The CFA "Chartered Financial Analyst" is one of the toughest examination about finance and investment, only few people manage to pass the 3 levels of the CFA at the first attempt.

Each of the 3 CFA level requires you to study at least 250 hours, and dozen of formulas that you will have to learn but here are 10 important formulas that you must learn and understand to pass the CFA Chartered Financial Analyst.

__CFA formulas to remember__Formulas CFA

**Pricing Call and Put option with Black-Scholes model**

__1.__
Price of Call option=S*N(d1)-Xe^(-rT)N(d2)

Price of Put Option=Xe^(-rT)N(-d2)-SN(-d1)

S: Price of underlying stock

N(): Area under normal distribution

X: exercise price of the option

r: Risk free rate

T: time until expiration of the option

Formulas CFA 2. CAPM: Capital asset pricing model

ra= rf+ β (rm-rf)

ra: expected return of the security

rf: risk free rate

β: Beta of the stock

rm: market return (expected)

Formulas CFA 3. WACC: Weighted Average Cost of Capital:

WACC= We*Ke + Wps*Kps + Wd*Kd*(1-T)

We: weight of equity

Wps: weight of preferred stock

Wd: weight of debt

Ke: cost of equity ( you guess for Kps and Kd)

T: corporate tax rate

Formulas CFA 4. Free cash flow to firm (FCFF)

FCFF= OCF-EXP-T-ΔNWC-ΔInvestments

OCF:operating cash flow

EXP: expenses

T: Taxes

ΔNWC: change in net working capital

ΔInvestment: change in investments

Formulas CFA 5. Put-Call parity

c + PV(x) = p + s

c = current price for European call option (we wrote c not C :american call option)

PV(x) =Present value of Strike price discounted at the risk free rate

c = current price for European call option (we wrote c not C :american call option)

PV(x) =Present value of Strike price discounted at the risk free rate

p = the current price for European put option

s = current price of the underlying asset

s = current price of the underlying asset

Formulas CFA 6. Portfolio variance of a 2 assets portfolio:

**Port.**

**Variance = w**

^{2}_{A}*σ^{2}(R_{A}) + w^{2}_{B}*σ^{2}(R_{B}) + 2*(w_{A})*(w_{B})*Cov(R_{A}, R_{B})wa: weight of asset a

σ

^{2}(R_{A}): variance of asset a
Cov(R

_{A}, R_{B) }covariance of asset a and b
Formulas CFA 7.ROE (Return on equity) Dupont analysis:

**ROE = (net income / sales) * (sales / assets) * (assets / equity)**

ROE = (EBIT / sales * sales / total assets - interest / total assets] * total assets / equity * [1 - tax / net before tax]

**So we get:**

**ROE =**operating profit margin * asset turnover - interest expense rate * equity multiplier * tax retention rate

**FCFE = FCFF - [Int x (1-tax rate)] + Net Borrowing**

Cash available to shareholders

Formulas CFA 9.EAR Effective Annual Rate:

**Effective annual rate (EAR) = (1 + Periodic interest rate)**^{m}- 1
m = number of compounding periods in 1 year

periodic interest rate = interest rate divided by number of periods.

periodic interest rate = interest rate divided by number of periods.

## 1 comments:

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