calculation-reference

CFA Level I Equity Investments Calculations

Dividend discount models, valuation multiples, index returns, and required return calculations.

TL;DR

Equity calculations include required return, dividend discount models, justified multiples, price return, total return, and index weighting methods.

Formula Reference

Gordon growth model

P0 = D1 / (r - g)

Use only when growth is constant and r exceeds g.

Price return

Price return = (ending price - beginning price) / beginning price

Excludes dividends.

Total return

Total return = (ending price - beginning price + dividends) / beginning price

Includes income.

BA II Plus Keystrokes

Use basic arithmetic for return measures.
Use STO/RCL for dividend, growth, and required-return inputs.
For index problems, calculate each constituent weight before summing.

Worked Example

D1 = $3, r = 9 percent, g = 4 percent.
P0 = 3 / (0.09 - 0.04) = $60.
The formula is highly sensitive to the spread between r and g.

Common Mistakes

Using D0 instead of D1 in the Gordon growth model.
Including dividends in price return.
Using equal weights when the index is value-weighted.

Related Guides

CFA Level I Equity Investments Formula Sheet - Public formula sheet for equity returns, valuation models, multiples, and index calculations.
BA II Plus: CAPM Step by Step - Calculate required return with CAPM using BA II Plus arithmetic and memory keys.
CFA Level I Portfolio Management Formula Sheet - Public formula sheet for expected return, variance, CAPM, Sharpe ratio, and performance measurement.