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

L/

==

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

L!
L/ !!R

&/R m

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

L% ' L /k

7.

%/

% '
m% m

Power of Test = 1-Prob of Type II Error

=

(when sample size is large or

small but pop S.D is known)

CI for normally distributed population

F
L

% / / % /

=
3.

4.

/h
m

(when sample size is large but

pop S.D is unknown where s is sample

S.D)

7. Students t distribution
F
L

5.

L/& =

/h
m

(when sample size is large or

small and pop S.D is unknown and pop

where = & + k

Test Statistic for a test of diff b/wn two

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

/h

where Rk = pooled

2.

when Pop S.D is unknown, the standard

error of sample statistic is give by =

with unknown variance = H/k

L% /& F% ' L /& F

2.

%/

estimator of common variance =

when Pop S.D is unknown, the standard

error of sample statistic is give by =

CI for normally distributed population

with known variance = H/k

= H/k

'

where N= population

where S = sample S.D.

% / / % /
m% m

6. Construction of Confidence Interval (CI) =

Point estimate (Reliability factor
Standard error)

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

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

L/&

5. New Adjusted Estimate of Standard Error

= (Old estimated standard error fpc)

6.

1. Test Statistic =

% /

4. Finite Population Correction Factor = fpc

1/&

x
s/ n

Reading 11: Hypothesis Testing

sampled is normally or approximately

normally distributed)

x
/ n

where s = sample

S.D estimate of s =
k k =

t=

9. t-ratio =

When the population S.D () is not

1/L

Z=

8. Z-ratio =

CFA Level I 2016

8.

In this df calculated as

% '
m% m

m%
m
'
m%
m

Test Statistic for a test of mean differences

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

sample mean difference = =

&
L

FJ

L
M[& M

sample variance = Jk =

h J% /J

L/&

FinQuiz

Formula Sheet

sample S.D = Jk
sample error of the sample mean
difference = =

8.

population variance) k =
1 = k =

9.

L/& F
h

where

L/&

Chi Square Confidence Interval for

variance
Lower limit = L =
=U==

%/

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

"

F%
F

&ff
&'NF

RS =

&k = 1 & &k =

2 k
& = & 1
k = k 1

3. Simple Moving Average =

' ' .'

11. Relation between Chi Square and F%

distribution = = . where:

&k is one chi square random variable

with one m degrees of freedom

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):

Reading 12: Technical 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

1. Relative Strength Analysis =

10. F-test (test concerning differences between

variances of two normally distributed

and Upper limit

L/& F

populations) F =

(where V = most recent closing price

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

h /

L/& 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

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

9. Income Elasticity of Demand =

%
%

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

Q2 Q1
(Q1 + Q2 )
%Q
=
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

1
2

10. Cross Elasticity =

%
%

Reading 14: Demand & Supply Analysis:

Consumer Demand
1. Marginal Utility =
2.

3. Slope of Budget Constraint Line =

4. Marginal Rate of Substitution =

&' "
&' "

CFA Level I 2016

! "
#$

Equation of Budget Constraint Line = (PX

QX ) + (PY QY)

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
4. Economic costs = Explicit costs + Implicit
costs
5. Normal Profit = Accounting Profit
Economic Profit
6. Accounting profit = Economic Profit +
Normal Profit

FinQuiz

Formula Sheet

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
= 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) =

! #$

15. Marginal Variable Cost =

! +, #$

16. Marginal revenue (in perfect competition)

= Avg. Revenue = Price = Demand

25. Marginal Product =

!
-,

! .
/ 01$

18. Profit can be increased by decreasing

output when MR< MC

26. Least-cost optimization Rule:

&' -,

19. Break-even price: P = ATC Output

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

! )*

10. Marginal Revenue (MR) =

17. Profit can be increased by increasing

output when MR> MC

CFA Level I 2016

20. Firms earn Economic Profits when Price >

Average Total 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.
24. Average Product =

!
-,

-,
&' 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 = 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 $
! &1 $

FinQuiz

Formula Sheet

4. Herfindahl-Hirshman Index = Sum of the

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

Reading 17: Aggregate Output, Prices &

Economic Growth
1. Nominal GDP t = Prices in year t
Quantity produced in year t
2. Real GDP t = Prices in the base year
Quantity produced in year t
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

CFA Level I 2016

9. National Income = Compensation of

employees + Corp & Govt enterprise
profits before taxes + Interest income +
unincorporated business net income + rent
+ indirect business taxes less subsidies

17. Private Sector Saving = Household Saving

+ Undistributed Corporate Profits +
Capital Consumption Allowance
18. GDP = Household consumption + Private
Sector Saving + Net Taxes

10. Total Amount Earned by Capital = Profit +

Capital Consumption Allowance

19. Domestic saving = Investment + Fiscal

balance + Trade balance

11. PI = National income Indirect business

taxes Corp income taxes Undistributed
Corp profits + Transfer payments

20. Trade Balance = Exports Imports

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)

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)]

FinQuiz

Formula Sheet

CFA Level I 2016

2. Money Multiplier =
27. Growth in potential GDP = Growth in
technology + (Relative share of labor in
National Income Growth in Labor) +
(Relative share of capital in National
Income Growth in capital]
28. Capital share =Corporate profits + net
interest income + net rental income +
(depreciation/ GDP)
29. Labor share =

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

)$* )C $*

3. Narrow money = M1= currency held

outside banks + checking accounts +
travellers check
4. Broad money = M2 = M1 + time deposits
+ saving deposits
5. M3 = M2 + deposits with non-bank
financial institution

7 #$

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

2. Fisher Index = (where, IL =

Laspeyres index and Ip = Paasche Index)

7. Neutral Rate = Trend Growth + Inflation

Target

3. () =

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

! , $ 2 <1
. 2 <1

4. Velocity of money =

/
&

Reading 19: Monetary & Fiscal Policy

1. Total Money created = New deposit/
Reserve Req

where, Net taxes = taxes transfer

payments, t = net tax rate

&

9. Fiscal Multiplier (in the absence of taxes)

= 1/(1 - MPC)
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*' $

FinQuiz

Formula Sheet

CFA Level I 2016

3. Net exports = Value of a country's (exports
imports)
4. Net welfare effect = consumers surplus
loss + producers surplus gain + Govt.
revenue

3. Real Exchange Rate $/' =

S/R
S/R

UR
UR
U
&' S
US

&'

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

C = Yd - Sp =Y+R-T-Sp And,
CA = Sp- I+ Govt surplus (or Govt saving)
= Sp- I+ (T- G- R)Sp + Sg = I + CA
where, Sg = Govt savings
Sp = I + CA Sg
Current Account Imbalance CA = Sp
+ Sg I
Reading 21: Currency Exchange Rates
1. Foreign price level in domestic currency =
S/ P
2. Real exchange rate(/) = (S P )/P =
S (P /P )

&'M
&'M

5. Direct Quote =

11. Return on hedged foreign investment

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

&
!/

12. Expected % change in the spot rate =

&

FZ^%

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

7. Consumption = Income + transfers taxes

saving

F/

#S

4. Change in Real Exchange rate =

1 +

!/

#R

S/

Forward rate as a % of spot rate =

V< $
&f,fff

FZ

1 = %G'& =

M /M
&'M

Forward points: P/J P/J =

P/J

M /M
&'M X

(where is quoted

interest rate period)

8. Forward premium/discount (in %) =

$ /'(< $/&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:

1 + J = 1 + P

&
!

In case of indirect quote, Arbitrage

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

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'

%
%

15. Expenditure (R) = Price Quantity = P

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

&'M
&'M

16. Basic idea of Marshall-Lerner condition =

+ ) ) 1 > 0 where,

FinQuiz

Formula Sheet

CFA Level I 2016

9. Annual Depreciation Expense (Declining

x=share of exports
X=price elasticity of foreign demand for
domestic country exports
M=share of imports
M =price elasticity of domestic country
demand for imports

Reading 24: Financial Reporting Standards

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

Reading 25: Understanding Income Statements

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

10. Basic EPS =

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

11. Diluted EPS for preferred stock =

! 2

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

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

spent by the firm Total Contract
Revenue

12. Diluted EPS for convertible debt =

3. Revenue recognized when outcome cannot

be reliably measured = Contract costs
incurred

13. Diluted EPS using Treasury Stock Method

=

4. Revenue recognized under installment

$

Cash receipt

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

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

5. Wgtd Avg cost per unit =

! #$ $ *,
! $ *,

Reading 23: Financial Reporting Mechanics

Acceleration

1. Revenue recognized on Prorated basis =

method =
4. Profit after tax = Profit before tax
Income tax expense

&ff%
"$

factor (say 200% or 2) Net Book Value

! 8 #$

17. Trade balance = Income (GDP)

Domestic expenditure = Absorption

balance method) =

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) =

#$/)$ +
7$ "$ -

14. Net Profit Margin =

/
)*

15. Gross Profit Margin =

$$
)*

16. Comprehensive EPS = EPS + Other

Comprehensive Income per share
Reading 26: Understanding Balance Sheets

FinQuiz

1. Percentage of A/C Receivable estimated to

be uncollectible =
8< , 8/#

Formula Sheet

10. Current ratio =

# 8$$$
# -,$

$$ 8/# )*,

11. Quick (acid test) =

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

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

12. Cash ratio =

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$$$

# -,$

13. Long-term debt-to-equity =

! '/ ,
! 7C

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

5. Amortized cost of PPE = Historical cost

Accumulated depreciation Impairment
losses

#$2'&1, $$

! ,
! 7C

! ,

CFA Level I 2016

4. Purchases from suppliers = COGS +

Increase in inventory
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

! 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

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

FinQuiz

Formula Sheet

CFA Level I 2016

25. Cash flow per share =

14. Historical cost of equipment sold = Beg
balance equipment + Equipment purchased
End balance equipment
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
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

#V./ *$

26. Debt Coverage =

#V.

22. Cash ROA =

23. Cash ROE =

27. Interest Coverage =

)*

#V.'$ '!9$
$

28. Reinvestment =

#V.
#$2 '/ $$$

29. Debt payment =

7. Horizontal common size balance sheet =

^ $2 k
^ $2 &

8. Inventory turnover =

#V.
#$2 -! ,

30. Dividend payment =

#V.
*$

31. Investing and Financing =

#V.

#$ $$ $ '$ $
8*' *

9. Days of Inventory on Hand (DOH) =

/ $
* !*

10. Receivables Turnover =

)*
8*' )*,$

#$2 <$ *$' ' *$

Reading 28: Financial Analysis Techniques

1. Compound Growth Rate =
7 +

%
`a aR bcdeaSf

11. Days of Sales Outstanding (DSO)

=

/ $
)*,$ *

12. Avg A/c Receivable Balance = Avg Days

Credit Sales DSO or
Avg A/c Receivable Balance =

#V.
/ )*

2. Combined ratio =

#V.
8*' ! 8$$$

3. Operating ROA =

-$$$ 79$$

/ 7

ghi
jkl

.'
8*' ! 8$$$

13. Payables turnover =

#V.
8*' $22$_ C

24. Cash to income =

!9
7'$ , !9

6. Vertical common size income statement =

! ,

^' +

21. CF to revenue =

5. Effective Tax Rate =

/ $2$ /$

#V.
.'

4. ROA =

/
8*' ! 8$$$

or

8*' ! 8$$$

2$

14. No of Days of Payables =

15. WC Turnover =

8*' ,$

ROA =
/ '$ 79$ &/!9

$
!*

)*
8*' 0#

/ $
,$ !*

FinQuiz

Formula Sheet

CFA Level I 2016

25. Monetary Reserve Requirement (Cash

16. Fixed Asset Turnover =

)*
8*' / V9 8$$$

Reserve Ratio) =

)$*$ 2 $ # ^1

36. Free Operating CF to Debt =

#V./# 79
! ,

$ -,$

37. Discretionary CF to Debt =

17. Total Asset Turnover =

)*
8*' ! 8$$$

#V./# 9/*$

26. Liquid Asset Requirement =

! ,

) &1, $
$ -,$

38. Net CF to Capital expenditures =

18. Pretax margin =

7'$ , 9 , $
)*

VV./*$

27. Net Interest Margin =

# 9

/ $
! $ 7' 8$$$

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 =

/ / *$

39. Debt to EBITDA =

28. Sales per Square Meter =
)*

29. Average Daily Rate =

! ,

) )*

Income =

/ )$ $

/ )$
/ )$ *,

31. EBIT Interest Coverage =

$$ $

32. EBITDA Interest Coverage =

$$ $

$$ $

. /

34. Return on Capital =

7^!

8*' #
7^!

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

. )*
8*' )*

+ 0.6

+ 1.4

).7
!8

&+ $1
^+ ,$

+ 1.0

$
!8

42. Segment margin =

' (-$$)
' )*

43. Segment turnover =

' )*
' 8$$$

33. FFO Interest Coverage =

23. Coefficient of Variation of Net Income =

24. Coefficient of Variation of Revenues =

!8

!8

7^!8

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

8*' /

3.3

7^!

#8/#-

7^!

. .'
8*' .'

! ,'7C

41. Z-Score = 1.2

30. Occupancy Rate =

7^!8

40. Total Debt to total debt plus Equity =

! ) C &$

8*' # 7C

22. Coefficient of Variation of Operating

! ,

35. FFO to Debt =

VV.
! ,

44. Segment ROA =

' (-$$)
' 8$$$

45. Segment Debt Ratio =

Reading 29: Inventories

' -,$
' 8$$$

FinQuiz

1. NRA = Estimated Selling Price

Estimated Costs of completion and
disposal
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

Formula Sheet

CFA Level I 2016

Where, Recoverable amount = Max [(Fair

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

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.

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

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$ * #

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

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

6. Deferred tax asset = Carrying amount of

liability > Tax base of asset

10. Tax base of a liability = Carrying amount

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

7. Deferred tax liability = Carrying amount of

liability < Tax base of asset

Reading 32: Non-current (Long-term)

Liabilities

8. Companys tax expense (or credit)

reported on its income statement = Income

1. Annual Interest Payment = Face Value

Coupon Rate

FinQuiz

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. 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 interest expense under effective
interest rate method = Carrying value of

Formula Sheet

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 =
^ $
/ $ $

15. No of shares subscribed when warrants are

exercised =

8''' ,
*

CFA Level I 2016

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
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.

) #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)

CFA Level I 2016

14. Tangible B.V = Total stockholders equity

Goodwill Other intangible assets
15. Price to tangible BV ratio =

!', ^+

16. Adjusted debt-to-equity ratio =

base that has passed =

8
$$ 7

18. Adjusted Asset Turnover ratio =

) 8*' $$$'+ ' $

+ $ $
/ 7 ( )

! # -$ $

Total Future

Operating Lease Payments

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 =
1 p

(1+ Req RoR )

IO

8*' / & 9$ , $

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

19. PV of future operating lease payments =

9. Remaining useful life of the asset =

t=1

3. Avg Accounting RoR (AAR) =

8
8 9$

AT CFs at time t

) 7C

8. Avg age of the asset base =

NPV =

) ,'+ ' $

17. Adjusted debt-to-asset ratio =

7. Useful life of the companys overall asset

1. Incremental CF = CF with a decision - CF

without that decision
2. NPV = PV of cash inflows - IO =

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
* associated with the operating lease
obligations

8m$ ^+

Reading 35: Capital Budgeting

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)

FinQuiz

Formula Sheet

CFA Level I 2016

5. Preferred Stock Price per Share

=

1 * 2
#$ 1

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 = (1 -

+g

) ROE

11. Unlevered of Comparable Company =

, abdvc

18. Breakpoint =
8 <22 $_ $ $

monetary terms = r =

%
h /V

+g

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
3. Operating income = CM Fixed Operating
Costs
4. DOL =

% .' 7^!
% "$

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

price: Cost of Equity = r =

%
h /V

12. Levered of Project =

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

1 R(O

Z
r

14. I}SMG` = H77IG 1 +

R(O
R(O

or
DOL=
5. DFL =

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

or

#&/V9 . /V9 V #$

+g
6. DTL=

jabdvc

&' &/abdvc
xabdvc

&' &/G

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

19. Cost of Capital (hen flotation costs are in

10. Companys stock returns = R = a +

bR

13. H77IG =

spread

Reading 37: Measures of Leverage

< $ 2 $

g = retention rate ROE

", =

16. Country equity premium = Sovereign yield

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

CRP]

9. Expected Growth Rate of Dividends

15. Sovereign yield spread = Govt bond yield

(denominated in developed countrys
currency) T.B yield on a similar maturity
bond in developed country

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

Cash Inflows IO (FC in % New
Equity Capital)
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)

% /
% / "$
#&

= DOL DFL =

#&/V9 . /V9 V #$

7. Break-even Revenue = (Variable cost per

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

FinQuiz

Formula Sheet

9. EPS after buyback =

Reading 38: Dividends & Share Repurchases:
Basics
1. Companys payout for the year = Cash
dividends + Value of shares repurchased in
any given year
2. Dividend Payout ratio =
# $2 $2 *$
/ *, $2$

3. EPS after Dividend = EPS before Dividend

2$ /$ , *
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
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 $
k

CFA Level I 2016

5. Discount-basis Yield =

7'$/8 9 #$ V$

V */2$

2$ .$' ^,1

V +
opf

10. Ex-dividend value of share = Stock price

Dividend per share
11. Market value of Equity after distribution of
cash dividends =
[(# $2$ /$) (&+ $2) #$2 *]
# $2$ /$

12. Post-repurchase share price =

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

Reading 39: Working Capital Management

1. Operating cycle = No of days of inventory
+ No of days of receivables

/ $

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
7. Float Factor =

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)

2. Net operating cycle = No of days of

inventory + No of days of receivables No
of days payables

8. Value of stretching payment = A/c payable

Co's opportunity cost for ST funds

3. Money Market Yield =

9. Cost of Trade Credit = 1 +

V */2$
2$
opf

/ $

2$
opu
/ $

ghi

&/$

where n = days beyond discount period

4. Bond Equivalent Yield =

V */2$

10. Cost of Line of Credit =

$'#
- 8

11. Bankers Acceptance Cost =

$
- /$

$
/ $

FinQuiz

12. Commercial Paper Cost =

$'_ $ $$'^1 $$

Formula Sheet

2. Capital Gain =

w /w%

Reading 40: The Corporate Governance of

Listed Companies

3. Dividend Yield =

2. New Shares that need to be created =

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

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 =

&

*
G[& MG

15. (1 + Real R) =

6. Geometric R for n periods = R DM =

1 + & 1 + k 1 + L

7. IRR =

! #V !
[f &')) w

&

=0

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

Reading 42: Risk Management: An

Introduction

12

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)

16. Var of a Single Asset = k =

17. Sample Variance = s k =

e%

NZ /

)w /)

!/&

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 =
#* ) ,/< < $$$

10. Gross R = R Trading exp other exp

directly related to the generation of returns.
Reading 43: Portfolio Risk & Return: Part I
1. Total Return = Capital Gain (or Loss) +
Dividend Yield

(&')

ij i j

8. Annual Return (Ann R):

(&'/ ))

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

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

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

Inf) (1 + RP)

5. Arithmetic mean (AM) R = M =

1. NAV of bond mutual fund =

/ $2$

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

(* 2 , 2 )

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

R3)]1/3 1

N% 'N ''N.% 'N

Reading 41: Portfolio Management: An

Overview

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

allowance for taxes on realized gains

w%

- /$

13. Annualized cost = Cost 12

CFA Level I 2016

11. Net R = Gross R - All managerial and

administrative exp

.. $$ & .. $$ k

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

1 + r 1 + E 1 + E RP

FinQuiz

Formula Sheet

24. Utility of an Invest = Expected Return &

k

Risk Aversion Coefficient

Var of Invest
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

2& k Cov R& , R k

/
[& E
(//&)

(//&)
/

! &1 )$1

7 )c /)R
c

>

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

= i / 2i

should be proportional to =

#
%
#
%

82
/$$ )$1

6. R = P + R . P =

7. Assets Beta =

17. Expected Return of Portfolio (under

Arbitrage Pricing Model) = E R = R V +
, + + 1 ,1

# ,< $$ 1 .. 8$$

8. Portfolio Beta = =

[& w ;

only if

82
/$$ *

16. Information Ratio =

! )$1

[& w

10. Treynor Ratio =

30. New Asset should be included in the Portf

14. Weight of Non-market security should be

proportional to

15. Total Weight of Non-market security

4. Single-Index Model: Ri Rf = i(Rm Rf)
+ ei
5. Factor weight associated with each factor =

9. Sharpe Ratio =

Cov

= M . P +

.. &1

29. In portfolio of many asset =

E R =

{
[& M ( )
{
[k M ( )

= R + w& & + wk k E R R

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

3. Multi-Factor Model: M P =

CFA Level I 2016

11. M = R $ RP

=1

)b /)R

18. Return on an Asset in excess of 1-Month

T-Bill Return (under four factor model) =
E R = + ,&! MKT +
,&^ SMB + ,n&- HML + ,"& UMD

b
N /N

. P

12. Jansens Alpha = R = R

P + R . P
13. Security Characteristic Line (SCL) = R
R = + R R

Reading 45: 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 46: Market Organization & Structure

FinQuiz

Formula Sheet

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 %)
3. Price of stock below which a margin call
will take place (P):
' $ '(/ 1 )

7. Max leverage ratio for position financed by

min margin requirement =
&
& ' C

Reading 47: Security Market Indices

CFA Level I 2016

6. Total return of each security = TRi =

P1i P0i + Inci

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

1. Value of a price return index =

N

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 =

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

P
i =1
i0

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 $ )

FinQuiz

Formula Sheet

13. Fundamental weight on security i =

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

*Book value, cash flow, revenues, earnings,

dividends, & number of employees.

Reading 50: Introduction to Industry &

Company Analysis

Reading 51: Equity Valuation: Concepts &

Basic Tools

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

2. Value of a share of stock today =

79 * & '79 $' &
(&'C )) $1)^&

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

/ ( . 22$)
8*' ! ^+ 7C

OR

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

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

3. MV of equity = Mkt price per share

Shares O/s

5. Price-to-book ratio =

! n_ C

^+ C $2

6. ROE = Net profit margin Asset turnover

/ $$
8*' $$$

79 $
&'C ) $1

/ '$

/ $$
8*' $$$

8*' C

G/&

Two-stage valuation model:

12. Value of share today = V0 =
L

5. FCFE = CFO FCInv + Net Borrowing

L =

stock =

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

7. Req RoR on sharei = Current expected Rf

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

11. Sustainable dividend growth rate =

g = ROE b
where b = earnings retention rate = (1 Dividend payout ratio)

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

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

+
(1 + )G
1+

Gordon Growth Model:

10. Value of a share of stock =
D (1 + g )
D1
V0 = 0
=
,
g<r
rg
rg

f =

2$ /$

&1 $2

Financial leverage =

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 =

1. Value of a share of stock today =

79 *
[& (&'C ).) $1)^

4. BV of equity per share =

V0 =

f =

Reading 48: Market Efficiency

ROE =

CFA Level I 2016

M[&

f 1 + 7
(1 + )G

L
(1 + )L

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

f
7&

% /7%
/'

/'

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

and cash Equivalents
15. Asset-based value = Value of Equipment
and inventory Value of Liabilities

FinQuiz

Formula Sheet

CFA Level I 2016

3. Bond price =
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)]
3. Inf adj Principal amount of a capitalindexed bond
= [Par value (1 + CPI)]
4. Inflation adjusted coupon payment for a
capital-indexed bond
= [Par value (1 + CPI)] coupon rate
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
2. Present value of deficiency =
# /&1 $ *

[&
&'&1 $ w

PV =

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

4. % Price change =

11.

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

12. Current yield =

/< /.

$ * * 2

5. Bond price (given sequence of spot rates)

= PV =

13. Price of Floating-rate note = 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

(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 =

7. Accrued interest = AI =

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

8. Full price of a fixed-rate bond between

coupon payments = PVFull

15. Market Discount Rate =

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

DR = Year

PV =

t/T

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

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

market discount rates for 2 and 5 yrs) =
(Average yield for 2 year bonds) +

o/k
u/k

(average yield for 5 year bonds average

yield for 2 year bonds)

# FV PV &
%
)
Days $ FV ('

16. Price of Money Market Instrument =

9. Full price of a fixed-rate bond between

coupon payments

PV (1+ r)

17. Add-on rate =

FinQuiz

Formula Sheet

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

2. Monthly CF for a MPS = Monthly CF of

underlying pool of mortgages - Servicing
fee - Other fees

Relation b/w two spot rates and Implied

Forward Rate:

3. Pass-through rate = Mortgage rate on the

underlying pool of mortgages Servicing
Fee - Other fees

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
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 - 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) =
_ $ 2$
8 &''

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

CFA Level I 2016

7. DSC ratio =

$ /.
, $*

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]
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

FinQuiz

Formula Sheet

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 )$
Full
$
PV
*
$
*+
#

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

14. Macaulay D for a Zero-coupon bond =

Mod D of Bond 1

&

(1+ r)2

! &+
&+ ^ /

+ 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 =

(PV ) (PV+ )
2

20. Basis Point Value (BPV) = Money

duration 0.0001 (1 bp)

11. Approx Modified D =

21. Bloombergs Risk Statistic = PVBP 100

22. %PV
&
k

(PV ) (PV+ )
2 (Curve) (PV0 )

&

PV Full - (MoneyDur Yield) + [

k

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

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

2
(Curve) ( PV0 ))

10. % PVFull = - AnnModDur Yield

13. Effective D =

25. Money Convexity vs Money Duration =

27. Effective Convexity =

&

12. Approx Mac Dur = Approx Mod Dur (1

+ r)

24. Convexity of a zero coupon bond =

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

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

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

(Yield)2 (PV0 )

&+ ^ &

&'

9. Annualized Modified D =

23. Approx. Convexity Adjustment =

! &+
&+ ^ k

+ Mod D of Bond 2

OR

8. Modified D =

1/G

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

r
16. Avg Mod D for the Portf =

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

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

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

CFA Level I 2016

Full

= (-AnnModDur Yield) +

()k

Or
%PV Full = (-AnnModDur Yield) +
&
k

()

28. Duration Gap = Bonds Macaulay

Duration Investment Horizon
Reading 57: Fundamentals of Credit Analysis
1. Expected Loss = Default Probability
Loss Severity given Default
2. Operating Profit Margin =

.'
)*

3. EBITDA = Operating Income + Dep +

Amort

FinQuiz

Formula Sheet

4. FCF = CFO Cap exp Div

Reading 58: Derivatives Markets and

Instruments

5. Capital expenditures = Additions to P&E +

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

1. Value of the contract to the Long at

expiration = ST F0(T)

6. Total debt = ST debt + Current portion of

LT debt + LT debt

2. Value of the contract to the Short at

expiration = F0(T) ST

7. Capital = Debt + Equity

3. Margin % in stock market =

&+ 1/&+ ,

8. Yield on Corp Bond = Rf rate + Expected

Inf rate + Maturity P + Liquidity P+ Credit
spread
9. Yield spread = Liquidity P + Credit spread
10. Return impact for smaller spread %
in price -Modified Duration Spread
11. Return impact for larger spread % in
price - (Modified D Spread) +
&
k

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

&+ 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 = P0 =
Max (0, X- ST)
Profit from Put option =
Max (0, X- ST) P0
7. At expiration (for option Seller):
Profit from Call option =

CFA Level I 2016

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) = 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:
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)

FinQuiz

Formula Sheet

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)

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

Where Zn are n period zero coupon

bonds (i.e. $1 discount factors)

Zn =

1
1 + ( Ln days / 360)

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.

Value of a floating rate side (per $ 1

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

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:

Put-Call Parity

8. Payoff of Call options:

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 (

Pricing and valuation of Options:

CFA Level I 2016

p T = Max (0, X- ST)

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

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

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

X
(1+ r)T

FinQuiz

Synthetic long position in a put =

p 0 = c 0 S 0 +

Formula Sheet

Synthetic long position in an

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:

Value of the put =

X
(1+ r)T

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

Ru = Rd e2
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-.

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

Value of the call =

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

5. Covered Call = Long stock position +

Short call position

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

CFA Level I 2016

pT = max (0, X - ST)

When ST < X pT = X - ST
When ST X pT = 0
Value at expiration = pT

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

FinQuiz

Formula Sheet

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
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