CFA Level 1 Formulas

Price change based on convexity CORRECT ANSWER -duration(change in yield)+1/2(convexity)(change in yield)^2 Effective Duration CORRECT ANSWER Required if a bond has embedded options: [(v-)-(v+)]/[2V0(change in curve)] Modified Duration CORRECT ANSWER [(v-)-(v+)]/[2V0(change in yield)] Future Value CORRECT ANSWER PV(1+(I/Y)^N) PV CORRECT ANSWER FV/(1+r)^n PV of perpetuity CORRECT ANSWER PMT / discount rate Approximate percentage price change of a bond CORRECT ANSWER (-)(modified duration)(ΔYTM) Nominal Risk Free CORRECT ANSWER Real Risk Free + expected inflation Required Return CORRECT ANSWER Nominal risk free + liquidity premiums + default risk premium + maturity risk premium EAR CORRECT ANSWER [(1+periodic rate)^N ] - 1 EAR continuous CORRECT ANSWE