CFA Flash Cards! Level 1, 2 & 3

Flashcard 1: Time Value of Money (Level I)

Front: What is the formula for calculating the future value of a single lump sum investment?

Back: Future Value (FV) = PV × (1 + r)^n

• PV = Present Value
• r = Interest rate per period
• n = Number of periods

Flashcard 2: Efficient Market Hypothesis (Level I)

Front: What are the three forms of the Efficient Market Hypothesis (EMH)?

Back:

1. Weak Form EMH: Prices reflect all past market data.
2. Semi-Strong Form EMH: Prices reflect all publicly available information.
3. Strong Form EMH: Prices reflect all information, both public and private.

Flashcard 3: Porter’s Five Forces (Level II)

Front: What are the five forces in Porter’s model of industry competition?

Back:

1. Threat of new entrants
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of substitute products
5. Intensity of competitive rivalry

Flashcard 4: CAPM Formula (Level I)

Front: What is the Capital Asset Pricing Model (CAPM) formula?

Back: Expected?Return=Rf+β×(Rm?Rf)Expected?Return=Rf+β×(Rm?Rf)

• Rf = Risk-free rate
• β = Beta of the security
• Rm = Expected market return

Flashcard 5: Equity Risk Premium (Level II)

Front: What is the equity risk premium, and how is it calculated?

Back: The equity risk premium is the excess return that investing in stocks provides over a risk-free rate. It is calculated as:

Equity?Risk?Premium=Expected?Market?Return?Risk-Free?RateEquity?Risk?Premium=Expected?Market?Return?Risk-Free?Rate

Flashcard 6: Duration (Level III)

Front: What is duration and why is it important in fixed income investing?

Back: Duration is a measure of the sensitivity of the price of a bond to changes in interest rates. It estimates how much the price of a bond will change for a 1% change in interest rates.

• Key point: Higher duration means more sensitivity to interest rate changes.

Flashcard 7: Residual Income Model (Level II)

Front: What is the residual income model?

Back: The Residual Income Model values a company based on the income it generates above the required rate of return on its equity. It is calculated as:

Residual?Income=Net?Income?Equity?ChargeResidual?Income=Net?Income?Equity?Charge

• Equity Charge = Equity Capital × Cost of Equity

Flashcard 8: GIPS Standards (Level III)

Front: What are the Global Investment Performance Standards (GIPS)?

Back: The Global Investment Performance Standards (GIPS) are ethical standards for calculating and presenting investment performance. They are designed to provide transparency, comparability, and full disclosure of investment results.

Flashcard 9: Types of Yield Curves (Level I)

Front: What are the three types of yield curves?

Back:

1. Normal Yield Curve: Upward sloping; long-term rates are higher than short-term rates.
2. Inverted Yield Curve: Downward sloping; long-term rates are lower than short-term rates.
3. Flat Yield Curve: Little to no difference between short-term and long-term rates.

Flashcard 10: The Treynor Ratio (Level II)

Front: What is the formula for the Treynor Ratio, and what does it measure?

Back: The Treynor Ratio measures risk-adjusted return based on systematic risk (beta). The formula is:

Treynor?Ratio=Rp?RfβpTreynor?Ratio=βpRp?Rf

• Rp = Portfolio return
• Rf = Risk-free rate
• βp = Portfolio beta

These flashcards span multiple levels of the CFA exam and cover a variety of core topics. Would you like additional cards for specific topics or deeper explanations? Let me know how you'd like to proceed!