Formulas in CFA level 1

I just heard from a friend that in level one we ahve to memorize atleast 100 formulas. Is that really true? I remember in university the classes which had to do a lot with remembering formulas we were allowed to bring one page formluas sheet for the exam.

salii, depends how you define formula. eg. just in session 8 (ratios) alone there are 28 formulas - starting with current ratio (easy) and ending with diluted eps. For the simple ones you can do in a few seconds. For the hard ones you might take 5 minutes. Eg there is generally always a question or two on doing a diluted eps involving prefs, convertible bonds, options and/or warrants. Also you always get questions on Dupont - extended Dupont can take minutes, not seconds. You’re under enormous time pressure in exam situation - you’ve got 90 seconds on average per question to read, understand, identify what formula, apply the formula, do the calc. Most are easy, but a few take several minutes each. That’s just Session 8. In Session 7 (Income /CF) there are another 20-ish. In Quant there are dozens. Again, most are easy, but some are hard. Some you can read once and will stay in your head for years and are easy to apply. Others can take literally a week to master. There are some real doozies of formulas - eg. bootstrapping spot bond yields (in Fixed Income) - sometimes can take 5 minutes. You can’t just rote learn it - you really need to know what you’re doing because it can take up to a dozen little calcs to figure out - it’s not a formula, it’s a dozen little steps. Nothing complex, but you’ve got to know all the steps and why you’re doing it. In the big calcs - under the pressure you may get it wrong first time - ie doesn’t match one of the 4 given answers. So you start from scratch. But the good news is the exams have only a few big calcs. Tons of smaller ones that are maybe 15 - 20 seconds each. Most of the exam questions are about HOW the calcs work - you don’t have to actually use a calculator - eg questions like: for the issuer of a discount bond, the interest exepense each year: A) rises B) falls C) stays the same D) varies with the current market yield. Or, Compared to a Sales-type lease, a Direct Finance lease will have the following impact on return on equity for the lessor… You gotta know how they’re all calculated, but you don’t actually need a calculator to answer. Thee are dozens of questions like these. That’s why you’ll hear people say that they used a calculator for only 10% (or whatever) of the questions. Unfortunately you still need to learn the formulas. My tip for formulas - as you go through the course, make up your own book of key definitions and formulas. Other people bought the Schweser Secret Sauce book which I think is all the formulas. And no, you can’t take formula sheets in with you. They ban calculators that can store formulas. They don’t even supply f-tables, t-tables, etc. But you are given the key data in the question. General comment is - the questions are designed to test whether you know how and why the formula works, not just that you remember it. good luck! Just remember, most are very easy - and you only get a few big nasty ones to worry about. cheers!

I think I know like 6 formulas and never knew more than that. How many questions are there on AF for example that require a formula (almost none). It might depend on your definition of a formula. Unlike null, I don’t think there is a bootstrapping formula that’s useful. The idea is just that interest is multiplicative and then bootstrapping just falls out (there might be some notion of independence and expectations in there but its not part of CFA curriculum). In general, the people who think there are hundreds of formulas to memorize are the people who don’t pass (or have serious trouble passing more than LI - get through bootstrapping by memorizing formulas and you have a problem in LII). Many formulas are just shorthand ways of explaining something and aren’t meant to be memorized anymore than the text surrounding them.

salii, you’ve received some courteous and thoughtful responses to a question that’s addressed in the CFAI FAQ. Going forward, you may not receive such positive feedback unless you demonstrate you’ve taken some initiative to investigate, which includes both searching the CFAI website and previous threads in this forum. Welcome to AF, sometimes it’s tough love. “I have begun studying for the Level I exam and discovered that there are many formulas presented. Are candidates expected to memorize all these formulas?” “Candidates are expected to be able to perform the actions specified in the learning outcome statements (LOS). If a formula is required, then it should be committed to memory.”

this test is more qualitative than quantitative. i just took the level one and maybe used five to ten formulas. it’s not just entering numbers in a formula you have to know how to do. you need to be able to conceptualize what the numbers in each formula express, and how they can effect other formulas or events. for example: you cant just know how to do a diluted eps, you need to know what would happen to your P/E ratio if your convertible debt is ditlutive versus anti dilutive.