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How is the Correlation between two variables calculated and what is important to remember?
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Corr(A, B) = Cov(A, B) / (σ_A * σ_B). Key: Remember the denominator has standard deviations, not squared.
What is the significance of Duration Gap in bond formulas?
Duration Gap is important for assessing interest rate risk.
How is Forward Pricing in derivatives calculated and what is a key feature to remember?
Forward Pricing: Cost + Benefit. Remember there is a sign difference in no-arbitrage forward price.
How do you calculate P(B|A) using the Base Formula, and what is the trick to remember it?
P(B|A) = (P(A)*P(B))/P(A). Trick: Note the order is flipped compared to the multiplication rule.
What are common Z-scores in Normal Distributions used for confidence intervals?
Common Z-scores are 1.65, 1.96, 2.58.
What is the Cash Ratio formula?
Cash Ratio: Cash / Current Liabilities.
Explain the Difference between Three-Step and Five-Step ROE analysis.
Three-Step ROE: Net Income / Equity. Five-Step ROE: Involves more intermediary steps but leads back to Net Income / Equity.
What is the formula for the Multiplication Rule of Probability and the trick for memorizing it?
Formula: P(A) * P(B). Trick: Keep the order the same with a line in the middle.
What is the formula for Cash Conversion Cycle?
Cash Conversion Cycle: Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding.
How is Quick Ratio calculated?
Quick Ratio: (Current Assets - Inventories) / Current Liabilities.
Provide the formula for the Sharpe Ratio used in Portfolio Management.
Sharpe Ratio: (Return - Risk-free rate) / Standard Deviation.
What is the Addition Rule of Probability and the visualization trick?
P(A or B) = P(A) + P(B) - P(A and B). Trick: Visualize two overlapping circles.
What does Duration measure in bond formulas?
Duration measures interest rate sensitivity.
Detail the formula for Current Ratio.
Current Ratio: Current Assets / Current Liabilities.
Provide the Basic EPS formula.
Basic EPS: Net Income / Shares Outstanding.
What is the fiscal balance formula and a mnemonic to remember the order?
Fiscal Balance: S - I (Savings - Investment). Memorization: Use the acronym 'Got Six Mates' for negatives.
State the Quantity Theory of Money formula.
MV = PY.
Provide the formula for Portfolio Variance and a trick for memorizing it.
Var(P) = w_A^2 * Var(A) + w_B^2 * Var(B) + 2 * w_A * w_B * Cov(A, B). Trick: Multiply weights and variances.
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