Specifying formulas

CFA Level III
#1

When answering morning level essay questions and asked to show calculations, do I need to specify which formula I use and why? E.g. a particular question concerns the formula Y=a+b+c Can I just go on ahead answering plugging in the relevant numbers or do I need to start with something like:

‘For this problem I need formula Y=a+b+c where Y=… a=… b=… c=…’ Saves a lot of time not to have to do this, but want to know if it’s required. Thanks!

#2

I do not think you have to do that. Just use numbers, graders will know the formula. However, by showing the correct formula, but obtaining the wrong result, you should receive partial credit.

#3

So, there is always a tradeoff between time and security.

#4

I’ve been marking a bunch of Level III practice exams the last few weeks and have had a few candidates write out not only the formula but the meaning of each variable. Here’s what I’ve been telling them (in our GoToMeeting sessions):

  • If you get the correct answer, writing the formula isn’t necessary; it won’t get you any extra marks
  • If you get an incorrect answer (e.g., you mistakenly wrote a plus sign instead of a minus sign), having the formula there may get you a few marks, as the grader can see that you knew what you were doing
  • Writing the meaning of each variable is (in my opinion, though reasonable people can disagree) a waste of time; the grader knows what each variable means, and if you put the correct numbers into the formula, the grader knows that you know what each variable means
#5

Thanks Magician (And RS pointing out the same)! That’s really helpful.

#6

My pleasure.

#7

So what you are saying is that, if we have faith in our calculations, we can just put in the numbers in instead of specifically write down the formula?

#8

Yup.

#9

What about long calculations? Like calculating the effective annual rate on an interest rate call option. It requires multiple steps and formulae. How do you show those?