FinQuiz Formula Sheet CFA Level I 2015

5
Reading 5: Time Value of Money • EAR (with Continuous Compounding) 4. MMWR = ∑1@O = 0 (IRR
Q22 ?
= EAR = −1
represents the MWR)
1. Interest Rate (i)
• i = Rf + Inf P + Default Risk 5. PV & FV of Ordinary Annuity
5. TWR:
P + Liquidity P + Maturity P
• Nominal Rf i rate = Real Rf i Rate + • PVOA = ∑0+@ ? = $AB C DE
F • TWR (when no external CF) = rTWR =
R
+
HPR = rt =
∑0+@ G$AB+ 1 + H R
Inf P
• FVOA = =
• TWR (for more than one periods) =
• i rate as a growth rate = g = -1 $AB I J rTWR = [(1+rt,1)× (1+rt,2)×… (1+rt,n)] -1
• Size of Annuity Payment = PMT = • Annualized TWR (when investment is
2. PV and FV of CF = for more than one year)
34 /0071+K ,L+3
• PV = = U 1 + = G1 + =V … +
E M×
1 + =0 HXY _1
I D J
• M
PV of Perpetuity = • PV of Annuity Factor = E
M
• PV (for more than one Compounding • TWR (for the year) = rTWR = [(1+R1)×
×
per year) = PV= FVN 1 +
(1+R2)×… (1+R365)] -1 where R1 =
6. PV & FV of Annuity Due R
ℎ = !! " − R
• PVAD = $AB C DE
F + PMT at t =
• FVN = $% 1 +
• FV (for more than one Compounding PVOA + PMT 6. Bank Discount Yield = BDY = rBD =
[\O , 1L-
×
per year) = FVN = 1 + FVAD = $AB I J 1+
therefore Price = Par
• = 0 ,
0 × ]^
• 1−
FV (for Continuous Compounding) = FVOA ×(1+r) [\O
FVN = $% ×
&
'( Reading 6: Discounted Cash Flow Applications R S
)( 7. Holding Period Yield = HPY =
• Solving for N = (where LN = R
&
5 ?
∑0+@ − <NO
Effective Annual Yield = EAY = 1 +
natural log) 1. NPV = ?
8.
4. Stated & Effective Rates _$` [\a/+ − 1 (Rule: EAY > BDY)
2. IRR (when project’s CFs are perpetuity) =
• Periodic i Rate = P5PPP
*+,+-. /00 1 2,+- NPV = - IO +
Q22
=0 9. Money Market Yield (or CD equivalent
3 34 53 6370.108 - 13. 10 90- :-, Yield) rMM:
[\O
• Effective (or Equivalent) Ann Rate R S • rMM = HPY ×
3. HPR = +
(EAR = EFF%) = R
•
1 + $ "; "< " = −1
rMM = (rBD) ×
,L- ,c7- 34 +d- -, 7 K e1cc
7 Ld, - 1L-
 FinQuiz Formula Sheet CFA Level I 2015

[\O ]^ • ∑qs tq x y
• rMM = (Rule: rMM> For Even no of obvs locate 17. Population Var = σ2 =
[\O + ]^ 0
median at
V ∑qs tq x y
18. Population S.D = √{ V = |
rBD)
10. Bond Equivalent Yield = BDY = • For Odd no. of obvs locate
0
Semiannual Yield × 2 median at
V
∑Y P y
qs tq t
19. Sample Var = s2 =
Reading 7: Statistical Concepts & Market 0
9. Mode = obvs that occurs most frequently
Returns in the distribution
∑Y P y
qs tq t
20. Sample S.D = s = |
0
1. Range = Max Value – Min Value PPPP
10. Weighted Mean = l m = ∑1@
0
1 l1 =
tq tP y
21. Semi-var = ∑
(w1X1+ w2X2+….+ wnXn)
f &
2. Class Interval = i ≥ where 3 ,cc tq }tP 0
g
• i = class interval 11. Geometric Mean = GM = nl lV … l0 Y

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

• H = highest value with Xi≥0 for i = 1,2,…n.
tq tP y
• L = lowest value, k = No. of classes. √ ~"• " !< = |∑ 3 ,cc tq }tP 0
12. Harmonic Mean = H.M = PPPP
0
lf =
∑Y
qs op r
3. Absolute Frequency = Actual No of q
tq e y
23. Target Semi-var = ∑ 3 ,cc tq }e
Observations (obvs) in a given class 0
∑Y
q tq
interval 13. Population Mean = µ = with l1 > 0 where B = Target Value

/h 3c7+- -i7-0LK
for i = 1,2,.,.,n.
4. Relative Frequency = 24. Target Semi-Deviation =
3+,c 3 34 9hj
∑Y n € ~"• " !< =
14. Sample Mean = lP = q tq
where n =
0
tq e y
5. Cumulative Absolute Frequency = Add up |∑ 3 ,cc tq }e
the Absolute Frequencies
number of observation in the sample 0

15. Measures of Location: *

6. Cumulative Relative Frequency = Add up S1 + 1h7+130 25. Coefficient of Variation = CV = P
t
•
where s= sample S.D and lP = sample
Quartiles =
the Relative Frequencies v
S1 + 1h7+130
• Quintiles =
*7 34 3hj 10 .,+,h, - a mean
7. Arithmetic Mean = S1 + 1h7+130
3.34 3hj 10 +d- .,+,h, - • Deciles = ,
O -,0 3 +43c13 2 -,0 24 2
K
Percentiles = Ly = ! + 1
26. Sharpe Ratio =
• *.S 34 3 +43c13 2
8. Median = Middle No (when observations OO

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

16. Mean Absolute Deviation = MAD =
order)
∑Y P
qs |t? t |
0
 FinQuiz Formula Sheet CFA Level I 2015

28. Geometric Mean R ≈ • Multiplication Rule for two 13. Standard Deviation (S.D) =
, 1,0L- 34 2
• " ℎ~ "< A ! = − independent events = P(A & B) = n V
=1 + V =V
V
+ [ =[
V
V
P(AB) = P(A)× P(B)
Reading 8: Probability Concepts • Multiplication Rule for three 14. Correlation (b/w two random variables Ri,
53j G2q 2‰ H
Rj) = ˆG=1 =… H =
independent events = P(A and B
and C) = P(ABC) = P(A) × P(B) Š2q ׊2‰
1. Empirical Prob of an event E = P(E) =
3h 34 -j-0+ ‚ × P(C)
3+,c 3h 15. Bayes’ Formula = $ „• ! \
8. Complement Rule (for an event S) = P(S) Œ •!N; ~ ";! =
3h 34 ‚
-m Q043 ,+130\‚j-0+
2. Odds for event E =
3h 34 ‚
+ P(SC) = 1 (where SC is the event not S) ×
-m Q043 ,+130
$ $ "; ƒ ;Ž. ;N „• !
3h 34 ‚ 9. Total Probability Rule:
3. Odds against event E =
3h 34 ‚ P(A) = P(AS) + P(ASC) = P(A\S)×P(S) +
16. Multiplication Rule of Counting = n
P(A\SC)×P(SC)
4. Conditional Prob of A given that B has factorial = !! = n (n-1)(n-2)(n-3)…1.
P(A) = P(AS1) + P(AS2) +….+ P(ASn) =
/e
occurred = P(A\B) = → P(B) ≠ 0. P(A\S1)×P(S1) + P(A\S2)×P(S2)…
e 17. Multinomial Formula (General formula for
P(A\Sn)×P(Sn) 0!
labeling problem) =
5. Multiplication Rule (Joint probability that 0 !0y !…0• !
(where S1, S2, …,Sn are mutually exclusive
both events will happen):
and exhaustive scenarios) 18. Combination Formula (Binomial Formula)
0!
P(A and B) = P(AB) = P(A\B) × P(B) = 0 † = G0H =
0 ! !
10. Expected R = E(wiRi) = wiE(Ri)
P(B and A) = P(BA) = P(B\A) × P(A)

11. Cov (Ri Rj) = ∑01@ Gƒ =1 − „=1 HG=… −

where n = total no. of objects and r = no.
6. Addition Rule (Prob that event A or B will
„=… H
of objects selected.
occur):
0!
19. Permutation = 0 $ =
Cov (Ri Rj) = Cov (Rj Ri)
P(A or B) = P(A) + P(B) – P(AB) Cov (R, R) = σ2 (R) 0 !

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

mutually exclusive because P(AB) = 0) 12. Portfolio Var = σ2 (Rp) = Reading 9: Common Probability Distributions
∑01@ ∑0…@ 1 … †;•G=1 =… H
σ2 (Rp) = V { V = + VV { V =V +
7. Independent Events: 1. Probability Function (for a binomial

[ { =[ + 2 V †;• = , =V +
• Two events are independent if: V V
random variable) p(x) = p(X=x) =
0!
G0‘Hƒ‘ 1 − $ 0 ‘
==
[ †;• = , =[ + 0 ‘ !‘!6’ 6 Y“’
P(B\A) = P(B) or if P(A\B) = 2
P(A) 2 V [ †;• =V , =[ (for x = 0,1,2….n)
 FinQuiz Formula Sheet CFA Level I 2015

• x = success out of n trials ! !; ~ ¦ ! ;~ • " Ž¦ = rt, t+1= ln(1 + holding period return) or
t x
• n-x = failures out of n trials (when X is normally distributed) rt, t+1 = ln(price relative) = ln (St+1 / St) = ln
Š
• p = probability of success (1 + Rt,t+1)
• 1-p = probability of failure 6. Roy’s Safety-Frist Criterion = SF Ratio =
• n = no of trials. §‚ 2) 2¨ © 14. Continuously compounded return
Š) associated with a holding period from 0 to
2. Probability Density Function (pdf) = f(x) T:
U‚ 2) 2ª X
= ” h , N; ≤ – ≤ Ž = = +
7. Sharpe Ratio = =
Š)
O, ,
0
R0,T= ln (ST / S0) or
‘ , + ⋯ + O,
F(x) = N; < – < Ž V,
h , 8. Value at Risk = VAR = Minimum $ loss
expected over a specified period at a
Normal Density Funct = N – =
Where,
3. specified prob level.
rT-I, T = One-period continuously
‘ x y
–ƒ for − ∞ < – < + ∞
VŠ y
Š√V˜
compounded returns
9. Mean (µL) of a lognormal random variable
= exp (µ + 0.50σ2)
4. Estimations by using Normal Distribution: 15. When one-period continuously
compounded returns (i.e. r0,1) are IID
10. Variance (σL2) of a lognormal random
• Approximately 50% of all obsv fall in random variables.
variable = exp (2µ+ σ2) × [exp (σ2) – 1].
V
the interval • ± {
[ „G O, H = „G , H + „G V, H+
• 11. Log Normal Price = ST = S0exp (r0,T)
⋯ + „G H = •B And
Approx 68% of all obvs fall in the
interval • ± { Where, exp = e and r0,t = Continuously O,

• compounded return from 0 to T

% " !< = { V G H = { VB
Approx 68% of all obvs fall in the
interval • ± 2{ O,

• Approx 68% of all obvs fall in the 12. Price relative = End price / Beg price =
interval • ± 3{ St+1/ St=1 + Rt, t+1 S.D. = σ (r0,T) = σ√B
• More precise intervals for 95% of the
obvs are • ± 1.96{ and for 99% of the
where, 16. Annualized volatility = sample S.D. of
observations are • ± 2.58{.
Rt, t+1 = holding period return on the stock one period continuously compounded
from t to t + 1. returns × √B
5. Z-Score (how many S.Ds away from the
13. Continuously compounded return Reading 10: Sampling and Estimation
mean the point x lies)
¥=
associated with a holding period from t to t
+ 1: 1. Var of the distribution of the sample mean
Šy
=
0
 FinQuiz Formula Sheet CFA Level I 2015

tP xR
2. S.D of the distribution of the sample mean 5. 0 = (when sample size is large or
Šy x−µ √Y
=| Z=
0 8. Z-ratio = small and pop S.D is unknown and pop
σ/ n sampled is normally or approximately
3. Standard Error of the sample mean: x −µ normally distributed)
• When the population S.D (σ) is known 9. t-ratio = t=
Š s/ n
¬ =
= {t 6. Test Statistic for a test of diff b/w two pop
√0
means (normally distributed, pop var
• When the population S.D (σ) is not Reading 11: Hypothesis Testing unknown but assumed equal)
known = t ¬ = where s = sample
√0
PPPP PPPP
t ty x xy
where Ä6V = pooled
S.D estimate of s = 1. Test Statistic =
®¯°±²³ ®´¯´µ¶´µ· ¸¹±º´»³¶µ¼³½ ¾¯²¿³ ºÀ ±º± ±¯Á¯°³´³Á t=
Çy y /y
n ~ƒ¦ • " !< = ¶´¯Â½¯Á½ ³ÁÁºÁ ºÀ ¶¯°±²³ ¶´¯´µ¶´µ· ∗ Æ
È ÇÈ
Y Yy
É
∑Y P y
qs tq t
√ V ℎ V
= estimator of common variance =
0
* y 0y *yy
*
0
where N = ! + !V −
when Pop S.D is unknown, the standard
error of sample statistic is give by 0 0y V
* 2.
4. Finite Population Correction Factor = fpc
¬ =
Ät
0 √0
= |I J where N= population
* 7. Test Statistic for a test of diff b/wn two
when Pop S.D is unknown, the standard
pop means (normally distributed, unequal
5. New Adjusted Estimate of Standard Error error of sample statistic is give by
Š
¬ =
{t
and unknown pop var unknown)
= (Old estimated standard error × fpc)
√0
PPPP PPPP
t ty x xy
t= /y In this df calculated as
Çy Çy
6. Construction of Confidence Interval (CI) = 2. Power of Test = 1-Prob of Type II Error Æ yÉ
Point estimate ± (Reliability factor × Y Yy
y
tP xR Çy Çy
¥ = Æ yÉ
Standard error)
Å Y Yy
N =
3. (when sample size is large or
√Y y y
Çy Çy
• CI for normally distributed population ÆY É ÆYy É
small but pop S.D is known) y
Š
with known variance = –̅ ± ¥,/V Y Yy
√0
tP xR
• CI for normally distributed population 4. ¥ = (when sample size is large but 8. Test Statistic for a test of mean differences
*
with unknown variance = –̅ ± ¥,/V
√Y
√0 pop S.D is unknown where s is sample (normally distributed populations,
where S = sample S.D. S.D) unknown population variances)

.P xÊR
7. Student’s t distribution • =
*.P
µ = lP ± ,/V
*
√0
 FinQuiz Formula Sheet CFA Level I 2015

• sample mean difference = PPP

= 11. Relation between Chi Square and F- • Price target = Lowest Low – Height of
t yÎ
∑01@
distribution = Í = t y
1
the pattern
0 where:
∑Y .P y yÎ
qsR . 0
• Ä.V =
l V is one chi square random variable
sample variance =
0 • 4. For the Double Tops Pattern:
• sample S.D = nÄ.V with one m degrees of freedom • Height = Highest high – Lowest Low
• sample error of the sample mean • lVV is another chi square random • Price target = Highest High + Height
difference = PPP
*
= Ê variable with one n degrees of of the pattern
√0
freedom
5. Height of a Triangle = Price at the start of
8. Chi Square Test Statistic (for test
12. Spearman Rank Correlation = (downward slopping trend line –upward
6 ∑01@ V
concerning the value of a normal sloping trend line)
0 *y
population variance) l V = =1−
ŠRy ! !V − 1
where
! − 1 = N ! Ä = V
• For small samples rejection points for 6. Flags and Pennants Pattern
∑Y P y
qsR tq t
• Flag Price Target = Price level at
~ƒ¦ • " !< = the test based on are found using
0 which [flag ends – (trend starts –flag
table.
starts to form)]
• For large sample size (e.g. n>30) t-test
9. Chi Square Confidence Interval for
can be used to test the hypothesis i.e. • Pennant Price Target = Price level at
! − 2 /V
variance which [pennant ends – (trend starts –
*y
0
=
1 − V /V
Lower limit = L = y and Upper limit pennant starts to form)]
tË/y
0 *y
ÏÓ ÏÔ ÏÕ …. ÏÂ
t y“Ë/y
=U== 7. Simple Moving Average =
Reading 12: Technical Analysis Ö

10. F-test (test concerning differences between 1. Relative Strength Analysis = 8. Momentum Oscillator (or Rate of Change
variances of two normally distributed ÏÁµ·³ ºÀ ¯¶¶³´ Oscillator ROC):
*y ÏÁµ·³ ºÀ ´»³ г·»°¯ÁÑ Ò¶¶³´

*yy
populations) F =
3.,K × ∆ –∆ 0 6- 13. ,83
• ROC = × 100
2. Price Target for the ∆ 0 6- 13. ,83
Ä V = 1 ~ƒ¦ • " ℎ ! ;Ž • Head and Shoulders = Neckline – • Momentum Oscillator Value M = (V-
Ä V = 2! ~ƒ¦ • " ℎ !V ;Ž (Head – Neckline) Vx) × 100
N = ! − 1 !Ì~ ; N • Inverse Head and Shoulders = (where V = most recent closing price
NV = !V − 1 !;~"! ; N Neckline + (Neckline– Head) and Vx = closing price x days ago)
• Alternate Method to calculate M =
3. For the Double Tops Pattern: × 100
’
• Height = Highest high – Lowest Low
 FinQuiz Formula Sheet CFA Level I 2015

9. Relative Strength Index = RSI = 100 − 2. Slope of the supply curve = 8. Price Elasticity of Demand =
OO ∆ åæ çèåéê % ∆ åæ ëìíæîåîï ðêñíæòêò
where
2* ∆ åæ ëìíæîåîï óìôôõåêò % ∆ åæ çèåéê
∑ Ú6 Ld,08-
RS = ∑ |S3m0 Ld,08- |
Q2 − Q1
3. Consumer Surplus = Value that a
%∆Q (Q1 + Q2 )
1
consumer places on units consumed – = 2
10. Stochastic Oscillator (composed of two %∆P P2 − P1
Price paid to buy those units
2 ( P1 + P2 )
lines %K and %D): 1
• Area (for calculating Consumer
5 & v
%Ü = 100
Surplus) = ½ (Base × Height) = ½ (Q0
• where:
f v & v × P0) 9. Income Elasticity of Demand =
C = latest closing price, L14 = lowest % ∆ åæ ëìíæîåîï ðêñíæòêò
=
% ∆ åæ öæé÷ñê
price in last 14 days, H14 is highest 4. Producer Surplus = Total revenue received
price in last 14 days from selling a given amount of a good – Q2 − Q1
• %D = Average of the last three %K Total variable cost of producing that %∆Q (Q1 + Q2 )
1
= 2
values calculated daily. amount %∆I I 2 − I1
2 ( I1 + I 2 )
1
11. Put/Call Ratio (Type of Sentiment • Total revenue = Total quantity sold ×
¾º²¿°³ ºÀ Ï¿´ ݱ´µºÂ¶ ÞÁ¯½³½
Indicators) = Price per unit
¾º²¿°³ ºÀ ߯²² ݱ´µºÂ¶ ÞÁ¯½³½ 10. Cross Elasticity =
• Area (for calculating Producer % ∆åæ ëìíæîåîï ðêñíæòêò ÷ø ù÷÷ò ú
Surplus) = ½ (Base × Height) = ½ % ∆ åæ çèåéê ÷ø ù÷÷ò û
12. Short Interest Ratio (Type of Sentiment
®»ºÁ´ à´³Á³¶´ {(Q0) × (P0 – intercept point on y-
Indicators) =
Òá³Á¯â³ 㯵²¹ ÞÁ¯½µÂâ ¾º²¿°³ axis**)}
Reading 14: Demand & Supply Analysis:
13. Arms Index TRIN i.e. Trading Index (Type **where supply curve intersects y-axis Consumer Demand
of Flow of funds Indicator) =
• ~ •! – ; B=•Œ = 5. Total Surplus = Consumer surplus + 1. Marginal Utility =
∆ åæ ü÷îíõ ýîåõåîï
3.34 /.j,0 Q 7- ÷ 3.34 S-Lc10 Q 7- ∆ åæ ëìíæîåîï þ÷æ ìñêò
Producer surplus
3c7 - 34 /.j,0 Q 7- ÷ 3c7 - 34 S-Lc10 Q 7-
2. Equation of Budget Constraint Line = (PX
6. Total Surplus = Total value – Total
Reading 13: Demand & Supply Analysis: × QX ) + (PY × QY)
variable cost
Introduction
∆ åæ ë
3. Slope of Budget Constraint Line = =
7. Society Welfare = Consumer surplus + ∆ åæ ëp
1. Slope of the demand curve = çp
∆ åæ çèåéê Producer surplus
ç
∆ åæ ëìíæîåîï ðêñíæòêò