Essay Portion Formulas Abbreviate

CFA Level III
#1

When practicing mocks, I realized the CFA guideline answers include the explanations of the abbreviated terms in all the formulas as italicized below. My question is, come exam day, is this required? Or are the first and last lines sufficient. Writing down the abbreviations seems to be very time consuming…

E(Re) = D/P – ∆S + i + g + ∆P/E

Where E(Re) is the expected return on equity

D/P is the expected dividend yield = 2%

∆S is the expected percent change in shares outstanding (the negative of the repurchase yield) = –1%

i is the expected inflation rate = 4%

g is the expected real total earnings growth rate = 4%

∆P/E is the per-period percent change in the P/E multiple = 0.25%

Therefore E(Re) = 2% – (–1%) +4% + 4% + 0.25% = 11.25%

#2

I’ve been wondering the same thing.

#3

You needn’t define the variables; graders will know the formulae.

#4

S2000magician you mean E(Re) = D/P – ∆S + i + g + ∆P/E would ve enough or directly substitute I mean E(Re) = 2% – (–1%) +4% + 4% + 0.25% = 11.25%

Thanks

#5

I would recommend writing the formula first in case you have a typo in the figures (the grader won’t know where the number came from) and reach a wrong answer. That way you’d get partial credit for the formula.

Additionally, the formula helps you psychologically in making sure you have all the figures corresponding to the variables written down.

#6

Perfect, will just write the original formula and then substitute on the next line. I was afraid I needed to define the variables too… phew.