9 Formulas Need To Know To Pass The CFA

dupont identity

On June 1, thousands of Wall Streeters will take the Charted Financial Analyst (CFA) exam and many of them are probably freaking out right about now.   

Consisting of three levels, the CFA is considered to be the most difficult test on the Street with fewer than 20 per cent of candidates passing all three on the first try. 

What’s more is the average test-taker spends a solid five to six months preparing for the CFA.

There are several formulas a candidate must know to pass.  However, there are way too many formulas to be included in one small slideshow.

That being said, we’ve included 9 formulas candidates are likely to need on any of the three levels of the CFA exam.

Best of luck to all the test takers out there!

DISCLAIMER: We don’t claim to be experts in offering exam advice.

Capital Asset Pricing Model (CAPM): Attempts to explain the relationship excess market risk and expected return.

Black-Scholes Model: Applies theoretical physics when pricing options.

Duration With Convexity Adjustment: Duration is the average time until all cash flows from a bond are delivered. The convexity adjustment helps determine the change in price that is not explained by duration.

DuPont Identity Of Return On Equity (ROE): This breaks ROE into profit margin, total asset turnover, and financial leverage. It explains the operating efficiency, asset-use efficiency, and overall financial leverage of a company.

Source: Investopedia

Weighted Average Cost of Capital (WACC): The firm's overall cost of capital considering all of the components of the capital structure.

Source: Investopedia

Free Cash Flow to Firm (FCFF): Measures firm's cash flow after paying expenses, taxes, and financing costs.

Source: Investopedia

Put-Call Parity: Refers to the static price relationship between the prices of put and call options of an asset with the same strike price and expiration date.

Variance of a Two Asset Portfolio: Measures the fluctuation of the returns of a portfolio with two assets.

Jensen's Alpha: One way of measuring alpha, or the risk-adjusted return.

BONUS: The Herfindahl Index measures market concentration, and is used by regulators to determine whether a company has a monopoly on a market.

Want to see what this one CFA charterholder didn't study?

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