CFA LEVEL I 2024 FORMULA SHEET

F in Q uiz F ormula S heet CFA P rogram L evel I

8. Non-annual Compounding
QUANTITATIVE METHODS 4. Geometric Mean Return PV (for more than one Compounding per
?
R89 = ;(1 + R 9% ) … × (1 + R 9> ) − 1 year)
T 2V×X
PV= FVN S1 + VUW
Learning Module 1: where,
𝑤ℎ𝑒𝑟𝑒 𝑟\ = 𝑠𝑡𝑎𝑡𝑒𝑑 𝑎𝑛𝑛 𝑖 − 𝑟𝑎𝑡𝑒
Rates and Returns Rit = return in period t
T = total number of periods
9. Annualized Return
rannual= (1 + rperiod)c– 1
1. Interest Rate r 5. Harmonic Mean
E
r = Real risk-free rate + Inflation 1
A
XB = n/ 4( ) where,
premium + Default risk premium + X9
96%
c = number of periods in a year
Liquidity premium + Maturity premium j
𝑟abbcde = f1 + 𝑟gh-de i − 1;
with Xi > 0 for i = 1,2, …, n. %/n.
Nominal risk-free rate = Real risk-free 𝑟abbcde = f1 + 𝑟hllmhde i −1
rate + Inflation premium
6. Money-weighted rate of return (MWR)
> 10. Continuously Compounded Return CCR
2. Holding Period Return (HPR) CFI CCR associated with a HPR (t to t + 1)
IRR = 4 =0
(𝑃% − 𝑃') + 𝐼% (1 + IRR)I rt, t+1= ln(1 + holding period return) or
𝑅= I6'
𝑃' rt, t+1 = ln(price relative) = ln (Pt+1/Pt) = ln
where where, (1 + Rt,t+1)
𝑃' =price at the beginning of period IRR = internal rate of return
𝑃% = price at the end of period T = number of periods CCR associated with a HPR (0 to T)
I =income CFt = cash flow at time t R0,T= ln (PT/P0) or
𝑟',1 = 𝑟12%,1 + 𝑟12.,12% + ⋯ + 𝑟',%
3. Arithmetic mean (AM) 7. Time-weighted Returns (TWR)
𝑅-% + 𝑅-. + ⋯ + 𝑅-.12% + 𝑅-1 rtwr = [(1 + 𝑟𝑡, 1) × (1 + 𝑟𝑡, 2) × … × 11. Gross Return
𝑅,- =
𝑇 Gross return = Return – trading
1 (1 + 𝑟𝑡, 𝑛)]%/R – 1
1 expenses–Other expense directly related
= 4 𝑅-5
𝑇 to the generation of returns
56%

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l
PV for Fixed Income 𝐷5 (1 + 𝑔\ )- 𝐸(𝑆5•l )
12. Net Return 2. Discount Instrument: 𝑃𝑉5 = 4 +
(1 + 𝑟)- (1 + 𝑟)l
Net Return = Gross Return – all |}
~ -6%
PV = (%•€)
managerial and administrative expenses ~
where 𝐸(𝑆5•l ) = stock value in n period

13. After-Tax Nominal Return 3. Coupon Instrument: Š~‹Œ‹•

After-tax nominal return = Total return – 𝐸(𝑆5•l ) =
PMT% PMT. PMTX + FVX €2Ž•
any allowance for taxes on dividends, P= + …
(1 + r)% (1 + r). (1 + r)%
interest & realized gains 9. Implied Return for Fixed-Income
4. Perpetual Bond FVI %/I
Implied return: r = ˜ ™ − 1
PV = PMT/r PV
14. Real Returns ›œ1•
(1 + r) = (1 + rTp ) × (1 + π) × (1 + RP) PV (Coupon Bond) = ∑R-6% (%•€)•
(1 + rTstu ) = (1 + rTp ) × (1 + RP) or 5. Annuity Instruments
𝑟(𝑃𝑉) 10. Implied Return and Implied Growth
(1 + rTstu ) = (1 + r) ÷ (1 + π) 𝐴=
1 − (1 + 𝑟)25 for Equity
where, Š~ (%•Ž)
Implied Return: 𝑟 = +𝑔
r = Nominal return A= periodic cash flow. ›}~
žŸ‹•
rrF = Real risk-free return r = market interest rate per period. Implied Growth: g = r −
¡Ÿ
π = Inflation PV = initial value/principal of the loan or
RP = Risk premium bond.
where 𝐷5 (1 + 𝑔) = 𝐷5•%
t = total no. of payment periods.

Learning Module 2: 11. Price-to-Earnings Ratio (P/E):

PV for Equity
The Time Value of Money in Finance PVI DI (1 + g)
6. Constant Dividends = ×
E EI r−g
𝐷5
𝑃𝑉5 =
1. Present Value (PV) and Future Value 𝑟
where
(FV) Relation 𝐷5 (1 + 𝑔)
7. Constant Dividend Growth Rate 𝑃𝑉5 =
FV N = PV(1 + r)X 𝑟−𝑔
DI•% = DI (1 + g)
FVN = PVeTU×X (for continuous
DI (1 + g)
compounding) PVI = 12. Forward P/E Ratio
|}~
(r − g)
𝑃𝑉 = 𝐹𝑉5 (1 + 𝑟) 25
or 𝑃𝑉 = DI•%
(%•€)~ assuming r – g > 0 PVI E
𝑃𝑉 = 𝐹𝑉 𝑒 2€5
(for continuous = I•%
E5•% 𝑟−𝑔
compounding) 8. Changing Dividend Growth Rate

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13. Cash Flow Additivity 4. Mode • Deciles =

Š-\5€-²m5-³l
,
%'
Two-Year Bond Future Value: Observation that occurs most frequently e
• Percentiles = Ly = (𝑛 + 1) %''
𝐹𝑉. e€\ = 1(1 + 𝑟. ). in the distribution
• Interquartile range (IQR) = Q3 – Q1
14. Forward Exchange Rates 5. Weighted Mean: 𝑋a
(1 + 𝑟g ) ,,,,
𝑋a = ∑l-6% 𝑤- 𝑋- = (w1X1+ w2X2+….+
𝐹 = 𝑆' × Measures of Location
f1 + 𝑟£ i wnXn)
9. Range = Max. value – Min value
where
d = domestic currency where,
X1, X2,…,Xn = observed values 10. Mean Absolute Deviation: MAD
f = foreign currency ∑Œ ,
w1, w2,…,w3 = Corresponding weights, •±•|¶~ 2¶ |
MAD = l
sum to 1.
Learning Module 3
Statistical Measures of Asset Returns where,
6. Geometric Mean: GM
𝑋,=Sample mean
GM = Œ;𝑋% 𝑋. … 𝑋l with Xi ≥0 for i = n=No. of observations in the sample
Measures of Central Tendency 1,2,…n.
1. Arithmetic Mean: AM or 11. Sample Var: s2
¤¥V ¦§ ¦¨©ª 9E «tIt¨tªs %
AM = X¦.¦§ ¦¨©ª 9E I¬s «tIt¨tªs In G = E In(X% X. Xn … XE ) ∑Œ , ·
•±•(¶• 2¶ )
s2 = l2%
or
2. Sample Mean A
X ∑E96% InXE 12. Sample Standard Deviation: S.D
In G =
∑E96% X9 n ∑Œ
A=
X , ·
•±•(¶• 2¶)
n G = elnG Sample S.D = s = ¸
l2%

where, 7. Harmonic Mean: H.M

l
13. Geometric vs. Arithmetic:
Xi = ith observation H.M = ,,,,
𝑋¯ = Œ • }h€-hlºb ³£ »
∑•±•˜ ™ GM ≈ 𝐴𝑀 −
N = no. of observations in the sample °• .

3. Median = Middle Value with Xi > 0 for i = 1,2, …, n. 14. Semi-deviation (Semi S.D)
• For Even no of obvs locate median Semi S.D = √𝑠𝑒𝑚𝑖𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 =
E Measures of Location (¶• 2¶, )·
at . ¸∑|³€ hdd ¶•À¶,
8. Four Measures called Quantiles l2%
• For Odd no. of obvs locate median at (collectively)
l (l•%)
mean of .
𝑎𝑛𝑑 . • Quartiles =
Š-\5€-²m5-³l
15. Target Semi Var
´
(¶• 2Á)·
• Quintiles =
Š-\5€-²m5-³l Target Semi-var = ∑|³€ hdd ¶•ÀÁ
j l2%

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Learning Module 4
where B = Target Value 𝑃(𝐸𝑣𝑒𝑛𝑡|𝑁𝑒𝑤 𝐼𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛)
Probability Trees and
𝑃(𝑁𝑒𝑤 𝐼𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛|𝐸𝑣𝑒𝑛𝑡)
16. Target Semi-Deviation Conditional Expectations =
𝑃(𝑁𝑒𝑤 𝐼𝑛𝑓𝑜𝑟𝑚𝑎𝑡𝑖𝑜𝑛)
𝑇𝑎𝑟𝑔𝑒𝑡 𝑆. 𝐷 = ;𝑡𝑎𝑟𝑔𝑒𝑡 𝑠𝑒𝑚𝑖𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 × 𝑃(𝑃𝑟𝑖𝑜𝑟 𝑝𝑟𝑜𝑏. 𝑜𝑓 𝐸𝑣𝑒𝑛𝑡)
1. Expected Value of Random Variable E(X)
(¶• 2Á)·
= ¸∑|³€ hdd ¶•ÀÁ l2% E(wiXi) = Probability-weighted average of
Learning Module 5
the possible outcomes
Portfolio Mathematics
17. Coefficient of Variation CV
 2. Variance of a random variable σ2 (X)
CV = S¶,W
σ2 (X) = E {[X – E (X)] 2} 1. Expected Value of Weighted Sum of
random Variables
where s= sample S.D and 𝑋, = sample 3. Standard Deviation S.D E(wiRi) = wi E(Ri)
mean S.D = √Variance
where,
18. Excess Kurtosis = Kurtosis – 3 4. Conditional Expected Value: E(X|S) wi = weight of variable i
of a random variable X given a scenario Ri = random variable i
Correlation Between Two Variables S.
19. Sample Covariance E(X|S) = P(X1IS)X1+ P(X2IS)X2 2. Expected Return on the Portfolio
∑l-6%(𝑋- − 𝑋,)(𝑌- − 𝑌,) …+P(XnIS)Xn) E(Rp) = E(w1R1 + w2R2 +…+wnRn)
𝑠¶Ã =
𝑛−1 = w1E(R1)+w2E(R2) + …+wnE(Rn)
5. Total Probability Rule
where, E(X) = E(X|S)P(S)+ E(X|SC) P(SC) 3. Covariance between Ri and Rj
n = sample size E(X) = E(X|S1)P(S1)+ E(X|S2) E
Cov(Ri, Rf) = Σ96% [p(Ri – ERi)(Rj – ERf)]
Xi = ith observation on variable X P(S2)+…+E(X|Sn) P(Sn)
𝑋, = mean of the variable X observations 4. Portfolio variance
Yi = ith observation on variable Y where, E E
𝑌, = mean of the variable Y observations E (X│Si) = Expected value of X given
.
σ fR × i = 4 4 ω9 ωÙ CovfR 9, R Ù i
Scenario i 96% Ù6%
20. Correlation coefficient: r P(Si) = Probability of Scenario i
covariance of X and Y S1, S2...Sn are mutually exclusive and For three assets
rÅÆ =
sample S. D sample S. D exhaustive scenarios. s2 (Rp) = w%. σ. (R% ) + w.. σ. (R . ) +
S WS W
of X of Y wn. σ. (R n ) + 2w% w. Cov(R% , R . ) +
cov(x, y)
𝑟= 6. Bayes' formula 2w% wn Cov(R% , R n ) + 2w. wn Cov(R . , R n )
;var(x);var(y)
where,

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σ2 = Corresponding variance of each where, 8. Annualized volatility

asset in the portfolio Rt, t+1 = holding period return on the = sample S.D. of one period
stock from t to t + 1. continuously compounded returns ×
5. Correlation: 𝜌f𝑅- 𝑅Ü i √𝑇
(b/w two random variables Ri, Rj) 5. Continuously compounded return
Ý³Þ f»• »ßi (associated with a holding period from t
𝜌f𝑅- 𝑅Ü i = Learning Module 7
໕ ×à»ß to t + 1)
Estimation and Inference

6. Safety-first Ratio: SFRatio rt, t+1= ln(1 + holding period return)

𝑆𝐹𝑅𝑎𝑡𝑖𝑜 = [𝐸(𝑅› ) − 𝑅á ]/𝜎› or For Sample Mean
rt, t+1 = ln(price relative) = ln (St+1 / St) = ä·
1. Var of the distribution =
7. Sharpe Ratio: ln (1 + Rt,t+1) E

= [E (Rp) – Rf]/σp ä·
2. S.D of the distribution = ¸ E
6. Continuously compounded return
(associated with a holding period from 0 3. Standard Error of the sample mean:
Learning Module 6 • When the population S.D (s) is
to T)
Common Probability Distributions à
R0,T= ln (ST / S0) or 𝑟',1 = 𝑟12%,1 + known = 𝜎¶A =
√l
𝑟12.,12% + ⋯ + 𝑟',% • When the population S.D (s) is
For lognormal random variable unknown = 𝑠¶A =
\

1. Mean: µL √l
where,
µL = exp (µ + 0.50σ2) rT-I, T = One-period continuously
where s = sample S.D
compounded returns
2. Variance: σL2 estimate of s = ;𝑠𝑎𝑚𝑝𝑙𝑒 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 =
σL2 = exp (2µ+ σ2) × [exp (σ2) – 1]. 7. When one-period continuously √𝑠 .
compounded returns are random ∑Œ , ·
•±•(¶• 2¶ )
𝑠. =
3. Log Normal Price l2%
variables.
ST = S0exp (r0,T) 𝐸f𝑟',1 i = 𝐸f𝑟12%,1 i + 𝐸f𝑟12.,12% i + ⋯
Learning Module 8
+ 𝐸f𝑟',% i = 𝜇𝑇
where, Hypothesis Testing
exp = e and r0,t = Continuously
𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = 𝜎 . f𝑟',1 i = 𝜎 . 𝑇
compounded return from 0 to T
1. Standard Error of Sample Mean 𝜎¶,
4. Price Relative S.D. = σ (r0,T) = σ√𝑇 When Population S.D/variance is known
𝜎
= End price/Beg price 𝜎¶, =
= St+1/ St=1 + Rt, t+1 √𝑛

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• Test statistic is Z-distributed ∑Œ , ·

•±í(g• 2g )
• sample variance = 𝑆g. = • n = number of pairs of observations
𝑋, − 𝜇' l2%
• 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑒𝑟𝑟𝑜𝑟 𝑜𝑓 𝑠𝑎𝑚𝑝𝑙𝑒
𝑧= 𝜎 • sample S.D = ;𝑆g.
𝑆g
√𝑛 • sample error of the sample mean 𝑚𝑒𝑎𝑛 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 = 𝑠𝑑̅ =
 √𝑛
difference = 𝑠,,,
𝑑 = ì
√l
2. Power of Test
8. F-test
= 1 - Prob of Type II Error
5. Chi Square Test Statistic Test concerning differences between
For test concerning the value of a variances of two normally distributed
3. Test Statistic for a Test of Difference
normal population variance populations.
between Two Population Means (l2%) · ·
Normally Distributed Populations, 𝑋. = F = •·
àí· ·
Variances Unknown but Assumed Equal) where (𝑛 − 1) = 𝑑𝑓 𝑎𝑛𝑑 𝑆 . =
based on Independent samples ∑Œ , ·
•±í(¶• 2¶) where
𝑠𝑎𝑚𝑝𝑙𝑒 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 =
l2% 𝑆%. = 1𝑠𝑡 𝑠𝑎𝑚𝑝𝑙𝑒 𝑣𝑎𝑟 𝑤𝑖𝑡ℎ 𝑛% 𝑜𝑏𝑠 𝑆%. =
(𝑋,% − 𝑋,.) − (𝜇% − 𝜇. ) 2𝑛𝑑 𝑠𝑎𝑚𝑝𝑙𝑒 𝑣𝑎𝑟 𝑤𝑖𝑡ℎ 𝑛. 𝑜𝑏𝑠
𝑡=
6. Chi Square Confidence Interval for
𝑆é. 𝑆é. 𝑑𝑓% = 𝑛% − 1 𝑛𝑢𝑚𝑒𝑟𝑎𝑡𝑜𝑟 𝑑𝑓
çè𝑛 + 𝑛 ê variance
% . 𝑑𝑓. = 𝑛. − 1 𝑑𝑒𝑛𝑜𝑚𝑖𝑛𝑎𝑡𝑜𝑟 𝑑𝑓
(l2%)Â ·
Lower limit = L = ·
¶î/·
where, (l2%)Â · 9. Relation between Chi Square and F-
Upper limit = U = = · distribution
Sp2 = Pooled estimator of the common ¶•ïî/·
¶•·ô
variance. ó
𝐹= ¶··ô
(𝑛% − 1)𝑆%. + (𝑛. − 1)𝑆.. 7. Test Statistic for a Test of Mean l
𝑆é. = Differences
𝑛% + 𝑛. − 2 where
where 𝑑𝑓 = 𝑛% + 𝑛. − 2. Normally Distributed Populations, • 𝑋%. is one chi square random
Unknown Population Variances variable with one m 𝑑𝑓.
4. Test Statistic for a test of mean d, − µ«' • 𝑋.. is another chi square random
t=
differences S«A variable with one n 𝑑𝑓.
Normally distributed populations,
unknown population variances where,
• 𝑆𝑎𝑚𝑝𝑙𝑒 𝑚𝑒𝑎𝑛 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 = 𝑑̅ =
g, 2ëìí % l
• 𝑡= ∑-6% 𝑑-
Âg, l
• sample mean difference = ,,,
𝑑 = ∑Œ , ·
•±•(g• 2g)
• 𝑆𝑎𝑚𝑝𝑙𝑒 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = 𝑆g. =
% l2%
∑l-6% 𝑑-
l 2
• Sample S.D. = s d

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Learning Module 9 o 𝐸-Ü = The expected frequencies

Hypothesis Testing
(1³5hd €³a -)×(1³5hd €³a Ü) 4. Intercept b0
o 𝐸-Ü = üÞb€hdd 1³5hd #
𝑏' = 𝑌, − b#% 𝑋,
o m = no. of cells, calculated by
Parametric Test of a Correlation multiplying the no. of groups in the
where
1. Consider two variables X & Y rows by the no. of groups in the
𝑌A 𝑎𝑛𝑑 𝑋, are mean values
𝑠¶Ã columns.
𝑟¶Ã =
𝑠¶ 𝑠Ã
5. Sample correlation: r
𝑠¶Ã = sample covariance between X & Y. Ý³Þ ³£ à hlg ¶
𝑠¶ & 𝑠Ã = S.D of X and Y respectively r = (Â.Š ³£ Ã)f(Â.Š ³£ ¶)i
Learning Module 10
Simple Linear Regression
2. Sample Correlation: r 6. Covariance of X and Y: 𝐶𝑜𝑣¶Ã
𝑟√𝑛 − 2 ∑Œ , ,
•±•(Õ 2Ã)f(¶• 2¶)i
𝑡= 𝐶𝑜𝑣¶Ã =
√1 − 𝑟 .
1. Simple Linear Regression Yi l2%
Yi = b0 + b1Xi + εi,
3. Spearman Rank Correlation: 𝑟\ 7. Standard deviation of Y: SÆ
6 ∑l-6% 𝑑%. where, ∑l (𝑌- − 𝑌,).
𝑟\ = 1 − Y = dependent variable 𝑆Ã = ç -6%
𝑛(𝑛. − 1) 𝑛−1
X = independent variable
• For small samples use table to find
rejection points. 𝑏' = intercept
𝑏% = slope coefficient 8. Squared residuals E(ε.9 )
• For large sample size (n>30) use t- 𝐸(𝜀-. ) = 𝜎-. , 𝑖 = 1, … 𝑛
test as below: 𝜀 = error term = 𝑌- - 𝑌þ-
(𝑛 − 2)%/. 𝑟\ 𝑏' 𝑎𝑛𝑑 𝑏% are called regression
𝑡= coefficients 9. Sum of Squared Regression: SSR
(1 − 𝑟\. )%/. l

𝑆𝑆𝑅 = 4(𝑦!- − 𝑦,).

2. Sum of Squares Error SSE
4. Chi-Square Statistic: 𝜒²\ l -6%
Test of Independence (𝑆𝑆𝐸) = 4(𝑦- − 𝑦!).
V
(O9Ù − E9Ù )² 10. Coefficient of Determination: R2
-6%
χ² = 4 Sum of square regression
E9Ù 𝑅. =
96%
Sum of square total
𝑎𝑠 𝑌þ- = 𝑏þ' + 𝑏þ% 𝑋- therefore
∑𝑛𝑖=1(𝑌! − 𝑌,)2
where SSE = ∑l-6%(𝑌- − f𝑏þ' + 𝑏þ% 𝑋- i). = 𝑛
∑𝑖=1(𝑌𝑖 − 𝑌,)2
o Σ sum of all cells,
o 𝑂-Ü is observed frequency 3. Slope Coefficient
A A (for single independent variable R2 = r2)
o 𝐸-Ü is expected frequency #% = $¦©(%,&) = ∑(Å•2Å)(Æ•·2Æ)
b
©tT(%) A)
∑(¶• 2Å

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11. Mean square regression: MSR 15. Test statistic

Âmó ³£ \*mh€b €bŽ€b\\-³l ²þ• 2Á• ECONOMICS
MSR= t=
c \8
9
. •
∑l-6%f𝑌þ − 𝑌,i
=
1 16. Standard error of slope coefficient: s9̈ •
𝑠b Learning Module 1
12. Mean Square Error: MSE 𝑠²þ• = Firms and Market Structures
\mó ³£ \*mh€b\ b€€³€ ¸∑l-6%(𝑋- − 𝑋,).
MSR = l2c2%
1. Break-Even Price
13. F-Statistic or F-Test 17. Standard error of the intercept: s9̈• P = ATC
,-. /0 12-î34 3453411•/Œ
œÂ» ( )
1 𝑋, . P = AR = MR = ATC
F= = 6
,-. /0 12-î341 433/3 𝑠²þ• = ç + l
œÂ+ ( ) where TR = TC.
Œï6ï• 𝑛 ∑-6%(𝑋- − 𝑋,).
P = price, ATC = Avg, Total Cost, MR =
(df numerator = k = 1) Marginal Revenue, AR = Avg. Revenue,
18. Forecasted value of dependent TR = Total revenue
(df denominator = n – k – 1 = n – 2)
9f
variable: Y
14. ANOVA 𝑌𝑓 = 𝑏' + 𝑏þ% 𝑋£
þ þ 2. Concentration Ratio: CR
CR = Sum of sales values of the largest
ANOVA SS MSS F 19. Standard error of the intercept: s§ 10 firms / Total market sales
.
SSR 1 f𝑋£ − 𝑋,i
E SSRô 𝑠£ = 𝑠b ç1 + + 3. Herfindahl-Hirschman index: HHI
Regression
= 4(y! 9
SSR k 𝑛 ∑l-6%(𝑋- − 𝑋,). HHI = ∑ Xi2
df = 1 k SSEô
96% (n − k − 1)
− y,).
20. Log-lin Model: ln Y9 where,
SSE ln 𝑌- = 𝑏' + 𝑏% 𝑋- Xi2 is squared market share of the ith
E
Error SSE firm.
= 4(y9
df = n-2 n−k−1
96% 21. Lin-log Model Y9
− y! ). HHI = 1 for monopoly.
𝑌- = 𝑏' + ln 𝑋-
SST HHI ≈ 0 for a perfectly competitive
E
Total 22. Log-log Model ln Y9 industry.
= 4(y9
df = n-1 ln 𝑌- = 𝑏' + 𝑏% ln𝑋-
96%
− y,).
Learning Module 2
Understanding Business Cycles