📘 Understand and Retain Key CFA® Formulas - Memorize Smartly to Apply Quickly in MCQs

The Key to Success: Smart Memorization

The CFA® Level 1 requires mastery of 30 to 40 critical formulas across 10 domains. With only 90 seconds per question, speed of application becomes crucial.

According to AnalystPrep and data from the CFA Institute, successful candidates not only master the formulas but know how to apply them instantly without hesitation.

This guide presents proven scientific techniques to memorize effectively and apply formulas quickly in an exam setting.

Key 2024 Statistics

43%

Pass Rate

90s

Per question

Core formulas

300h

Min. study

Understanding the CFA® Formula Ecosystem

Smart Classification by Impact

According to 300Hours.com and UWorld Finance, CFA® formulas are classified into 3 categories based on their frequency of appearance:

🔥 Critical (12 formulas)

• Time Value of Money (TVM)
• Present/Future Value
• Holding Period Return
• Bond Pricing
• Portfolio Return/Risk

Appearance: 40-50% of questions

⚡ Important (15 formulas)

• Duration & Convexity
• CAPM & Beta
• Financial ratios
• Probabilities
• Linear regression

Appearance: 30-35% of questions

📋 Specialized (15+ formulas)

• Complex derivatives
• Alternative investments
• Advanced statistical tests
• Sector-specific formulas

Appearance: 15-20% of questions

Pareto Principle Applied to Formulas

80% of your score comes from perfect mastery of 20% of the formulas (the 12 critical ones).

This approach, validated by success data from AnalystPrep, optimizes your study time.

Prioritization Formula:

Score = (Frequency × Complexity × Mastery Time)⁻¹

The higher the score, the higher the formula priority

Scientific Memorization Techniques

Mnemonics

Creating mental associations to durably anchor formulas.

Example:

ROI = "Reward Of Investment"
FV = PV(1+r)ⁿ = "Future Vault = Present Vault × Growth Power"

Visualization

Transforming abstract formulas into concrete mental images.

Technique:

Duration = "Elastic sensitivity"
Imagine an elastic band stretching with interest rates

Pattern Recognition

Identifying common structures between similar formulas.

Pattern:

All TVM formulas follow:
Value = Base × Growth Factor

Chunking

Grouping formulas into logical blocks to reduce cognitive load.

Group:

"Return Block":
HPR → Geometric Mean → Arithmetic Mean

Active Repetition

Regular recitation with self-testing to reinforce long-term memory.

Method:

Write → Recite → Check → Correct
15 min/day per formula block

Contextual Associations

Linking each formula to its practical application context.

Link:

Beta = "Systematic risk"
→ Think: "Stock market falls, Beta follows"

Key Formulas by CFA® Domain

Quantitative Methods (6-9%)

Time Value of Money

FV = PV(1 + r)ⁿ

PV = FV / (1 + r)ⁿ

🧠 Mnemonic: "Future Vault = Present Vault × Growth Magic"

Average Returns

Arithmetic Mean = Σr / n

Geometric Mean = [(1+r₁)×...×(1+rₙ)]^(1/n) - 1

📊 Relation: Arithmetic > Geometric > Harmonic

Fixed Income (11-14%)

Bond Pricing

P = Σ[CFₜ / (1 + r)ᵗ]

YTM approximation ≈ (C + (FV-P)/n) / ((FV+P)/2)

💡 Tip: Price ↑ when Rates ↓

Duration & Sensitivity

Modified Duration = Macaulay Duration / (1 + YTM)

%ΔP ≈ -Duration × ΔYTM

🔗 Link: Duration = "price elasticity to rates"

Equity Investments (11-14%)

Dividend Discount Model

P = D₁ / (r - g)

P/E = D₁/E₁ / (r - g)

💰 Condition: r > g (rate > growth)

Valuation Ratios

ROE = Net Income / Shareholders' Equity

P/B = P/E × ROE

🎯 Mnemonic: "Price-Book = Price-Earnings × Return-Equity"

Portfolio Management (8-12%)

Portfolio Return & Risk

E(Rₚ) = Σwᵢ × E(Rᵢ)

σₚ² = Σwᵢ²σᵢ² + 2ΣΣwᵢwⱼCov(i,j)

⚖️ Weights × Individual Returns

CAPM & Beta

E(Rᵢ) = Rₓ + βᵢ[E(Rₘ) - Rₓ]

β = Cov(Rᵢ,Rₘ) / Var(Rₘ)

📈 Beta > 1 : riskier than market

Spaced Repetition: The Science of Retention

Optimized Revision Protocol

Based on Ebbinghaus's forgetting curve and validated by UWorld Finance, this protocol maximizes long-term retention:

D+1

First Revision

Review notes + simple exercises

Retention: 85%

D+7

Consolidation

Flashcards + quick quiz

Retention: 90%

D+30

Anchoring

Complex applications

Retention: 95%

D+90

Mastery

Quick pre-exam review

Retention: 98%

Revision Techniques by Phase

Learning Phase (D+1)

Active Reading: Write formula 3 times by hand
Verbalization: Explain the formula out loud
Application: 2-3 guided simple exercises

Consolidation Phase (D+7)

Flash Recall: Formula from memory in 30 seconds
Flashcards: 15 minutes of active revision
Quiz: 5-10 timed questions

Practical Application: From Formula to MCQ

90-Second Strategy

0-20 seconds

Reading & Identification

• Scan the question
• Identify keywords
• Recognize the formula type
• Spot the data

20-70 seconds

Calculation & Application

• Automatic formula recall
• Value substitution
• Calculator calculation
• Quick verification

70-90 seconds

Selection & Validation

• Compare with options
• Consistency test
• Answer selection
• Mark if uncertain

Practical Example: TVM Question

Typical CFA® Question:

"An investor invests €10,000 at 6% annual compound interest. What will be the value in 5 years?"

A) €13,382 • B) €13,000 • C) €12,625

Step 1: Identification (15s)

Keywords: "compound interest", "5 years"
→ TVM Formula: FV = PV(1+r)ⁿ

Step 2: Calculation (45s)

PV = 10,000, r = 6%, n = 5
FV = 10,000 × (1.06)⁵
FV = 10,000 × 1.3382 = €13,382

Step 3: Validation (30s)

Verification: 13,382 > 13,000 ✓
Consistency with 6% growth ✓
→ Answer A

Mastering the BA II Plus Calculator

Essential TVM Functions

The Texas Instruments BA II Plus is your main ally. Master these sequences to save 30% time on calculations.

Basic Configuration

2nd FORMAT: Decimals (9 recommended)

2nd P/Y: Payments/year (12 for monthly)

2nd BGN: Payment mode (END by default)

2nd CLR TVM: Clear TVM variables

Standard TVM Sequence

N: Number of periods

I/Y: Interest rate (% annual)

PV: Present value (negative if outflow)

FV: Future value

PMT: Periodic payment

Calculator Shortcuts by Formula

Quick TVM Formulas

Future Value:

CLR TVM → N → I/Y → PV ± → CPT FV

Present Value:

CLR TVM → N → I/Y → FV ± → CPT PV

Yield (Rate):

CLR TVM → N → PV ± → FV → CPT I/Y

Statistical Functions

Mean & Standard Deviation:

2nd DATA → [values] → 2nd STAT

Linear Regression:

2nd DATA → X,Y → 2nd STAT → LinR

Cash Flow NPV:

CF → CF0 → C01,F01... → NPV

Exam Strategies & Avoiding Pitfalls

Common Pitfalls & Solutions

❌ Frequent Errors

Sign Confusion:

Negative PV = cash outflow, Positive FV = cash inflow

Time Units:

Always align I/Y and N on the same basis (annual/monthly)

Calculator Mode:

Check P/Y = 1 for simple annual calculations

✅ Validation Strategies

Consistency Test:

FV > PV if positive rate, logical relationship

Quick Approximation:

Rule of 72: doubling in 72/rate years

Option Elimination:

Eliminate obviously incorrect answers

Time Management Tactics

Flag & Skip

Mark difficult questions and return to them after handling easier ones

Speed Reading

First scan answer options to understand expected magnitude

Pattern Matching

Recognize recurring question types to automatically apply the right formula

Your CFA® Success: Mastered Memorization

Mastering CFA® formulas is not about talent, but about scientific method. By applying the proven memorization techniques presented in this guide, you transform abstract equations into automatic reflexes.

Remember: 80% of your score depends on perfect mastery of the 12 critical formulas. Invest your time wisely according to the Pareto principle.

Success Checklist

✅ Master the 12 critical formulas by heart
✅ Apply spaced repetition (D+1, D+7, D+30, D+90)
✅ Perfectly configure the BA II Plus
✅ Time each question type (90s max)
✅ Create personalized mnemonics
✅ Practice 300+ formula questions
✅ Master Flag & Skip strategies

Finance Tutoring - Excellence in Financial Training since 2020

Sources: CFA Institute, AnalystPrep, 300Hours.com, UWorld Finance | Updated December 2024