I’ve spent entirely too long studying for the CFA exam, it has not paid off. However I have also spent too much time creating studying materials and giving them away online, it’s a character flaw I guess. Regardless having typed out the most important flashcards for both the Level 1 and Level 2 CFA exams I decided to try and figure out which formulas are the most important to memorize.
I used the unscientific criteria that the formula must be in my flashcard collection, must still have been tested on the Level 2 exam after first being tested on the Level 1 exam and hopefully is still in the official curriculum. You should always consult the official curriculum as it changes slightly every year. After narrowing it down to ten crucial formulas that are highly likely to have been tested while I was studying for the exams, I made no attempt to rank them one through ten. The fact is you need to memorize these ten formulas and lets say one hundred to two hundred more formulae.
- Cost of Equity Capital aka “Dividend Capitalization Model”
- Constant Growth Rate Model
- FRA Payoff formula
- Put-Call Parity
- Sharpe Ratio Formula
- ROE Dupont Method (5 part)
- Cost of equity using CAPM
- Portfolio Standard Deviation of Return only two assets
- Test Statistic Formula