The 10 Most Important CFA® Formulas

Although I’ve spent entirely too long studying for the CFA exam, I can not say it has paid off, yet. However, I have also spent too much time creating studying materials and giving them away online. This resulted in me starting a blog just for flashcards of CFA formulas, definitions, and minutiae.

Alas people keep taking advantage of my generosity. The latest person to take advantage of my good nature and willingness to help out my fellow man for free is Abhishek Chaudhary. Someday soon he’ll regret his decision perhaps, as his actions appear to be a violation of Standard I(C) Misrepresentation. I have to recommend not taking credit for other people’s hard work if you are a CFA Candidate or Charterholder.

How were these formulae chosen?

Having spent years studying, I have a pretty good idea of the material tested, nonetheless you should always consult the official curriculum. To select these formulas I used the following unscientific selection criteria, first the formula must be in my flashcard collection, second the formula must still have been tested on the Level 2 exam after first being tested on the Level 1 exam. Always consult the official curriculum as it changes slightly every year.

Crucial CFA Formulas

After narrowing it down to ten 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 at least one hundred to two hundred more formulae if you want to pass.

• Cost of Equity Capital aka “Dividend Capitalization Model”
• Constant Growth Rate Model
• FRA Payoff
• Put-Call Parity
• Sharpe Ratio
• ROE Dupont Method (5 part)
• Cost of equity using CAPM
• WACC
• Portfolio Standard Deviation of Return
• Test Statistic Formula

For the record, I did manage to pass all three CFA exams so I just might know what I’m talking about. If you think I left out an even more important formula for CFA Candidates you can leave a comment below. If you are a believer in the wisdom of crowds and you want to know statistically which flashcards are most popular with CFA Candidates including those that made it all the way to Level 3, well I crunched the numbers again in 2019 and though my data is biased I made that information available for free too.

This entry was originaly posted on November 18th, 2015, it was last edited on April 21st, 2024 and is filed under: Advice and tagged: CFA®, Finance, Flashcards.