FinQuiz Formula Sheet CFA Level III 2017

Reading 5: The Behavioral Finance Perspective ATNominal RR% = 1 +
AT
Real
RR% rate) + (Expected total R of Tax-
(1 + Current Ann Inf %) 1 exempt Invst wt of Tax-exempt
1. Expected utility (U) = (U values of Invst) Inf rate
outcomes Respective Prob) 3. Total Investable assets = Current Portfolio Or
-Current year cash outflows + Current year Real AT R =[(Taxable R of asset class
2. Subjective expected U of an individual = cash inflows 1 wt of asset class 1) + (Taxable R
[u (xi) Prob (xi)] of asset class 2 wt of asset class 2) +
4. Pre-tax income needed = AT income + (Taxable return of asset class n
3. Bayes formula = P (A|B) = [P (B|A) / P needed / (1-tax rate) wt of asset class n)] (1 tax rate) +
(B)] P (A) (Expected total R of Tax-exempt Invst
5. Pre-tax Nominal RR = (Pre-tax income wt of Tax-exempt Invst) Infrate
4. Risk premium = Certainty equivalent needed / Total investable assets) + Inf%
Expected value Reading 9: Taxes and Private Wealth
If Portfolio returns are tax-deferred: Management in a Global Context
5. Perceived value of each outcome = 6. Pre-tax projected expenditure $ = AT
= U = w (p1) v (x1) + w (p2) v (x2) + + projected expenditure $ / (1 tax rate) 1. Average tax rate = Total tax liability /
w (pn) v (xn) Total taxable income
7. Pre-tax real RR % = Pre-tax projected
6. Abnormal return (R) = Actual R expenditures $ / Total investable assets 2. AT Return = r (1 ti)
Expected R
8. Pre-tax nominal RR = (1 + Pre-tax real RR 3. AT Future Accumulations after n years =
Reading 8: Managing Individual Investor %) (1 + Inflation rate%) 1 FVIFi= Initial Invst [1 + r (1 ti)]n
Portfolios
If Portfolio returns are NOT tax-deferred: 4. Tax drag ($) on capital accumulation =
1. After-tax (AT)Real required return (RR) % 9. AT real RR% = AT projected expenditures Acc capital without tax Acc capital with
!"#$%&' (
*$+,#*$-
$./$%-#&,*$(
#%
0$1*
% $ / Total Investable assets tax
= =
2$&
3%4$(&15"$
6(($&(
7*89$:&$-
%$$-(
#%
0$1*
%
2$&
3%4$(&15"$
6(($&( 10. AT nominal RR% = (1 + AT real RR%) 5. Tax drag (%) on capital accumulation =
(1 + Inf%) 1 (Acc capital without tax Acccapital with
7*89$:&$-
%$$-(
#%
0$1*
%
2. ATNominal RR % = tax) / (Acc capital without tax Initial
2$&
3%4$(&15"$
6(($&(
11. Procedure of converting nominal, pre-tax investment)
+ Current Annual (Ann) Inflation (Inf) % =
figures into real, after-tax return:
AT real RR% + Current Ann Inf% Or
Real AT R = [Expected total R 6. Returns-Based Taxes: Deferred Capital
(Expected total R of Tax-exempt Invst Gains:
wt of Tax-exempt Invst)] (1 tax
 FinQuiz
AT Future Accumulations after n
years = FVIFcg= InitialInvst. [(1 + r)
n
(1 tcg) + tcg]
Value of a capital gain tax deferral =
AT future accumulations in deferred
taxes AT future accumulations in
accrued annually taxes
7. Cost Basis
Capital gain/loss = Selling price
Cost basis
AT Future Accumulation = FVIFcgb=
Initial Invst [(1 + r) n (1 tcg) + tcg
(1 B) tcg] =Initial Invst [(1 + r) n (1
tcg) + (tcg B)]
Where, B = Cost basis
tcg B = Return of basis at the end of
the Invst.horizon.
When cost basis = initial InvstB=1,
FVIFcg=Initial investment [(1 + r) n
(1 tcg) + tcg]
8. Wealth-Based Taxes
AT Future Acc = FVIF w = Initial
Invst [(1 + r) (1 tw)] n
Where, tw = Ann wealth tax rate
9. Blended Taxing Environments
a) Proportion of total return from
Dividends (pd) which is taxed at a rate
of td.
pd = Dividends ($) / Total dollar return
b) Proportion of total return from Interest
income (pi) which is taxed at a rate of
t i.
Formula Sheet
pi = Interest ($) / Total dollar return
c) Proportion of total return from
Realized capital gain (pcg) which is
taxed at a rate of tcg.
pcg = Realized Capital gain ($) / Total
dollar return
d) Unrealized capital gain return: Total
Dollar Return = Dividends + Interest
income + Realized Capital gain +
Unrealized capital gain
Total realized tax rate = [(pi ti) + (pd
td)+ (pcg tcg)]
10. Effective Ann AT R = r* = r (1 piti pdtd
pcgtcg) = r (1 total realized tax rate)
Where, r = Pre-tax overall return on the
portfolio and r*= Effective ann AT R
11. Effective Capital Gains Tax = T* = tcg (1
pi pd pcg) / (1 piti pdtd pcgtcg)
12. Future AT acc. = FVIF Taxable = Initial Invst
[(1 + r*)n (1 T*) + T* (1 B) tcg]
n
13. Initial Invst (1 + Accrual Equivalent R) =
Future AT Acc
14. Accrual Equivalent R = (Future AT Acc /
Initial Invst) 1/n 1
15. Accrual Equivalent Tax Rates = r (1 TAE)
= RAE
CFA Level III 2017
16. In Tax Deferred accounts (TDAs) Future
AT Acc = FVIF TDA = Initial Invst[(1 + r) n
(1 Tn)]
17. In Tax-exempt accounts FVIF taxEx = Initial
Invst (1 + r) n
FVIF TDA = FVIF taxEx (1 Tn)
18. AT asset wt of an asset class (%) = AT
MV of asset class ($) / Total AT value of
Portfolio ($)
19. AT Initial invst in tax-exempt accounts =
(1 T0)
20. FV of a pretax $ invested in a tax-exempt
account = (1 T0) (1 + r) n
21. FV of a pretax $ invested in a TDA = (1 +
r) n (1 Tn)
22. Investors AT risk = S.D of pre-tax R (1
Tax rate) = (1 T)
23. Tax alpha from tax-loss harvesting (or Tax
savings) =Capital gain tax with unrealized
losses Capital gain tax with realized
losses Or
Tax alpha from tax-loss harvesting =
Capital loss Tax rate
24. Pretax R taxed as a short-term gain needed
to generate the AT R equal to long-term
AT R = Long-term gain after-tax return /
(1 short-term gains tax rate)
 FinQuiz Formula Sheet CFA Level III 2017

Reading 10: Estate Planning in a Global 9. Value of a taxable gift (if gift & asset Reading 12: Lifetime Financial Advice: Human
Context (bequeathed) have equal AT R ) = (1 Tg) Capital, Asset Allocation, & Insurance
/ (1 Te)
1. Estate =Financial assets + Tangible 10. The relative after-tax value of the gift j hi
1. Human Capital g = OkQ QRJ i
personal assets + Immoveable property + when the donor pays gift tax and when the
j l(ni ) hipq (QR`i )
Intellectual property recipients estate will not be taxable extended model g = OkQ
(QRJ Rs)i
r
(assuming rg = re and tig = tie): 2. Income yield (payout) =
2. Discretionary wealth or Excess capital = OtOGY tc`tMc` Gcc]GY McutvK

Assets Core capital LMNO McMOMGY l]JuwG^K lJMuK
FGHGXYKLMNO =
[K\]K^O
3. Core Capital (CC) Spending Needs = c
1 + ` 1 M` 1 ` + ` K Reading 13: Managing Institutional Investor
N =
p(Survival j ) Spending j 1 + K 1 MK c 1 K Portfolio
(1+ r) j
j1
11. Size of the partial gift credit = Size of the Defined-Benefit Plans:
gift TgTe 1. Funded Status of Pension Plan (PP) = MV
4. Expected Real spending = Real annual
of PP assets PV of PP liabilities
spending Combined probability 12. Relative value of generation skipping = 1 /
(1 T1) 2. Min RR for a fully-funded PP = Discount
5. CC needed to maintain given spending
rate used to calculate the PV of plan
pattern = Annual Spending needs / 13. Charitable Gratuitous Transfers = liabilities
Sustainable Spending rate
FVCharitableGift
RVCharitableGift = 3. Desired R for a fully-funded PP =
6. Tax-Free Gifts = FGHIJKKLMNO = FVBequest
V
Discount rate used to calculate the PV of
QRJS QTOUS n
QRJW QTOUW V QTFW
(1+ rg )n + Toi [1+ re (1 tie )] (1 Te ) plan liabilities + Excess Target return
= n

7. Relative value of the tax-free gift =

[1+ re (1 tie )] (1 Te ) 4. Net cash outflow = Benefit payments
Pension contributions
1 / (1 Te)
14. Credit method = TC = Max [TR, TS]
8. Taxable Gifts = FGHGXYKLMNO = Foundations
QRJS QTOUS
V
QTFS
15. Exemption method = TE = TS
5. Min R requirement (req) = Min Ann
QRJW QTOUW V QTFW
spending rate + InvstMgmtExp+ Expected
16. Deduction method = TD = TR + TS TRTS
Inf rate
Or
 FinQuiz
Min Rreq = [(1 + Min Ann spending rate)
(1 + Invst Mgmt. Exp) (1 + Expected
Inf rate)] -1
6. Foundations liquidity req = Anticipated
cash needs (captured in a foundations
distributions prescribed by minimum
xcutvKTxcOKJK^O
yHlKc^K)
yGJcMc`
z^^KO^
spending rate*) + Unanticipated cash
xcOKJK^O
xcutvK
needs (not captured in a foundations
yGJcMc`
z^^KO^
distributions prescribed) Contributions
made to the foundation.
* It includes Minimum annual spending
rate (including overhead expenses e.g.
salaries) + Investment management
expenses
Endowments
7. Ann Spending ($) = % of an endowments
current MV Or
AnnSpending ($) = % of an endowments
avg trailing MV
8. Simple spending rule = Spending t =
Spending rate Endowments End MVt-1
9. Rolling 3-yr Avg spending rule =Spendingt
= Spending rate Endowments Avg MV
of the last 3 fiscal yr-ends i.e.
Spending t = Spending rate (1/3)
[Endowments End MVt-1+ Endowments
End MVt-2 + Endowments End MVt-3]
10. Geometric smoothing rule = Spendingt =
WghtAvg of the prior yrs spending
Formula Sheet CFA Level III 2017
adjusted for Inf + Spending rate Beg MV 17. Combined Ratio = (Total amount of claims
of the prior fiscal yr i.e. paid out + Insurer's operating costs) /
Spending t = Smoothing rate Premium income
[Spendingt-1 (1 + Inft-1)] + (1
Smoothing rate) (Spending rate Beg Banks
MVt-1 of the endowment) 18. Net interest margin =
(xcOKJK^O
=
z{`
11. Min ReqRoR = Spending rate + Cost of jKO
generating Invst R + Expected Infrate z{`
Or
Min ReqRoR = [(1 + Spending rate) (1 + 19. Interest spread = Avg yield on earning
Cost of generating Invst R) (1 + assets Average percent cost of interest-
Expected Inf rate)] -1 bearing liabilities
12. Liquidity needs = Ann spending needs + 20. Leverage-adjusted duration gap (LADG) =
Capital commitments + Portfolio DA (k DL)
rebalancing expenses Contributions by Where, k= MV of liabilities / MV of
donor assets = L/A
13. Neutrality Spending Rate = Real expected 21. Change in MV of net worth of a bank
R = Expected total R Inf (resulting from interest rate shock)
- LADG Size of bank Size of interest
Life Insurance Companies rate shock
14. Cash value = Initial premium paid + Any
accrued interest on that premium
15. Policy reserve = PV of future benefits - PV
of future net premiums
16. Surplus = Total assets of an insurance
company - Total liabilities of an insurance
company
Non-Life Insurance Companies
 FinQuiz Formula Sheet CFA Level III 2017

Reading 14: Linking Pension Liabilities to 5. Shrinkage estimator of Cov matrix = (Wt 16. Expected Capital gains R = Expected
Assets of historical Cov Historical Cov) + (Wt nominal earnings grate + Expected
of Target Cov Target Cov) repricing R
[i
1. Value of liability = | = O QRJ i
i
6. Vol in Period t =2t = 2t-1 + (1 ) 2t 17. Assets expected return E (Ri) = Rf +
where, Bt = Benefit payments at time t
(RP) 1 + (RP) 2 + + (RP) K
CFt 7. Multifactor Model: R on Asset i = Ri = ai +
2. Value of an asset = VB =
t (1 + rt ) t bi1F1 + bi2F2 + + biK FK + i 18. Expected bond R [E (Rb)] = Real Rf + Inf
premium + Default RP + Illiquidity P +
8. Value of asset at time t0 Maturity P+ Tax P
3. Intrinsic value of Future wage liability =
I GO OMvK O
=
B ((1+ g)s 1) ((1+ r)ds 1) OkQ QRM^ut]cO JGOK i
19. Inf P = AvgInf rate expected over the
VLFW =
rg (1+ r)d maturity of the debt + P (or discount) for
9. Expected RoR on Equity =
#4 /$* (1*$ 1& &#$ (QR *1&$)
the prob attached to higher Inf than
where, s = yrs till retirement + LT g rate expected (or greater disinflation)
!,**$%& (1*$ /*#:$
d = yrs till demise and subsequent = Div Yield + Capital Gains Yield
termination of the obligation 20. Inf P = Yield of conventional Govt. bonds
10. Nominal GDP = Real g rate in GDP + (at a given maturity) Yield on Inf-
Reading 15: Capital Market Expectations Expected long-run Inf rate indexed bonds of the same maturity

1. Precision of the estimate of the population
mean 1 / no
of
obvs Excess Corp g (for the index companies)
2. Multiple-regression analysis: A = 0 + 1 B
+ 2 C +
3. Time series analysis: A = 0 + 1 Lagged
values of A + 2 Lagged values of B + 2
Lagged values of C +
4. Shrinkage Estimator = (Wt of historical
estimate Historical parameter estimate) +
(Wt of Target parameter estimate Target
parameter estimate)
11. Earnings g rate = Nominal GDP g rate +
12. Expected RoR on Equity
+ PE
-S = Positive repurchase yield
+S = Negative repurchase yield
PE = Expected Repricing Return
13. Labor supply g = Pop g rate + Labor force
participation g rate
14. Expected income R = D/P - S
15. Expected nominal earnings g R = i + g
21. Default RP = Expected default loss in yield
terms + P for the non-diversifiable risk of
default
- S + i + g
22. Maturity P = Interest rate on longer-
maturity, liquid Treasury debt - Interest
rate on short-term Treasury debt
23. Equity RP = Expected ROE (e.g. expected
return on the S&P 500) YTM on a long-
term Govt. bond (e.g. 10-year U.S.
Treasury bond R)
24. Expected ROE using Bond-yield-plus-RP
method = YTM on a LT Govt bond +
Equity RP
 FinQuiz
25. Expected ROA E (Ri) = Domestic Rf R +
(i) [Expected R on the world market
portfolio Domestic Rf rate of R]
Where,i = The assets sensitivity to R on the
world mktportf = Cov (Ri, RM) / Var (RM)
26. Asset class RPi= Sharpe ratio of the world
market portfolio Assets own volatility
(i) Asset classs correlation with the
world mktportf (i,M)
RPi = (RPM / M) i i,M
Where, Sharpe Ratio of the world market
portfolio = Expected excess R / S.D of the
world mktportf represents systematic or non-
diversifiable risk = RPM / M
27. RP for a completely segmented market
(RPi) = Assets own volatility (i) Sharpe
ratio of the world mktportf
28. RP of the asset class, assuming partial
segmentation = (Degree of integration
RP under perfectly integrated markets) +
({1 - Degree of integration} RP under
completely segmented markets)
29. Illiquidity P = Required RoR on an illiquid
+ +
1
asset at which its Sharpe ratio = mkts
Sharpe ratio ICAPM required RoR
30. Cov b/w any two assets = Asset 1 beta
Asset 2 beta Var of the mkt
Formula Sheet
1 (1, m)
31. Beta of asset 1 =
m
2 (2, m)
32. Beta of asset 2 =
m 42. Investment g = + 1Lagged GDP g+
33. GDP (using expenditure approach) =
Consumption + Invst + in Inventories +
Govt spending + (Expo- Impo)
34. Output Gap = Potential value of GDP
Actual value of GDP
35. Neutral Level of Interest Rate = Target Inf
Rate + Eco g
36. Taylor rule equation: Roptimal =Rneutral + [0.5
(GDPgforecast GDPgtrend)]
+ [0.5 (Iforecast Itarget)]
37. Trend g in GDP = g from labor inputs + g
from in labor productivity
38. g from labor inputs = g in potential labor
force size + g in actual labor force
participation
39. g from in labor productivity = g from
capital inputs + TFP g*
TFP g = g associated with increased
efficiency in using capital inputs.
CFA Level III 2017
40. GDP g = + 1Consumer spending g +
2Investment g
41. Consumer spending g = + 1Lagged
consumer income g + 2Interest rate
2Interest rate
43. Consumer Income g = Consumer spending
growth lagged one period
Reading 16: Equity Market Valuation
1. Cobb-Douglas Production Function Y =
A K L
Where,Y = Total real economic output
A = Total factor productivity (TFP)
K = capital stock
= Output elasticity of K
L = Labor input
= Output elasticity of L
2. Cobb-Douglas Production Function Y
(assuming constant R to Scale) = ln (Y) =
ln (A) + ln (K) + (1 ) ln (L)
Or
0 6
0 6
3. Solow Residual = %TFP = %Y
(%K) (1 ) %L
 FinQuiz Formula Sheet CFA Level III 2017

4. H-Model: Value per share at time 0 = 9. Yardeni estimated fair value of P/E ratio = Reading 17: Asset Allocation

1+ P0 1
#(:8,%& *1&$T (,(&1#%5"$ #4 *1&$ = 1. Req R = [(1 + Spending rate) (1 +
LT sustainable Div g rate + E1 yB d LTEG Expected Inf %) (1 + Cost of earning

,/$* %8*1" /$*#8-
Invst R)] 1

ST higher Div g rate 10. Fair value of equity mkt under Yardeni 2. Risk-adj Expected R = Expected return for
LT sustainable Div g rate E1 mix m* (0.005 Investors risk
Model (P0) = P0 = aversion Var of R for mix m*)
yB d LTEG
5. Gordon g Div discount model: Value per 3. Risk Penalty = 0.005 Investors risk
QR 11. Discount/weighting factor (d) = aversion Var of R for mix m*
share at time 0 =
*T
E1 *expressed as % rather than as
yB decimals
6. Forward justified P/E = P0
d=
3%&*#%(#: 41",$
LTEG 4. Safety First Ratio =
0* 1$1- $./$:&$- 1*%#%( ./$:&$- 78*&8"#8 T *$(8"- "$4$"
78*&8"#8 ..
12. 10-year Moving Average Price/Earnings [P
7. Fed Model:
/ 10-year MA (E)] = 5. Include asset in the portfolio when:
- g/$*1&#% 1*%#%( Q
=Long-term US $1" 8* 3%T1-9,(&$- & JMuK xcKH
y VW T
>
3%-$. $4$" 7
84#% 64 8 /*$:$-#% Q *( 8 $1" 8* 3% 1-9 1*%#%( VW
Treasury securities y VW T
cK , l
VW
*The stock index and reported earnings are
E1 adjusted for Inflation using the CPI 6. Contribution of Currency risk =
8. Yardeni Model: = = yB d LTEG
P0 Vol of asset R in domestic Vol of asset R in local
Where Vol = volatility
Where,E1/P0=Justified (forward) earnings yield 13. Real Stock Price Index t = (Nominal SPIt
on equities CPI base yr) / CPI t 7. Funding Ratio =
1*$& 1",$ 8 7$%(#8% 6(($&(
yB=Moodys A-rated corporate bond yield
14. Real Earnings t = (Nominal Earnings t 7*$($%& 1",$ 8 7$%(#8% #15#"#&#$(
LTEG= Consensus 5-yr earnings g forecast for
the S&P 500 CPI base year) / CPI t+1 8. v z|
= v 0.005z v
z|
d=Discount or Weighting factor that represents v = Surplus objective functions
8 -$5&R 8 $+,#&
the weight assigned by the market to the 15. Tobins q = expected value for a particular asset
$/"1:$$%& :8(& 8 1(($&(
earnings projections +,#& & !1/ mix m, for a particular investor with
Equity q = =
2$& 8*& the specified risk aversion.
7*#:$ /$* (1*$ 28 8 1*$( g/
$/"1:$%& :8(& 8 1(($&(T 8 "#15#"#&#$(
 FinQuiz Formula Sheet CFA Level III 2017

E (SRm)= Expected surplus return for 6. CF at settlement = Original contract size 15. Long Straddle = Long atm put opt (with
asset mix m = (All-in-fwd rate for new, offsetting fwd delta of -0.5) + Long atm call opt (with
#% 1(($& 41",$T #% "#15#"#& 41",$ position Original fwd rate) delta of +0.5)
3%#&#1" 6(($& 1",$
2 (SRm) =Varof the surplus R for the
7. Hedge Ratio = 16. Short Straddle = Short ATM put opt (with
asset mix m in %. 28#%1" 1",$ 8 -$*#41&#4$( :8%&*1:& delta of -0.5) + Short ATM call opt (with
RA=Risk-aversion level 8 &$ $-$- 1(($&
delta of +0.5)
9. Human Capital (t)
ATM = at the money
./$:&$- 1*%#%( 1& 1$ 9 8. RDC =(1 + RFC)(1 + RFX)1
= 9k& opt = option
QR-#(:8,%& *1&$ p
t = current age T = life expectancy
9. RDC (for multiple foreign assets) =
17. Long Strangle: Long OTM put option +
n
Reading 18: Currency Management: An Long OTM call opt
Introduction
(1+ R ) (1+ R ) 1
i FC,i FX,i
OTM = out of the money
i=1

1. Bid Fwd rate = Bid Spot exchange (X) rate 10. Total risk of DC returns =
+
#- - /8#%&( 18. Long Risk reversal = Long Call opt +
Q,
I + I + Short Put opt
=
2 I I I , I
2. Offer Fwd rate = Offer Spot X rate + 19. Short Risk reversal = Long Put opt + Short
g$* -- /8#%&(
Q, 11. % in spot X rate (%SH/L) = Interest rate Call opt
on high-yield currency (iH) Interest rate
(/8& *1&$T(

) on low-yield currency (iL) 20. Short seagull position = Long protective
q,
3. FwdPrem/Disc % = 1 (ATM) put + Short deep OTM Call opt +
(/8& *1&$
/ T/ Short deep OTM Put opt
12. Forward Rate Bias = =
4. To convert spot rate into a forward quote /

when points are represented as %, # T#

21. Long seagull position = Short ATM call +

Spot X rate (1 + % prem) QR#

Long deep-OTM Call opt + Long deep-
Spot X rate (1 - % disct) OTM Put opt
13. Net delta of the combined position =
5. Mark-to-MV on dealers position = Option delta + Delta hedge 22. Hedge ratio =
$&&"$$%& -1 ! 7*#%:#/1" 1:$ 41",$ 8 &$ -$*#41&#4$(
:8%&*1:& ,($- 1( 1 $-$
QR#(:& *1&$
14. Size of Delta hedge (that would set net 7*#%:#/1" 1:$ 8 &$ $-$- 1(($&

delta of the overall position to 0) =

Options delta Nominal size of the
contract
 FinQuiz Formula Sheet CFA Level III 2017

23. Min or Optimal hedge ratio = (RDC; RFX) b) Contribution of each periods CFs to 11. Spread D of a Portfolio = Market wgtdavg
! S.D (RDC ) $ portfolio D = D of each period Wght of of the sector spread D of the individual
# & index CFs in specific period securities
" S.D (RFX ) %
c) Benchmarks PVD = 12. Net safety rate of return (Cushion Spread)
Reading 19: Market Indexes and Benchmarks !8%& 8 $1: /$*#8-( ! ( &8 /8*&8"#8 = Immunized Rate Min acceptable R
(, 8 1"" &$ /$*#8-( :8%&

1. Periodic R (Factor model based) = Rp = ap 13. Dollar safety margin = Current bond
+ b1F1 + b2F2++ bKFK+ p 2. Active R = Portfolios R B Indexs R
portfolio value - PV of the required
terminal value at new interest rate
2. For one factor model Rp = ap + pRI + p 3. Tracking Risk = S.D of Active R =
q
Where,RI = periodic R on mktindex 6:&#4$ T$1% 6:&#4$ 14. Economic Surplus = MV of assets PV of
ap = zero factor %TQ
liabilities
p = beta = sensitivity
4. Semi-annual Total R =
p = residual return q 15. Confidence Interval =Target Return +/- (k)
8&1" ,&,*$ 8""1*( V (S.D of Target R)
1
,"" 7*#:$ 8 &$ 8%-
3. MV of stock = No of Shares Outstanding where, k = number of S.D around the expected
Current Stock Mkt Price target R
5. Dollar D = D Portfolio Value 0.01

4. Stock wgt(float-weighted index) = Mkt- Reading 22: Fixed-Income Portfolio

6. Portfolios Dollar D = Sum of dollar D of
cap wght Free-float adjustment factor Management Part II
securities in portfolio
5. Price-weighted index (PWI) = g*##%1" 8""1* 1. D of Equity =
(P1+P2++Pn) /n 7. Rebalancing Ratio = 8 6(($&( 6(($&( T 8 #15 #15
2$ 8""1*
+,#&

Reading 20: Fixed-Income Portfolio 8. Cash required for rebalancing =

Management Part I (Rebalancing ratio 1) (total new MV of 2. Rp = Portfolio RoR =
7*8#& 8% 58**8$- ,%-( R
portfolio) 7*8#& 8% +,#&
=
1. Steps to calculate PVdistribution (PVD) of 68,%& 8 +,#&

CFs: 9. Controlling Position = Target Dollar D = [B (rF k) + E rF] / E

[
a) Wght of Indexs total MV attributable to Current Dollar D =rF + [ (rF k)]
y
CFs in each period =
7 8 ! ( *8 #%-$. 8* (/$:##: /$*#8- 10. Contribution of bond/sector to the portfolio 3. Dollar interest =
7 8 8&1" ! ( *8 8 58%- 8* ($:&8* #% &$ 78*&8"#8 68,%& 58**8$- $/8 *1&$ $/8 &$*
where B = Benchmark D=
8&1" 78*&8"#8 1",$
Effective D of bond or sector
 FinQuiz Formula Sheet CFA Level III 2017

8""1* 8 g"- 8%- 7 20. Payout to Opt Buyer or Opt value = MAX
4. New bond MV = 100 13. Hedge ratio =
7
Conversion
,*1&#8% 8 2$ 8%-
[(Strike value Value at maturity), 0]
factor for CTD Issue Yield Beta
5. New bond Par value =
8""1* 8 g"- 8%- 21. Credit spread call Opt value/Payoff = Max
100 14. Interest rate Swap (fixed-rate
2$ 8""1* /$* 8%- [(Spread at the opt maturity Strike
receiver/floating rate payer) = Long a
spread) NP Risk factor, 0]
28 8 85( 5$"8 &$ 1*$&
fixed-rate bond + Short a floating-rate
6. Shortfall risk = bond
8&1" 28 8 g5($*41&#8%(
22. Credit Forward Payoff = (Credit spread at
the forward contract at maturity
7. Target dollar D = Current dollar D without 15. $ D of a swap for a fixed-rate receiver
Contracted credit spread) NP Risk
futures + Dollar D of futures position (floating rate payer) = $ D of a fixed-rate
factor
bond $ D of a floating-rate bond
8. No of Futures Contracts = OR
1*$& $ T!,**$%& $ #&8,& ,&,*$( 23. Change in Foreign bond Value (In terms of
$ D of a swap for a fixed-rate receiver $
$ /$* ,&,*$( :8%&*1:& change in foreign yield only) = Duration
D of a fixed-rate bond
Foreign yield 100
9. Dollar duration of futures contract =
16. Interest Rate Swap (fixed-rate
$ D of Cheapest to 24. Change in Foreign bond Value (when
CF for CTD Issue payer/floating rate receiver) = Long a
Deliver issue domestic rates change) = Duration Yield
10. Hedge Ratio = floating-rate bond + short a fixed-rate bond
beta Domestic yield 100
1:&8* $./8(,*$ 8 &$
58%- /8*&8"#8 &8 5$ $-$-
17. $ D of a swap for a fixed-rate payer = $ D
1:&8* $./8(,*$ 8 $-#% #%(&*,$%& 25. Yield Foreign = + Yield beta or country
of a floating-rate bond $ D of a fixed-
or beta () ( yield Domestic) +
rate bond
Hedge Ratio =
,*1&#8% 8 &$ 58%- &8 5$ $-$- OR
26. Estimated % Value Foreign = Yield beta
7*#:$ 8 &$ 58%- &8 5$ $-$-
$ D of a swap for a fixed-rate payer $ D
,*1&#8% 8 &$ ! 58%- Domestic yield
7*#:$ 8 &$ ! of a fixed-rate bond
(Conversion factor for CTD bond)
27. D Cont of Domestic Bond = Wght of
18. $ D of a portfolio that includes a swap = $
domestic bond in Portfolio D of
D of assets $ D of liabilities + $ D of a
Domestic Bond
11. Basis = Cash (spot) price Futures price swap position
28. D Cont of Foreign Bond = Wght of foreign
12. Yield on bond to be hedged = a + (Yield 19. D for an Option = Delta of Option D of
bond in Portfolio D of Foreign Bond
Beta yield on CTD Issue) + Error Underlying Instrument (Price of
Country beta
underlying) / (price of Opt instrument)
where Opt = Option
 FinQuiz Formula Sheet CFA Level III 2017

29. Portfolio D = D Cont of Domestic Bond + 3. Information Ratio = 12. Portfolio Active Risk =
D Cont of Foreign Bond 6:&#4$

*1:#% #( 8* 6:&#4$ #( % Wgt assigned to ith Mnger
#kQ
Active R of ith Manager
30. Interest rate parity = F = S0 [(1+ iD) (1
4. Passive investment using Equity Index
+ iF)]
futures = Long cash + Long futures on the 13. Mngrs true active R = Mngrs R -
underlying index Mngrs Normal B
31. Forward Premium = (FS0) / S0 = (iD iF) /
(1 + iF)
5. Passive investment using Equity total 14. Mngers misfit active R = Mngers
return swaps = Long cash + Long swap on normal B R - Investors B
32. Forward Premium (as first order linear
the index
approx) = (F S0) / S0 iD iF
15. Total Active Risk =
6. R on Portf = b0 + (b1 R on Index style 1)
33. Unhedged R = Foreign bond R in local +
+ (b2 R on Index style 2) +. (bn R on
curr + curr return (or FC appreciation)
Index style n) +
34. Hedged R (HR) = Foreign bond R in local Where,
7. RoR of Equitized Mkt neutral strategy = True active risk = S.D of true active R
curr + Forward discount (premium)
(G/L on long & short securities positions + Misfit risk = S.D of misfit active R
G/L on long futures position + Interest
35. HR = Domestic risk-free rate + bond's
earned on cash from short sale) / Portfolio 16. True Information Ratio =
local premium = HR = id + (rl - if)
Equity %*( *,$ 6:&#4$
%*( *,$ 6:&#4$ *#(
8. Active wgt = Stocks wgt in actively
36. Bond's local risk premium = Bond's return
managed portf Stocks wgt in B
- local risk-free rate (rl - if) 17. Investors net of fees alpha = Gross of fees
9. Info Ratio Info Coefficient alpha (or mngrs alpha) Investment
% 7*#:$
37. Breakeven Spread change = 100 mgmt fees
Info Breadth

Reading 23: Equity Portfolio Management Reading 24: Alternative Investments Portfolio
10. Risk-adjusted Expected Active R=
Management
UA = rAA 2A
1. Active R = Portfs R Bs return
B = benchmark 1. Minority interest discount ($) = marketable
11. Portfolio Active R =
2. Tracking Risk (active risk) = ann S.D of % controlling interest value ($) minority
#kQ Wgt assigned to ith Mngr (hAi)
active R interest(%) discount = (investors interest
Active R of the ith Mngr (rAi)
in equity total equity value) minority
interest discount(%)
 FinQuiz Formula Sheet CFA Level III 2017

2. Marketable minority interest ($) =
Marketable controlling interest value ($)
minority interest discount ($)
3. Marketability discount ($) = Marketable
minority interest ($) marketability
discount (%)
12. Rolling R = RR n,t = (Rt + Rt-1 + Rt-2 + + Daily S.D = Annual S.D. / 250
R t (n-1) / n Monthly E(R) = Annual E(R) / 12
Monthly S.D = Annual S.D. / 12
13. Downside Deviation = = Daily E(R) = Monthly E(R) / 22
V vMc J TJ ,
Uq i Daily S.D = Monthly S.D. / 22
cTQ
where, r* = threshold
Annual VAR = Daily VAR 250

2. Diversification effect = Sum of individual

4. Non-Marketable minority interest ($) = 14. Semi-deviation = =
Marketable minority interest ($) - V vMc J TG{`. vtcOwYs JKO]Jc,
VARs Total VAR
Uq i
marketability discount ($) cTQ
5. Total R on Commodity Index = Collateral 15. Sharpe ratio = (Annualized RoR 3. Incremental VAR=Portfs VAR inclu a
R + Roll R + Spot R Annualized Rf rate) / Annualized S.D. specified asset Portfs VAR exclu that
asset.
6. Monthly Roll R = in futures contract 16. Sortino Ratio = (Annualized RoR
price over the month - in spot price over Annualized Rf*) / Downside Deviation 4. Tail Value at Risk (TVAR) or Conditional
the month Tail Expectation = VAR + expected loss in
7. Compensation structure of Hedge Funds 17. Gain-to-loss Ratio = excess of VAR
(comprises of ) Management fee (or AUM 28 8 8%&( #&R4$

fee) + Incentive fee 28 8 8%&( #&T4$ 5. Value Long = Spot t [Forward / (1 + r) n]
64 ,/ 8%&
64 -8% 8%&
8. Management fee= % of NAV (net asset 6. Swap ValueLong = PV inflows PV outflows
value generally ranges from 1-2%) 18. Calmar ratio = Compound Annualized
nltO GOK/
ROR / ABS* (Maximum Drawdown) 7. Fwd contract value8%k i
QRI i iUW
9. Incentive fee = % of profits (specified by
I GOK
the investment terms) 19. Sterling ratio= Compound Annualized i
QRI i iUW
ROR / ABS*
10. Incentive fee (when High Water mark (Average Drawdown - 10%) $1% /8*& T
Provision) = (positive difference between where, *ABS = Absolute Value 8. Sharpe Ratio =
. 8 /8*&
ending NAV and HWM NAV) incentive
fee %. Reading 25: Risk Management 9. Sortino Ratio =
$1% /8*& T#% 1::$/&15"$
8%(#-$ -$4#1&#8%
11. Hedge Fund R = [(End value) (Beg
10. Risk Adjusted R on Capital =
value)] / (Beg value) 1. Delta Normal Method: VAR = E(R) z- ./$:&$- 8% 1% #%4(&
value (S.D) :1/#&1" 1& *#( $1(,*$
Daily E(R) = Annual E(R) / 250
 FinQuiz Formula Sheet CFA Level III 2017

11. R over Max Drawdown = 7. Synthetic Cash: Long Stock + Short a) Value at expiration: VT = ST +
./$:&$-
64$*1$

8%
1%
#%4(&
#%
1
#4$%
*
Futures = Long risk-free bond max (0, X - ST)
1.
-*1-8%

b) Profit = VT S0 - p0
8. Synthetic Stock: Long Stock = Long Rf c) Maximum Profit =
Reading 26: Risk Management Applications of
bond + Long Futures d) Maximum Loss = S0 + p0 X
Forward and Futures Strategies
e) Breakeven =ST* = S0 + p0
9. Creating a Synthetic Index Fund:
1. = CovSI / 2I
No of futures contract = Nf* = 3. Bull Call Spread = Long Call (lower
CovSI= covariance b/w stock portf&
{V (1 + r) T}/ (qf) exercise price) + Short Call (higher
index
where, exercise price)
2I= var of index.
Nf* = No of futures contracts
q = multiplier a) Initial value = V0 = c1 c2
2. $ of stock portf = of stock portf MV
V = Portfolio value b) Value at expiration: VT = value of
of stock portf = s S
Amount needed to invest in bonds = V* = long call Value of short call =
(Nf* q f) / (1 + r)T max (0, ST X1) - max (0, ST X2)
3. Future $ = f f
Equity purchased = (Nf* q) / (1 + ) T c) Profit = VT c1 + c2
where, f = Futures contract beta
where, = dividend yield d) Maximum Profit = X2 X1 c1 +
Pay-off of Nf* futures contracts = Nf* q c2
4. Target level of beta exposure: T S = s S +
(ST f) e) Maximum Loss = c1 c2
N f f f
where,ST = Index value at time T f) Breakeven =ST* = X1 + c1 c2
B B S
N =
B F
$(#*$-
$&1
!1%$ Reading 27: Risk Management Applications of 4. Bull Put spread = Long Put (lower XP) +
Nf = Short Put (higher XP). Identical to the sale
,&,*$(
$&1 Options Strategies
78*&8"#8
1",$ of Bear Put Spread
,&,*$(
:8%&*1:&
7*#:$
1. Covered Call = Long stock position + XP = exercise price
*Actual futures price = Quoted futures Short call position
a) Value at expiration = VT = ST 5. Bear Put Spread = Long Put (higher XP) +
price Multiplier
max (0, ST X) Short Put (lower XP)
T b) Profit = VT S0 + c0 a) Initial value = V0 = p2 p1
5. Reducing to zero: N = and T b) Value at expiration: VT = value of
c) Maximum Profit = X S0 + c0
=0 d) Max loss (when ST = 0) = S0 c0 long put value of short put = max (0,
6. Effective = Combined position R in % / e) Breakeven =ST* = S0 c0 X2 - ST) - max (0, X1 - ST)
Market R in % c) Profit = VT p2 + p1
2. Protective Put = Long stock position + d) Max Profit = X2 X1 p2 + p1
Long Put position e) MaxLoss = p2 p1
 FinQuiz
f) Breakeven =ST* = X2 p2 + p1
6. Bear Call Spread = Short Call (lower XP)
+ Long Call (higher XP). Identical to the
sale of Bull Call Spread.
7. Long Butterfly Spread (Using Call) = Long
Butterfly Spread = Long Bull call spread +
Short Bull call spread (or Long Bear call
spread)
Long Butterfly Spread = (Buy the call with
XP of X1 and sell the call with XP of X2) +
(Buy the call with XP of X3 and sell the
call with XP of X2).
where, X1< X2 < X3 and Cost of X1 (c1) >
Cost of X2 (c2) > Cost of X3 (c3)
a) Value at expiration: VT = max (0, ST
X1) 2 max (0, ST X2) + max (0, ST
X 3)
b) Profit = VT c1 + 2c2 - c3
c) Max Profit = X2 X1 c1 + 2c2 c3
d) Maximum Loss = c1 2c2 + c3
e) Two breakeven points
i. Breakeven =ST* = X1 + net
premium = X1 + c1 2c2 + c3
ii. Breakeven = ST* = 2X2 X1
Net premium = 2X2 X1 (c1
2c2 + c3 ) = 2X2 X1 c1 + 2c2 - c3
8. Short Butterfly Spread (Using Call) =
Selling calls with XP of X1 and X3 and
buying two calls with XP of X2.
Formula Sheet
Max Profit = c1 + c3 2c2
9. Long Butterfly Spread (Using Puts) = (Buy
put with XP of X3 and sell put with XP of
X2) + (Buy the put with XP of X1 and sell
the put with XP of X2)
where,X1< X2 < X3 and Cost of X1 (p1) <
Cost of X2 (p2) <Cost of X3 (p3)
10. Short Butterfly Spread (Using Puts) =
Short butterfly spread = Selling puts with
XPs of X1 and X3 and buying two puts
with XP of X2.
Max Profit = p3 + p1 2p2
11. For zero-cost collar
a) Initial value of position = V0 = S0
b) Value at expiration: VT = ST + max (0,
X1 - ST) max (0, ST X2)
c) Profit = VT V0 = VT S0
d) Max Profit = X2 S0
e) Max Loss = S0 X1
f) Breakeven =ST* = S0
17. Long Box-spread= (buy call with XPof X1
12. Straddle = Buying a put and a call with
same strike price on the same underlying
with the same expiration; both options are
at-the-money.
a) Value at expiration: VT = max (0, ST -
X) + max (0, X ST)
b) Profit = VT p0 - c0
c) Max Profit =
d) Max Loss = p0 + c0
e) Breakeven = ST* = X (p0 + c0)
CFA Level III 2017
13. Short Straddle: Selling a put and a call
with same strike price on the same
underlying with the same expiration; both
options are at-the-money.
Adding call option to a straddle
Strap.
Adding put option to a straddle
Strip.
14. Long Strangle = buying the put and call on
the same underlying with the same
expiration but with different exercise
prices.
15. Short Strangle = selling the put and call on
the same underlying with the same
expiration but with different exercise
prices.
16. Box-spread = Bull spread + Bear spread
and sell call with XP of X2) + (buy put
with XP of X2 and sell put with XP of X1).
a) Initial value of the box spread =
Net premium = c1 c2 + p2 p1.
b) Value at expiration: VT = X2 X1
c) Profit = X2 X1 - (c1 c2 + p2
p 1)
d) Max Profit = same as profit
e) Max Loss = no loss is possible
given fair option prices
 FinQuiz Formula Sheet CFA Level III 2017

f) Breakeven =ST* = no break-even; where, Nc = No of call options

the transaction always earns Rf Ns = No of stocks exercise rate of b
rate, given fair option prices. NP = NP of inverse floater
26. Hedging using non-identical option: Each caplet expires on the interest
18. Pay-off of an interest rate Call Option= rate reset date of the swap/loan
(NP) max (0, Underlying rate at a) One option has a delta of 1. Whenever Libor > b, Caplet pay-
expiration X-rate) b) Other option has a delta of 2. off = (L b) NP
1( #% ,%-$*"#% *1&$ c) Value of the position = V = N1 c1 + N2c2

where, N =option quantity & c =option 4. Synthetic Dual-currency Bond = Ordinary
price bond issued in one currency Currency
19. Pay-off of an interest rate Put Option=
d.) To delta hedge: Desired Quantity of option swap (with no principal payments)
(NP) max (0, X-rate - Underlying rate at $"&1 8 8/&#8%
1( #% ,%-$*"#% *1&$ 1 relative to option 2 =
expiration) $"&1 8 8/&#8% Q

N1 / N2 = - c2 / c1 Reading 29: Execution of Portfolio Decisions

20. Loan Interest payment = NP (LIBOR on !1%$ #% -$"&1 1. Bid-ask Spread = Ask price Bid price
previous reset date + Spread) 27. Gamma =
!1%$ #% ,%-$*"#% /*#:$
1( #% ($&&"$$%& /$*#8-
2. Inside/Mkt bid-ask spread = Inside/Mkt

28. Gamma hedge = Position in underlying + Ask Price Inside/Mkt Bid Price
21. Cap Pay-Off = NP (0, LIBOR on Positions in two options
& #- 7*#:$R& 6( 7*#:$
previous reset date X rate) 3. Mid-Quote =
!1%$ #% g/&#8% /*#:$
1( #% ($&&"$$%& /$*#8- 29. Vega =
!1%$ #% 8"1&#"#& 8 &$ ,%-$*"#%

4. Effective Spread = 2 (Actual Execution
22. Floorlet Pay-Off = NP (0, X rate - Reading 28: Risk Management Applications of Price MidQuote)
LIBOR on previous reset date) Swap Strategies
1( #% ($&&"$$%& /$*#8- 5. Avg Effective Spread (ES) =
1. NP of a swap (to manage D of portf.) = 8 8*-$* QR 8 8*-$* RR 8 8*-$* %
%
!" T
NP = V7
23. Effective Interest = Interest received on the
loan + Floorlet pay-off 6. Share Volume Wgtd (VW) ES = [(V of
2. Inverse Floater Coupon rate = b LIBOR shares traded for order 1 ES of order 1) +
!1%$ #% g/&#8% 7*#:$ ! (V of shares traded for order 2 ES of
24. Delta = =
!1%$ #% %-$*"#% 7*#:$
3. When LIBOR > b, inverse floater issuer order 2) ++ (V of shares traded for order
should buy an interest rate cap with the n ES of order n)/n
25. Size of the Long position = Nc / Ns = - 1 /
following features:
(C / S) = -1 / Delta
 FinQuiz Formula Sheet CFA Level III 2017

7. VW Avg price = Avg P (security traded Reading 30: Monitoring and Rebalancing when a contribution is received at the
during the day) end of the evaluation period =
Where, weight is the fraction of the days 1. Buy and Hold Strategy: ($%- 8 /$*#8-) T :8%&*#5,&#8% T 5$ 8 /$*#8-
5$ 8 /$*#8-
volume associated with the trade Portfolio value = Investment in stocks +
Floor value when a withdrawal is made at the end of
8. Mkt-adj Implementation Shortfall (IS) = I the evaluation period =
Portfolio R = % in stock R on stocks
$%- 8 /$*#8- R :8%&*#5,&#8% T 5$ 8 /$*#8-
cost Predicted R estimated using Mkt 5$ 8 /$*#8-
model Cushion = Investment in stocks = Portfolio
9. Trade Size relative to Available Liquidity value Floor value 2. TWR (when no external CFs) =
g*-$* (#$$
= & 41",$ 1& $%- 8 /$*#8-T& 41",$ 1& 5$#%%#% 8 /$*#8-
64 -1#" 48",$
& 41",$ 1& 5$#%%#% 8 /$*#8-
2. Target Investment in Stocks under
Constant Mix Strategy = Target proportion
10. Realized profit/loss = Execution price 3. TWR (entire evaluation period) = (1 + rt,1)
in stocks Portfolio Value
Relevant decision price (1 + rt,2) (1 + rt,n) 1
28 8 (1*$( 1:&,1"" &*1-$- 3. Target Investment in Stocks under
11. Delay costs = 8&1" 4. MWR = MV1= MV0(1+R)m+CF1(1+R)m-
2 8 8 (1*$( #% 1% 8*-$*
6:&,1" &*1-#% /*#:$ 8% 1 & T !7 8% -1 &TQ
Constant Proportion Strategy = Target L(1)
$%:1* :"8(#% /*#:$ 8% -1 & proportion in stocks (Portfolio Value ++CFn(1+R)mL(n)
where CP = closing price Floor value) where,
m = No of time units in evaluation period
12. Missed Trade Opp Cost = Reading 31: Evaluating Portfolio Performance L(i) = No of time units by which the ith CF
28 8 (1*$( %8& &*1-$-
is separated from beg of evaluation period
8&1" %8 8 (1*$( #% 1% 8*-$*
!1%:$""1&#8% /*#:$ g*##%1" /*#:$ 1. Accounts rate of return during evaluation
g*##%1" /*#:$ period t 5. Compound g rate or geometric mean R =
where B = benchmark (1 + rt,1) (1 + rt,2) (1+ rt,n) 1/n - 1
when there are no external cash flows =
($%- 8 /$*#8-)T (5$ 8 /$*#8-) Where, n = No of yrs in measurement
13. IC = Commissions & Fees as % + Realized (5$ 8 /$*#8- period
profit or loss + Delay costs + Missed trade when a contribution received (start of the
opp costs period) = 6. Style = Managers B portf - Mrkt index
($%- 8 /$*#8-)T (5$ 8 /$*#8-)R:8%&*#5,&#8%
(5$ 8 /$*#8-)R !8%&*#5,&#8%
14. Estimated Implicit Costs for Buy = 7. Active Mgmt = Managers portf B
when a withdrawal is made (start of the
Trade Size (Trade Price B Price)
period) = 8. Portf R = MrkeIndex + Style + Active
($%- 8 /$*#8-)T 5$ 8 /$*#8- T:8%&*#5,&#8%
15. Estimated Implicit Costs for Sale = 5$ 8 /$*#8- T !8%&*#5,&#8% Mgmt
Trade Size (B Price - Trade Price)
 FinQuiz Formula Sheet CFA Level III 2017

9. Periodic R on an a/c (factor-based model) 19. R-metric perspective: Incremental R

= p + (b1 F1) + (b2 F2) + + (bk Fk) contribution of the Asset Category 26. Return-metric perspective: Contribution of
+ p investment strategy = 6#kQ WM (R M the Investment Managers strategy = rx =
6
RN ) #kQ 9kQ WM W#9 rzM% r[M%
10. Benchmark coverage =
8 ($:,*#&#$( &1& 1*$ /*$($%& #% 58& & ltJON
20. Value-metric perspective: Incremental 27. Allocation Effects incremental
8&1" 8 /8*&
contribution of the Asset Category contribution = Funds ending value - Value
investment strategy = Sum [(Each asset calculated at the Investment Managers
11. Active position = Wght of a security in an
account - Wght of the same security in B categorys policy proportion of the Funds level
12. Value-added R on a long-short portf = beg value and all net external cash inflows)
Portf R B (Asset categorys B RoR - Rf rate)] 28. Value-added/active return = Portf R B R

13. RoR for a long-short portf = 21. Aggregate manager B R under B level 29. Security-by-security analysis: rM =
invstmnt strategy = Wghtd* Avg of %
7/ *$(,"&#% *8 $-$ ,%- (&*1&$ #kQ WlM W[M (rM r[ )
=
68,%& 8 1(($&( 1& *#( IndMngrs B R

30. Value-added return under Holdings-based
7/ *$(,"&#% *8 $-$ ,%- (&*1&$
14. 22. Return-metric perspective: Incremental or buy-and-hold attribution= n9kQ Wl%
65(8",&$ 41",$ 8 1"" ( "8% /8(#&#8%( R (8*& /8(#&#8%()
return contribution of the B strategy =
6
rl% 9kQ W[% r[%
15. Fundamental rule of Active Mgmt: Impact #kQ 9kQ WM WM% [M% rM

= (active) wght R 31. Value-added Return = Pure sector

23. Value-metric perspective: Incremental
allocation + Allocation/selection
16. in value of fund = Total amount of net contribution of the B strategy = Sum [each
interaction + Within sector selection
contributions managers policy proportion of the total
funds beg value and net external cash c
32. Pure sector Allocation = MTQ Wl%
17. Ending value of a fund under the Net inflows (managers B R R of
managers asset category)] W[% (r[% r[ )
Contributions investment strategy =
Beginning value + Net contributions
24. Misfit R or Style bias = R generated by the 33. Within sector Selection = 9kQ [% %
18. in Funds value = End value of a fund aggregate of the managers B - R [%
under the Rf asset Invst strategy generated by the aggregate of the asset
Begvalue (i.e. ending value of the fund category B 34. Allocation/selection Interaction =
c
under the Net Contributions investment MTQ W% W[% (rM r[% )
strategy) 25. Return to the Investment managers level =
Sum (active managers returns their
benchmark returns)
 FinQuiz Formula Sheet CFA Level III 2017

35. Interest rate Mgmt contribution = Agg

R(re-priced securities) - R of entire
Treasury universe
36. Sector/quality return = Gross R - External
interest rate effect - Interest rate Mgmt
effect

37. Security selection effect for each security =

Total R of a security - all the other
components.

38. Portf security selection effect = Mkt value

WghtdAvg of all individual security
selection effects

39. Trading activity = Total Portf R (Interest

rate mgmt effect + sector/quality effect +
security selection effect)

40. Alpha = = rP [r f + P (rM r f )]

' TJr
41. Treynors measure = z =
('

' TJr
42. Sharpe ratio =
'

' TJr
43. M2 = N +
'

' T*
44. Information ratio = z =
'p*