Timelines – Your Best Friends (Calculations for CFA® and FRM® Exams)
What is a timeline? A timeline is an physical illustration of the amount and the timing of cash flows associated with an investment project. Some of the applications of a timeline include: Quantitative Methods: Time Value of Money Capital Budgeting…
Beta and CAPM
Quick Reference: CAPM Beta Formula Formula: $$ \beta = \frac{\text{Cov}\left(\text{R}_{\text{i}}, \text{R}_{\text{m}}\right)}{\text{Var}\left(\text{R}_{\text{m}}\right)} $$ $$\begin{array}{c|l} \textbf{Term} & \textbf{Meaning} \\ \hline \text{R}_{\text{i}} & \text{Return of individual asset} \\ \hline \text{R}_{\text{m}} & \text{Return of the market portfolio} \\ \hline \text{Cov}\left(\text{R}_{\text{i}}, \text{R}_{\text{m}}\right) & \text{Covariance between…
Demystifying Forward Rate Agreements (Calculations for CFA® and FRM® Exams)
A forward rate agreement (FRA) is a cash-settled over-the-counter (OTC) contract between two counterparties, where the buyer is borrowing (and the seller is lending) a notional sum at a fixed interest rate (the FRA rate) and for a specified period starting at…
FRM Exam Preparation
The world is currently in a dark place with the ongoing rise in coronavirus cases. The adverse effects brought about by the pandemic are despicable. People and industries alike have been affected. There is an imminent risk of companies going…
Best Tips and Tricks for Preparing and Successfully Passing FRM Exams
Passing your Financial Risk Management (FRM) exam on the first try isn’t impossible – it is however quite difficult. FRM exams are detailed and involve complex calculations and thinking from each exam candidate. A financial risk manager is expected to…
Options Payoffs and Profits (Calculations for CFA® and FRM® Exams)
Understanding call and put option payoffs is a must for mastering derivatives in the CFA® or FRM® exams—and for real-world trading strategies. This guide breaks down option payoff and profit formulas, shows you how to calculate each, and includes charts…
Bond Valuation (Calculations for CFA® and FRM® Exams)
Bond valuation is an application of discounted cash flow analysis. The general approach to bond valuation is to utilize a series of spot rates to reflect the timing of future cash flows. Value, Price, and TVM Value can be described as…
Covariance and Correlation (Calculations for CFA® and FRM® Exams)
The covariance is a measure of the degree of co-movement between two random variables. For instance, we could be interested in the degree of co-movement between the variables X and Y, where we can let: X = interest rate Y…
Sharpe Ratio, Treynor Ratio and Jensen’s Alpha (Calculations for CFA® and FRM® Exams)
Portfolio Performance Measures Portfolio management involves a trade-off between risk and return. Most amateur investors mistakenly focus only on the return aspect and lose sight of the risk taken to achieve the return. The portfolio performance measures are intended as…
Spot Rate vs. Forward Rates (Calculations for CFA® and FRM® Exams)
Understanding how to calculate forward rates from spot rates is a must for CFA and FRM candidates. This guide breaks down the forward rate formula step by step, showing you exactly how it appears on the exams. With simple examples…
