With all the formulas we have to memorize, I wanted to reach out to you all to see if anyone had any good hints/creative tips on remembering certain formulas. I know practicing is the best way, but maybe we can put together an interesting list to help everyone in the memorization of them.
Try to understand the logic behind the forumals. Sometime you will be asked only to interpret or indicate if the formula will be lower or higher after the variables changes.
There are some formulas that you do not need to memorize (LOS says only interpret) This is crucial, do not waste you time. For example do not memorize formula for Adjusted R^2. Only remember that Adj R^2 is almost always lower than regular R^2 and why it is lower.
Maybe there is anybody who have a list of the formulas that do not need to be memorized ?
Pitmaster1, that makes sense and I am attempting to do that as I go through looking at the formulas. For example, F Stat calculation in Quant: You are trying to test the significance of the independent variables as a whole within the multiple reg equation. So doing the Mean sum of regression/mean sum of squared errors makes sense.
However. . . I’m looking at unlevered/relevering Betas for thinly traded/nonpublic companies and I don’t understand how to memorize the following: public Beta * 1/(1+D/E) = unlevered Beta. Theoretically that makes sense but I still feel like I have to memorize the 1/(1/+D/E) part. . . any tips?
Even the adjusted Beta equation = 2/3*Beta + 1/3. . . I keep mixing up which number needs to be multiplied by Beta and which should be added.
“However… I’m looking at unlevered/relevering Betas for thinly traded/nonpublic companies and I don’t understand how to memorize the following: public Beta * 1/(1+D/E) = unlevered Beta. Theoretically that makes sense but I still feel like I have to memorize the 1/(1/+D/E) part… any tips?”
The way I try to remember this one is treat the formula as (1+D/E) as the “leverage factor” which you need to memorize. Then treat the formula as Public Beta divided by the leverage factor = unlevered Beta. Then it’s easy to think of and you can use it to re-lever the beta as well as long as you remember the “leverage factor”. Then it’s a smaller thing to memorize and you can still understand how to reason your way through the formula. On Level 1 I never made a conscious effort to memorize formulas, it’s all about understanding them.
As far as the beta one, I wrote my Honors thesis on that so I know more then enough about how it’s done and why. But the logical reasoning is that betas tend to trend towards the grand mean of 1 over time, so it adjusts the raw beta down to be closer to one. For example if the raw beta was 3, the adjusted would be (3*2)/3 + 1/3 = 2.333. If the raw beta is close to one it doesn’t move as far as that would. So if you understand the reasoning just remember that it gives more weight to the “beta” then it does to “1” Again, this is another one where if you understand the concept you’ll fare better than rote memorization.
Sometimes transforming the formula helps. E.g., in case of unlevered beta you can think of (1+D/E) as (A/E), which is the same thing, but makes better sense to me.
I did exatly what janza did on the beta formula. i remembered it as a multipler and ignored the other formula since i can back into it