Master Formulas & Definitions
Your quick-reference guide for key CMFAS exam calculations and terms.
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Another key study guide for RES5.
Current Yield
Annual Coupon Payment / Current Market Price
Measures the annual income from a bond as a percentage of its current price, ignoring capital gains or losses.
Category: Bond Mathematics (M8, RES5)
Total Out-of-Pocket Cost (Health Insurance)
Deductible + (Co-insurance % * (Total Bill - Deductible))
Calculates the total amount a policyholder must pay in a medical claim, accounting for both the initial deductible and the percentage-based co-insurance.
Category: Health & CPF Schemes (HI)
ILP Net Unit Change
Units Purchased (UP) - Units Cancelled (UC)
Determines the net increase or decrease in a policyholder's units after accounting for new premiums invested and charges deducted. UP = (Premium * Allocation Rate) / Offer Price. UC = Charges / Bid Price.
Category: Insurance & ILPs (M9, M9A)
Net Amount at Risk (NAR) for ILPs
Sum Assured - Unit Value
Represents the actual insurance risk the insurer bears in an ILP, which is the difference between the guaranteed death benefit (Sum Assured) and the current investment value (Unit Value).
Category: Insurance & ILPs (M9, M9A)
Information Ratio
(Portfolio Return - Benchmark Return) / Tracking Error
Measures a portfolio manager's ability to generate excess returns relative to a benchmark, adjusted for the volatility of those returns.
Category: Performance Measurement (M8, RES5)
Jensen's Alpha
Portfolio Return - [Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)]
Measures the excess return of a portfolio over its expected return as predicted by the Capital Asset Pricing Model (CAPM).
Category: Performance Measurement (M8, RES5)
Sharpe Ratio
(Portfolio Return - Risk-Free Rate) / Standard Deviation
Measures the risk-adjusted return of a portfolio per unit of total risk (volatility).
Category: Performance Measurement (M8, RES5)
Total Return (ROI)
[(Ending Value - Beginning Value) + Income] / Beginning Value
Calculates the total gain or loss on an investment over a specific period, including both capital appreciation and any income generated.
Category: Performance Measurement (M8, RES5)
Treynor Ratio
(Portfolio Return - Risk-Free Rate) / Beta
Measures the risk-adjusted return of a portfolio per unit of systematic (market) risk.
Category: Performance Measurement (M8, RES5)
Rule of 72
72 / Interest Rate
A quick mental calculation to estimate the number of years required to double the value of an investment.
Category: Time Value of Money (TVM) (M8, RES5)
Expense Ratio
(Total Recurring Annual Expenses / Average Net Asset Value) * 100
Represents the percentage of a fund's assets used for administrative, management, and other operating expenses.
Category: Unit Trust Operations (M8, RES5)
Derivatives
| Term / Rule | Definition / Details |
|---|---|
| Call Option | A derivative that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price. |
| Futures Contract | A standardized legal agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future. Both parties are obligated to transact. |
| Gearing (Leverage) | The use of financial instruments or borrowed capital, such as derivatives, to increase the potential return of an investment. It magnifies both gains and losses. |
| Put Option | A derivative that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price. |
Fund Types & Objectives
| Term / Rule | Definition / Details |
|---|---|
| Absolute Return Fund (Hedge Fund) | A fund that aims to achieve positive returns regardless of market direction. |
| Annuity | A financial product that protects against longevity risk (the risk of outliving one's savings) by providing a stream of payments. |
| Balanced Fund | A fund that provides a mix of return components: dividends from stocks, interest from bonds, and capital gains from both. |
| Feeder Fund | A fund that invests all or substantially all of its assets directly into an existing offshore master or parent fund. |
| Growth Stocks | Companies with strong track records of rising sales and profits, expected to continue growing faster than the market. |
| Regional Fund | A fund that invests in a specific geographical group of countries (e.g., ASEAN, Emerging Europe). |
| Regular Investment Plan | A plan where a fixed percentage of salary or a fixed dollar amount is invested each month. |
| Value Fund | A fund that invests in stocks considered to be undervalued or trading at a discount to their intrinsic worth. |
Health & CPF Schemes (HI)
| Term / Rule | Definition / Details |
|---|---|
| Additional Withdrawal Limits (AWL) | The maximum amount of MediSave that can be used annually for IP premiums, tiered by age (S$300 for <=40, S$600 for 41-70, S$900 for >=71). |
| CareShield Life | The national long-term care insurance scheme providing lifetime payouts for severe disability (inability to perform 3 out of 6 ADLs). |
| Integrated Shield Plan (IP) | A policy that combines MediShield Life with an additional private insurance component. |
| MediShield Life | The mandatory basic health insurance plan administered by the CPF Board. |
Insurance & ILPs (M9, M9A)
| Term / Rule | Definition / Details |
|---|---|
| Capital Guaranteed Fund | A structured product where the principal is protected, typically by using a zero-coupon bond. |
| Portfolio Bond | A high-net-worth life insurance 'wrapper' that holds a wide range of external investment assets. |
| Reduced Paid-Up Insurance | A non-forfeiture option that uses a policy's cash value to buy a new policy of the same type but with a lower sum assured, with no further premiums required. |
Market Operations
| Term / Rule | Definition / Details |
|---|---|
| Capital Market | The market for long-term funds, with instruments having a maturity of more than one year. |
| Money Market | The market for short-term borrowing and lending, with instruments having a maturity of one year or less. |
| Primary Market | The market where new issues of securities (like stocks and bonds) are sold to investors for the first time (e.g., an IPO). |
| Secondary Market | The 'aftermarket' where previously issued securities are traded among investors, without the issuing company's involvement. |
Performance Measurement (M8, RES5)
| Term / Rule | Definition / Details |
|---|---|
| Geometric Mean vs Arithmetic Mean | The Arithmetic Mean is a simple average. The Geometric Mean accounts for compounding and is a more accurate measure of an investment's true historical performance over multiple periods. The Geometric Mean is always lower than the Arithmetic Mean unless all returns are equal. |
Regulatory Capital & Insurance (RES5)
| Term / Rule | Definition / Details |
|---|---|
| S$150,000 | Minimum paid-up capital for a Financial Adviser (FA) not handling client money. |
| S$300,000 | Minimum paid-up capital for an FA dealing in high-risk products (e.g., futures, FX). |
| S$500,000 | Minimum Professional Indemnity Insurance (PII) coverage for an FA. |
Regulatory Deadlines & Limits (RES5)
| Term / Rule | Definition / Details |
|---|---|
| 3 Months | Maximum duration for a Provisional Representative (PR) to operate before passing exams. |
| 5 Years | Minimum record-keeping period for BSC framework documents and AML/CFT records. |
| 7 Days | Deadline for a representative to lodge a notice of intent with a new principal before leaving their old one. |
Regulatory Fines & Penalties (RES5)
| Term / Rule | Definition / Details |
|---|---|
| S$25,000 | Maximum fine for a representative acting for more than one principal. |
Risks
| Term / Rule | Definition / Details |
|---|---|
| Counterparty Risk | The risk that the other party in a bilateral agreement (like an OTC derivative or an ETN) will default on its obligations. |
| Credit Risk | The risk that a bond issuer or counterparty will default on their payment obligations. |
| Interest Rate Risk | The risk that a bond's price will fall when market interest rates rise, due to the inverse relationship between the two. |
| Liquidity Risk | The risk that an investor may not be able to buy or sell an asset quickly enough at a fair price to prevent or minimize a loss. |
| Reinvestment Risk | The risk that future cash flows (e.g., bond coupons) will have to be reinvested at a lower interest rate, reducing the overall expected return. |
Unit Trust Operations (M8, RES5)
| Term / Rule | Definition / Details |
|---|---|
| Bid Price | The price at which unitholders sell their units back to the fund. It is equivalent to the Net Asset Value (NAV) per unit. |
| Bid-Offer Spread | The difference between the Offer Price (at which investors buy units) and the Bid Price (at which they sell units). Represents the sales charge or transaction cost. |
| Offer Price | The price at which investors buy units from the fund. It is calculated as the NAV per unit plus any applicable sales charge (front-end load). |
| Trust Deed | The legal constitutive document that establishes a Collective Investment Scheme (CIS) and outlines the duties and responsibilities of the manager, trustee, and unitholders. |
| Trustee (Unit Trust) | The legal owner of the fund's assets, acting as a 'watchdog' to safeguard the interests of the unitholders and ensure the fund manager's compliance. |