CPCU® 540 Formulas
The CPCU® 540 exam is very difficult and heavily math intensive. According to nationally published CPCU® pass rates, the CPCU® 540 is the hardest CPCU® exam. The pass rate is typically around 72%, primarily because there are over 50 formulas to memorize.
In this resource, we’re going to break down the most important formulas that you need to memorize to pass the CPCU® 540 exam. This comes straight from our CPCU® 540 online course where we provide a detailed breakdown of the most important formulas of each chapter, along with our difficulty and importance rank for each chapter.
CPCU® 540: Formulas You Don’t Need to Memorize
First, you should know what formulas you do NOT need to memorize. At your exam, you will be given a small list of select formulas to use on the CPCU® 540 exam.
The list of formulas provided to you on the CPCU® 540 exam includes:
- Future Value Over a Single or Multiple Period
- Future Value Over Multiple Periods With Payment Periods Less Than One Year
- Present Value Over a Single or Multiple Periods
- Net Present Value
For the full list of formulas that are provided and those that are NOT provided at the CPCU® 540 exam, download our formulas list and practice exam.
CPCU® 540: Most Important Formulas (Must Memorize)
According to our count, there are approximately 50 CPCU® 540 formulas that you should know before taking the CPCU® 540 exam. Only 4 which are given to you on the exam (listed above). The other 46 are not provided to you at the exam,meaning you’ll have to memorize the formula. You can download those lists here, with our free practice exam, to see which formulas you need to memorize.
These are the two most important formulas on the CPCU® 540 exam:
- Present and future value tables
- Annual rate of return
Present and future value tables
As mentioned above, you will be given these formulas on the CPCU® 540 exam but you WON’T be given the formulas or instructions on how to calculate present value and future value using the tables.
You will be given two tables to use on the CPCU® 540 exam:
- Future value table
- Present value table
These tables provide an easier way of calculating the future value and present value. Each table provides a factor, use the tables to find the factor that corresponds with period (n) on the left-hand side of the table and interest rate (r) at the top of the table. You MUST know how to use these tables, it is vitally important to passing the CPCU® 540 exam. I argue that this is the most important aspect of the CPCU® 540 exam. Using the future value and present value tables is more accurate (because you’re not punching numbers in a calculator) and will save you lots of time.
If you do not have a copy of the future value and present value tables, you can download them here along with the formulas list and CPCU® 540 practice exam.
There are five primary present and future value formulas. Here are the present and future value table formulas, I’ve abbreviated the future value to “FV” and the present value to “PV”:
- Future Value = PV × FV Factor
- Future Value Over Multiple Periods With Payment Periods Less Than One Year = PV × FV Factor (you must calculate period and interest based on the number of payments within a period)
- Present Value Over a Single or Multiple Periods = FV × PV factor
- Present value of unequal payments = (FV Payment1 × PV Factor1) + (FV Payment2 × PV Factor2) + (FV Payment3 × PV Factor3)
- Net present value = NPV = -C0 + (C1 × PV Factor 1) + … (Cn × PV Factor)
Annual rate of return
Two rate of return formulas you must know:
- The bond annual rate of return = (coupon + capital gain) ÷ bond price beginning of the year
- The stock annual rate of return = (capital gain + dividends) ÷ stock price beginning of the year
These two formulas are vitally important to the CPCU® 540 exam. These two questions come from chapter 5 of the CPCU® 540 course, one of the most important chapters of the CPCU® 540 exam. The annual rate of return formulas can be re-arranged to solve for coupon rate, beginning bond price, and beginning stock price. You’ll need to know this formula inside and out, make sure you know how to calculate the rate of return and how to re-arrange the formula.
CPCU® 540 Formula Review
The formulas are the most important aspect of the CPCU® 540 exam. Ensure you memorize the most important formulas detailed above if you don’t memorize these key formulas it will be very very difficult to pass the CPCU® 540 exam. For a list of everything we’ve talked about in this blog including the formulas provided to you on the exam, the formulas not provided to you on the exam, present/future value tables, and a free practice exam, download our free CPCU® 540 bundle:
For more information about the CPCU® 540 exam, check out some of our other free resources:
- CPCU® 540 Hub
- CPCU® 540 - Full Online Course
- CPCU® 540 - Practice Exam Course
- CPCU® 540 - Free Course
- CPCU® 540 - Free Practice Exam
- CPCU® 540 exam difficulty
- CPCU® 540 exam questions
- CPCU® 540 exam format
- CPCU® 540 – what to expect
- CPCU® Designation Hub
- CPCU® Designation Overview
- CPCU® Designation Salary
- CPCU® Cost
- CPCU® Exam Pass Rates
Remember, every CPCU® exam is different. No single exam is the same. Be sure to study ALL topics (not just our recommendation). This resource is intended to provide you with a general idea of where your focus should be. Make sure to thoroughly study every topic of this exam.
Difficulty rank, importance rank, and the advice provided in this resource are solely the opinion of AssociatePI. This resource is intended to provide you with a general idea of where your focus should be. Each exam administered by The Institutes is different. AssociatePI is not affiliated with The Institutes or involved in the exam writing process. Please be sure to thoroughly study every chapter and every topic of this course.
CPCU® exams are administered by the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI does not administer the actual exams, we are an independent resource of free content, advice, and study material for professional insurance education. This blog is intended for informational purposes only, to inform prospective students of the benefit of the CPCU® designation.
CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources related to the Institutes’ designations or other programs.
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