CFA Formula Sheet Level 1

Navigating the vast landscape of financial formulas as you enter the final stages of your preparation for the CFA Level 1 exam can be daunting, especially since the CFA institute doesn’t provide official CFA formula sheets.

For this reason, we’ve set out to condense all the essential equations you need into this CFA Formula Sheet Level 1 article. Designed with the intricacies of the CFA Level 1 exam in mind, this guide aims to help streamline your final revision process and boost your confidence as you inch closer to the exam day.

CFA Exam Formulas: General Overview

Below you can find an overview of the essential formulas organized by the respective sections of the CFA Level 1 exam. This will better help you to discover the mathematical foundations tested in each session.

Remember to focus on understanding the underlying principles and applications of these categorized formulas rather than just memorizing them.

Ethical and Professional Standards

Since this section of the CFA curriculum primarily tests your understanding of the CFA Code of Ethics and Standards of Professional Conduct, it doesn’t have many formulas to learn.

However, one might need to understand the formula for calculating total return in an ethical context:

• Total Return = (Ending value – Beginning value + Income) / Beginning value

Quantitative Methods

This section has numerous formulas. Some of the most important include:

• Future Value (FV) = PV(1 + r)^n
• Present Value (PV) = FV / (1 + r)^n
• Expected Return = ∑[P(i) x R(i)] where P(i) is the probability of each outcome and R(i) is the return of each outcome
• Variance = ∑[P(i) x (R(i) – Expected Return)^2]
• Correlation = Cov(X,Y) / (σX x σY)

Many candidates find the Quantitative Measures section of the CFA curriculum to be one of trickiest to grasp due its highly technical nature and complex content. To ensure you master this intricate field and ace your CFA Level 1 exam, you’ll need to invest in your study materials.

Economics

The key formulas to pay attention to in this section are:

• GDP = C + I + G + (X-M)
• Elasticity = % change in Quantity / % change in Price
• Price Index = (Cost of Basket in Current Year/Cost of Basket in Base Year) x 100

Financial Statement Analysis

Some of the key formulas here include:

• Current Ratio = Current Assets / Current Liabilities
• Quick Ratio = (Current Assets – Inventory) / Current Liabilities
• Inventory turnover = (Cost of Goods Sold) / (Average Inventory)
• Return on Equity (ROE) = Net Income / Total Equity

Corporate Issuers

Important formulas here include:

• Weighted Average Cost of Capital (WACC) = (Weight of Debt x Cost of Debt x (1 – Tax Rate)) + (Weight of Equity x Cost of Equity)
• Net Present Value (NPV) = ∑ [CFt / (1 + r)^t] – Initial Investment
• Internal Rate of Return (IRR) is the rate where NPV = 0

Portfolio Management

Key formulas include:

• Expected Portfolio Return = Weight of Asset 1 x Expected Return of Asset 1 + Weight of Asset 2 x Expected Return of Asset 2
• Portfolio Variance = (Weight of Asset 1)^2 x (Variance of Asset 1) + (Weight of Asset 2)^2 x (Variance of Asset 2) + 2 x (Weight of Asset 1) x (Weight of Asset 2) x (Covariance of Asset 1 and Asset 2)

Equity Investments

Key formulas here include:

• Dividend Discount Model (DDM) = Dividend per Share / (Cost of Equity – Growth Rate)
• Price to Earnings (P/E) = Market Price per Share / Earnings per Share
• Free cash to equity = net income + depreciation-increase in working capital-fixed capital investment-debt principal repayments + new debt issues

Fixed Income

Key formulas include:

• Yield to Maturity (YTM) = (C + (F – P) / n) / (F + P) / 2
• Modified Duration = Macaulay Duration / (1 + (YTM/n))

Derivatives

Key formulas include:

• Payoff for a call (put) option = max[0, S – X] (max[0, X – S])
• Payoff for a forward contract = S – X

Alternative Investments

This section focuses more on definitions and principles rather than formulas.

To make sure you have a solid grasp on the theory of this section of the curriculum, it’s important to rely on quality study materials.