #

27. Profit is maximized when: MRP = Price or

cost of the input for each type of resource
that is used in the production process
28. Marginal Revenue product = Marginal
Product of an input unit Price of the
Product = Value of the input to firm =
! )*

Reading 17: Aggregate Output, Prices &

Economic Growth

10. Total Amount Earned by Capital = Profit +

Capital Consumption Allowance

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

3. Implicit price deflator for GDP or GDP

deflator =
* $
* ,$ $

Reading 16: The Firm & Market Structures

5. GDP deflator =

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

2. Marginal Revenue = Price 1

unincorporated business net income + rent

+ indirect business taxes less subsidies

1. Nominal GDP t = Prices in year t

Quantity produced in year t

29. Surplus value or contribution of an input to

firms profit = MRP Cost of an input

1. In perfect competition, Marginal revenue =

Avg. Revenue = Price regardless of level
of Demand

CFA Level I 2015

/
)

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$

3. Concentration Ratio =
$$ *$ 2 '$ / $
! &1 $

4. Herfindahl-Hirshman Index = Sum of the

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

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

FinQuiz

18. GDP = Household consumption + Private

Sector Saving + Net Taxes
19. Domestic saving = Investment + Fiscal
balance + Trade balance

Formula Sheet

CFA Level I 2015

(Relative share of capital in National

Income Growth in capital]

3. Narrow money = M1= notes and coins in

circulation + other very highly liquid
deposits

28. Capital share =Corporate profits + net

interest income + net rental income +
(depreciation/ GDP)

4. Broad money = M2 = M1 + entire range of

liquid assets available to make purchases

20. Trade Balance = Exports Imports

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

29. Labor share =

7 #$

Reading 18: Understanding Business Cycles

1. Price index at time t2 =
"HxTI OQ GyI RO.7T.SGMOL zH7|IG HG G

100

"HxTI OQ GyI ROL7T.SGMOL zH7|IG HG G%

9

Inflation Rate =

&dd

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) +

2. Fisher Index = (where, IL =

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

25. Economic growth = Annual % in real

GDP

5. M3 = M2 + other liquid assets

4. Velocity of money =

/
&

Reading 19: Monetary & Fiscal Policy

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

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 = National Income
Net taxes = (1 t) National Income
where, Net taxes = taxes transfer
payments, t = net tax rate
9. Fiscal Multiplier (in the absence of taxes)
= 1/(1 - MPC)
MPS = 1 MPC.

FinQuiz

Formula Sheet

Total increase in income and spending

= Fiscal multiplier G

4. Net welfare effect = consumers surplus

loss + producers surplus gain + Govt.
revenue

10. Fiscal Multiplier (in the presence of taxes)

CFA Level I 2015

4. Change in Real Exchange rate =

1 +

5. Closed Economys output = Y = C+I+G

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

&
&/)$R &/G

11. Cumulative multiplier =

* * 2 < $
% OQ Dh$

Reading 20: International Trade & Capital

Flows
1. Terms of trade =

6. Open Economys output = Y =

C+I+G+(X-M)
Current Account Balance = X-M = YC+I+G
7. Consumption = Income + transfers taxes
saving
d

C = Y - Sp =Y+R-T-Sp And,
CA = Sp- I+ Govt surplus (or Govt saving)
= Sp- I+ (T- G- R)
Restated differently, Sp + Sg = I + CA
where, Sg = Govt savings
Sp = I + CA Sg
Current Account Imbalance CA = Sp
+ Sg I

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

8*' 9$
8*' $

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

imports

S/

#R
#S

V< $
&d,ddd

8. Forward premium/discount (in %) =

$ /'(< $/&d,ddd)
$ /

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:
1 + J = 1 + Q

&
!

In case of indirect quote, Arbitrage

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

Forward rate as a % of spot rate =

!/
F/

3. Real Exchange Rate $/' =

&

7. Forward rate = Spot X-rate +

1. Foreign price level in domestic currency =

S/ P

S (P /P )

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

Reading 21: Currency Exchange Rates

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

S/R

UR
UR
U
&' S
US

&'

5. Direct Quote =

9$

S/R

&'M
&'M
&'M
&'M

FinQuiz

Formula Sheet

11. Return on hedged foreign investment

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

&

F[

1 = %G'& =

M /M
&'M X

&'M

(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'

17. Trade balance = Income (GDP)

Domestic expenditure = Absorption

M /M

Forward points: Q/J Q/J =

Q/J

Reading 25: Understanding Income Statements

1. Revenue recognized on Prorated basis =

!/

12. Expected % change in the spot rate =

F[_%

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

CFA Level I 2015

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 + non-operating
income Interest expense
4. Profit after tax = Profit before tax
Income tax expense

16. Basic idea of Marshall-Lerner condition =

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

! 2

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
under IFRS, Revenue= Contract costs
incurred under US GAAP, no revenue

reported until contract is complete

4. Revenue recognized under installment

method =

Reading 23: Financial Reporting Mechanics

15. Expenditure (R) = Price Quantity = P

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

! 8 #$

Cash receipt

5. Wgtd Avg cost per unit =

! #$ $ *,

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

! $ *,

6. COGS using Wghtd Avg Cost = No of

units sold Wghtd Avg cost per unit
7. COGS using LIFO = Total cost Value of
ending inventory
8. Annual Depreciation Expense (using
Straight-Line Method) =

Reading 24: Financial Reporting Standards

#$/)$ +
7$ "$ -

FinQuiz

Formula Sheet

9. Annual Depreciation Expense (Declining

balance method) =

&dd%
"$

Acceleration

factor (say 200% or 2) Net Book Value

10. Basic EPS =

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

11. Diluted EPS for preferred stock =

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

12. Diluted EPS for convertible debt =

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

13. Diluted EPS using Treasury Stock Method

=
(Net Income Preferred dividends)
[Wght Avg No. of shares +
(New shares at option exercise
Shares purchased with
Cash received upon exercise )
(Proportion of Yr)]
14. Net Profit Margin =

/
)*

15. Gross Profit Margin =

$$
)*

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/#

CFA Level I 2015

9. Vertical common-size balance-sheet =

d $2 8
! 8$$$

$$ 8/# )*,

10. Current ratio =

2. Net Identifiable Assets = Fair value of
identifiable assets Fair value of liabilities
& contingent liabilities

# 8$$$
# -,$

11. Quick (acid test) =

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

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

12. Cash ratio =

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

13. Long-term debt-to-equity =

! '/ ,
! 7C

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

! ,
! 7C

! ,
! 8$$$

16. Financial Leverage =

! 8$$$
! 7C

6. Carrying value for PPE under revaluation

model
= Fair value at date of revaluation
Accumulated depreciation (if any)

Reading 27: Understanding Cash Flow

Statements

7. Deferred tax liability = Taxable income <

Reported Financial Statement Income
before taxes

1. End Cash = Beg cash + Cash receipts

(from operating, investing, and financing
activities) Cash payments (for operating,
investing, and financing activities)

8. Deferred tax liability = Actual income tax

payable in a period < Income tax expense

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

+ Revenues Cash collected from
customers

FinQuiz

Formula Sheet

3. Cash received from customers = Revenue

Increase in a/c receivable

13. Cash paid for income taxes = Income tax

expense Increase in income tax payable

4. Purchases from suppliers = COGS +

Increase in inventory

14. Historical cost of equipment sold = Beg

balance equipment + Equipment purchased
End balance equipment

5. Cash paid to suppliers = Cogs + Increase

in inventory Increase in a/c payable
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

15. Accumulated Dep on equipment sold =

Beg. balance accumulated dep + Dep
expense End. balance accumulated dep

CFA Level I 2015

#V.

24. Cash to income =

.'

25. Cash flow per share =

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

26. Debt Coverage =

#V.
! ,

27. Interest Coverage =

#V.'$ '!9$
$

16. Cash received from sale of equipment =

Historical cost of equipment sold
Accumulated dep on equipment sold +
gain on sale of equipment
17. Dividends paid = Beg balance of R.E +
Net income End balance of R.E

28. Reinvestment =

#V.
#$2 '/ $$$

29. Debt payment =

#V.
#$2 -! ,

30. Dividend payment =

#V.
*$

9. End salary and wages payable = Beg salary

and wages payable + Salary and wages
expense cash paid to employees

18. FCFF = Net income + Non-cash charges +

Interest expense (1 tax rate) Cap exp
WC expenditures

31. Investing and Financing =

10. Cash paid for other operating expenses =

Other operating expenses Decrease in
prepaid expenses Increase in other
accrued liabilities

19. FCFF = CFO + Interest expense (1 Tax

rate) Cap exp

Reading 28: Financial Analysis Techniques

11. Cash paid for interest = Interest expense +

Decrease in interest payable
12. End Interest Payable = Beg interest
payable + Interest expense Cash paid for
interest

20. FCFE = CFO Cap exp + Net borrowing

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

#V.
#$2 <$ *$' ' *$

1. Compound Growth Rate =

7 +

%
fg gR hijkgSl

d' +

#V.

/ )*
#V.

2. Combined ratio =

-$$$ 79$$
/ 7

8*' ! 8$$$
#V.
8*' $22$e C

3. Operating ROA =

.'
8*' ! 8$$$

FinQuiz

4. ROA =

Formula Sheet

/
8*' ! 8$$$

or
14. No of Days of Payables =

ROA =

CFA Level I 2015

/ $
,$ !*

/ '$ 79$ &/!9

8*' ! 8$$$

5. Effective Tax Rate =

8*' )*

15. WC Turnover =

8*' 0#

25. Monetary Reserve Requirement (Cash

16. Fixed Asset Turnover =

)*
8*' / V9 8$$$

6. Vertical common size income statement =

$

17. Total Asset Turnover =

)*

7. Horizontal common size balance sheet =

)*
8*' ! 8$$$

18. Pretax margin =

d $2 l

7'$ , 9 , $

d $2 &

)*

8. Inventory turnover =

19. Return on Total Capital =

#$ $$ $ '$ $

7d!

8*' *

2 ' , C

9. Days of Inventory on Hand (DOH) =

/ $
* !*

10. Receivables Turnover =

)*
8*' )*,$

11. Days of Sales Outstanding (DSO)

=

/ $

20. ROE =

ROE = ROA Leverage

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

$
)*,$ !*

13. Payables turnover =

$
mno
pqr

2$
8*' ,$

)$*$ 2 $ # d1
$ -,$

26. Liquid Asset Requirement =

) &1, $
$ -,$

27. Net Interest Margin =

/ $
! $ 7' 8$$$

28. Sales per Square Meter =

)*
! ) C &$

29. Average Daily Rate =

30. Occupancy Rate =

) )*
/ )$ $

/ )$
/ )$ *,

31. EBIT Interest Coverage =

21. Return on Common Equity =
8*' # 7C

12. Avg A/c Receivable Balance = Avg Days

Credit Sales DSO or
Avg A/c Receivable Balance =

Reserve Ratio) =

/
8*' ! 7C

/ / *$

)*,$ *

. )*

)*

!9
7'$ , !9

24. Coefficient of Variation of Revenues =

22. Coefficient of Variation of Operating

Income =

7d!
$$ $

32. EBITDA Interest Coverage =

7d!8
$$ $

33. FFO Interest Coverage =

. .'

VV.'$ /.' -$ 8s$$

8*' .'

$$ $

23. Coefficient of Variation of Net Income =

. /
8*' /

34. Return on Capital =

7d!

8*' #
7d!

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

FinQuiz

35. FFO to Debt =

Formula Sheet

VV.
! ,

36. Free Operating CF to Debt =

#V./# 79

1. NRV = Estimated Selling Price

Estimated Costs of completion and
disposal

CFA Level I 2015

Where, Recoverable amount = Max [(Fair

value Costs to sell); Value in Use)] and
Value in use = PV of Expected Future CFs

! ,

2. Inventory amount net of valuation

allowance = Carrying amount of Inventory
Write downs

37. Discretionary CF to Debt =

#V./# 9/*$
! ,

3. (NRV Normal Profit Margin) MV

NRV

38. Net CF to Capital expenditures =

VV./*$

6. Impairment Loss (US GAAP) = Assets

Fair Value Carrying Amount .If
Carrying amount > Undiscounted Expected
Future Cash Flows
Reading 31: Income Taxes

# 9

39. Debt to EBITDA =

Reading 30: Long-Lived Assets

! ,
7d!8

1. Dep Exp under Straight-line Method =

, #$

40. Total Debt to total debt plus Equity =

! ,

3.3

7d!
!8

7$ "$ -
t$ #$/7$ )$ $*' +

! ,'7C

41. Z-Score = 1.2

7$ "$ -
#8/#!8

+ 0.6

+ 1.4

).7
!8

&+ $1
d+ ,$

+ 1.0

2. Dep Exp under Units-of-Production

Method = Depreciable Cost
2

!8
' (-$$)

43. Segment turnover =

44. Segment ROA =

' )*
' )*
' 8$$$

' (-$$)
' 8$$$

45. Segment Debt Ratio =

Reading 29: Inventories

' -,$
' 8$$$

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'

7$ * #

42. Segment margin =

1. Deferred tax asset = Companys taxable

income > Accounting profit

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

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

FinQuiz

tax liability currently payable + in

deferred tax asset / liability
Where,
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

Formula Sheet

2. Sale proceeds of bond = Sum of PV of

Interest Payments + PV of Face value of
Bond
3. When Face value - Sale proceed is > zero,
discount
4. When Face value Sale proceed is < zero,
premium
5. Initial carrying amount = 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)

10. Tax base of a liability = Carrying amount

of the liability Amounts that will be
deductible for tax purposes in the future

9. Amount of Bonds payable initially

reported on the balance sheet under IFRS =
Sales proceeds Issuance costs

Reading 32: Non-current (Long-term)

Liabilities

10. Amount of Bonds payable initially

reported on the balance sheet under US
GAAP = Sales proceeds

1. Annual Interest Payment = Face Value

Coupon Rate

11. Bond interest expense under effective

interest rate method = Carrying value of

CFA Level I 2015

the bonds at the beginning of the period

Effective interest rate
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 =
d $
/ $ $

15. No of shares subscribed when warrants are

exercised =

8''' ,
*

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
19. Sales revenue = lower of the fair value of
the asset and PV of the min lease payments

FinQuiz

20. Cost of sales = Carrying amount of the

leased asset PV of the estimated
unguaranteed residual value
21. Interest Revenue = Lease receivable at the
beg of the period Interest rate
22. Net interest expense = Beg Net pension
liability Discount rate

Formula Sheet

CFA Level I 2015

3. Retained CF (RCF) / Total debt =

(' #V , 0# 2'$ *$)

13. Adjusted Price to BV ratio =

1 v
8s$ d+

4.

) #V/# 9

14. Tangible B.V = Total stockholders equity

Goodwill Other intangible assets

! ,

5. Inventory value adjusted to FIFO basis =

End Inventory value under LIFO + End
LIFO reserve balance

15. Price to tangible BV ratio =

!', d+

16. Adjusted debt-to-equity ratio =

) ,'+ ' $

23. Net Interest income = Beg Net Pension

asset Discount rate
24. Reported pension expense (U.S. GAAP) =
Pension costs Expected return on
Pension plan assets
25. Funded Status = PV of the Defined benefit
obligations Fair value of the plan assets

6. COGS adjusted to a FIFO basis = COGS

under LIFO (End LIFO reserve Beg
LIFO reserve)
7. Useful life of the companys overall asset
base that has passed =

8
$$ 7

8. Avg age of the asset base =

8

9. Remaining useful life of the asset =

/ 7 ( )

2. Forecast amount of profit for a given

period = Forecasted amount of sales
Forecast of the selected profit margin

8 9$

10. Avg depreciable life of the assets at

installation =

) ,'+ ' $
) 8$$' + ' $

18. Adjusted Asset Turnover ratio =

$
) 8*' $$$'+ ' $

19. PV of future operating lease payments* =

"$ / # -$ $

Reading 33: Financial Reporting Quality

1. Companys sales = Projected market share

Projected total industry sales

17. Adjusted debt-to-asset ratio =

+ $ $

8 9$

Reading 34: Financial Statement Analysis:

Applications

) 7C

$$ 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

Undiscounted Noncurrent Operating

Lease Payments
*If term structures of capital and operating
leases are assumed to be similar
20. Interest expense = Interest PV of the
lease payments
21. Depreciation expense estimated on
straight-line basis =
+ 2 $ $
/ $ $ $

22. Adjusted Interest Coverage ratio =

FinQuiz

Formula Sheet

EBIT + rent exp Dep exp

expense + costs
* Unadjusted
**associated with the operating lease
obligations

CFA Level I 2015

3. Optimal Capital Budget is the point where

MC of capital = Marginal return from
investing
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. Incremental CF = CF with a decision - CF
without that decision
2. NPV = PV of cash inflows - IO =
n

NPV =

AT CFs at time t

t=1

(1+ Req RoR )

IO

3. Avg Accounting RoR (AAR) =

8*' / & GHI7 , $

4. PI =

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

=1+

1 * 2
#$ 1

6. Expected Return on Stock I (under CAPM)

= E (Ri) = RF + i [E (RM) RF]

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) =

13. H77IG =

1 S(O

S(O
S(O

[
&' &/G

14. I~TMGa = H77IG 1 +

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

7. Expected Return on Stock I = E (Ri) = RF +

i1 (Factor risk premium)1 + i2 (Factor
risk premium)2+..+ij (Factor risk
premium)j

/+

5. Value of a company = Value of companys

existing invst + Net PV of all of
companys future invst

piz{
|}~k{
piz{
&'
|}~k{

B, S(O = , bO.S 1 +

8. Cost of Equity = =

%
g

+g

spread

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

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

CRP]
18. Breakpoint =

9. Expected Growth Rate of Dividends

g = (1 -

< $ 2 $

) ROE

g = retention rate ROE

19. Cost of Capital when flotation costs are in

10. Companys stock returns = R = a +

bR
11. Unlevered of Comparable Company =
", =

8 <22 $e $ $

, ghjzi
&' &/ghjzi

12. Levered of Project =

pghjzi
|ghjzi

monetary terms= r =

%
g /V

+g

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

price: Cost of Equity = r =

%
g &/

+g

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

Cash Inflows IO (FC in % New
Equity Capital)

FinQuiz

Formula Sheet

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)
Reading 37: Measures of Leverage
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

8. Breakeven Number of units =

V9 .' #$$'V9 V #$$
/+, $

4. DOL =

% .' 7d!
% "$

or
DOL=

Reading 38: Dividends & Share Repurchases:

Basics
1. Companys payout for the year = Cash
dividends + Value of shares repurchased in
any given year

5. DFL =

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

or

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

6. DTL=

% /
% / "$
#&

2. Dividend Payout ratio =

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

Dividend

2$ /$ *

4. Stock Price after Stock Dividend = Stock

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

11. Market value of Equity after distribution of

cash dividends =
# $2$ /$

12. Post-repurchase share price =

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

Reading 39: Working Capital Management

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 =

l

= DOL DFL =

7. Break-even Revenue = (Variable cost per

unit Break-even Number of Units) +
Fixed Operating costs + Fixed Financial
Cost

10. Ex-dividend value of share = Stock price

Dividend per share

2$ /$ , *

1 , $1 $

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

7'$/8 9 #$ V$

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

#&
#&/ V9 .' #$

9. EPS after buyback =

2$ .$' d,1

3. EPS after Stock Dividend = EPS before

3. Operating income = CM Fixed Operating
Costs

CFA Level I 2015

V */2$
2$
pqd

/ $

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

7 , $1 $
l

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

, $1 $
l

4. Bond Equivalent Yield =

V */2$
2$
pqv
/ $

FinQuiz

Formula Sheet

5. Discount-basis Yield =
V */2$
V +
pqd

12. Commercial Paper Cost

/ $

Where, Weights = % of total receivables in

each category
8*' V

8*' $
8*' V

Reading 40: The Corporate Governance of

Listed Companies

Reading 41: Portfolio Management: An

Overview
1. NAV of bond mutual fund =
/ $2$

Where, Float =Amount of money that is in

transit b/w payments (by customers) and
funds (usable by co)

2. New Shares that need to be created =

8 , *$ 2 V
/8+ $2 ! * $2 & V

8. Value of stretching payment = A/c payable

Co's opportunity cost for ST funds

3. New NAV of the Fund = NAV or Total

value of a Mutual Fund + Amount to be
invested in the Fund

9. Cost of Trade Credit = 1 +

4. No of shares need to be retired =

mno

&/$

8 , <2< 2 V
/8+ $2 ! * $2 & V

where n = days beyond discount period

Reading 42: Portfolio Risk & Return: Part I

10. Cost of Line of Credit =

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

Dividend Yield

$'#
- 8

11. Bankers Acceptance Cost =

$
- /$

{
{%

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

R3)] 1
5. Arithmetic mean (AM) R = M =
N% 'N ''N.% 'N
*

&

*
G\& MG

6. Geometric R for n periods = R DM =

1 + & 1 + l 1 + L

7. IRR =

! #V !
\d &')) {

&

=0

(* 2 , 2 )

g{ g~{ gR il pihglk{iS
fg gR pl

3. Dividend Yield =

- /$

13. Annualized cost = Cost 12

6. Wght Avg collection period = wghts

Avg no of days to collect accounts within
each age category

7. Float Factor =

$'e $ $$'d1 $$

CFA Level I 2015

$
/ $

=
2. Capital Gain =

{ /{%
{%

8. Annualized Return (Ann R):

Ann R = (1 + Quarterly R) 4 1
Ann R = (1 + Monthly R) 12 1
Ann R = (1 + Weekly R) 52 1
Ann R = (1 + Daily R) 365 1
Weekly R = (1 + Daily R) 5 1
Weekly R = (1 + Annual R) 1/52 1

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

1 R of Asset 1) + (Wght of Asset 2 R
of Asset 2)
10. Gross R = R Trading exp other exp
directly related to the generation of returns.
11. Net R = Gross R - All managerial and
administrative exp

FinQuiz

Formula Sheet

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

allowance for taxes on realized gains

24. Expected R of Portfolio = E R = w& R +

1 w& E R

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

Inf) (1 + RP)
14. (1 + Real R) = (1 + Real Rf R) (1 + RP)
15. (1 + Real R) =

16. Var of a Single Asset = =

{%

N[ /

){ /)

wll ll

20. Portfolio S.D. = Portfolio Variance

21. Correlation of Return b/w two assets =

#* ) ,/< < $$$
.. $$ & .. $$ l

22. 1 + Expected Return =1 + E R =

1 + r 1 + E 1 + E RP

23. Utility of an Invest = Expected Return l

Risk Aversion Coefficient

Var of Invest

! &1 )$1

6. S = Q + S . Q =
= R + w& & + wl l E R R
7. Assets Beta =
# ,< $$ 1 .. 8$$

27. In portfolio of many risky assets =

19. Portfolio Var = l = w&l &l + wll ll +

&

! )$1

.. &1

!/&

7 )k /)R

ij i j

2w& wl Cov R& , R l =

2w& wl &l & l

R +

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

w&l &l

&l =
i,

4. Single-Index Model (based on realized

returns): Ri Rf = i(Rm Rf) + ei
5. Factor weight associated with each factor =

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

(&')

17. Sample Variance = s =

(1
1

w& )l l + 2w& 1 w&

w& l l &p = (1 w1)

Where = S. D. of risk free asset

(&'/ ))

25. Risk of Portfolio = l = w&l l +

CFA Level I 2015

E R =

/
\& E
(//&)

Cov

(//&)
/

9. Sharpe Ratio =

10. Treynor Ratio =

28. New Asset should be included in the Portf

only if

7 )i

/)R

>

7 )h /)R
h

<,

Reading 43: 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 Q =
|
\& M ( )
|
\l M ( )

8. Portfolio Beta = =

\& w ; \& w = 1

= M . Q +

11. M = R $ RQ

)h /)R
h
N /N

. Q

12. Jansens Alpha = S = S

Q + S . Q
13. Security Characteristic Line (SCL) = R
R = + R R
14. Weight in Nonmarket security should be
proportional to
82
/$$ *

= i / 2ei

FinQuiz

Formula Sheet

15. Total Weight of Nonmarket securities in

portfolio should be proportional to =
#
%
#
%

16. Information Ratio =

82
/$$ )$1

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 +
,&d SMB + ,t&- HML + ,"& UMD
Reading 44: Basics of Portfolio Planning &
Construction
1. Investors Expected Utility from Portfolio
= Up = E (Rp) 2p
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
Reading 45: 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
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 %)

CFA Level I 2015

7. Max leverage ratio for position financed by

min margin requirement =
&
& ' C

Reading 46: Security Market Indices

1. Value of a price return index =
N

n P

i i

i =1

VPRI =
3. Price of stock below which a margin call
will take place (P):
Initial margin $ + (P Initial Stock Price)
P
= Maintenance Margin Requirement (%)
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

For Single Period:

2. % Change in value of Price return index

Portfolio = PR I =

Pi1 Pi 0
Pi 0

5. Total cost of placement to the issuing firm

in IPO (%) =

where IF = Issuing firm

4. Price return of the index: PR I =

N

&dd%
% 7C

Pi1 Pi 0

P
i0

w
i

6. Max leverage ratio =

VPRI 1 VPRI 0
VPRI 0

3. Price Return (Ind constituent security):PR I

=

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

i =1

FinQuiz

5. Total return of Index Portfolio:

VPRI 1 VPRI 0 + IncI

VPRI 0
6. Total return of each security = TRi =

P1i P0i + Inci

P0i
N
P P0i + Inci

Total Re turn = wi 1i
P0i
i =1

Formula Sheet

CFA Level I 2015

12. Weight of Si under Float-Adjusted Mkt

Cap weighting =
V $2$ /$ 1 $2$
2 $
(V $2$ /$ &1 $2$ /$
2 $ )

13. Fundamental weight on security i =

V $v $
f (V $v $ )
%

*Book value, cash flow, revenues, earnings,

dividends, & number of employees.

Over Multiple Time Periods:

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

Reading 47:Market Efficiency

8. Value of Total Return index at time t =

VTRIT = V TRI0 (1 + TRI1) (1 + TRI2) (1 +
TRIT)

1. Equity securitys Total Return =

9. Weight of security i under price weighting

=

$
$ $ $$

10. Weight of security i under equal weighting

=

&
/ $$ 2 9

11. Weight of security i under market-cap

weighting =
/d $2$ /$ 2
f / $2$ /$ 2
%

Where Si = Security i

6. ROE = Net profit margin Asset turnover

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

/ '$

/ $$
8*' $$$

8*' C

Reading 49: Introduction to Industry &

Company Analysis

Reading 50: Equity Valuation: Concepts &

Basic Tools
1. Value of a share of stock today =
79 *

\& (&'C ).) $1){

Reading 48: Overview of equity Securities

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

If an investor intends to buy and hold a share

for 1 yr:
2. Value of a share of stock today =
79 * & '79 $' &
(&'C )) $1)%

2. ROE in yr t =
/ ( . 22$)
8*' ! d+ 7C

OR
ROE =

3. Value of a share of stock for n holding

periods or investment horizon =
L 79 *
G\& &'C ) $1 {

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

3. MV of equity = Mkt price per share

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

! te $ C
2$ /$

&1 $2
d+ C $2

79 $
&'C ) $1

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

5. FCFE = CFO FCInv + Net Borrowing
6. Value of a share for a non-div-paying
stock =

V#V7

\& &'C ) $1 {

FinQuiz

Formula Sheet

7. ReqRoR on sharei = Current expected Rf

rate + Beta i [MRP]
8. Value of a pref stock (non-callable, nonconvertible) =

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

d =
G\&

+
G
(1 + )
1+

Gordon Growth Model:

10. Value of a share of stock =
D (1 + g )
D1
V0 = 0
=
,
g<r
rg
rg
11. Sustainable dividend growth rate =
g = ROE b
where b = earnings retention rate = (1 Dividend payout ratio)

d =
G\&

d 1 + 7
(1 + )G

d
7&

% /7%
/'

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

and cash Equivalents
15. Asset-based value = Value of Assets
Value of Liabilities
Reading 51: 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)]
3. Inf adj Principal amount of a capitalindexed bond
= [Par value (1 + CPI)]

# /&1 $ *

\&
&'&1 $ {

3. Bond price =

PV =

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

4. % Price change =

/< /.
.

5. Bond price (given sequence of spot rates)

= PV =

PMT
PMT
PMT + FV
+
+... +
1
2
(1+ Z1 ) (1+ Z 2 )
(1+ Z N ) N
6. Full price of bond = Flat price of bond +
Accrued interest
G

7. Accrued interest = AI =
*

4. Inflation adjusted coupon payment for a

capital-indexed bond
= [Par value (1 + CPI)] coupon rate

8. Full price of a fixed-rate bond between

coupon payments = PVFull

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

9. Full price of a fixed-rate bond between

coupon payments

L
+
(1 + )L

Reading 53: Introduction to Fixed Income

Valuation

L'&
L =
B
L'& = d (1 + 7 )L 1 + B
13. Justified P/E =

2. Present value of deficiency =

Reading 52: Fixed Income Markets: Issuance,

Trading & Funding

Two-stage valuation model:

12. Value of share today = V0 =

CFA Level I 2015

/'

1. Amount of discount below par value =

Present value of deficiency

PV (1+ r)t/T
10. Interpolated yield (say for 3-year, given
market discount rates for 2 and 5 yrs) =
(Average yield for 2 year bonds) +

p/l
v/l

FinQuiz

Formula Sheet

(average yield for 5 year bonds average

yield for 2 year bonds)
m

11.

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

! Yr $ ! FV PV $
AOR = #
&
&#
" Days % " PV %

Relation b/w two spot rates and Implied

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

12. Current yield =

$ * * 2
V

13. Price of Floating-rate note = PV=

(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 &

14. Price of Money Market Instrument (on a

discount-rate basis) =

# Days
&
PV = FV %1
DR (
$ Year
'
15. Market Discount Rate =

DR = Year

# FV PV &
%
)
Days $ FV ('

16. Price of Money Market Instrument (on an

add-on rate basis)=

FV
PV =
" Days
%
AOR '
$1+
#
&
Yr
17. Add-on rate =

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
19. OAS = Z-spread Option value (bps per
year)
20. G-spread = Yield-to-maturity on Corporate
bond Yield-to-maturity on a government
bond
21. Interpolated Spread = I-spread = Yield to
maturity of the bond - Standard swap rate
in that currency of the same tenor
Reading 54: Introduction to Asset Backed
Securities
1. Loan-to-value ratio (LTV) =
e $ 2$
8 &''

2. Monthly CF for a MPS = Monthly CF of

underlying pool of mortgages - Servicing
fee - Other fees

CFA Level I 2015

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 =

$ /.
, $*

FinQuiz

Formula Sheet

Reading 55: 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]
Total Amount of Coupon Pmt = CR Par
value No of periods
RR = Re-invstmnt rate per period
CR = coupon rate

CFA Level I 2015

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
'
$
&
#

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

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

+ Mod D of Bond 2

! &+
&+ d /

+ Mod D of Bond N

! &+

17. Money D = Annualized Mod D Full

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

19.

PVBP =

&

&+ d &
! &+
&+ d l

&'

9. Annualized Modified D =

)*$ #$'
n
) &
d

Mod D of Bond 1

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

OR

8. Modified D =

2. Realized RoR on Bond=

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

r
16. Avg Mod D for the Portf =

(PV ) (PV+ )
2

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

10. % PV

Full

20. Basis Point Value (BPV) = Money

duration 0.0001 (1 bp)

= - AnnModDur Yield

21. Bloombergs Risk Statistic = PVBP 100

11. Approx Modified D =

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

22. %PV Full = (-AnnModDur Yield) +

&
l

12. Approx Mac Dur = Approx Mod Dur (1

+ r)

23. Approx. Convexity Adjustment =

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

(Yield)2 (PV0 )

(PV ) (PV+ )
13. Effective D =
2 (Curve) (PV0 )
14. Macaulay D for a Zero-coupon bond =

()l

1/G
*

FinQuiz

Formula Sheet

CFA Level I 2015

24. Convexity of a zero coupon bond =

6. EBITDA = Operating Income + Dep +
Amort

[ N (t / T )] [ N +1 (t / T )]
(1+ r)2
25. Money Convexity vs Money Duration =
&

PV Full - (MoneyDur Yield) + [

l

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

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

2
(Curve) ( PV0 ))
28. Duration Gap = Bonds Macaulay
Duration Investment Horizon
Reading 56: Fundamentals of Credit Analysis
1. Expected Loss = Default Probability
Loss Severity given Default
2. Funds From Operations = NI +Dep +
Amor+ Deferred income taxes noncash
items
Where NI = Net Income
3. FCF Before Div = NI Cap exp. (+) Inc
(dec) in Non-cash WC Non-recurring
items
4. FCF After Div = FCF Before Div Div
5. Operating Profit Margin =

)*

18. Net Leverage =

! ,
7d!8

! ,/#$2
7d!8

7. FCF = CFO Cap exp Div

8. Capital expenditures = Additions to P&E +
Additions to product rights & intangibles
Proceeds of sale of P&E
9. Total debt = ST debt + Current portion of
LT debt + LT debt

Reading 57: 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

10. Capital = Debt + Equity

3. Margin % in stock market =
11. Yield on Corp Bond = Real Rf rate +
Expected Inf rate + Maturity P + Liquidity
P+ Credit spread
12. Yield spread = Liquidity P + Credit spread
13. Return impact for smaller spread %
in price -Modified Duration Spread
14. Return impact for larger spread % in
price - (Modified D Spread) +
&
l

Convexity (Spread)2

15. Secured debt leverage =

! $ ,
7d!8

16. Senior unsecured leverage =

,' $ ,
7d!8

.'

17. Total Leverage =

&+ 1/&+ ,
&+ 1

4. Margin Call:
Long position: Price that would
trigger a margin call = IM req MM
req
Short position: Price that would
trigger a margin call = IM req MM
req
5. TED spread = LIBOR T-Bill rate
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 = pT =
Max (0, X- ST)

FinQuiz

Formula Sheet

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 58: Basics of Derivative Pricing &

Valuation
1. Pricing of risky assets = S0 =

7 (!)
&''

(r )T

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

At Expiration F0 ( T) = S0 (1 + r) T or
S0 = F0 (T) / (1 + r) T
Value of forward (long) during
contract life (where t < T) = Vt (T) =
St F0 (T) / (1 + r)(T t)
Value of forward (short) during
contract life (where t < T )
= Vt
(T) = F0 (T) / (1 + r) (T t) - St
Value of forward (long) at expiration
(where t = T) = VT (T) = ST - F0 (T)
Value of forward (long) at initiation
(where t = 0) = Vt (0, T) = S0 F0 (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 - F0
(T) / (1 + r) (T t)

CFA Level I 2015

7. Payoff of Call options:

8. Payoff of Put options:

3. S0 =

&''

where, (theta) = Present value of the

costs and (gamma) = Present value 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:

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 270-day Euro$ T.D and short
position in a 90-day Euro$ T.D
For synthetic forward position in a 90day zero-coupon that begins in 30
days (buy 120-day & sell 30-day zero
coupon bonds)

p T = Max (0, X- ST)

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

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

7 ( )

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

Max profit of option seller/writer

Option premium.
Max loss of option seller/writer
unlimited in case of calls; large in case
of puts (bounded by zero).
Max loss of option holder Option
premium

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

FinQuiz

Formula Sheet

11. 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.

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

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

Value at time 0 = V0 = hS0 c0

Value at time 1 will either V1+ = hS1+ c1+ or V1- = hS1- - c1If the portfolio was hedged, then V+
would equal V-.

Value of the call =

Synthetic long position in a put =

X
(1+ r)T

Synthetic long position in an

Synthetic long position in a riskless

bond =

14. Valuing a callable bond using Binomial

Model:

Value of the put =

Reading 59: Risk Management Applications of

Option Strategies

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

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

+ p0 = c0 + X/(1 + r) T

Breakeven = ST* = X + c0

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

X
p0
underlying = S0 = c 0 +
(1+ r)T

X
(1 + r )T

p 0 = c 0 S 0 +

u=

Synthetic long position in a call =

c0 = p 0 + S 0

S1
S
,d = 1
S0
S0

CFA Level I 2015

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

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

FinQuiz

Formula Sheet

CFA Level I 2015

3. Direct Cap Approach Valuation of a

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 60: 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

property =

1Vf
RHSMGHxMHGMOL 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