CFA CFA Level 1 Formula memorization vs. Operations entry

Formula memorization vs. Operations entry

  • This topic has 1 reply, 2 voices, and was last updated Feb-18 by Stuj79.
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    • jhersey

      How important do you all feel it is to memorize the actual TVM formulas vs. being able to grind them out quickly on a calculator? I can breeze through TVM questions on my 12c, but I’m worried I’m actually handicapping myself by not taking the time to memorize the formulas themselves. Thoughts?

    • Stuj79

      Obviously it is very important to be able to actually compute answers quickly on your calculator, and you are correct that often times strangely that doesn’t even require you to know the formula in its entirety….however if you have no clue what the formula is you may come across issues while trying to answer more conceptual questions that don’t actually provide any figures or require any computation.

      taking TVM as the (extremely basic) example, if the question asks you something like “if the discount rate used to calculate the present value of a series of cash flows increases, does the present value fall/rise/remain the same?”

      Knowing the formula can help you quickly answer this question…the discount rate appears in the denominator when discounting the cash flows, so when the discount rate rises, the present value falls.

      There are a large number of conceptual questions on the CFA level 1 exam so I would suggest trying to commit at least the major, recurring formula to memory. Understanding the topic fully helps greatly in formula retention I find.

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