1. Preface2. Getting Started3. General Theory 1.1 Preface

Mathematics Required For The Examination
Math on the Series 3 entails nothing more than addition, subtraction, multiplication and division. One does, however, need to read word problems carefully in order to understand which operations are required to arrive at a solution and why.

For example, say you had to compute an initial margin that is 25% higher than the maintenance margin. You are told that the maintenance margin is \$500. You would need to multiply \$500 times 1.25 (that means knowing that 25% is the same as 0.25, and that you have to add 1 to that to account for the \$500 starting point) to arrive at \$625.

To compute profits or losses from trades, you'll have to multiply the number of contracts by the number of units per contract by the price per unit. We will spend a great deal of time on this in Chapter 11: Test Taking.

You will also need to understand numerical concepts that may appear at first blush counterintuitive. For example, if the basis – an important concept from Chapter 6: Hedging – goes from -6 cents to -3 cents, you need to know that it is going up rather than down.

Lastly, you will need to understand ratios. They are nothing more than division. But you may well be asked to compute the return on equity if your trade earned \$100 gross profit on an investment of \$25. If you answered "\$4," that's incorrect. First of all, the answer will be a percentage, not a dollar figure. Secondly, you have to subtract that \$25 investment out of the \$100 profit to make a fair comparison. The formula, then, is (\$100-\$25)/\$25. (This also presupposes that you know to perform the function in the parentheses before moving on.) So we come up with \$75/\$25, which can be expressed as 3, but is more correctly written as 300%, when asked for a return on equity figure.

General Theory

Related Articles
1. Managing Wealth

### What’s a Good Profit Margin for a New Business?

Surprisingly, the younger your company is, the better its numbers may look.
2. Managing Wealth

### What's a Good Profit Margin for a Mature Business?

How to determine if the amount you clear dovetails with the competition.
3. Investing

When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
4. Investing

### The Difference Between Gross and Net Profit Margin

To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.