CFA Level II Formulas, Hardest to Remember

Here is what I've been compiling as the hardest to learn formulas for the memorization phase. Not surprisingly Derivatives accounts for over 50% of the formulas, but after 3 days of writing them out between class homework I think I finally have FRA's, Swaps, and continuous or discrete forwards/futures correct and mechanical. There are some very long formulas that I haven't included in this list (like the high low DDM model), there are also nearly 150 'extremely' important formulas to know (aggregate accruals, FCFF, ect) not included only because they are easy and usually quickly derivable. So here is the abridged list of the hardest of the hard, but still worth knowing. (Click to enlarge).

Shorthand, top to bottom:
D=Dividend Yield
Rxnew=The Xdate yield that is now known at time t
+...+ = repeat first operation for all time periods until last (k) time period
RM=Market Risk Premium, not to be confused with Rm which is market return. This is a academic notation standard that is very important to catch before you start writing corporate finance exams.
rce= Cost of common equity
inf = inflation
FLT = flowthrough of inflation
rr= retention rate (in my opinion much more descriptive than "b" which all the text books use)

CFA exam, thoughts on the last 30 day sprint

Hot dog, here we go! Whether you're way behind or way ahead the last month before the exam is always a rush. Here is my 30 day game plan.

First week of May: Made a detailed formula sheet, started the 4th and final pass of the material using Stalla notes. I've been doing half a practice exam every Friday since the middle of April to help gauge where my time should be spent, and this Friday will be no exception. I'm also finishing the exams nearly an hour early so I'll start to work on slowing my pace down this week. By the end of this week I will have done my last pass of Ethics and Quant, my strongest subjects.

Second week of May: Running through as many CFA issued questions as possible, after studying Stalla so long it is good to see where the question styles are different. Spending most of my time on the core subjects, Accounting, Equity, and Fixed Income. Starting to ramp up on the formula memorization work, hope to have 150 of the 200 key formulas memorized by Sunday.

Third week of May: Focusing on the rote memorization aspects of the exam; committing the derivative forward equations to memory as well as the buckets of equity formulas. Spend the weekend covering every single question I got wrong on the CFA questions attempted this month, and the practice exams I have been taking since April.

Fourth week of May: 30 minutes on each subject per day, write out the formula sheet once in the morning and once in the evening. Start to study for 4th quarter finals so I can graduate b-school.

First week of June: Build confidence through well hashed questions, now's not the time to tackle the hardest of the hard.

Step 6: Pass exam
Step 7: ???
Step 8: Profit!

Here are the stats I have coming in to May, I hope to really put down some good hours (60+) this month, and I think it's well within reach because reviewing and memorizing is a lot less taxing in the late hours than learning from scratch. Good luck to all the writers!

Hours per day since November

If things don't go well, it's all January's fault.

Hours Per Subject (Blue) & Average Score Per Subject (Red)

 

It was definitely not all gravy the first pass.

The black border indicates I've also done the stalla software practice problems for that chapter.

CFA 2, Business Combinations Mindmap

I'm never sure why, but accounting seems to always take the longest to absorb. Here is a the business combinations chapter in one slide. The only thing not included is goodwill impairment, and for that all you have to remember is IFRS takes the Recoverable Amount from the cash generating unit (IFRS = Recoverable) as its' baseline, and GAAP uses the Implied Fair Value of the Reporting Unit Goodwill.

CFA Level II Foreign Currency Translation

As usual the accounting portion of the CFA is taking me the longest to learn. In fact it currently accounts for 38% of the hours I've studied so far and I'm still having trouble consistently scoring over 70% on Stalla's tests.

In an effort to hammer some of the concepts home I've decided to mind map some of the decision rules, so here is the Foreign Currency Translation section in 3 slides.

Choosing the right method

Differentiating between Current and Temporal

 How to balance (what to plug)

Guide to my shorthand.
BS = Balance Sheet
IS = Income Statement
DNE = Does Not Exist
NI = Net Income
REb = Retained Earnings Beginning
Div = Dividend
Dep = Depreciation
MV = Market Value
G/L = Gain or Loss
Inf = Inflation
CHG = Change in

CFA level II so far

So I finished the FSA book a couple days ago, which marks about the 1/3 point through the curriculum and I have to say - The CFA II material is surprisingly interesting!

I remember level I being such a slog, and extremely picky in it's questions. After finishing accounting - my least favorite section in level I - I was impressed with how applicable everything was and I was also encouraged by the practice questions. The material is taught at a 4th year undergrad level, but the questions stay fairly theme based (as opposed to memorization or plug & chug) and don't try to trick you. Not to say I'm aceing everything, but on the first pass I'm usually scoring above 70, which as we know is the supposed floor. I think I will stick to just the curriculum till the new year and then I'll do my second pass and testing with Stalla for the easy stuff, and use both for the harder stuff.

As for pace I'm a bit behind schedule. I'm averaging 0.91 hours per day, and I need 1.1 to make my 250 hour goal, and I still need to thump several readings to take my big holiday push reading-per-day average below 1.5.

Visually the stats look like this:

 An hour evening investment feels about max right now with a full course load, but im hoping to do some 10 hour days over the break that should really lighten the load for the winter semester. Of course testing will really pick up come the spring semester, and I'll likely need more like 300-350hrs to feel 100% on everything.

For all the other studiers and December writers, best of luck!

Motivation for the CFA

It's that time of the year again. The curriculum arrived months ago, and after getting through Ethics and Quantitative Methods it was promptly forgotten, but now Financial Reporting and Analysis needs to be cracked and I need to re-find my CFA motivation.

The Big Picture
First I remind myself why I am taking this certification. Matched with my MSc Finance these three letters should allow me to side step the MBA in the future. After transitioning from candidate to member, career doors should swing open, and salaries should double. I should be able to consider myself an expert in my trade, and wield financial analysis like lawyers or doctors wield subpoenas and scalpels.

Big picture thinking only gets you so far, especially when it's so intangible. If passing my level II exam were to give me a 1997 Porsche 993 GT2, then hey, print the poster and I'm motivated! But when it's going to further career goals I'm already hacking away at with academic credentials it gets a little harder. Add on top the fact that I have 4 years to pass the last two exams because I still need the work experience, and working the 7-12 shift after schoolwork is not appealing.

But it's still important. Most people in this industry are perfectionist, workaholic, status freaks, and failure is no option. While I like to think this only partially describes the finance side of me, lately this side has bullied all the other me's into submission - so let's feed the beast. Let's pass the hardest of the 3 tests in a year where school stretches through June, and getting the grade is already stealing time away from the dinner time internet break. If nothing else, the challenge itself should motivate!

Tools for the Weary
One of the fun things about Finance is the visual presentation of data. Throw stock prices into a graph and a plain column of numbers tells a story of hard times and good times, surprises, impending doom or unrestrained growth; these are the stories we will tell our kids, picture books full of MACD trends and bollinger bands. Something I discovered while studying for lvl I, was that the same thing that I enjoyed learning could in fact help me learn it!

Pop open a new excel sheet and start tracking your hours. With some in-cell if statements you can make tables populate how much time you've spent on each section, and how much time you have left to your ### hour goal. The most important graph however is the hour tracking graph. By plotting date on the x-axis and hours studied on the y-axis you can visually see how your performance is trending. Be careful to use a bar chart, a line graph gives you the impression you are studying between periods. In fact run a 14 day MA chart below it, and you can see where your work tapers off. Basically the whole goal is to keep the graph trending up, piling more and more hours in each week as the exam gets closer. Make yourself look like a 1998 tech company; for me coaxing this graph upwards gave me more of a reason for "one more hour" than anything else I was doing.

Testing
Beyond some soul soothing excel playtime, the biggest thing I took away from level 1 was how much testing early helped. I don't have the time to start studying 2 months before the exam and devote major time daily, so I need to start really early. Because of this my ethics reading in September will suffer some major retention depreciation over the winter. By doing some tests along the way, and then doing nothing-but the month before, you are forced to keep things fresh, and you get feedback on where you failed to learn the first time. The CFA questions do an okay job at this, but the Stalla questions (or Schweiser I presume) poke at the content with enough of a different approach that you will quickly realize what was memorized and what was learned. And then in the last month, surround yourself with others writing the test. Me and a buddy would study all day on the weekend and then throw the hardest questions we had encountered at each other. It made it competitive which always helps with motivation, and provided an element of fear on a regular basis which helped us burn the oil in the week ahead.  

Will add more through the winter, for now Reading 22 needs its due attention.

How to make your 4th Year in a Finance Undergrad Count

So you've spent 3 years in your BComm and you've just started to get into the exciting stuff. You've cruised through your foundation accounting courses, and finally gotten through the marketing, ops man, and info tech courses that round out your BComm requirements. Now you get to finally get to the meat, advanced investments classes, fixed income, derivatives. Having just graduated, here's what I think makes the most powerful 4th year BComm if you want to move into a i-banking role, or back office investment role.

Lets start at the end of your 3rd year. Hopefully you've been very involved with finance and investment clubs so far, and have taken - and aced - every quant pre-req you could get your hands on. Also (unlike myself) hopefully you have interned at a firm and made a connection that will push your resume forward come September when Analyst recruiting starts. Either way at the end of your third year you need to strongly settle on your goals. What job do you actually want? Can you get it with a BCom education? Do you have a connection that will vouch for you come September - don't be fooled by those online applications, if you're shooting high enough they are merely a facade; all the hiring happens through personal recommendations. So line up your contacts, grab that internship and work your but off.

Even if you think you can get this job with an undergrad I'd hedge your bets. Take kaplans GMAT prep course in the evenings after-work during the summer and plan to write that ungodly demoralizing test sometime in September. Obviously if you've decided you want to be hard-core quant back office you're going to need a masters in financial engineering or financial economics and so you should be looking at either the GMAT or the GRE.

Come August start making your push for that September Analyst hire (they hire in September for a July start the following year). Reach out to your network and try applying to 5-10 of the top firms that hold your job of choice. Enroll in the CFA level one for a June test date and put it on your resume. If you've got the connections and/or the grades you'll get picked up, if not you're preparing for the +1 lap.

So assuming things didn't pan out, pour your heart into GMAT prep and try to grab a 700+ score. Then apply to an MSc program that will give you that added push (see previous post). Don't forget the extracurricular's; for me my GMAT was nothing to brag about but experience I had outside of class opened doors to the right MSc program. Finance specific stuff is a plus, especially research based. Get on a project with a prof, or your schools pension fund, and make it as quant heavy as possible. You want to be talking about modeling in your interview, not how you proof read some technical writing. Case competitions are good to hone public speaking, and they are usually a welcome break from the grind as they often involve travel.

If you can, line yourself up for 4th year Economics courses in modeling - Econometrics classes. These classes are often qualifying courses for Masters degrees in Economics and they are tough but extremely valuable. There is really only a couple of 'good' times to learn about heteroskedasticity, autocorrolation, GARSH models, unit roots parameters, and ridge regressions, and the leisurely pace of an undergrad class is one of them. Obviously knock yourself out with every finance course offered, and if you can stomach it, take intermediate accounting as well.

As the year trickles on apply for the November cycle of grad school apps and start plugging time into the CFA level 1. It will generally parallel your 4th year classes nicely but it takes a lot of time and to fail would unravel an important part of your whole brand package.

Looking like your hot shit to a firm is really all about momentum. Because many students - especially from mid teir schools - don't land in the September of their 4th year it's really easy to lose momentum when you know you're going to have a whole year between undergrad education and your eventual hire. If you can pack that time with as much finance as possible you'll A) commit mild social suicide amongst your non finance friends and B) look really hungry for a job, the hungrier the better in an employers eyes generally.