Professional Documents
Culture Documents
Formulas
List of formulas for
CFA Level 1
TIME VALUE OF MONEY
1 1RPLQDOLQWHUHVWUDWH UHDOULVNIUHHUDWHH[SHFWHGLQIODWLRQUDWH
2 Required interest rate on security= nominal risk-free rate + default risk premium+ liquidity
premium + maturity risk premium
3 Effective Annual Return (EAR)= EAR=(1+periodic rate)m -1
Periodic rate= stated annual rate/m
M= number of compounding periods per year
4 )9 39,<N
)9
39
1+ I
N
Y
)9 IXWXUHYDOXH
39 3UHVHQWYDOXH
I/Y=Rate of return per compounding period
N=Number of compounding periods
5 39SHUSHWXLW\ 307
(I/Y)
307 )L[HGSHULRGLFFDVKIORZ
DISCOUNTED CASH FLOW APPLICATION
6 CF
139
(1+r)t
&) ([SHFWHGFDVKIORZ
r =Discount rate
7 IRR
CF1 CF2 CF3
0=CF+ + +
(1+IRR) (1+IRR)2 (1+IRR)3
IRR= Internal rate of return.
8 (QGLQJ9DOXH%HJLQQLQJ9DOXH
HPR=
%HJLQQLQJ9DOXH
HPR= Holding period return
9 RBD= D/F*360/t
RBD= Annualised yield on a bank discount basis
D=Dollar discount= purchase price - face value
F=Face value
t=Number of days until maturity
360=Bank convention of number of days in a year
10 Effective Annual Yield (EAY)= (1+HPY)365/t -1
HPY= Holding period yield
11 RMM= 360/days*HPY
RMM=Money market yield
12 Bond equivalent yield= {(1+ effective annual yield)1/2-1} * 2
Geometric Mean= [(1+R1)(1+R2). (1+Rn)]1/n-1
13
Geometric mean return is also known as compound annual rate of return
N
14 Harmonic Mean=
[
15 Position of observation at a given percentile
y
Ly=(n+1)
100
16 5DQJH 0D[LPXP9DOXH0LQLPXP9DOXH
;L;
17 Mean Absolute Deviation (MAD)=
n
; $ULWKPHWLFPHDQ
18 3RSXODWLRQ9DULDQFH
((Xi-)2)
2 =
N
19 Standard Deviation
= square root of variance
20 6DPSOH9DULDQFH
((Xi-)2)
2 =
N-1
21 Chebyshevs Inequality
Percentage of observations that lie within k standard deviations of the mean is at least= 1-1/k2
22 &RHIILFLHQWRI9DULDWLRQ
VWDQGDUGGHYLDWLRQRI[
&9
DYHUDJHYDOXHRI[
23 (Rp-RFR)
Sharpe Ratio=
p
Rp= Portfolio Return
RFR= Risk Free Rate
p= standard deviation of portfolio return
24 ;L[3)
Sample Skewness (Sk) =
S3
s =sample standard deviation
;L[4)
25 Sample Skewness (Sk) =
S4
26 ([FHVV.XUWRVLV 6DPSOH.XUWRVLV
PROBABILITY CONCEPTS
27 Multiplication Rule Of Probability,
P(AB)=P(A/B)*P(B)
28 Addition Rule Of Probability,
P(A or B)= P(A)+P(B)-P(AB)
29 Total Probability Rule (Used to determine unconditional probability of an event)
P(A)=P(A/B1)P(B1)+P(A/B2)P(B2)++P(A/BN)P(BN)
30 ([SHFWHGYDOXHRIUDQGRPYDULDEOH ZHLJKWHGDYHUDJHRISRVVLEOHRXWFRPHV
Weights = probabilities that the outcome will occur
31 Covariance
Cov(Ri, Rj)= E{[Ri-E(Ri)][(Rj-E(Rj)]}
Cov(Ri, Rj)= Corr(Ri, Rj) (Ri)(Rj)
32 Correlation Cofficient
(Cov(Ri,Rj))
Corr(Ri,Rj)=
((Ri)(Rj))
34 3RUWIROLR([SHFWHG9DOXH
E(Rp)=w1E(R1) + w2E(R2)+ wnE(Rn)
35 9DULDQFHRI$VVHW3RUWIROLR
36 9DULDQFHRIDVVHW3RUWIROLR
37 Bayes Formula,
Updated Probability=( Probability of new information for a given event / unconditional
probability of new event )*(prior probability of event)
38 Factorial
n! = n*(n-1)*(n-2)*(n-3) *1
0!=1
39 Labelling,
n! / (n1!)*(n2!)*. ( nn!)
40 Combination,
n Cr=n! /(n-r)!r!
41 Permutation,
n! /(n-r)!
COMMON PROBABILITY DISTRIBUTIONS
48 t-statistic
When population variance is unknown,
(x-)
Tn-1=
(s/n)
When population variance is known,
(x-)
Tn-1=
(/n)
49 (n-1)s2
Chi-square test: X2=
2
50 F-distribution test,
F=s12/s22
TECHNICAL ANALYSIS
51 $UPV,QGH[RU6KRUW7HUP7UDGLQJ,QGH[
(Number of advancing Issues / Number of declining issues)
TRIN=
9ROXPHRIDGYDQFLQJLVVXHV9ROXPHRIGHFOLQLQJLVVXHV
DEMAND AND SUPPLY ANALYSIS: INTRODUCTION
52 'HPDQGIXQFWLRQIRUJRRG;
4G[ I3[,3\
3[ 3ULFHRIJRRG;, 6RPHPHDVXUHRIDYHUDJHLQFRPHSHU\HDU
Py=Prices of related goods
53 3ULFH(ODVWLFLW\RI'HPDQG 4XDQWLW\'HPDQGHG3ULFH
FKDQJH
54 &URVV3ULFH(ODVWLFLW\ 4XDQWLW\'HPDQGHG3ULFH2I5HODWHG*RRGV
FKDQJH
55 ,QFRPH(ODVWLFLW\ 4XDQWLW\'HPDQGHGLQ,QFRPH
FKDQJH
DEMAND AND SUPPLY ANALYSIS: THE FIRM
59 Marginal Cost,
MC=change in total cost/change in output
AGGREGATE OUTPUT, PRICES AND ECONOMIC GROWTH
60 1RPLQDO*'3 3LW4LW
Pi,t= Price of good i in year t. Qi,t=Quantity of good I produced in year t
61 GDP deflator= (nominal GDP/value of year t output at year t)*100
83 (cost-residual value)
6WUDLJKWOLQHGHSUHFLDWLRQH[SHQVH
(useful life)
96 CFO
Reinvestment Ratio=
(Cash paid for long term assets)
97 CFCFO
Debt payment Ratio=
(Cash long term debt repayment)
98 CFO
Dividend Payment Ratio=
(Dividends paid)
99 CFO
Investing and Financing Ratio=
(Cash outflow from investing and financing activities)
ACTIVITY RATIOS:
100 Receivables Turnover=net annual sales /average receivables
101 365
Days of sales outstanding=
(Receivables turnover)
103 365
Days of inventory in hand=
(Inventory turnover)
104 Purchases
Payables turnover=
(Average trade payables)
105 365
Number of days of payables=
(Payable turnover)
106 (Revenue )
Total asset turnover=
(Average total assets)
107 Revenue
)L[HGDVVHWWXUQRYHU
$YHUDJHQHWIL[HGDVVHWV
108 Revenue
Working capital turnover=
(Average working capital)
LIQUIDITY RATIOS
SOLVENCY RATIOS
118 (DUQLQJV%HIRUH,QWHUHVWDQGWD[HV
Interest Coverage Ratio=
(Interest payments)
123 EBT
3UHWD[PDUJLQ
Revenue
124 (Net Income)
Return on assets (ROA)=
(Average Total Assets)
125 (Operating Income)
Operating return on assets=
(Average Total Assets)
126 EBIT
Return on Total Capital=
(Average Total Capital)
127 (Net Income)
Return On Equity=
(Average Total Equity)
Or
(Net Income) Revenue
Return On Equity= *
Revenue Equity
= Net Profit Margin * Equity Turnover
52(%\([WHQGHG'XSRQW(TXDWLRQ
(Net Income) EBT EBIT Revenue (Total Assets )
ROE= * EBIT * Revenue * (Total Assets) * (Total Equity)
EBT
7D[%XUGHQ
,QWHUHVW%XUGHQ
(%,70DUJLQ
$VVHWWXUQRYHU
ILQDQFLDOOHYHUDJH
128 (Net Income-Preferred Dividends)
Return on common equity=
(Average Common Equity)
INCOME TAXES
135 ,QFRPHWD[H[SHQVH
(IIHFWLYHWD[UDWH
3UHWD[LQFRPH
137 392IIXWXUHFDVKIORZV
3URILWDELOLW\,QGH[3,
CF0
139
=1+
CF0
COST OF CAPITAL
Asset=Equity 1+ (1-t)D
E
147 $QQXDOLVHGVWDQGDUGGHYLDWLRQRIHTXLW\LQGH[RIGHYHORSLQJFRXQWU\
CRP=
(Annualised standard deviation of sovereign bond
Market in terms of the developed market currency)
Sovereign yield spread= difference between the yields of government bonds in in the
developing country and treasury bonds of similar maturities
148 Break Point (any time the cost of one of the components of the companys WACC changes.)
(Amount Of Capital at which the components cost of capital changes)
Break Points=
(weight of the he component in the capital structure)
MEASURES OF LEVERAGE
439 679&
DTL=
439), = 679&),
153 7RWDOHDUQLQJV$IWHUWD[FRVWRIIXQGV
Eps after buyback=
(Shares outstanding after buyback)
WORKING CAPITAL MANAGEMENT
154 (%discount)
Cost of trade credit=(1+ 365/days past discount -1
(1-%discount)
PORTFOLIO RISK AND RETURN: PART II
155 ([SHFWHGUHWXUQZKHQRQHDVVHWLVLQYHVWHGLQULVN\DVVHWDQGRQHDVVHWLQULVNIUHHDVVHW
E(Rp)= WAE(RA)+wBE(RB)
WB=1-WB
156 Capital market line equation,
(E(Rm)-Rf)
E(Rp)= Rf+ p
( m)
157 Total Risk= systematic risk + unsystematic risk
158 General form of multifactor model,
E(Ri)-Rf=il*E(Factor 1) + i2*E(factor 2)+. ik*E(Factor k)
159 Equation of SML,
(E(Rm)-RFR)
E(Ri)=RFR+ (Cov i,mkt)
9DULDQFHRI0DUNHW
160 (Std Dev of m) 5P5I
M Square= (Rp-Rf)
(Std Dev of p)
161 (Rp-Rf)
Treynor Measure=
p
162 Jensons Alpha= p=Rp-[Rf+p(Rm-Rf)]
(Dn+1)
Pn=
.HJF
)&)( QHWLQFRPHGHSUHFLDWLRQLQFUHDVHLQZRUNLQJFDSLWDOIL[HGFDSLWDOLQYHVWPHQWGHEW
principal repayments+ new debt issues
170 Dp
Preferred stock value=
kp
'S )L[HGGLYLGHQG
.S 5HTXLUHGUDWHRIUHWXUQ
171 (QWHUSULVH9DOXH(9
(9 PDUNHWYDOXHRIFRPPRQDQGSUHIHUUHGVWRFNPDUNHWYDOXHRIGHEWFDVKDQGVKRUW
term investment
(1+s2)=(1+S1)(1+1y1y)
184 9B9
Effective duration=
9R&XUYH
185 Portfolio duration= W1D1 + W2D2 + +WnDn
W= Weight= Full price/total value
D=Duration on bond
186 Money duration= annual modified duration *full price of bond position
Money Duration per 100 units of par value= annual modified duration * full price per 100 of
par value
& PD[>6;@
& ,QWULQVLF9DOXHRI&DOORSWLRQ
S= Spot price
; 6WULNHSULFH
3 PD[>;6@
P=intrinsic value of put
196 Option value= intrinsic value+ time value
Email: learning@icicidirect.com
Website: learning.icicidirect.com
SMS EDU CFA to 5676766
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