CAIA Level 1 Formulas Practice Flashcards

A comprehensive set of practice flashcards covering formulas for CAIA Level 1, including quantitative methods, fixed income, options, real estate, and venture capital.

What is the formula for simple interest in Reading 2.4?

$$R = 1 + i$$

How do you convert a continuously compounded rate ($r$) to a simple interest rate ($R$)?

$$R = e^{r} - 1$$

What is the formula for the internal rate of return ($IRR$)?

$$\sum_{t=1}^{T} \frac{CF_t}{(1 + IRR)^t} = 0$$

How is the fully collateralized return ($R_{fcoll}$) calculated?

$$R_{fcoll} = \ln(1 + R) + R_f$$

What is the formula for sample variance ($s^2$)?

$$s^2 = \frac{\sum_{i=1}^{n} (R_i - \bar{R})^2}{n - 1}$$

What is the formula for the modified Fisher effect?

$$r = \frac{1 + i}{1 + \pi} - 1$$

How is the implied forward rate ($F(t, T)$) calculated?

$$F(t, T) = \left[ \frac{(1 + i_T)^T}{(1 + i_t)^t} \right]^{\frac{1}{T-t}} - 1$$

What is the formula for modified duration ($D^*$)?

$$D^* = \frac{D}{1 + \frac{y}{m}}$$

How is expected credit loss calculated using recovery rate ($RR$)?

$$\text{expected credit loss} = PD \times EAD \times (1 - RR)$$

What is the formula for the probability of bond default ($\lambda$)?

$$\lambda = \frac{s}{1 - RR} \times \left( \frac{1}{1 + r + s} \right)$$

What is the single-factor asset pricing model (CAPM) formula?

$$E(R_i) = R_f + \beta_i [E(R_M) - R_f]$$

What is the formula for the Jarque-Bera ($JB$) statistic?

$$JB = \frac{n}{6} \left[ S^2 + \frac{(K - 3)^2}{4} \right]$$

How is the Spearman rank correlation ($\rho_s$) calculated?

$$\rho_s = 1 - \frac{6 \sum d_i^2}{n(n^2 - 1)}$$

What is the formula for the Durbin-Watson ($DW$) approximation?

$$DW \approx 2(1 - \rho_{t,t-1})$$

What is the formula for the Sharpe ratio ($SR$)?

$$SR = \frac{E(R_p) - R_f}{\sigma_p}$$

How is the Sortino ratio calculated?

$$\text{Sortino ratio} = \frac{E(R_p) - R_T}{TSSD}$$

What is the formula for the information ratio ($IR$)?

$$IR = \frac{E(R_p) - R_{benchmark}}{TE}$$

What is the formula for put-call parity?

$$\text{call} + \text{risk-free bond} - \text{put} = \text{underlying asset}$$

What is the formula for the Black-Scholes call option price ($c$)?

$$c = SN(d_1) - e^{-rT} KN(d_2)$$

How is the value of real estate calculated using the income approach?

$$\text{value of real estate} = \frac{\text{annual operating income}}{\text{cap rate}}$$

What is the formula for the cost of carry ($F_T$) of a commodity?

$$F_T = P_0 e^{(r + c - y)T}$$

What is the formula for Jensen's alpha ($\alpha$)?

$$\alpha = R_p - [R_f + \beta (R_m - R_f)]$$

What is the loan-to-value ($LTV$) ratio formula?

$$LTV = \frac{\text{balance of the loan}}{\text{market value of the property}}$$

What is the debt service coverage ratio ($DSCR$) formula?

$$DSCR = \frac{NOI}{\text{total loan payment}}$$

How is post-money valuation ($POST$) defined in the venture capital method?

$$POST = PRE + \text{investment}$$

What is the formula for building a venture capital investor's ownership percentage?

$$\text{ownership percentage} = \frac{\text{investment}}{POST}$$

How is a simple moving average ($SMA_t$) calculated?

$$SMA_t = \frac{\sum_{i=1}^n P_{t-i+1}}{n}$$