FinQuiz Formula Sheet Level II 2017

fgg
Reading 9: Correlation & Regression H1: b1 0 (linear relationship does bcd (
h
)
10. F-Statistic or F-Test = = ggi
exist) bce ( )
-
! jkhk/

*./ )* +) ,* +, b1 b1 (df numerator = k = 1)

1. Sample Cov X, Y =
0+1 Test statistic = t = (df denominator = n k 1 = n 2)
s b1
34567
2. Correlation Coefficient = r), = or b1 t c s b1 11. Prediction Intervals = Y t 3 sm
(96 )(97 ) Confidence Interval =
345(),,) 1 ()+))?
r= sm> = s > 1 + + and
5;<()) 5;<(,) 0 0+1 9?
6
9. ANOVA (Analysis of variance) =
3. t-test (for normally distributed variables) = ANOVA SS MSS F s f = s 2f
< 0+>
t= t distribution with n
1+<? [
Regression
2 deg. of freedom = Z Reading 10: Multiple Regression & Issues in
df = k
Z\1 1 Regression Analysis
>

4. Linear Regression = Yi = b0 + b1Xi + i,

1. Yi = b0 + b1X1i + b2X2i + + bkXki + i,i =
Intercept (b0) = b0 = y b1 x =
[
Error
= Z 1, 2, n
df = n-k-1 1
Slope or regression coefficient = b1 = Z\1
>

345(O,P) O+O P+P 2. Prediction equation = Z = u + 1 1Z +
or =
5;<(O) O+O ?
[ > >Z +. . . +w wZ + y ,
Total
= Z
5. Standard Error of Estimate SEE = SR = df = n-1
Z\1 [+1
- (P +P)? > 3. Adjusted R2 = > = 1 1 >
SSR *./ * [+w+1
=
0+T+1 0+T+1
4. BreuschPagan test
Source of Sum of Mean Sum
6. Coefficient of Determination (R2) = DoF H0 = No conditional
Variability Squares of Squares
SSU+SSR VSS
= = where, 0 R2 1 Heteroskedasticity exists
SSU SSU
(for single independent variable R2 = r2) Regression MSR = HA = Conditional Heteroskedasticity
1 RSS
(Explained) RSS/1 exists
7. SST = SSE + SSR(or RSS) Test statistic = n R2residuals
Error MSE =
n-2 SSE
(Unexplained) SSE/n-2
8. Hypothesis Testing: 5. Durbin-Waston Test = =
SST= ?
~.? }~ +}~k/
Null and Alternative hypotheses } ?
Total n-1 RSS + ~./ ~
H0: b1 = 0 (no linear relationship) SSE
For Large Sample size DW Statistic
(d) = d 2 (1 r)
 FinQuiz Formula Sheet Level II 2017

Random walk with a drift = xt = b0 + x Reading 13: Currency Exchange Rates

t-1 + t where, b0 0 and b1 = 1
By taking first difference yt = xt - x t-1 1. Bid-offer Spread = Offer price Bid price
= b0 + t 2. Fwd rate = Spot Exchange rate +
Reading 11: Time Series Analysis 4<;< 4y09

7. Using Dickey-Fuller Test = xt - x t-1 = b0 + 1u,uuu

(b1 -1) x t-1 + t 3. Forward premium/discount (in %) =

1. Linear Trend Models = yt = b0 + b1t+ t 94 O3;0 <;+(m4<;< 4y09/1u,uuu)
1
Predicted/fitted value of yt in period 94 O3;0 <;
8. Smoothing Past Values with n-Period
(T + 1) = y t +1 = b0 + b1 (T + 1) Moving Average = 4. To convert spot rate into forward quote:
2. Log-Linear Trend Models = yt = e b0 +b1t xt + xt 1 + xt 2 + ..... + xt ( n 1) Spot exchange rate (1 + % premium)
Spot exchange rate (1 - % discount)
n
3. Autoregressive Time-Series Models: 9. Correcting Seasonality in Time Series
First order autoregressive AR (1) = xt Models: 5. Covered interest rate parity:
1
= b0 + b1 x t-1 + t 1 + i = S 1 + i
/
pth-order autoregressive AR (p) = xt
For quarterly data = xt = b0 + b1x t-1 + 1y
= b0 + b1 x t-1 + b2 x t-2 + ..+ bp x t-p b2x t-4 + t F / = S
1y

+t For monthly data = xt = b0 + b1x t-1 +
Using day count convention:
b0 b2x t-12 + t
' ! Actual $*
4. Mean reverting level of xt = 10. ARCH model =
1 b1 )1+ id # ,=
2 t = 0 + 1 2 t 1 + t where t is ( " 360 &%+

5. Chain Rule of Forecasting: an error term ' ! Actual $*' 1 *

S f /d )1+ i f # ,) ,
One-period ahead forecast = Predicting variance of errors in period ( " 360 &%+)( Ff /d ,+
xt+1 = b0 + b1 xt t+1 = t2+1 = 0 + 1t2
Two-period ahead forecast= Actual
Reading 12: Excerpt from Probabilistic 1 + i f
xt+2 = b0 + b1 xt+1 360
Approaches , Scenario Analysis, Decision Tree Ff / d = S f /d
Actual
6. Random Walks and Unit Roots: & Simulations 1 + id
Random Walk without drift = xt = x t- 360
1 + t where, b0 = 0 and b1 = 1.
Correcting Random Walk = yt = xt - x 6. Uncovered Interest Rate Parity :
t-1 i f %S e f / d = id

 FinQuiz Formula Sheet Level II 2017

%S e f / d = i f id S f / d Pd
= S f / d Pd


Forward premium or discount: P P
qf/d = f f 16. Interest Rate Differentials, Carry Trades
For one year horizon = and Exchange Rates
Ff /d S f /d = CPI d
q f / d = S f / d
"i i % or
CPI
f


qL/H = qL/H +(iH i L )( H L )(H L )
S f /d $ f d ' S f /d (i f id )
# 1+ id & 12. Fisher effect:
id = rd + d 17. Policy Rate under Taylor rule:
Using day count convention:
( " Actual % +
if = rf + f i = rn + + ( *) + (y y*)
* $ - if id = (rf rd) + (f- d)
# 360 '& -
Ff /d S f /d = S f /d * (i f id ) (rf rd) = (if id) - (f- d) Neutral real policy rate + Current inf
* 1+ i " Actual % -
* d$ -
) # 360 '& , rate + (Inf gap) + (Output gap)
13. When both uncovered interest rate parity
and ex-ante PPP hold: 18. Exchange rates using the Taylor Rule =
7. Forward discount or premium as % of spot
(rf rd) = % Sf/d - % Sf/d = 0 q S/RV = q S/RV + r0R r0S +
rate:
International Fisher Effect: if id = f-
Ff / d S f / d d R R S S +
(i f id )
S f /d yR y R yS y S
14. When all the key international parity R S
If uncovered interest rate parity holds
conditions are held at all times:
Ff /d S f /d BOP = Current A/C + Capital A/C +
= = %S ef /d (i f id ) Reading 14: Economic Growth & The
S f /d Official Reserve A/C = 0 Investment Decision

8. Purchasing Power parity (PPP) 15. Real exchange rate = = + 1. Economic growth = Annual % in real

Pf = S f/d Pd GDP or in real per capita GDP
S f/d = Pf / Pd
R
2. P = GDP
R
9. Relative version of PPP = %S f/d = f d
3. Expressing in terms of logarithmic rates:
10. Ex ante version of PPP = %Sef/d = ef
(1/T) % P = (1/T) % GDP + (1/T)
ed
% (E / GDP) + (1/T) % (P / E)

11. Real Exchange Rate % in stock MV = % in GDP + %

in share of earnings (profit) in GDP
 FinQuiz Formula Sheet Level II 2017

+ % in the price-to-earnings Growth rates of output per capita = y

multiple 11. Labor productivity growth accounting /y=

+

=
1+
equation
4. A two-factor aggregate production Growth rate in potential GDP = LT g + (y/k )
1+
function: Y = AF (K, L) rate of labor force + LT g rate in labor Capital-to-labor ratio = k / k =
productivity
+ = +s
5. Cobb-Douglas Production Function = F 1+ 1+

(K, L) = K L1 - 12. Balanced or Steady State Rate of Growth (y/k )

in Neoclassical Growth Theory:
6. Under the Cobb-Douglas production Growth in physical capital stock = K 15. Proportional impact of the saving rate
function: change on the capital-to-labor ratio and per
= sY K
Marginal product of capital = MPK = capita income over time:
1
AK -1 L 1- = Y/K 13. In the steady state: ' ! Y $ * 1
Y/K = r = r (K) / Y = Capital Growth rate of capital per worker = k )# & ,
income / Output or GDP / k = y / y = A / A + k / k = knew " K %new ,

=)
Steady state growth rate of kold )!Y $ ,
)( #" K &%old ,+
1+
7. Output per worker or Average labor
labor productivity
productivity (Y/L or y):
Growth rate of Total output = Y / Y
GDP/Labor input = TFP capital-to-
= Growth rate of TFP scaled by labor y new k new
labor ratio share of capital in GDP =
force share + Growth rate in the labor
Or y = Y/L = Ak
y old k old
force = +n
1+
8. Contribution of Capital Deepening = Labor Steady state Output-to-capital ratio = 16. Production function in the endogenous
1
productivity growth rate TFP = + + = growth model = ye = f (ke) = cke
1+
Gross investment per worker = Growth rate of output per capita =
9. Contribution of Improvement in ye/ye = ke/ke = sc n
technology = Labor productivity growth + +
1+
rate Capital Deepening Slope of straight line = [ + n + / (1 Reading 15: Economics of Regulation
)]
10. Growth Accounting based on Solow 14. During the transition to the steady state
Approach = Y /Y = A / A + K/K + growth path:
(1 ) L/ L
 FinQuiz Formula Sheet Level II 2017

Reading 16: Interoperate Investments

1. Summary of Accounting Treatment of Investments

Income Statement (I.S) Balance Sheet (B.S) Statement
ofSHsEq
uity
Held-to- i income = Market rate at purchase Initial fair value (FV) of a Initially, at FV (IFRS) or initial price paid (US N/A
maturity debt security GAAP)
Ori income = i pmt Amort Subsequently, reported at amort cost at the
i pmt = (Coupon rate Par value) subsequent reporting date on B.S.
Amort = i pmt i income
If debt security is sold: Realized g/l reported on I.S = SP CV or
Amort cost
Held i income = Market rate Initial FV Initially, at FV.
for Unrealized g/l = FV at the end of Yr t Amort Cost at end of Yr t Subsequently, at FV at subsequent reporting date
trading If debt security is sold: on B.S.
security Realized g/l reported on I.S= SP Recorded FV
Designated i income = Market rate at purchase Initial FV Reported at FV at the end of Yr t
at Unrealized g/l = FV at the end of Yr t Amortized Cost at end of Subsequently, at FV at the subsequent reporting
fair value Yr t date on B.S
If debt security is sold:
Realized g/l reported on I.S= SP Recorded FV
Available i income = Market rate at purchase Initial Fv Reported at FV at the end of Yr t Unrealized g/l (net
-for-sale If debt security is sold: Subsequently, at FV at the subsequent reporting of tax) = FV at end
Cumulative unrealized g/l is removed from OCI and entire g/l date on the B.S. of Yr t Amort Cost
recognized in P&l statement. at end of Yr t
Where, Realized g/l in I.S = (SP Recorded FV) + Unrealized g/l Unrealized g/l
(net of tax) is
reported as OCI
 FinQuiz Formula Sheet Level II 2017

2. Goodwill = Cost of acquisition investors share of the FV of the net Add: Unamortized excess PP (Excess PP Amount attributable xxx
identifiable assets to PP&E)
PP Xxx = Investment in Investee xxx
Less: (% of Ownership Interest BV of Investees Net (xxx)
Assets) Transactions with Associates:
= Excess Purchase Price Xxx 4. Upstream Transactions:
Less: Attributable to Net Assets: Investors share of Associates reported NI (% of Ownership xxx
-Plant & Equipment (% of Ownership Interest difference (xxx) Interest Reported net income)
b/wBV & FV) Less: Amort. of excess purchase price (xxx)
-Land (% of Ownership Interest difference b/wBV & FV) (xxx)
Less: Unrealized profit (% of Ownership Interest Profit from (xxx)
= Residual Amount (Treated as Goodwill) Xxx
upstream sale in Associates NI)
3. Amort. of Excess PP: = Equity Income to be reported as a line item on Investors I.S* xxx
Investment in associate:
PP Xxx Balance in the investment in Associate to be reported at the end of

Add: Investors share of Investees NI (% of Ownership Xxx year:
Interest Investees NI) PP xxx
Less: Div. received (% of Ownership Interest Div. paid) (xxx) Add: Equity income (as calculated above)* xxx
Less: Amort. of excess PP attributable to plant & equipment (xxx)
Less: Div. received (% of Ownership Interest Div paid) (xxx)
(Amount attributable to PP&E* Remaining life of PP&E)
= Balance in investment in Investee Xxx
= Value of Investment in Associates company at the end of year xxx
Where, *Amount attributable to Plant & Equipment = % of Ownership
Interest of investor (FV of P&E BV of P&E)

Beg net assets Xxx Composition of Investment account:

Add: NI Xxx Investors proportionate share of Associates net equity = [% of xxx
Less: Div. paid (xxx) Ownership Interest (beg BV of net assets) + (Reported NI of
= Ending net assets Xxx associate Profit from upstream sale in Associates NI) Div. paid
Investors proportionate share of Investees recorded net assets Xxx by the associate)]
(% of Ownership Interest Ending net assets) Add: Unamortized excess PP (Excess PP Amort. of excess PP) xxx
 FinQuiz
5. Downstream Transactions
Investors share of Associates xxx
reported NI (% of Ownership Interest
Reported NI)
Less: Amort of excess PP (xxx)
Less: Unrealized profit (% of (xxx)
Ownership Interest Profit from the
downstream sale in Associates NI)
= Equity Income to be reported as a xxx
line item on Investors I.S
Unrealized profit = % of goods unsold Profit
on the sale to investee
Investors share of the unrealized profit =
Unrealized profit % of goods unsold
Investors share of associates xxx
reported NI (% of Ownership Interest
Reported NI)
Less: Amort of excess PP (xxx)
Add: Realized profit (% of goods xxx
unsold Unrealized profit)
= Equity Income to be reported as a xxx
line item on Investors I.S
Business Combinations
6. Merger = Company X + Company Y
= Company X
7. Acquisition = Company X + Company Y =
(Company X + Company Y)
8. Consolidation = Company X + Company
Y = Company Z
Formula Sheet
Goodwill
9. Full Goodwill = Total FV of the
Subsidiary FV of subsidiarys
identifiable net assets
10. Partial Goodwill Method:
Goodwill = FV of acquisition
Acquirers share of FV of all
identifiable tangible and intangible
assets, liabilities and contingent
liabilities acquired
Or
Goodwill = Purchase price parents
(acquirers) proportionate share of the
FV of subsidiarys identifiable net
assets.
11. Under Acquisition method, the allocation
of PP:
FV of the stock issued xxx
Add: BV of Investees net assets xxx
= Excess PP xxx
FV of the stock issued xxx
Less: FV allocated to identifiable net (xxx)
assets
= Goodwill xxx
12. Allocation of excess PP: Excess PPP =
Sum of diff b/w FV and BV of identifiable
assets + Goodwill
13. Combined Assets & Liabilities (A&L)
reported on Consolidated B.S under
acquisition method: Consolidated B.S
Level II 2017
under acquisition method = BV for A&L
of Investor + FV for A&L acquired from
Acquiree
14. Combined Paid-in Capital (PIC) = (FV of
the stock issued to effect the transaction
Par value of the stock issued) + Additional
PIC of investor
15. Minority Interest = % of subsidiary not
owned by the Parent Subsidiarys Equity
16. Value of non-controlling interest under full
goodwill method = Non-controlling
interests proportionate interest in
subsidiary FV of subsidiary on
acquisition date
17. Value of non-controlling interest under
partial goodwill method = Non-controlling
interests proportionate interest in
subsidiary FVof the subsidiarys
identifiable net assets on acquisition date
Goodwill Impairment:
18. Goodwill Impairment Test under IFRS:
Impaired when CA of the Cash-generating
Unit > RA of the Cash-generating Unit
Impairment loss = CA of Cash-generating
Unit - RA of Cash-generating Unit where,
RA = Higher of Net SP and its VIU
Net SP = FV costs to sell
VIU = PV of expected future CF of
cash-generating unit
 FinQuiz
19. Goodwill Impairment Test under U.S.
GAAP (Two Step Approach)
Step 1: Goodwill Impairment Test
Impaired when CV of Reporting Unit
(including Goodwill) > FV of
Reporting Unit (including Goodwill).
Step 2: Measurement of Impairment
loss = CV of Reporting units
Goodwill - Implied FV of Reporting
units Goodwill
Where Implied FV of Reporting units
Goodwill = FV of Reporting Unit
FV of Reporting units net assets
Reading 17: Employee Compensation: Post
Employment & Share-Based
1. Under DC Plans: Pension exp = Co.s
annual contribution to plans adjusted for
in yr-end accruals
2. Funded Status = PV of DB obligations
FV of plan assets
3. Period pension cost of a Co.s DB pension
plan = in Net pension liability or asset
exp
recognized
=
040+
adjusted for employers contributions
3409;y40
O
59y0
<y4
4. Net i exp = Discount rate Net Pension
liability
where Discount Rate = rate used to
calculate PV of future pension benefits
Formula Sheet
5. Net i income = Discount rate Net
Pension asset
6. Net return on plan assets = Actual return
on plan assets (Plan assets i rate)
7. Actuarial g/l = Actual return (Plan assets
Expected return)
8. Total Periodic Pension Costs =Sum of
components of periodic pension costs
Total periodic pension cost in a given
period = in Net pension liability or
asset adjusted for employer
contributions
Total Net periodic pension cost (End
Funded Status* Beg Funded Status*)
Employer Contribution
where *Pension liability is treated as a
negative
9. Adjusted Total P&L pension exp (income)
= Current service costs + i costs + (-)
actuarial losses (actuarial gains) + past
service costs (or plan amendments)
(+) Actual return (loss) on plan assets
Or
= Reported Total P&L pension exp
(income) + Expected return on plan
assets Actual return on plan assets
Level II 2017
10. Adjusted Pre-tax Income:
= Reported Pre-tax income + (Actual
return on plan assets Expected return
on plan assets)
Or
= Reported Pre-tax income + Total
reported pension and other post-
retirement benefits - Current service
costs - i exp component of pension
cost + Actual return on plan assets
11. Adjusted Net Operating Exp=Reported Net
operating exp Total reported pension and
other post-retirement benefits + Current
service costs
12. Adjusted i Exp. = Reported i exp. + i exp.
component of pension cost
13. Adjusted i and investment Income
=Reported i and investment income +
Actual return on plan assets
14. Compensation exp. = FV of stock on the
Grant Date
16. Compensation
0<340y
59
V;y0y0
 FinQuiz Formula Sheet Level II 2017

Reading 18: Multinational Operations Foreign Subsidiarys Functional Currency

FC Parents Presentation
Currency
1. Cumulative Translation Adjustment = CTA = Assets Liabilities
inventories measured at
Common Stock Retained Earnings market value under the lower
of cost or market rule.
ii) Measured at historical Current rate Historical rate
2. Balance Sheet Exposure: costs e.g. PP&E
Foreign Currency (FC) LIABILITIES
B.S Exposure Strengthens Weakens Monetary liabilities: a/c Current rate Current rate
When assets translated at +ve -ve payable, LT debt, accrued
Net Asset B.S
current X rate > liabilities translation translation exp., and deferred income
exposure
translated at current X rate adj adj taxes.
When liabilities translated at -ve +ve Nonmonetary liabilities:
Net Liability B.S i) measured at current value Current rate Current rate
current X rate > assets translation translation
exposure ii) not measured at current
translated at current X rate adj Adj
(X = exchange) value i.e. deferred revenue Current rate Historical rate

3. Re-measurement Gain = NI NI before re-measurement gain

4. Re-measurement Loss = NI NI before Re-measurement loss EQUITY

Other than R.E i.e. Common Historical rates Historical rates
5. Rules For Translation Of A Foreign Subsidiarys FC Financial Stock
Beg R.E + Beg R.E + translated NI
Statements (F.Ss) Into Parents Presentation Currency Under IFRS & Retained Earnings (R.E) translated NI div. div. translated at historical
U.S. GAAP translated at rate
historical rate
Foreign Subsidiarys Functional Currency
Revenues Average rate Average rate
FC Parents Presentation
Currency
Translation Method: Current Rate Temporal Method EXPENSES
method Most Expenses Average rate Average rate
Expenses related to assets
X rate at which F.Ss are translated at historical X rate Average rate Historical rate
translated from foreign e.g. COGS, Dep.,
subsidiarys bookkeeping & Amort. etc.
currency to parents
NI Average rate Mixed (a mix of average
presentation currency.
rate & historical rate)
ASSETS
Monetary assets: Cash, a/c Current rate Current rate Exposure Net Assets or Net Net monetary assets or Net
receivables Liabilities monetary liabilities
Treatment of translation adj. Accumulated as a Included as g/l in NI
Nonmonetary Assets: Current rate Current rate in parents consolidated F.Ss separate component
i) Measured at current value of equity
i.e. marketable securities &
 FinQuiz Formula Sheet Level II 2017

TEMPORAL METHOD: CURRENT <<0 P< 9 <y3 y0O

RATE 7. Restatement Factor =
y94<y3; <y3 y0O
Net Monetary Net Monetary METHOD
Liability Exposure Asset Exposure
FC Rev Rev Rev
8. Restated Capital Stock = Capital stock original value
strengthens Assets Assets Assets <<0 P< 9 <y3 y0O 4< ; 4m 340<yy40,y35< y9 ;<
relative to Liabilities Liabilities Liabilities y94<y3; <y3 y0O
parents
presentation NI NI NI
<<0 P< 9 <y3 y0O
currency SH equity SH equity SH equity 9. Restated Revenue = Revenue original value
Translation Translation 5.<y3 y0O
loss gain +ve
Translation
adj.
10. Loss from holding beg balance in cash = -Beg balance in cash
FC weakens Rev Rev Rev <<0 P< 9 <y3 y0O y94<y3; <y3 y0O
relative to Assets Assets Assets y94<y3; <y3 y0O
parents Liabilities Liabilities Liabilities
presentation
currency NI NI Net Income 11. Loss from increase in cash during the yr = -Increase in cash
SH equity SH equity <<0 P< 9 <y3 y0O+5 <y3 y0O
Translation Translation SH equity 5 <y3 y0O
gain loss -ve
Translation
adj. 12. Gain from holding note payable = Notes payable
<<0 P< 9 <y3 y0O+y94<y3; <y3 y0O
y94<y3; <y3 y0O

6. Impact of Changing Exchange Rates on Exposure

U;O RO
Foreign Currency 13. Avg. effective tax rate =
<;O 3340y0 <4my9
Strengthens Weakens
CURRENT RATE METHOD:
Net Assets Gain Loss 14. Organic sales growth = Net sales growth + Foreign X impact +
Net Liabilities Loss Gain
TEMPORAL METHOD:
Acquisition/Divestiture impact.
Net Monetary Assets Gain Loss
Net Monetary Liabilities Loss Gain

Hyperinflationary Economy
 FinQuiz Formula Sheet Level II 2017

V.R (Cash t + ST invstmnt. t)} {Total liab

Reading 19: Evaluating Quality of Financial 11. Z-score = 1.2 + 1.4 +
U U
Reports RU . 4m RyP t (Total LT debt t + Debt in current
3.3 + 0.6 + liab.)}]
U . 4m y;yyy9
S;9 B. S based Accruals Ratio =
1. DSR (days sales receivable index) = 1.0
U. ~ +~k/
(Receivablest/Salest) / (Receivablest ~ ~k/
>
1/Salest1) Reading 20: Integration of Financial Statement
Analysis 3. CF based aggregate accruals:
2. GMI (gross margin index) = Gross
margint1 / Gross margint Aggregate Accruals = NI t (CFO t +
1. DuPont Analysis: CFI t)
ROE = Tax Burden Interest CF based Accruals Ratio =
3. AQI (asset quality index) = [1 (PP&Et+
Burden EBIT margin TATO +( )
CAt)/TAt ] / [1 (PP&Et1+ CAt-1)/TAt-1] ( k/ )
Financial Leverage >
ROE = NI/EBT EBT/EBIT Op. CF before interest and taxes = Op.
4. SGI (sales growth index) = Salest/Salest1
EBIT/Sales Sales/Assets CF + cash i paid + cash taxes paid
Assets/Equity Op income adjusted for accounting
5. DEPI (depreciation index) = Dep ratet
ROE = Net profit margin asset = Profit before i& taxes + amort. of
1/Dep ratet
where, Dep rate = Dep/(Dep + PP&E) turnover leverage goodwill
Adjusted Asset base = Adjusted Total
Assets = Total Assets of the company .
6. SGAI (sales, general, and admin exp 4. Cash Return on Assets =
5 U.
index) = (SGAt/Salest) / (SGAt1/Salest1) Investments in Associates
Adjusted NI = NI of Co NI from
5. Cash Flow to Reinvestment =
7. Accruals = (Income before extraordinary Associates .
items Cash from operations)/TA Adjusted Tax Burden = 3;y; O0y<9
+RyP y034
RU
8. LEVI (leverage index) = Leveraget / 6. Cash Flow to Total Debt =
Adjusted TATO = . m4< y0<9 &
Leveraget1 where, Leverage = Debt /
U.
k .--.- k- .--
Assets >
7. Capacity to pay debt (in years)
9. Earnings t+1 = + (1 Earnings t) + Accruals and Earnings Quality U.
=
.+;y; RO0y<9
2. B.S based aggregate accruals
10. Account receivable turnover = (365/DSO) Aggregate Accrualst = NOAt NOAt-1 . m4< Z&
where, NOAt = Net operating Assets t 8. CF Interest Coverage =
Z ;y
= Op Assets t Op Liab t = [{TA t
 FinQuiz Formula Sheet Level II 2017

Decomposition and Analysis of the Cos Reading 21: Capital Budgeting 9. Profitability index = PI = 1 + (NPV/Initial
Valuation: investment)
9. Parent Co. pro-rata share of 1. Depreciable Basis = Purchase price + any when PI > 1, invest and when PI < 1, do
subsidiary/affiliates = (Subsidiarys share Shipping or handling or installation costs not invest.
price in FC Shares held by Parent Co.
X- rate)/Parent Co. total market Expansion Project 10. CAPM = ri = R F + i [E (R M) R F]
capitalization 2. Initial Outlay = FCInv + NWCInv
NWCInv = non-cash current assets Economic and Accounting Income
10. Implied Value of Parent Co. (excl. non-debt current liabilities= NWC 11. Accounting income = Rev Exp
subsidiary/affiliates) = Parent Co.s Mkt
Cap - Value of subsidiary/affiliate holdings 3. Annual after-tax operating cash flow = CF 12. Economic Income = AT CF from
= (S C D) (1 T) + D or CF = (S C) investment + in MV = AT CF from
;<0 4.9 T ; investment + (End MV Beg MV)
11. P/E ratio of Parent Co = (1 T) + TD
4m ;<0 4.
OR
4. Terminal year after-tax non-operating cash = AT CF from invstmnt. (Beg MV End
12. Implied P/E ratio of Parent Co. =
flow = TNOCF = Sal T + NWCInv T (Sal MV)= AT CF from invstmnt. Eco. Dep
Implied Value of Parent Co.
(excluding subsidiary/affiliates) T B T)
NI of Parent Co. Equity Income from 13. Economic Profit (EP) = NOPAT $WACC
subsidiary/affiliates Replacement Project where,
5. Initial Outlay = FCInv + NWCInv Sal 0 + NOPAT = net operating profit after tax
13. Discount to Benchmark = T (Sal 0 B0) i.e. EBIT (1 Tax rate)

03;<T 9 + ;<0 4./R EBIT = earnings before interest and taxes

03;<T 9 /R 6. Annual after-tax operating cash flow $WACC= dollar cost of capital = WACC
(incremental) capital
Off-Balance Sheet Leverage from Operating CF = (S C D) (1 T) + D or Capital (after Year 1) = investment =
Leases CF = (S C) (1 T) + TD Initial Investment depreciation
U. 4m ;9 ;P09
14. Adj. Fin Lev =
U.R R
7. Terminal year after-tax non-operating cash 14. MVA or NPV = \1 (1)
U. 4m ;9 ;P09 flow = TNOCF = Sal T + NWCInv T 15. Total value of Co. = original investment +
15. Adj. D-to-E ratio =
U.R (Sal T B T) NPV
16. Adj. i-coverage Ratio = 8. (1 + Nominal rate) = (1 + Real rate) (1 +
RU+ OV0 RO 16. Residual income (RI) = NI Equity
Z O99 Z O 40 ;99 Inf rate) Charge
RI t = NI t (re B t-1)
 FinQuiz Formula Sheet Level II 2017

where, V=D+E= Reading 23: Dividends & Share Repurchases

V 0<9 ;P09 40
MVA = \1 1< + Analysis
49 4m
Total value of Co. = NPV (PV of RI) (RU y0<9 ;P09 40 )
Share is sold just before it goes ex-dividend:
49 4m yP
+ Original Equity investment +
Original Debt investment 1. Cash flow from Sale = Sale price capital
R gains tax owned on the sale = Pw (Pw
8. Systematic Risk = a = d + e

Claims Valuation Pb)(TCG)
e = a + (a d) (D/E)
17. Total value of Co. = value of liabilities + where, Pw = price with the right to receive
value of equity dividend
9. AT cost of debt = BT cost of debt (1
Pb = purchase price where b is for buy
Marginal tax rate)
TCG = marginal tax rate on capital gains
Reading 22: Capital Structure
10. MM Proposition I with Taxes: Co.s value
Share is sold (after share goes ex-div.)
1. WACC = r =

r 1 t + is maximized at 100% Debt
2. CF from Sale = Sale price cap gains tax
V L = V U + (t D)
R
r (owed on sale) + AT amount of div. = Px
Value of Unlevered all equity Co. =
(Px Pb) (TCG) + D (1 TD)
RU 1
VU =
2. Total value of Co. = V = D + E <
0<9 ;P09 40 3. When Px = Pw then Pw (Pw Pb) (TCG) =
V=D+E= +
49 4m Px (Px Pb) (TCG) + D (1 TD)
3. WACC without taxes = r = (RU y0<9 ;P09 40 )(1 ) 1+U 1+U
R 49 4m yP P PO = D or P = D
r + r 1+U 1+U

where, P = in price when the stock
11. MM Proposition II with Taxes: WACC is goes from with div to ex-div

4. Cost of Equity = r = ru + (ru r ) minimized at 100% Debt
R

re = r0 + (r0 rd)(1 t) 4. Double Taxation Method: ETR= Corp. tax
0<9 ;P09 40 R
5. V = D + E = + (r0 rd)(1-t) = Slope coefficient * rate + {(1 Corp. tax rate) (Indiv. tax
49 4m
(RU y0<9 ;P09 40 ) *(r0- r d)(1 t) < (r 0 - r d) rate)}

49 4m yP
WACC with taxes: rWACC = rd (1
5. Dividend imputation tax system: ETR =
R
6. According to MM proposition I: V L = V U
t)+ re SHs Marginal Tax Rate

and E = V D
12. Static trade-off theory of capital structure 6. Split tax system: ETR = Corp. tax rate on
7. According to MM proposition II: VL = V U + tD PV(Costs of financial div + {(1 Corp. tax rate on div.)
Cost of Equity = r = ru + (ru distress) (personal tax rate)}

r )
R
 FinQuiz Formula Sheet Level II 2017

Payout Policies: Reading 26: Mergers & Acquisitions Unlevered NI = EBIT (1- tax rate)
7. Stable Div. Policy NOPLAT = Unlevered NI + in
Expected in Div. = in Earnings 1. Statutory Merger = Co. X + Co. Y= Co. X deferred taxes
Target payout ratio Adj. factor 2. Subsidiary Merger = Co. X +Co. Y=(Co.
Adj. factor = 1/no. of yrs. over which X + Co. Y) 11. FCF = NOPLAT + NCC in Net WC
adj. in div. will take place Capex
Expected Div = Last div. + (Expected 3. Consolidation = Co. X + Co. Y = Co. Z
in earnings Target payout ratio 12. FCF = NI + net interest after-tax + in
Adj. factor) 4. New shares issued by Acquirer = deferred taxes + net noncash charges in
T 3; 4m U;< NWC Capex
943T <y3 4m 3y<<
8. Residual Div. Policy
Div. = Earnings (Capital budget Terminal Value:
5. Post-merger no. of shares outstanding =
Equity % in capital structure) or Acquirers pre-merger total shares
13. Using constant growth formula
Div. = Zero, whichever is greater. outstanding + new shares issued by (1)
Terminal ValueU =
9. Div. Payout Ratio =
y5. Acquirer ( +)

6. Post-Merger EPS = 14. Using Market Multiple
10. Div. Coverage Ratio = 3y<< 9 < << R;<0y09U;< 9 < << R;<0y09
y5. Terminal ValueU = FCFU
49 << 0< 4m 9;<9 49;0y0

11. FCFE Coverage Ratio =

R 7. Post merger P/E (if market is efficient) 15. EV =MV of debt + MV of equity cash &
[y5.S;< V<3;99] < << 943T <y3 4m 3y<< cash equivalents
=
49 << RS

FCFE = CFO FCInv + Net Borrowings 16. Takeover Premium = takeover (deal price)
8. No. of acquirer shares received by each per share (of target Co.) current stock
shareholder (in target Co.) = No. of target + S
Reading 24: Corporate Performance, price of target Co. =
shares he/she owns X ratio c
Governance & Business Ethics

[ c Z Z 17. Estimated takeover price of Target =

9. HHI = Z
c



w


Estimated stock price of Target based on
2 Comparables + Estimated takeover
Reading 25: Corporate Governance 100
premium
1. Share Overhang = 10. Unlevered NI = NI + Net Interest after-tax
4.4m
9;<9
<<90
P

y409
Net interest after-tax = (i exp i When takeover premium is given in
U4;
04.4m
9;<9
49;0y0 %, Estimated takeover price of Target
income) (1 Tax rate) Or
 FinQuiz
= (Estimated stock price of Target
based on Comparables) (1 +
Takeover premium in %)
18. Target Shareholders gain = Premium = P T
VT
where,
P T = price paid for target company
V T = pre-merger value of target
company
19. Acquirers gain = Synergies Premium =
S (P T V T)
20. Post-merger value of the combined
company = V A* = V A + V T + S C
where,
V A = pre-merger value of the acquirer
C = cash paid to target SH i.e. cash paid =
cash price paid per share of target co. no.
of shares outstanding of target co.
21. In Stock offer = P T = (N P AT)
where,
P T = price paid for target co.
N = No. of new shares target receives
P AT = price per share of combined firm
after merger announcement
Reading 27: Equity Valuation: Applications &
Processes
1. Mispricing = VE P = (V- P) + (VE
V)
VEP: Mispricing
Formula Sheet
VP: True Mispricing
VEV: Valuation Error
where,VE = estimated value
P = market price
V = intrinsic value
2. Residual Income Model = NI (cost of
equity Beg value Equity)
Reading 28: Return Concepts
1. Dividend yield or investment income =
(DH/P0)
2. Price appreciation R = (PH-P0)/P0
3. HPR = r = {(DH + PH) / P0} 1 OR r =
{(P1 P0+CF1) / P0
4. Expected Alpha = Exp. R Req. R
5. Realized Alpha (Ex-post alpha) = (Actual
HPR) (Contemporaneous Req. R)
6. Expected HPR:
When an assets intrinsic value
market price, the investor expects to
earn = RR + return from the
convergence of price to value
When an assets intrinsic value =
price, the investor expects to earn RR
only.
E (RT) rT + {(V0 P0) / P0}
where,rT = periodic required RoR,
Level II 2017
{(V0 P0)/P0} = estimate of return
from convergence over period
7. IRR:
Intrinsic value= D1 / (k-g)
If asset (fairly priced), market price =
intrinsic value: k = (D1 / P0) + g
8. Req ROE = Rf + ERP
9. GGM Intrinsic value = D1/ (k-g)
Macroeconomic Model Estimates (Supply side
models):
10. ERP = [{(1+EINFL) (1+EGREPS)
(1+EGPE)-1} +EINC]-Expected Rf R
where EINFL= expected inf.(
forecasted as) {(1+YTM of 20-yr T-
bonds) / (1+YTM of 20-yr TIPS)}
1.
EGREPS = expected growth rate in
real EPS.
Real GDP growth rate = labor
productivity growth + labor supply
growth rate
Labor supply growth rate = population
growth rate + increase in labor force
participation rate
EGPE = expected growth rate in P/E
ratio. (For efficient markets 1+EGPE
= 1+0 = 1.
 FinQuiz
EINC = expected income component
(includes dividend yield &
reinvestment R)
11. CAPM: Required Return on share i =
Current expected Rf R + Bi (ERP)
where ERP = Expected R on mkt
portfolio RF R
Beta = Cov of returns with mkt R /mkt
portfolio var.
12. Adjusted Beta = (2/3) (Unadjusted beta) +
(1/3) (1.0)
13. Beta Estimation for Thinly Traded Stocks
and Nonpublic Companies
Bu [1/ {1+ (D/E)}] Be
Be [1+ (D/E)] Bu
14. Multifactor Models = r = Rf+ (RP)1 +
(RP)2 + + (RP)k
RPi = (Factor sensitivity)i (Factor
RP)i.
15. The Fama-French Model (FFM): ri =Rf +
Bimarket RMRF + Bisize SMB + Bivalue
HML
RMRF = RM Rf
SMB(small minus big) = Avg. R on 3
small-cap portfolios avg. R on 3
large-cap portfolios.
Formula Sheet
HML (high minus low) = Avg. R on 2
high Book-to-market portfolios avg.
R on 2 low book-to-market portfolios.
16. Pastor-Stambaugh Model (PSM): ri = Rf +
BimarketRMRF + Bisize SMB + Bivalue
HML+ BiLiq LIQ
17. 5-factor BIRR Model: ri = T-bill rate +
(sensitivity to confidence risk confidence
RP)(sensitivity to time horizon time
horizon RP) (sensitivity to inf. risk inf.
RP) + (sensitivity to business cycle risk
business cycle RP) + (sensitivity to mkt.
timing risk mkt. timing RP)
18. Build-Up Approaches for Private Business
Valuation: ri = rf + ERP + Size premi
+Specific Co. premi
19. Bond yield Plus RP (BYPRP) cost of
equity = YTM on the co.s LT debt + RP
Country Spread Model
20. ERP estimate = ERP for a developed mkt
+ Country prem.
Country Prem. = yield on emerging
mkt bonds (denominated in currency
of developed market) yield on
developed mkt. govt. bonds
21. Cost of Capital = WACC = {D/(D+E)}rd
(1-Tax rate) + {E / (D+E)}rE
Level II 2017
Reading 29: Industry & Company Analysis
1. % of sales (specific geographic region) =
Sales of a particular region / Total sales of
a co.
2. Co.s projected Rev. growth = Projected
mkt. share Projected sales of a given
product mkt.
3. Forecasted variable costs = % of rev. Or =
Unit volume Unit variable costs
4. COGS =Raw materials + Direct labor +
Overhead (in producing the goods)
5. Finance costs = (Fixed i rate on debt
Gross debt at beg. of period) (i income
rate cash position at beg of period)
6. Gross debt = LT financial debt + ST
financial debt + Accrued interest
7. Net debt = Gross debt Cash and cash
equivalents
8. Effective i rate = i exp / Avg gross debt
9. i rate on avg cash position =i income / Avg
cash position
10. i rate on avg. net debt = Net i exp / Avg.
net debt
 FinQuiz Formula Sheet Level II 2017

11. Deferred tax asset/liability = Profit and 18. Post cannibalization revenue =Pre- 22. Forecasted CF Statement
loss (reported) tax amount Cash tax cannibalization revenue Estimated CF from operating activities:
amount impact on rev. from cannibalization NI (profit after taxes)
Adj. to determine CF:
12. Projected A/C receivable = Forecasted 19. Overall organic rev. growth = [(1 + Add:
annual sales (assuming all credit sales) volume growth) (1 + % of price/mix dep.
(Assumed DSO/ 365) contribution to rev. growth)] -1 in a/c receivable
in inventory
13. Projected inventory = Assumed COGS / 20. Construction of Pro Forma I.S: in a/c payable
Assumed Inventory TO ratio Sales Total adjustments
Less: COGS Net CF from operating activities
14. ROIC= NOPLAT / Invested Capital = EBI = Gross profit CF from investing activities:
/ (Operating assets Operating liab.) Less: Admin. exp. : in plant and equipment
Less: Distrib. Exp. Net CF from investing activities
15. ROCE = Op. profit / Capital employed (i.e. Add: Other income from operation CF from financing activities:
debt and equity capital) = EBIT in notes payable
Add (Less): Other operating income in LTD
16. Rev. loss for co. due to cannibalization of (exp.) Less: Dividends paid
demand = Projected no. of units of product Less: Finance costs & other financial Net CF from financing activities
cannibalized by the new substitute product exp. Forecasted in cash
Estimated ASP = Profit before tax
Where, Less: Income Tax 23. Forecasted B.S
Average selling price (ASP) = Add: Income from associates PP&E
4;0P 9 9y; ;5. <5. = Profit from continuing Add: Investment in associates
4;0P 9 9y; 9y09 4m <43 operations Add: Other financial assets
No of units of a product cannibalized Add (Less): Profit (loss) from Add: Deferred tax assets
by the new substitute product = discontinued operations = Total non-current assets
Expected no. of product shipments = Net profit for the year Inventories
% representation of each category Less: Non-controlling interests Add: Trade and other receivables
(e.g. consumer & non-consumer) = Owners of the co. Add: Cash & cash equivalents
Cannibalization factor for the category
Add: Other current assets
21. EBITDA = EBIT + Dep. & amort. exp. =Total current assets
17. Post cannibalization shipments =Pre-
Total assets = Total non-current +
cannibalization shipments Expected
Total current assets
cannibalization Share capital
 FinQuiz Formula Sheet Level II 2017

Add: Share premium Reading 30: Discounted Dividend Valuation 6. GGM for Preferred stock (fixed rate
Less: Treasury shares
perpetual preferred stock) = Vu =
<
Add: Consolidated reserves+Net profit 1. Assets value is PV of its expected future
to co. owners 0
CFs i.e. Vu = \1 1< 7. GGM ERP = 1-yr. forecasted div. yield on
Plus: Translation reserve
market index + consensus LT earnings
+/-: Profit or loss recorded in equity
2. RI = NI (cost of equity Beg. BV of growth rate LT govt. bond yield
= Equity attributable to
shareholders common equity)
8. Actual value of a companys share = Vu =
Plus: Non-controlling interest R/
= Equity 3. In RI Model: Value of stock = BVPS at t = + PVGO
<
LT financial debt 0 + PV of expected future residual where,
Add: Provision for employee benefits earnings PVGO =Sum of PV of expected
Add: LT provisions for liabilities and where, BVPS = common SHs equity / profitable opportunities of reinvesting
charges no. of common shares outstanding the earnings.
Add: Deferred tax liabilities RI model (assumes Clean Surplus E1/r = no-growth value per share
Accounting holds) i.e. BV t = BVt-1 + R/
= Total non-current liabilities When P0 = V0 then. PVGO = Pu
<
ST financial debt and accrued interest NIt Divt # #
Can be restated as or or =
Add: Trade and other payables R/ R/ R
4. DDM 1
Add: Income tax payable +
< R/
Add: ST provisions for liabilities and With Single HP = Value of Stock =
where, 1/r = value of P/E for no-
charges PV of expected Div. + PV of expected
growth company.
Add: derivative financial instruments Selling Price at the end of year one =
/ / PVGO/E1 = component of P/E value
Add: Liabilities held for sale Vu = +
(1<)/ (1<)/ that represents growth opportunities.
= Current liabilities
Value of stock for 2 years HP = Vu =
/ ? ? /
24. FCFF: + + # R/ 1+
(1<)/ (1<)? (1<)? 9. Leading ratio = = =
R R/ <+ <+
Normalized operating profit 0 -
For n-HPs = Vu = \1 1< +
1< -
Less: Taxes # (1)
When HP is extended into indefinite # R#
= Normalized operating 10. Trailing P/E ratio = = =
R# (<+)
profit after tax future: Vu = \1 (1<) (1+)(1)
Add: Dep. & amort. (<+)
in WC 5. Gordon Growth Model (GGM) = Vu =
Less: Capital expenditures # 1 / 11. GGM can be used to derive required RoR
or =
= FCFF <+ <+ # (1) /
=r= +g= +g
# #
 FinQuiz Formula Sheet Level II 2017

FCInv = End gross PPE Beg. gross

15. ROE = =
S;<4<9 yP U4; 999
12. Two-Stage Div Discount Model = Vu = U4; 999
PPE
0 - b) When LT assets are sold during the yr:
\1 (1<) + S;<4< 9 yP
(1<)-
=


S;9
FCInv = Capital expenditures
where, S;9 U4; 999
proceeds from sale of LT assets or
# 1& - 1' U4; 999
V0 = = FCInv = (End. gross PPE Beg. gross
<+' S;<4<9 yP

0 # (1& ) = Net profit margin Asset PPE) - Proceeds from sale of LT

Vu = \1 +
(1<) Turnover Leverage assets
# (1& )- (1' )
WCInv = in Current assets excl. cash
1< - (<+' )
Reading 31: Free Cash Flow Valuation & cash equivalents in Current liab.
excl. ST debt
13. H-Model
Vu =
# 1' & +'
+ # or 1. PV of FCFF = Firm Value =
<+' <+' 7. CF from operating activities = CFO = NI +
# 1' # (& +' )
\1 (1)
Vu = NCC WCInv.
(<+' )
where, 4m
2. WACC = r 1 8. Computing FCFE from FCFF
gL= normal LT div. growth rate after 4m 4m R
4m R FCFE = FCFF Int (1 Tax rate)
year 2H Tax rate + r
4m 4m R preferred stock dividends + Net
gS= initial ST div. growth rate
Borrowing + issuance of preferred
H = half-life in years of the high- R
3. PV of FCFE = Equity value = \1 (1<) stocks redemption of preferred stock
growth period i.e. high growth period
FCFE = NI + NCC FCInv WCInv
= 2H years
4. Constant-Growth FCFF valuation Model = + Net Borrowing + issuance of
/ # (1) preferred stocks redemption of
14. Estimating Sustainable Growth Rate = g = Firm Value = Vu = =
+ + preferred stock
b ROE
+y5y09 S;9 FCFE = CFO FCInv + Net
g= 5. Constant-Growth FCFE valuation Model =
S;9 U4; 999 Borrowing + issuance of preferred
U4; 999 R/ R# (1)
Equity Value = Vu = = stocks redemption of preferred stock
S;<4<9 RyP <+ <+
Total value of Equity (common) =
g = PRAT i.e..
6. Computing FCFF from NI = FCFF = NI + Total Firm value Market value of
g = profit margin (P) retention rate
NCC + Int (1 Tax rate) + Preferred Debt Preferred stock
(R) asset turnover (A) financial
leverage (T) stock div. FCInv WCInv
9. Finding FCFF and FCFE from EBIT or
a) When no LT assets are sold during the EBITDA
yr: FCFF = EBIT (1 Tax rate) + Dep
FCInv WCInv
 FinQuiz Formula Sheet Level II 2017

FCFF = EBITDA (1 Tax rate) + Dep Required rate of return (real) [in %] Reading 32: Market based Valuation: Price &
(Tax rate) FCInv WCInv Enterprise Value Multiples
FCFE = FCFF Int (1 Tax rate) + 15. Single-Stage FCFF and FCFE Model for
Net borrowing + issuance of preferred International Valuation: 1. Trailing P/E or Current P/E =
stocks redemption of preferred stock FCFFu (1 + g <; ) <<0 T <y3 < 9;<
Value of firm = Vu = 49 <30 ) *;<<9 RS
10. Forecasted FCFF = Forecasted [EBIT (1 WACC<; g <;
Tax rate) FCInv WCInv] FCFF1
= 2. Forward P/E or Leading P/E or Prospective
WACC<; g <;
<<0 ;<T <y3 < 9;<
11. Incremental fixed capital expenditures as a P/E =
O ,;< 9 RO3 R;<0y09
proportion of sales increases = Value of Stock = Vu
;y; O+ O FCFEu (1 + g <; )
03<;9 y0 9;9 = 3. Basic EPS =
r<; g <; U4; R;<0y09

FCFE1 5 04.4m 9;<9 ;3;P 4/9 <y0 <y4
12. Incremental working capital expenditures =
r<; g <;
as a proportion of sales increases = 4. Diluted EPS =
03<;9 y0
U4; R;<0y09
03<;9 y0 9;9 16. Two-stage FCFF valuation model equation 4.4m 9;<9 4/9 0 4<9 4m
is: O3<3y9 y< 4y409 4 4;y0 3440 943T
13. FCFE = NI (FCInv Dep) WCInv + 0
Firm Value = \1 (1) +
/
Net borrowing -/ 1 / 1+
where, 5. Justified Forward P/E = P0/E1 = =
(+) (1)- <+ <+
Net borrowing = DR(FCInv Dep) +
DR(WCInv) Or # (1)/R#
Two-stage FCFE valuation model 6. Justified Trailing P/E = P0/E0 =
<+
FCFE = NI (FCInv Dep) WCInv equation = Equity Value = 1+ (1)
+ (DR) (FCInv Dep) + (DR) 0 R R-/ 1 = where
+ <+
\1 (1<) (<+) (1<)-
(WCInv) Or P = price; E = earnings; D = dividends; r =
FCFE = NI - (1-DR) (FCInv Dep) required rate of return; and g = dividend
(1 DR) (WCInv) 17. Excess Cash = Total Cash Available growth rate
Total Assets of Firm
14. Modified Build-Up method to estimate real y;0 5 4 m 09<P 3;9 S43T 9 /R
7. PEG ratio =
discount rate: y;0 5 4m 09<P U4; 99 RO3 R;<0y09 <4 V; y0 %

Country return (Real) [in %]

+/ - Industry Adjustment [in %] 8. Yardeni Model CEY = CBY (b LTEG)
+/ - Size Adjustment [in %] + Residual
+/ - Leverage Adjustment [in %]
where,
 FinQuiz Formula Sheet Level II 2017

CEY = current earnings yield on the mkt. * It includes preferred stock and div.
index i.e. E/P. in arrears on preferred stock. y5 < 9;<
19. Dividend Yield = =
<y3 < 9;<
CBY = current Moodys Investors Service BVPS for whole company =
Trailing Div Yield =
A-rated corporate bond yield. 4; ;999 4; y;yyy9
y5y0 V;
LTEG = consensus 5-year earnings growth 0< 4m 9;<9 49;0y0
<<0 T <y3 < 9;<
rate forecast for the mkt index. Leading Div Yield =
VR+
b = coefficient (measures weight, the mkt 13. Justified P/B = P0/B0 = 4<3;9 y5 < 9;< 45< 0O P<
<+
gives to 5-year earnings projections). <<0 T. <y3 < 9;<
1
By taking inverse: = 14. Justified P/B based on RI model = P0/B0 =
R ,+ +UR 20. Div Yield (by using GGM) = Justified Div
4m O3 m< <9y; ;<0y09
9. Own Historical P/E: Justified price = 1+ u <+
u Yield = =
Benchmark value of own historical P/Es u 1

Most recent EPS <y3 < 9;<

15. P/S = 21. EV = MV of Common equity + MV of
00; 0 9;9 < 9;<

10. Terminal Value (T.V) based on where Net Sales = Total Sales preferred stock* + MV of debt Cash &
Fundamentals: returns customer discounts Short-term Investments
T.V in yr n = (justified trailing P/E)
(forecasted earnings in year n) 16. P/S ( in terms of Gordon Growth Model = MV of Common equity = No. of
#
T.V in year n = (justified leading P/E) # &#
1+ (1) shares o/s Price per share
Justified P/S = =
S# (<+) Cash & Investments = cash, cash
(forecasted earnings in year n+1)
where, E0/S0 = Businesss profit equivalents, short term investments
11. Terminal Value based on Comparables: margin etc.
T.V in yr n = (Benchmark trailing *If minority interest exists and it is not
P/E) (forecasted earnings in year n) 17. g = Retention rate (b) ROE included elsewhere, then it should be
S;9
T.V in yr n = (Benchmark leading g = b PM0 added back.
U4; 999
P/E) (forecasted earnings in year U4; 999
S;<4<9 RyP <;y0 <4my ;m< ;O
n+1) 22. ROIC =
where, PM0 = Profit Margin at t = 0 U4; y059 ;y;

<y3 < S;<

12. P/B = where 18. Price To Cash Flow 23. Total Invested Capital = TIC = MV of
44T ; < S;<
BVPS for equity shareholders = <y3 < 9;< Common equity + MV of preferred stock +
= Or
R;<0y09 9 0403;9 3;<9 MV of debt
U U+ .S
= <y3 < 9;<
04.4m 3440 943T 9;<9 4/9 = Or
;9 m4 m<4 <;y409
S 9 yP 4; yP 5; 3;y9 24. Earnings surprise UEt = EPS t E (EPS t)
<y3 < 9;<
; ;< 90y4< 4 3440 943T = Or
# 4m .S 9;<9 4/9 R where,
<y3 < 9;<
= UEt= unexpected earnings for quarter t
RU
 FinQuiz Formula Sheet Level II 2017

EPSt= reported/actual EPS for quarter V

=NOPAT Total Capital Charge = Vu = Bu +
\1 1< = Bu +
t NOPAT Debt Charge Equity R +<k/

E(EPSt) = expected EPS for the Charge = NOPAT (AT cost of debt \1 (1<)

quarter Debt Capital) (cost of equity Vu = Bu +

V/
+
V?
+
V/
+
(1<)/ (1<)? (1<)/
Percent Earning Surprise = Equity Capital)
R;<0y09 S<<y9
RI (with preferred stock) = NI
RO3 RS
Equity Charge Preferred Stock Div
Scaled Earnings Surprise =
R;<0y09 S<<y9
RI = (ROIC Effective Capital 6. RI Model (general) = Vu = Bu +
S. 4m ;0;P99- ;<0y09 m4<3;9 Charge) Beg. Capital VR +< k/
\1 1<
25. Standardized Unexpected Earnings = SUE
RS +R (RS ) 3. EVA = NOPAT (C% TC)
t = # VR+ VR+<
. [RS +R (RS )]
Or = [EBIT (1 t)] (WACC invested 7. Justified = = = 1 +
# <+ <+
where,
capital) where, Justified Price is the stocks
EPSt= reported/actual EPS for time t
where, Intrinsic value i.e. P0 = V0
E (EPSt) = expected EPS for the time t
C% = cost of capital BV of equity = B0 = Total assets
[EPS E (EPS )] = S.D of [EPS
TC = Total capital total liab.
E (EPS )] over some historical time period. WACC invested capital = dollar cost of
capital 8. Tobins q =
4m ;0 RyP
26. Relative strength indicator Invested capital = net WC + net fixed V;30 349 4m U4; 999
S43T 9 <m4<;03
= assets = BV of LT debt + BV of equity
<m4<;03 4m ;0 RyP 0O
9. Single-Stage RI Valuation = Vu = Bu +
VR+<
0 4. MVA = MV of Co. Accounting BV of Bu
27. Harmonic Mean = XH= - (/)
<+
*./ 6
*
total capital = MV of Co (BV of Debt + Implied Growth rate in RI = g = r
BV of Equity) # VR+<
# +#
Reading 33: Residual Income Valuation
5. RI model
RIt = E t (r B t-1) = (ROE r) B t-1 10. Multi-Stage RI Valuation = V0 = B0 + (PV
1. End. BV of equity = Beg. BV of equity +
Two components of intrinsic value of of interim high-growth RI) + (PV of
Earnings Div.
stock/equity continuing RI)
B t = B t-1 + E t Dt &
D t = E t - (B t - B t-1) = E t + B t-1 - B t i. Current BV of Equity that is B0. PV of continuing RI in year T1
V/ V
ii. PV of expected future RI + = where, =
(1<)/ 1<+2 1< k/
2. Residual Income (RI) V? V/ persistence factor, 0 1
+ +
= NI Equity Charge = NI (Equity (1<)? (1<)/ Assumptions about Continuing RI:
Capital Cost of Equity Capital)
 FinQuiz Formula Sheet Level II 2017

o RI is at +ve level currently and / r (T) = {[ 1 + r (1)] [1 + f (1,1)] [1 + f

To value Equity directly = V =
<+
will persist at this level in the (2,1)] [1 + f (3,1)] [1 + f (T 1,1)]} (1/T)
future indefinitely: -1
2. Excess Earnings or RI = Normalized
PV of continuing RI in year T-1
V V V earnings [(RR on WC value of WC) +
= = = Forward rate model can be expressed as:
1<+2 1<+1 < (RR on fixed assets value of fixed
o RI will become 0 from the assets)] 1 + +
1 + +
terminal yr forward. 1 +
PV of continuing RI in year T-1 3. MVIC = MV of Debt + MV of Equity = 1 + ,
V
= =
1<+2 1< k/
V V 4. Calculation of Lack of Control Discount = 5. Yield Curve Movement and the Forward
= 1
1<+u 1< k/ 1< k/ DLOC = 1 Curve
140<4 <y
o RI declines to 0 as ROE
F (T*, T) =
approaches r over time (& RI will
5. Lack of Marketability Discount =
become 0 eventually). i.e. 0
; 4m ";40P" 4y40
P* (T) =
1 DLOM =
PV of continuing RI in year T-1=
5; 4m 943T m4< ;0P +
F*(t, T*, T) = ++

V 6 (~ k~)
6. Total Discount = [1 (1 DLOC in %) 6 (~) ( )
1<+2 1< k/ F*(t, T*, T) = 6 (~ k~) = =
(1 DLOM in %)] ()
o RI declines to long-run mean 6 (~)

level of mature industry. F (T*, T)

Reading 35: The Term Structure & Interest
Where premium over book value is assumed at Rate Dynamics Active Bond Portfolio Management
1 1 /
the end of time horizon T (PT Bt), current 6. 1-yr. HPR = = 1 + (1)
1 1 1,
value (V0) = 1. Discount Factor = P (T) = =
1 (when the spot curve one year from today
B0 +
(ROEt r )Bt 1 + PT BT
T
1
is todays forward curve)
1 ()
t =1 (1 + r )T (1 + r )T
Where PT =BT (forecasted 7. Return of the 2-year zero-coupon bond
2. Forward pricing model: P (T* + T) = P
P/B ratio) over 1-yr HP =
(T*) F (T*,T) <y3 4m ; >+P< <4+3440 40 1 P< m<4 4;P

<3;9 <y3 4m 40
Reading 34: Private Company Valuation 3. Forward rate model = [1 + r (T* + T)] (T* + T) 1
= [1 + r (T*)] T* [1 + f (T*, T)] T
/
1. Capitalized CF to the firm = Vm = 4. Spot rate for a security, having maturity of
+3
T > 1
Value of Equity = Vf MV of Debt
 FinQuiz Formula Sheet Level II 2017

Price of a 2-yr zero-coupon bond 1 yr 9. Effective Convexity =

Fk F + > F#

G7 ? F#
from today = 15. Interest rate volatility for a security with
78[ C
D (~.)
(191:8[1::) maturity T at time t = (t, T) =
D (~,)
10. Value of capped floater = Value of straight

Price of a 3-yr zero-coupon bond 1 yr bond Value of embedded cap
from today =
Reading 36: The Arbitrage Free Valuation
78[
= 11. Value of floored floater = Value of straight
(199:8[1::) Framework
bond + Value of embedded floor
78[
Analysis of a Convertible Bond
1 1,>

8. Swap Spread = Fixed-rate of an interest Reading 37: Valuation & Analysis: Bonds with 12. Conversion Ratio (CR) = No. of shares of
rate swap Interest rate on on-the-run Embedded Options C.stock from exercising call option
Govt. security
()
+
1 1. Value of callable bond = Value of straight 13. Conversion Price (or stated conversion
\1 1 1 =1
bond Value of issuer call option price) = Par value of convertible bond

CR
2. Value of issuer call option = Value of
straight bond Value of callable bond 14. Conversion Value (or Parity) = Market
9. TED spread = LIBOR - T-bill rate of price of C.stock CR
matching maturity 3. Value of putable bond = Value of straight
bond + Value of investor put option 15. Straight Value or Investment Value =
10. LiborOIS spread = Libor - Overnight Market value of a security without
indexed swap (OIS) rate 4. Value of investor put option = Value of conversion option
putable bond Value of straight bond
1
11. Local expectations theory = = 16. Min. Value of a Convertible Security is
(,)
5. The rate in the up state = Ru = Rd e2 (greater of conversion value or straight
1 + 1 1 + 1,1 1 + 2,1 1+
where, Rd = Rate in the down state value)
3,1 [1 + 1,1 ]
= Interest rate volatility
t = Time in years between time slices 17. Market Conversion Price or Conversion
12. CoxIngersollRoss (CIR) Model = dr = a
Parity Price =
(b r) dt + k +
6. Duration = ;<T <y3 4m 405<y S3<yP
># , V
13. Vasicek Model = dr = a(b r)dt + dz
k + >#
7. Convexity = 18. Market Conversion Premium per share =
> # , ?
14. Ho-Lee model = drt = tdt + dzt k +
Market Conversion Price Current Market
8. Effective Duration = Price
> <5 E
 FinQuiz Formula Sheet Level II 2017

19. Premium Payback Period = 2. Credit spread = Yield to maturity of a risky A 1

;<T 405<9y40 <y < 9;< bond Yield to maturity of a Govt. bond ln t + u (T t ) + 2 (T t )
;54<; 034 ymm<0y; < 9;< K 2
e1 =
3. Put options price = Value of risky debt T t
20. Favorable Income Differential per share =
440 y0<9+ V .943T y5.< 9;<
Value of riskless debt
V e2 = e1 - T 1
4. Black-Scholes Option pricing Formula = 7. Co.s asset R in CAPM (a static one-period
21. Premium over straight value = model):
;<T <y3 4m 405<y 40
St = At N(d1 ) ker(T 1) N(d2 )
1 Co.s asset R = Rf + of co.s asset
S<;y ; Where,
(Expected R per year on Mkt. portfolio
A 1 R f)
22. Non-callable/Non-putable Convertible ln t + r (T t ) + 2 (T t )
K 2 = Rf+ ( of co.s asset Mkt.s ERP)
security value = Straight value + Value of
d1 =
Call option on stock T 1
8. Price of debt , =

23. Callable Convertible bond value = Straight d2 = d1 T 1
1/ 1/ 1
value + Value of call option on stock

Value of call option on bond 5. Value of debt = D (t, T) = PV of payoff on 9. Credit risk measures in reduced form
co.s debt if default occurs + PV of payoff model:
24. Callable & Putable Convertible bond value on co.s debt if default does not occur = Default probability over [0,T] = Prob
= Straight value + Value of call option on
stock Value of call option on bond +
At N (d1 ) + Ke r (T 1) N (d 2 ) =1
IJ
Value of Put option on bond where, N (d2) = Risk neutral
1K I# 1K I 1K Ik
probability of the co.s debt not Expected loss =
25. Value of Call Option Value of Put defaulting
IJ
Option = PV (Forward price of bond on +
\u Z
1K I# 1K I
exercise date Exercise price) 6. Credit Risk Measures 1K IJ
Probability of the debt defaulting = Present value of the expected loss = K
Reading 38: Credit Analysis Models Prob. (AT< K) = 1 Prob. (AT K) = P (t,T) D (t,T)
1 N(e2)
1. Expected loss = Full amount owed Where, 10. Historical Estimation
Expected recovery or = Loss given default Probability of default over [t, t+] =
Probability of default 1
Prob (t) = N
bi X i t
1+ e i =1
 FinQuiz Formula Sheet Level II 2017

Parameters estimation: Reading 39: Credit Default Swaps Upfront premium = PV of credit
dt N spread PV of fixed coupon Or =
i
ln = + bi X t Where 1. Upfront premium = Credit spread (Credit spread Fixed coupon) D of
1 dt i =1
the CDS
Standard rate
dt = {1 if default, 0 if no default} PV of credit spread = Upfront prem. +
To estimate the loss given default: PV of fixed coupon
2. Expected Credit Loss (%) = Payout ratio =
N
1 Recovery rate (%) Credit spread (Upfront prem./D) +
t(Xt) = c 0 + ci X i t
Fixed coupon
i =1
Where {ci for i = 1, , N} are 3. Expected Credit Loss Amount or Payout Upfront premium in % = 100 Price
constants. amount = Payout ratio Notional amount of CDS in currency per 100 par
Price of CDS in currency per 100 par
11. Price of the coupon bond (assuming no 4. Loss Given Default: = 100 Upfront premium %
arbitrage and frictionless markets) Expected loss = Full amount owed
T 1 Expected recovery 10. Profit for the buyer of protection in
BG (t) = CP(t , i) + (C + F ) P(t, T ) Expected loss = Loss given default spread in bps D NP
i =1 Probability of default
Prob. of default (at some point during 11. % change in CDS price = in spread in
12. Credit spread (t) = Avg. yields on risky T years) = 1 Prob. of no default bps D
zero-coupon bond Avg. yields on riskless during T years
zero-coupon bond 12. Basis = CDS spread (prem.) Bonds
Or 5. Value of protection leg = Expected payoff credit spread*
= [Average yields on the risky zero-coupon of bond/loan with credit risk - Expected *Bonds Credit spread = Yield on bond -
bond Average yields on riskless zero- payoff of bond/loan with no credit risks Investors cost of funding
coupon bond] + Liquidity premium Bond yield = Rf rate + Funding spread +
or 6. Value of premium leg = PV of pmts. made Credit spread
= Expected % loss per year on the risky by the protection buyer to the protection where, Rf + Funding spread = LIBOR
zero-coupon bond + Liquidity Premium seller
13. Synthetic CDO = Portfolio of default-free
13. PV of expected loss = PV of CF of riskless 7. Upfront pmt = PV of protection leg PV securities + CDS holdings
debt PV of CF of risky debt = [P (t,T) of premium leg
D (t,T)] XT
Where, XT = Promised CF at T of a risky 8. Credit spread Prob. of default Loss
Co. given default (%)

9. Credit spread Pricing Conventions

 FinQuiz Formula Sheet Level II 2017

Reading 40: Pricing & Valuation of Forward QF0(T) =

Commitments [1/CF(T)]{FV0,T[B0(T+Y)+AI0]AITFVCI0,T}
13. Interest Paid = TA NA = NA[L0(m)tm]
Pricing & Valuing of Forwards & Futures
1. Forward contract value (Long) VT(T) = ST Currency Forward & Fututre Contracts:
FRAs
F0(T).
22. F0(/,T) =FV,T(1)/[FV,T(1)S0(/)]=
14. Settlement amount at h for receive- S0(/)FV,T(1)/FV,T(1)
2. Forward contract value (short)VT(T) =
floating:
F0(T) ST.
NA{[Lh(m)FRA(0,h,m)]tm}/[1+Dh(m)t 23. Vt (T)=PV,t,T[Ft(/,T)F0(/,T)]
rcT m]
3. FV(S0) = S0e . (compounded
continuously) Pricing & Valuing Swap Contracts:
15. Settlement amount at h for receive-fixed: Interest Rate Swap Contracts:
NA{[FRA(0,h,m)Lh(m)]tm}/[1+Dh(m)t
4. FV(S0) = S0(1 + r)T (compounded
m] Floating Leg Cash Flow:
annually)
OPQRS,J
24. Si=CFFLT,i=APFLT,irFLT,i=( )rFLT,i
16. FRA(0,h,m)={[1+L0(h+m)th+m]/[1+L0(h) URS,J
5. Vt(T) = PVt,T[Ft(T) F0(T)]
th]1}/tm
6. Forward Price (carry arbitrage): F0(T) = 25. FS=CFFIX,i=APFIX,irFIX,i=(
OPQRTU,J
)rFIX
17. FRA Value at time g =
Soe(rc)T URTU,J
FRA(0,h,m)={[1+L0(h+m)th+m]/[1+L0(h)
th]1}/tm Value of Floating Rate Bond:
7. F0(T) = FV0,T(S0)

Fixed Income Forward & Future Contracts: [

8. Future Value (adj. for carry cash flows) = 26. FB=C Z\1 u,Z (1)+PV0,tn(1)
F0(T) =FV0,T(S0+00) 18. Accrued interest = Accrual period 1+u,0(1)
Periodic coupon amount 27. Swap Pricing = j F
J./ #,~J (1)
9. PVt,T[Ft(T)F0(T)] Or AI = (NAD/NTD) (C/n)
28. Value of fixed rate swap at time t =
10. F0(T) = FV0,T(S0 + 0 0) Fixed Income Forward/Future Price including V=NA(FS0FSt) [Z\1 PVt, ti
conversion factor:
11. F0(T)=u (<3-N)U (carry arbitrage: 19. F0(T)=QF0(T)CF(T) 29. Value of fixed rate bond in currency k:
continuous compounding) FBk=Ck [Z\1 u,Z,w (1) + u,0,T (Park)
20. FV0,T[S0PVCI0,T]=B0(T+Y)+AI0PVCI0,T]
Interest Rate Forward & Future Contract:
12. Terminal Amount = TA = NA[1 + 21. Conversion factor adj. FV adj. for carry =
L0(m)tm]
 FinQuiz Formula Sheet Level II 2017

30. Equilibrium Fixed Swap rate = where probability of an up move 23. E(c2) = 2c++ + 2(1 )c+ + (1 )2c
1+Fu,[,8(1) = [FV(1) d]/(u d)
rFIX,b=
F#,~J,X (1)
24. E(p2) = 2p++ + 2(1 )p+ + (1 )2p
Expected terminal option payoffs
31. Va=NAa,0(rFIX,a,0 [-
Z\1 ,Z, + 11. E(c1) = c+ + (1 )c BSM Model
,[, )StNAb,0(rFIX,b,0 [-
Z\1 ,Z,8 + ) 25. c = SN(d1) erTXN(d2)
12. E(p1) = p+ + (1 )p
32. Vt = FBt(C0) (St/St)NAE PV(Par 26. p = erTXN(d2) SN(d1)
NAE) 13. Put Call Parity = S + p = PV(X) + c
where
Reading 41: Valuation of Contingent Claims Two Period Binomial Model: d1 =
[(c/I)(C>/>)
C
d2=d1
1. Call Value = cT = Max(0,ST X) For calls:
14. c++ = Max(0,S++ X) = Max(0,u2S X)
27. Replicating strategy cost = nSS + nBB
2. Put Value pT = Max(0,X ST)
15. c+ = Max(0,S+ X) = Max(0,udS X)
28. nS = N(d1) > 0 for calls
One Period Binomial Model:
c 2
3. Up factor = u= 16. c = Max(0,S X) = Max(0,d S X)
29. nS = N(d1) < 0 for puts

c+ For puts:
4. Down factor = d= 30. nB = N(d2) < 0 for calls
17. p++ = Max(0,X S++) = Max(0,X u2S)

Y +Y k 31. nB = N(d2) > 0 for puts

5. Call Hedge ratio h= 0 18. p+ = Max(0,X S+) = Max(0,X udS)
c +c k

Carry Benefit-Adjusted BSM Model

+k
19. p = Max(0,X S ) = Max(0,X d2S)
6. Put Hedge ratio = 0 32. c = SeTN(d1) erTXN(d2)
c +c k
20. Two period Binomial Hedge Ratio h+=
7. single-period call = c = hS + PV(hS + c )
Y +Y k 33. p = erTXN(d2) SeTN(d1)
c +c k

8. single-period put= p = hS + PV(hS + p) carry benefit-adjusted putcall parity:

21. c = PV[2c++ + 2(1 )c+ + (1 )2c ]
9. c = PV[c+ + (1 )c]
22. p = PV[2p++ + 2(1 )p+ + (1 )2p ]
10. p = PV[p+ + (1 )p]
Expected terminal option payoffs:
34. p + SeT = c + erTX
35. E(cT) = Se(r)TN(d1) XN(d2)
36. E(pT) = XN(d2) Se(r)TN(d1).
 FinQuiz Formula Sheet Level II 2017

44. RECSWN = (AP)PVA[RXN(d2) RFIXN(

European Options on Futures d1)] Delta-plus- Gemma Approximation:

37. c = erT[F0(T)N(d1) XN(d2)] Payer Swaption Model Value: 54. c Deltac ( ) +

bc
( - )>
>
45. PAYSWN = PV[E(PAYSWN,T)]
for calls
38. p = erT[XN(d2) F0(T)N(d1)]
Receiver swaption Model Value: bd
39. Futures option putcall parity: c = e 46. RECSWN = PV[E(RECSWN,T)], 55. p Deltap ( ) + ( - )>
>
rT
[F0(T) X] + p for puts
where
Price of Interest Rate call & Put options: E(PAYSWN,T) = erTPAYSWN Reading 42: Derivative Strategies
E(RECSWN,T) = erTRECSWN.
40. C= + \+1
[FRA(0,tj1,tm)N(d1)RXN(d2)] Option Greeks & Implied Volatility Reading 43: Private Real Estate Investments

41. p= () -(\-1) 47. Call Deltac = eTN(d1) 1. Rent of Net Lease = Gross rent Op. exp.
[RXN(d2)FRA(0,tj1,tm)N(d1)]
48. Put Deltap = eTN(d1) 2. Lease Rent = Min. rent + % of sales rev
where, above a certain level
[[dP(u,\-1,)/dI](C>/>)\-1 49. Optimal # of Hedging Units = NH
d1= In case of natural break-point, Lease
Z
C \-1 = Rent = % of sales rev. above a certain
Q^
level Tenants sales
d2=d1 -1
Change in option Price based on Delta
Approximation: 3. Implied land value = Value after
Swaptions construction Cost to construct a building
50. c Deltac(S)for calls
PV of annuity matching Forward Swap 4. Appraised value of a property

payment: 51. p Deltap(S)for puts =
;y;y;y40 <;
42. PVA= [\\1 u,\ (1)
where,
52. =c+Deltac(S) NOI = Net operating income for the
Payer Swaption:
subject property
43. PAYSWN = (AP)PVA[RFIXN(d1) RXN(d2)]
Gamma: Gross potential income = Rental
ka income at full occupancy + Other
Receiver swaption: 53. Gammac = Gammap = n(d1)
SC
income
 FinQuiz Formula Sheet Level II 2017

Effective gross income =Gross (Discount raVVVVVVVate growth

potential income Vacancy and rate) 17. Under Layer Method Value of a property =
collection loss Loss in income due to renovation = PV of current contract rent in perpetuity +
NOI = Effective gross income Op. Post-renovation NOI of a property - PV of expected incremental rent after the
exp. OR NOI of a property during renovation rent review
NOI = Gross potential income time-period
Estimated vacancy losses Estimated PV of the lost income Loss in 18. When effective age of property < its
collection losses Insurance value = Loss in income due to economic life, Physical deterioration = %
Property Taxes Utilities - Repairs renovation / (1 + discount rate) worn out = Effective age / Economic life
and maintenance exp. Value of a property = Post-renovation
Value - Loss in value OR 19. Incurable depreciation deduction =
y<9+P;<
Value of a property = {NOI of a (Replacement cost + Developers profit
5. Capitalization rate =
<4<P 5; curable depreciation costs) Physical
property during renovation time-
period + [Post-renovation NOI of a deterioration
6. Discount rate = Cap rate + Growth rate
property (1 + growth rate)] / (Discount
rate growth rate)]} / (1 + discount 20. Amount of functional obsolescence =
7. Value of property = NOI / (discount rate Income loss due to the functional
rate)
Growth rate) obsolescence / cap rate
13. Avg. no. of months vacant until the lease is
renewed = Lease Non-renewal probability 21. Amount of locational obsolescence
8. Capitalization rate = associated with building only = Total Loss
No. of months vacant if not renewed
S; <y3 4m 34;<; <4<P
in the value - Loss in land value
<y3 14. Vacancy rate = Avg. no. of months vacant
9. Reciprocal of the cap rate =
<<0 22. Cost Approach Calculations
until the lease is renewed / (Lease term +
10. All Risks Yield = ARY = Total depreciation = Physical
V0 Avg. no. of months vacant until the lease is
V30 9;9 <y39 4m 34;<;9 renewed) deterioration + functional
obsolescence + Locational
V0 15. Gross income multiplier = GIM = obsolescence + Economic
11. Mkt. value =
V, S;9 <y3 obsolescence
RO3 . 4m <4<P y0 19 P< ;m< 9;
Depreciated building value =
12. Stabilized NOI i.e. (NOI of a non-
(Replacement cost + Developers
renovated property or post-renovated NOI 16. Total capital value = PV of income until profit) Total depreciation
of a property) the rent review + PV of what the property
Final Appraisal value Estimated
Post-renovation Value = Post- could be sold for at rent review (PV of
value of the property = Depreciated
renovation NOI of a property / estimated rental value or ERV)
building value + Land value
 FinQuiz Formula Sheet Level II 2017

Principal payments=Part of the loan Reading 44: Publicly Traded Real Estate
23. Valuation in an international context when payment that amortizes the loan over Securities
land and building are valued separately:
the loan term.

Income to the building = NOI Max.debt service based on DSCR = 1. Rent paid by Tenants = Net rent +
assumed land lease payment NOI/DSCR
Proportionate share of the common area
PV for building = Income to the When the loan is interest-only, costs of the mall (based on space leased)
building / Cap rate or discount rate Max.loan amount based on DSCR=
Total value = PV for Building + Value Max. debt service based on DSCR / 2. NAVPS = (MV of R.E Co.s assets MV
of the land (from sales comparison Debt interest rate
of R.E Co.s liab.) / # of shares outstanding
approach)

26. Equity dividend rate or Equity yield rate = 3. Appraised value = NOI / Cap rate
24. The NCREIF Property Index (NPI):
Cash flow / Equity
Total
Return
of
individual
Property
= where, Cash flow = NOI Debt 4. Estimating NAVPS:
+;O(R0y0
+.) Service Pro forma cash NOI = NOI Non


.

Equity = Price Mortgage cash rents* + Adj. for full impact of
Income return = Cap rate = NOI /
acquisitions
beginning value 27. Calculating Leveraged IRR: *Non-cash rent = Avg. contractual
Amount of cash flows available each CF received by the equity investor from rent over the leases terms Cash rent
quarter = NOI Capex the sale = Sale price Mortgage balance actually paid.
Capital
return
= PV = Initial investment
R0y0
;<T
5;+y00y0
;<T
5; +;O
Estimated future expected cash NOI =

PMT = Cash flow
y00y0
;<T
5;
Pro forma cash NOI + Expected
Total Index Return = Value-Weighted n = Holding period growth in NOI
average return for individual FV = Cash flow received from sale Estimated value of operating real
properties CPT I/Y Leveraged IRR. estate =Estimated future expected cash
25. Private market real estate debt

NOI / Cap rate
Loan-to-value = Loan / value of the 28. Calculating Unleveraged IRR: Estimated gross asset value =
property
Cash flow received by the equity investor Estimated value of operating real
Max. loan amount based on LTV ratio from the sale = Sale price + NOI in the 1st estate + BV of Cash & equivalents +
= LTV ratio (in %) Appraisal value year BV of Land held for future
of property (in $)
PV = Initial investment development + BV of a/c receivables
Debt serve coverage ratio = NOI/Debt PMT = NOI in the 1st year + BV of Prepaid/other assets
service
n = Holding period Net asset value = Estimated gross
Debt service=Interest + Principal FV = Sale price asset value Total debt Other liab.
payments on the mortgage.
CPT I/Y Unleveraged IRR. (but not deferred taxes)


 FinQuiz
NAVPS = Net asset value / # of shares
outstanding
5. P/FFO = Current stock prices / Yr-ahead
estimated FFO
2. DPI = Sum of distb. / CC called down (or
FFO = Net earnings + Dep. Exp. on
R.E + Deferred tax charges g/l from
sales of property and debt
restructuring + Losses on sales of
property and debt restructuring OR
FFO = EBITDA Interest Expense
6. P/AFFO = Current stock prices / Yr-ahead
estimated AFFO
AFFO = FFO Non cash rent*
Recurring Maintenance type Capital
expenditures Leasing costs (i.e.
leasing agents commissions
Carried
interest
=
%
NAV
Tenants improvement allowances)
distb.
*Non-cash rent = Straight-line rent -
Cash rent paid during the period
7. Estimated Value of a REIT Co. in yr N
= (P/FFO of overall REIT group for
yr N) REIT co.s expected FFO in yr
N or
= (P/AFFO of overall REIT group for
yr N) REIT co.s expected AFFO in
yr N
Reading 45: Private Equity Valuation
1. PIC:
Formula Sheet Level II 2017
PIC = Cumulative capital (CC) called 11. General Case: NPV Method
down Step 1: POST = V / (1 + r) t
PIC Multiple = PIC / CC Step 2: PRE = POST I
Step 3: F = I / POST
Step 4: y = x [F / (1 F)]
PIC)
Step 5: p1 = I / y
3. RVPI = NAV after distb. / CC called down 12. Alternative Method using IRR:
(or PIC)
Step 1: W = I (1 + r) t
Step 2: F = W / V
4. TVPI = DPI + RVPI
Step 3: y = x [F / (1 F)]
Step 4: p1 = I / y
5. Mgmt. fees = % fee PIC
Step 5: POST = I / F or p1 (x + y)
Step 6: PRE = POST I or PRE = p1
6. Carried interest= % (NAV before distb. x
CC) in year when NAV before distb. Is 13. NPV Method with multiple (two) rounds
first > CC
of financing:
Thereafter,
Step 1: Compound interest between dates:
before
T1 and T2 = (1 + R1)
T2 and T3= = (1 + R2).
7. NAV before distb.t = NAV after distbt-1 +
Step 2: POST2 = V / (1 + R2)
called down capitalt mgmt feest+
Step 3: PRE2 = POST2I2
operating resultst
Step 4: POST1 = PRE2 / (1 + R1)
8. NAV after distbt = NAV before distb.t
Step 5: PRE1 = POST1 I1
carried interestt distb.t
Step 6: F2 = I2 / POST 2
Step 7: F1 = I1 / POST 1
9. CF for Gross IRRt= Capital called down
Step 8: y1 = x1[F1/ (1 F1)]
at the beg of periodt+1 + Op. resultt-1
Step 9: p1 = I1/ y1
Step 10: x2 = x1 + y1
10. CF for Net IRRt = Capital called down at
Step 11: y2 = x2[F2/ (1 F2)]
the beg of periodt+1 + Op. resultt-1 mgmt..
Step 12: p2 = I2/ y2
feest carried interestt
14. Accounting for Risk in Venture Capital
Venture Capital Method:
 FinQuiz Formula Sheet Level II 2017

[
By adjusting Discount Rate = r = 3. Carhart Four Factor Model = E (Rp) = RF+ 13. Active specific risk = Z\1 Z > }>J
1
1 p1RMRF + + p2SMB + + p3HML ++
1+e
p4WML..+ P Where
15. By adjusting terminal value using Scenario
Z = ith assets active weight
analysis = Adj. TV = (% prob. scenario 1
RMRF = Portfolios sensitivity to Mkt. }>J is ith assets residual risk
expected E expected P/E multiple) + (% Index
prob. scenario 2 expected E expected SMB = small minus big
P/E multiple) + + (% prob. scenario n Reading 49: Measuring & Managing Market
HML = high minus low
expected E expected P/E multiple) Risk
WML = winners minus losers

d+n
Reading 46: Commodities & Commodity 4. Macroeconomic Factor Model = Ri =ai + b 1. Std. Normal Dist. (z-dist.)=
C
Derivatives: An Introduction i1 F1 + bi2 F2+ ..+ biKFK+ i 2. To obtain a 5% VaR = d
1.65 (1) Portfolio Value
1. Theory of Storage states: Future Prices = F w Z +P7g 7 w
5. biK = 3. Equity Exposure Measure = E(Ri) = RF +
C ( 7 w )
Spot Price of the physical commodity + i[E(RM) RF]
Direct Storage costs Convenience Yiled 4. Fixed Income Exposure Measure using
6. Actual Inf. = Predicted Inf. + Surprise Inf.
2. Price Return = (Current Price Previous h :
Duration = =
Price)/Previous Price h 1:
7. Active R = h 5. Fixed Income Exposure Measure using
3. Total Return = Price Return + Roll Return
h :
+ Collateral Return Duration & Convexity = = +
h 1:
8. Active R (decomposition)=
1 1 : ?
w
Reading 47: The Portfolio Management > 1: ?

Process & the Investment Policy Statement w Z[ Z[ 7

6. Delta =
w + Z[ 7 [:Z[g
Z[ Q
7. Gemma =
Z[ 7 [:Z[g
9. Tracking Error TE = s(RP-RB) Z[ Z[ 7
Reading 48: An Introduction to Multifactor 8. Vega =
Z[ 7ZZ: [:Z[g
Models Vm +V
10. Information Ratio = =
9 Vm +V Reading 50: Economics & Investment Markets
1. Multifactor Model = Ri = ai + b i1I1 + bi2I2+
..+ biK IK+ i 11. Active risk squared = s2(RP-RB) 1. Present Value Model =
2. Arbitrage Pricing Theory = E (R p) = RF + R q

1 p,1 + 2 p,2 + ..+ k p,k 12. Active risk squared = Active factor risk + 9\1
1, r, s*,

Active specific risk

 FinQuiz Formula Sheet Level II 2017

2. Price of default-free bond certain to pay d6 +dR 14. Fundamental Law: E(RA) =
4. Sharpe Ratio SR =
c.Q d6
off one unit of real consumption at time s = (TC)(IC) P
P,9 = E 1m,9 = E m,9 d6 +du dv
5. Information Ratio IR = = xd
c.Q d6 c.Q d6
15. P = h
1+,/ cdu
3. One period Rf interest rate l,1 = =
,/
6. > = h> + >

1
1 16. > = h> + >
>
R ,/
xd
7. S.D(RA) = . h
cdu Ex Ante Measurement of Skill
Risk premium on risky assets:
17. P = xG db
8. Active Security R as residual R in
4. Relation b/w expected value and Cov. = xG
= + , 18. (P ) =
Single factor statistical model =PZ = CT} P

Z h
5. Alternate way to view the pricing relation O
Multi factor statistical model = PZ = 19. Breadth BR =
1(O+1)~
e~ ~/,tk/
= , =
1~,/
+ 1,+1 , ,1 Z w\\1 \,Z , \
Reading 52: Algorithmic Trading & High
6. Expected Holding period return = , = 9. Mean-var optimal security wghts for Frequency Trading
e~ ~/,tk/ +~,t uncorrelated active R subject to limit on
~,t active portfolio risk =
Z P
Z = >
7. Pricing for real default free i rate =Z = Z O nJ
?

J Z\1 C ?
O G~t J
\1 t
1~,t
10. Grinold Rule = Z = Z Z
Reading 51: Analysis of Active Portfolio
nJ Cv
Management 11. Z =
CJ? xG hd

O
1. Benchmark Portfolio = h = Z\1 h,Z Z 12. Anticipated value added for Active
portfolio = E(RA) = IC P
O
2. Portfolio Return = = Z\1 ,Z Z
13. Transfer Coefficient TC=
3. Value added return = RP-RB Cor(Z Z , Z Z )