Tuesday, November 29, 2011

Last resort of Memorization for some areas of Portfolio/Quant/FRA CFA Level 1 Exam

About some of the formulas in Finance that you  need to memorize for the moment.

Exam Prep Portfolio consist of understanding, memorizing and speed, and you need to balance all these 3 parameters as each one will help you minimize your risk and maximize output. My personal weights used are: understanding & research = 50%, speed is 15%, and memory is 35%. But I have observed that in my class people who are getting higher marks than me have a portfolio (my guess) of 70% memory, 20% speed and 10% understanding.

It has been my attempt to keep things in the most logical and common sensesical way. But there are somethings which requires a lot of research which time doesn't allow. In the later stage you can understand these formulas but for now you need to memorize them.

Other areas that need to be memorized include:
  1. Beta is sensitivity of asset with respect to market. It can be also looked upon as Cov-im/sigma-square-m. beta= Pim (sigma-i/sigma-m)
  2. M-squared is like sharpe ratio (rp2-rf)(sigma-m/sigma-p2)-(rm-rf), (Trenoy measure, Jensen alpha both are for SML excess and slope): Details about these 3 measures, probably they will come in some later stage with more detailed derivations on my Portfolio thread.
  3. Different yield formulas of quant where hpy =(bdy*n/360)/(1-bdy*n/360) , CFO shortcuts (increase in asset means reduced cash flows)
  4. Cash convergence cycle in corporate finance, and its derivation
  5. Technical Analysis from core readings
  6. Enron and Sunbeam Scandal
  7. Sale type lease vs other types
  8. Difference in USGAP vs IFRS example in held for sale/ for trade/ till maturity
  9. Cost of trade credit numerical
  10. HHI and other methods to compute monopoly in economics; sum of squared % of market share of top 50 firm. 10,000 for monopoly, above 1800 indicate market is not competitive (HHI).......
  11. 4 firm ratio of over 60 depicts oligopoly  
  12. Money supply * velocity = price level * real output; money multiplier = (1+c)/(c+d)
  13. Days of sale outstanding = 365 / receivable turnover ......  Inventory in-hand  = 365 / inventory turnover ..... Number of days payable = 365 / payable turnover ratio
  14. Equity Minority interest,  current assets placement in USGAP VS IFRS
  15. DOL = % change in EBIT / % change in sales ; DFL = % change in EPS / % change in EBIT 
  16. DOL = (S - TVC)/(S-TVC-F)
  17. DFL = (EBIT/(EBIT-Intrest))
  18. Impairment of inventory in USGAP (lower of NPV, historical, replaceable)... CV > UFCF ? long lived assets?
  19. Derivative formula  for forward rate agreement. i.e. formula to long the settlement for the notional amount 
  20. NI ---> CFO (indirect conversion)
  21. Cost of trade credit = {1 + PD/(1-PD)}^[365/DAYS post discount]
  22. BEQ into BDY (RMM = (360* RBD)/(360 - (t* RBD) ) this has been imp
  23. HPY as a function of Bdy
  24. ebit=operating income
  25. Interest burden = EBI/EBIT; used in DuP (FRA)
  26. Operating cycle vs Cash convergence cycle  (Corporate Fin)
  27. 9 major sections of GIPS 
  28. Target FFR= 2% + actual inflation + 0.5(actual inflation - 2%)+ 0.5(output gap) 
  29. beta in terms of sd of market and port (portfolio management)
  30. Margin for equity(maintained margin) vs future (replenish) 
  31. Renewable source economy demand elastics or inelastic? 
  32. Eco elasticities  (0-1, greater than 1)
  33. hypothesis of paired tests, chia quare, others complex ones
  34. Tax loss carry forward, details about loss carry forward 
  35. Do comparative advantage questions in economics
  36. Quality of earning ans scandals
  37. different type of markets: again
  38. types of data: time series, longitudinal, cross sectional
  39. long question of cash convergence cycle
  40. long quest of equity 2 methods, p/e forward done by the person in the class
  41. maintenance variation initial
  42. step-up inverse floater inflation
  43. types of unemployment
  44. Still dof doo leverages giving problems
  45. fundamental weighting techniques
  46. Embryonic, mature, shakeout, phases in equity
  47. price to earning ratio = dividend payut ratio/ (req ROE rate - growth rate)
  48. net income for common or both in diluted earning questions
  49. breaking points and operating break even point
  50. financial leverage, fin multiplier, d/e,
  51. hpy to rmm, rmm to bdy
  52. rm to bdy formula 360rb/ (360-trb)
  53. Escalation bias, confirmation bias different bias in cfa
  54. Classical Keynesian and Monetarists
  55. Pension list of all elements
  56. technical analysis of all element
  57. hypothesis entire revision
  58. percentage of completion and all methods of revenue collection
  59. what to do about loss in held till maturity, does it comes in OCI
  60. money weighted is irr, time weighted returns in quant
  61. ordinal interval nominal
  62. minute details about proxy statement
  63. ifrs usgap differences
  64. sale type lease vs operating lease vs direct financing lease  
    Fixed income (different types of bonds like inflation adjusted bond, tax issues, etc)
    Corporate Finance (like Corporate Governance which is theoretical)
    From the experience of students who are giving the exam, accuracy is the most important thing, but the questions are also predictable especially of equity.

    Conclusion: You need the very right balance in your approach, depending on time resources, energy and partners, you must dedicate time in understanding and memorizing.

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