CFA LEVEL III 2025 FORMULA SHEET

F in Q uiz F ormula S heet CFA P rogram L evel III

VOLUME 1: ASSET ALLOCATION

π# , π"32:#" = respectively the expected and 1. Expected Rate of Return On Equity

Learning Module 1: target inflation rates E(R e ):
Capital Market Expectations, Part 1: 7 7 "2#08 = respectively the expected and
Y# , Y <
E (Re) ≈ = + (% ∆E − %∆S) + ∆P/E
Framework and Macro Considerations trend real GDP growth rates
Where,
By readjusting the above equation:
1. Aggregate Market Value of Equity: o E (Re) = Expected rate of return on
V"# = GDP" × S"+ × PE" 3. Real inflation adjusted target rate equity
o D/P = Expected dividend yield
Where, o %∆S = Expected % change in number
o GDP is a level of nominal GDP 7# − Y
i∗ − π# = r0#1"234 + 0.5 × (Y 7 "2#08 )+ of shares outstanding
o S"+ is the share of profits in the 0.5 × (π# – π"32:#" )
economy 2. Under Basic CAPM model
4. Net exports:
o PE" is the P/E ratio.
= Net Private Savings + Government a) 𝑅𝑃@ = 𝛽@,C 𝑅𝑃C
Surplus M
2. Taylor Rule: b) 𝛽@,C = 𝐶𝑜𝑣(𝑅@ , 𝑅C )/𝜎CJ = 𝜌@,C @ LM N P
O
(X–M) = (S–I) + (T-G)
7# - Y
i∗ = r0#1"234 + π# + 0.5 × (Y 7 "2#08 )+ 0.5 Where,
× (π# – π"32:#" ) 5. Government Surplus: 𝑅𝑃@ = [𝐸𝑅@ − 𝑅S ] risk premium on ith
asset
Where, = Taxes – Government spending 𝑅𝑃C = [𝐸𝑅C − 𝑅S ] risk premium on
market portfolio
i∗ = target nominal policy rate Learning Module 2 𝛽@,C = ith asset sensitivity to market
UVW(XN ,XO) M
rneutral = real policy rate that would be Capital Market Expectations, Part 2: portfolio = Y = 𝜌@,C LM N P
MO
targeted if GDP growth were on trend & Forecasting Asset Class Returns O

inflation on target 𝜎 is standard deviation and ρ is correlation

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 CFA LEVEL I 2025 FORMULA SHEET

Learning Module 3
3. Expected Return using Singer-Terhaar ƒEquity 8 − Equity † ‡ + ƒLiquid8 − Overview of Asset Allocation
Model: Liquid† ‡

10. 𝑟@ = 𝛼@ + ∑•’–— 𝛽@’ 𝐹’ + 𝜀@

Model’s 1st component (full integration 1. Risky Asset Allocation
assumption): 1 𝜇 − 𝑟·
𝑟@ = return on ith asset = 𝑤∗ = µ J ¸
𝛼@ = constant intercept 𝜆 𝜎
X=fO
4. 𝑅𝑃@e = 𝛽@,eC 𝑅𝑃eC = 𝜌@,eC 𝜎@ L P 𝛽@’ = asset’s sensitivity to kth factor
MfO
𝐹’ = kth common factor return Learning Module 4
Model’s 2nd
component (completely 𝜀@ = error term Principles of Asset Allocation
segmented market assumption):
opr
11. 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 𝑜𝑛 𝑖𝑡ℎ 𝑎𝑠𝑠𝑒𝑡
5. RPhi = 1 × RPkl = 1 × σh n q
t = 𝜎@ J = ∑•¡–— ∑•¢–— 𝛽@¡ 𝛽£¢ 𝜌¡¢ + 𝑣@J
sq 1. Investor’s Utility for Asset Mix
J
𝑈¡ = 𝐸(𝑅¡ ) − 0.005𝜆𝜎¡
6. 𝑅𝑃@ = 𝜑𝑅𝑃@e + (1 − 𝜑)𝑅𝑃@w where,
𝜌¡¢ = covariance between the mth and 2. Risk Parity
x122#0" y#32z { |}~ nth factor 1 J
7. Cap rate =
p2•€#2"y •341# 𝑣@J = variance of ith asset return 𝑤@ × 𝐶𝑜𝑣 (𝑟@ , 𝑟= ) = 𝜎
𝑛 =
3. Marginal contribution to risk (𝑀𝐶𝑇𝑅@ )
where NOI = net operating Income 12. Covariance between ith and jth = (Beta of Asset Class i relative to
= 𝜎@£ = ∑•¡–— ∑•¢–— 𝛽@¡ 𝛽£¢ 𝜌¡¢ Portfolio) x (Portfolio Std. Dev.)
8. E(Rre) = Expected return on real estate
• long run (assuming constant growth 13. 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑒𝑡𝑢𝑟𝑛 4. Absolute contribution to risk (𝐴𝐶𝑇𝑅@ )
rate for NOI) is: = 𝑅¥ = (1 − 𝜆)𝑟¥ + 𝜆 𝑅¥§— = 𝐴𝑠𝑠𝑒𝑡 𝑐𝑙𝑎𝑠𝑠 𝑤𝑒𝑖𝑔ℎ𝑡@ x 𝑀𝐶𝑇𝑅@
where 𝜆 𝑚𝑎𝑦 𝑟𝑎𝑛𝑔𝑒 𝑓𝑟𝑜𝑚 0 𝑡𝑜 1
E(Rre) = Cap rate + NOI growth rate 5. Portfolio Std. Dev. (expected)
—-®
14. 𝑣𝑎𝑟 (𝑟) = L—§®P 𝑣𝑎𝑟(𝑅) > 𝑣𝑎𝑟(𝑅) = Sum of ACTR = ∑¢@ 𝐴𝐶𝑇𝑅
• for a finite horizon (to reflect
expected rate of change in the cap
15. ARCH Methodology 6. % contribution to total Standard
rate) is:
Deviation
𝜎¥J = 𝛾 + 𝛼𝜎¥§—
J
+ 𝛽𝜂¥J ÀUÁXN
= =VÂ¥·VÃ@V w¥Ä.<ÅW
E(Rre) = Cap rate + NOI growth rate -
%Δ Cap rate
Rearranging the above equation:
𝜎¥J = 𝛾 + (𝛼 + 𝛽)𝜎¥§—
J
+ 𝛽(𝜂¥J − 𝜎¥§—
J
) 7. Ratio of excess return to MCTR
9. Implication of capital mobility: ƒÆÇÈÅÉ¥ÅÄ Xťʢ§XË ‡
Eƒ%∆S8/† ‡ = ƒr 8 − r † ‡ + ƒTerm8 − =
CUÁX
Term† ‡ + ƒCredit 8 − Credit † ‡ +

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 CFA LEVEL I 2025 FORMULA SHEET

8. Surplus Optimization 1. After-tax Portfolio Return where, pd & pa are proportion attributed
= 𝑈¡ÀÌC = 𝐸ƒ𝑅w,¡ ‡ − 0.005𝜆𝜎 J ƒ𝑅Í,¡ ‡ = rat = rpt(1-t) to dividend income & price appreciation
respectively.
2. Expected Equity Return (dividend income
Learning Module 5 + Price Appreciation) 3. Expected after tax standardization =
Asset Allocation with Real-World σÒÓ
Constraints = 𝜎=Á (1-t)
= rat = pd rpt (1-td) + pa rpt (1-tcg)

VOLUME 2: PORTFOLIO CONSTRUCTION

CÛ 6. Yield income (or Current yield)

AvgConvexity = ∑Ý£–— 𝐶𝑜𝑛𝑣𝑒𝑥𝑖𝑡𝑦£ L CÛÜ P
Learning Module 1 =
À¢¢Êäà ÉVÊÈV¢ Èäå¡Å¢¥
Overview of Equity Portfolio ÉÊÂÂÅ¢¥ æV¢Ä ÈÂ@ÉÅ
Management 3. Effective Duration:
7. Views of Yield Spreads
(𝑃𝑉 −) − (𝑃𝑉 +)
=
Herfindahl–Hirschman Index (HHI) = ∑¢@–— 𝑤@ J 2 × ∆𝐶𝑢𝑟𝑣𝑒 × (𝑃𝑉à ) E(∆ 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑏𝑎𝑠𝑒𝑑 𝑜𝑛 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟 𝑣𝑖𝑒𝑤
𝑜𝑓 𝑦𝑖𝑒𝑙𝑑𝑠 & 𝑦𝑖𝑒𝑙𝑑 𝑣𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦)
Effective Number of Stocks = ∑Õ
—
=
— 4. Effective Convexity:
Y
NÖ× ÔN ØØ~
—
= [-MD× ∆𝑌𝑖𝑒𝑙𝑑]+ J × 𝐶𝑜𝑛𝑣𝑒𝑥𝑖𝑡𝑦 ×
𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝐶𝑜𝑛𝑣𝑒𝑥𝑖𝑡𝑦
Learning Module 2 (∆𝑌𝑖𝑒𝑙𝑑)J
(𝑃𝑉 −) + (𝑃𝑉 +) − 2(𝑃𝑉à )
Overview of Fixed-Income Portfolio =
Management (∆𝐶𝑢𝑟𝑣𝑒)J × (𝑃𝑉à ) where, E = expected, MD = bond’s
modified duration, ∆𝑌𝑖𝑒𝑙𝑑 = expected
5. Expected Returns: change in yield.

1. Average Modified Duration E(R) ≈ Coupon rate 8. Roll Down return

CÛÜ
AvgModDur = ∑Ý£–— 𝑀𝑜𝑑𝐷𝑢𝑟£ L CÛ P +/− Rolldown Return =
ƒéV¢Ä =Â@ÉÅêÕë. §éV¢Ä =Â@ÉÅìíî. ‡
éV¢Ä =Â@ÉÅìíî.
+/− 𝐸𝑥𝑝. ∆𝑃 𝑑𝑢𝑒 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟 𝑣𝑖𝑒𝑤
where, 𝑜𝑓 𝑏𝑒𝑛𝑐ℎ𝑚𝑎𝑟𝑘 𝑦𝑖𝑒𝑙𝑑
+/−Exp. ∆𝑃 𝑑𝑢𝑒 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟 𝑣𝑖𝑒𝑤 9. Views of Currency Value Changes:
MV = market value of portfolio ¢
MVj = market value of specific bond 𝑜𝑛 𝑦𝑖𝑒𝑙𝑑 𝑠𝑝𝑟𝑒𝑎𝑑𝑠
+/- Exp. ∆𝑃 𝑑𝑢𝑒 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟 𝑣𝑖𝑒𝑤 𝑜𝑓 𝑅<U = ï 𝑤@ ƒ1 + 𝑅SU,@ ‡ƒ1 + 𝑅Sð,@ ‡ − 1
2. Average Modified Convexity: 𝑐𝑢𝑟𝑟𝑒𝑛𝑐𝑦 𝑣𝑎𝑙𝑢𝑒 𝑐ℎ𝑎𝑛𝑔𝑒𝑠 @–—

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 CFA LEVEL I 2025 FORMULA SHEET

Where, 𝐹𝑉𝐼𝐹Á = [1 + 𝑅(1 − 𝑡ð )]Á

𝑅<U & 𝑅SU are domestic and foreign 1. Capital Contribution in Year t:
currency returns as a %. Ct = RCt ´ (CC – PICt) 4. After Tax Future Accumulation
𝐹𝑉𝐼𝐹Ue
𝑅Sð = % change of the domestic currency = (1 + 𝑅)Á − [(1 + 𝑅) − 1]Á × 𝑡Ue
where
versus foreign currency. PIC = Paid-in Capital = (1 + 𝑅)Á (1 − 𝑡Ue ) + 𝑡Ue
10. Leverage Portfolio Return: 5. The Impact of Different Tax Rates,
2. Distributions
=VÂ¥·VÃ@V Xťʢ
rp = Dt = RDt[NAVt-1 ´ (1 + G)] Sources of Return, and Inflation
=VÂ¥·VÃ@V ÅñÊ@¥å

NAVt = [NAVt-1 ´ (1 + G)] + Ct – Dt 𝐹𝑉𝐼𝐹Ue

[𝑟𝐼 × (𝑉Æ + 𝑉é ) − (𝑉é × 𝑟𝐵)]
= [1 + 𝑅ôõU (1 − 𝑡ð )]Á
𝑉Æ 3. Distributions at Time t + (1 + 𝑅UÀ=ôÁÀÌ )Á (1 − 𝑡Ue ) + 𝑡Ue
𝑉é = Rate of distribution at time t ´ [NAV ´ (1
= 𝑟ô + (𝑟 − 𝑟é )
𝑉Æ ô + Growth Rate)] 6. Income yield (payout)

11. Leverage Futures Contracts: 4. NAV at time 1 =

¥V¥äà V¢öV@¢ö 䢢Êäà @¢ÉV¡Å
õV¥@V¢äà ÛäÃÊŧCäÂö@¢ @¢@¥@äà ÈÊÂÉ"äÍÅ ÈÂ@ÉÅ
LeverageFutures =
CäÂö@¢
= prior NAV ´ (1 + Growth Rate) + Capital
Contribution – Distributions
12. Repurchase Agreements: Learning Module 5
Portfolio Management for
Dollar Interset = Principal × Learning Module 4 Institutional Investors
Repo Rate × (Days/360) An Overview of Private Wealth
Management
1. Relationship between Assets and
13. Rebate rate
Liabilities
Collateral earning rate – Security lending
rate 1. Human Capital
þÿ Assets (A) = liabilities (L) + equities (E)
𝐻𝐶} = ∑õ
¥–— (—-Â)ÿ extended model 𝐻𝐶} =
14. Immunized Portfolio Convexity
∑õ
È(wÿ ) þÿ!× (—-öÿ ) ∆𝐴 = ∆𝐿 + ∆𝐸
¥–— (—-ÂË -å)ÿ
l3ùú12Y -l3ùú12-úh{€#2{h•0
== (—-x3{û †4•ü yh#48)Y •
∆À À
LÆP =
∆Ì Ì
LÆP +
Ʈ

2. Mortality Weighted NPV À Ì Æ

È(Íÿ ) æÿ
= mNPV0 = = ∑õ
¥–— ∆Æ ∆À À ∆Ì À§Æ
(—-Â)ÿ • = L P− L P
Learning Module 3 Æ À Æ Ì Æ
∆$ ∆Ò Ò ∆% Ò
Asset Allocation to Alternative • = L$P − ($ − 1)
3. Future Value Interest Factor $ Ò %
Investments

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 CFA LEVEL I 2025 FORMULA SHEET

∆$ ∆Ò Ò ∆% Ò À J À J À À 2. VWAP Transaction Cost

• = L$P − %∆y ($ − 1) • J
𝜎(ê = LÆ P + LÆ − 1P − 2 LÆP LÆ −
$ Ò Y Y
ê M∆) M∆*
) * 𝑇𝑟𝑎𝑑𝑒 𝑆𝑖𝑧𝑒
∆$ ∆Ò Ò ∆% ∆@ Ò 𝑇𝑟𝑎𝑑𝑒 𝑉𝑊𝐴𝑃 − 𝑉𝑊𝐴𝑃 𝐵𝑒𝑛𝑐ℎ𝑚𝑎𝑟𝑘 𝑓𝑜𝑟 𝑏𝑢𝑦 𝑜𝑟𝑑𝑒𝑟𝑠
• = L$P − %∆h L∆åP ($ − 1) 1P 𝜌𝜎∆) 𝜎∆* ×. /
$ Ò ) * 𝑉𝑊𝐴𝑃 𝑏𝑒𝑛𝑐ℎ𝑚𝑎𝑟𝑘 − 𝑇𝑟𝑎𝑑𝑒 𝑉𝑊𝐴𝑃 𝑓𝑜𝑟 𝑠𝑒𝑙𝑙 𝑜𝑟𝑑𝑒𝑟𝑠

i = effective yield on the liabilitiesh Learning Module 6

Trading Costs and Electronic Learning Module 7
∗
2. Modified Duration of Asset W: 𝐷 Ô Markets Case Study in Portfolio Management:
Institutional (SWF)
∆𝑊
𝐷∗ Ô = − 1. Effective Spread Transaction Cost
𝑊∆𝑟
𝑇𝑟𝑎𝑑𝑒 𝑠𝑖𝑧𝑒
À À ∆@ 𝐵𝑖𝑑 + 𝐴𝑠𝑘
• 𝐷Æ∗ = LÆ P 𝐷À∗ − LÆ − 1P 𝐷Ì∗ L∆åP 𝑇𝑟𝑎𝑑𝑒 𝑝𝑟𝑖𝑐𝑒 − n t 𝑓𝑜𝑟 𝑏𝑢𝑦 𝑜𝑟𝑑𝑒𝑟𝑠
×, 2
𝐵𝑖𝑑 + 𝐴𝑠𝑘
n t − 𝑇𝑟𝑎𝑑𝑒 𝑝𝑟𝑖𝑐𝑒 𝑓𝑜𝑟 𝑠𝑒𝑙𝑙 𝑜𝑟𝑑𝑒𝑟𝑠
2

VOLUME 3: PERFORMANCE MEASUREMENT

3. Equation for Excess Return: 6. Treynor Measure:

Learning Module 1 𝑅= − 𝑅· = 𝑎È + 𝑏È— 𝑅𝑀𝑅𝐹 X) § ÂË

Portfolio Performance 𝑇À =
+𝑏ÈJ 𝑆𝑀𝐵 + 𝑏È0 𝐻𝑀𝐿 + 𝑏È1 𝑊𝑀𝐿 + 𝐸È é)
Evaluation
4. Return on the Portfolio: 7. Information Ratio:

X) § Xì
1. Portfolio Return: 𝑅È = 𝑎È + 𝑏— 𝐹— + 𝑏J 𝐹J … 𝑏’ 𝐹’ +∈È IRA = M)!ì

R = ∑@–¢
@–— 𝑤@ 𝑅@ 5. Sharpe Ratio 𝑆À : 8. Appraisal Ratio:

2. Benchmark return: ÀÉÉVÊ¢¥ Xťʢ – Â

Ë 8
𝑆À = ÀÉÉVÊ¢¥ w¥ä¢ÄäÂÄ <ÅW@ä¥@V¢ AR = M
9

B= ∑@–¢
@–— 𝑊@ 𝐵@
5555
Where 𝜎: is equal to the standard
X )–Â6666
𝑆À =
Ë
deviation of 𝜎¥ , the standard error of
The Cahart model M
7)
regression.

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9. Sortino Ratio: 5. Time Weighted Return (using Modified

ƃÂ; ‡§Â< V(m,t*) = peak portfolio value of manager m Dietz)
𝑆𝑅< = Ex-ante SR = t > t*.
M= Û× § ÛC § US
𝑟CVÄ<@Å¥E =
ÛC - ∑Õ
NÖ×(US ×ÔN )
Where:
where,
rT = minimum acceptable return (MAR) Learning Module 2
Cast Study in Portfolio Management U<§<N
Institutional (SWF) 𝑤@ =
U<
sD = target semi-standard deviation or
target semideviation
CD = total calendar days,
10. Target Semideviation:
𝐷@ = no. of calendar days from beginning
of period to tie cash flow 𝐶𝐹@ occurs.
>< = Â555§Â
𝑆𝑅 ; 5555
<
M? = Learning Module 3 ¢
Overview of the Global Investment [𝐶𝐹@ × (1 + 𝑟)ÔN ]
𝑉— = ï
11. Downside Risk: Performance Standards +𝑣V (1 + 𝑟)
@–—

J —/J
∑õ
¥–— 𝑚𝑖𝑛(𝑟¥ − 𝑟Á , 0)
6. Sum of beginning assets and
𝜎< = @ B weighted external cash flows
𝑁 1. Total Return (when no external cash ¢
flows) 𝑉à + ï(𝐶𝐹 × 𝑤@ )
12. Capture Ratio:
@–—
Û § Û § US
Total return = 𝑟¥ = Û ×- (USC ×Ô )
CR (m,B,t) = UC(m,B,t)/ DC(m,B,t) C N
7. Composite Return (Under the
2. Time Weighted Return Beginning of Period Value Method)
¢
where CR (m,B,t) is the capture ratio for 𝑉à,È@
rtwr = (1 + rt,1) × (1 + rt,2) × … × (1 + rt,n) – 𝑟É = ï F𝑟È@ × ¢ G
manager m relative to benchmark B for ∑È@–— 𝑉à,È@
@–—
time t 1
8. Return for a portfolio (Under the
13. Maximum Drawdown DD(m,t): 3. Original Dietz Method
Û § Û § US
Beginning of Period Value &
RDietz = Û ×- (USC ×à.D) weighted Cash flows) (rC):
Min([V(m,t) – V(m,t*)/ V(m,t*)], 0) C

where 4. Modified Dietz Method RC =

Û× § ÛC § US
𝑅CVÄ<@Å¥E = ÛC - (US ×ÔN )
V(m,t) = portfolio value of manager m at time
t

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 CFA LEVEL I 2025 FORMULA SHEET

æ 12. Annualized Internal Rate of Return

n V pi ö ¢

å ç r ´ ÷ J
𝑆É = Jï[ƒ𝑟@ − 𝑟̅ÈÂVÇå ‡ × 𝑤@ ]
from Value of r
ç åV pi ÷ø
pi
i =1 è @–—
𝐶𝐹1 𝐶𝐹2
𝑉0 = +
(1 + 𝑟)1 (1 + 𝑟)2
9. Standard Deviation of Composite (in where, 𝑉õ
which constituents are equally ¢ +⋯+
(1 + 𝑟)õ
weighted): 𝑟̅ÈÂVÇå = ï(𝑤@ − 𝑟@ )
@–—

∑¢ (𝑟@ − 𝑟̅É )J 11. Position of a percentile y in an array

𝑆É = H @–— with n entries sorted in descending
𝑛−1
order
𝑦
10. Asset weighted Standard Deviation 𝐿å = (𝑛 + 1)
100
of individual portfolio returns within
a composite

VOLUME 4: DERIVATIVES AND RISK MANAGEMENT

o X/(1 + r)T = present value of the risk-

free bond 1. Swap Notional Principal:
Learning Module 1
Option Strategies
2. Put-call-forward parity: NS = L
C<MX< §C<MXN
P (𝑀𝑉= )
C<MXO
F0(T)/(1 + r)T + p0 = c0 + X/(1 + r)T
2. Principal Invoice Amount
1. Put-Call Parity: 3. Converting Monthly Volatility to Annual
S0 + p0 = c0 + X/(1 + r)T Volatility: = (Future settlement price/100) ´ CF ´
Contract size
252
where: 𝜎CV¢¥"Ãå (%) = 𝜎À¢¢Êäà (%)LH
21 Hedge ratios:
o S0 = price of underlying
3. HR (without considering CTD bond)
o p0 = price (i.e. premium) of put ∆=
= ∆S
option Learning Module 2
o c0 = price (i.e. premium) of call Swaps, Forwards, and
option Futures Strategies

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 CFA LEVEL I 2025 FORMULA SHEET

4. HR when considering CTD bond 13. Approximate Settlement Amount o 𝐼𝑚𝑝𝑙𝑖𝑒𝑑𝑉𝑜𝑙(𝑡, 𝑇) =

∆=
= ∆UÁ< (𝐶𝐹) 𝐼𝑚𝑝𝑙𝑖𝑒𝑑 𝑣𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦 𝑜𝑣𝑒𝑟 𝑡ℎ𝑒
= (Variance notional) (Realized variance 𝑟𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑙𝑖𝑓𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑠𝑤𝑎𝑝 (𝑇 − 𝑡)
– Variance strike) o 𝑃𝑉¥ (𝑇) 𝑖𝑠 𝑃𝑉 𝑎𝑡 𝑡𝑖𝑚𝑒 𝑡 𝑜𝑓
5. Portfolio’s Target BPV $1 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑 𝑎𝑡 𝑚𝑎𝑡𝑢𝑟𝑖𝑡𝑦 𝑇
14. Realized Variance
17. Probability of change in federal funds
= BPVT = MDURT ´ 0.01% ´ MVP
= 252 × [∑õ§— J
@–— 𝑅@ ⁄(𝑁 − 1)], 𝑤ℎ𝑒𝑟𝑒: rate
6. BPV of Portfolio to be hedged
o Ri = ln(Pi + 1)/Pi $††#ù"h•# †#8#234 †108{ 23"# hX€4h#8 Yy
BPVP = MDURP ´ 0.01% ´ MVP o N = number of days observed †1"12#{ ù•0"23ù"§x122#0" †#8#234 †108{ 23"#
= Z#8#234 †108{ 23"# 3{{1Xh0: 3 23"# ûh+#§
x122#0" †#8#234 †108{ 23"#
7. BPV of futures contract: 15. Steps for calculating Exact settlement
BPVF = BPVCTD/CF amount:
i) Variance notional (Nvariance) = Learning Module 3
8. BPV of CTD ÛÅöä ¢V¥@V¢äà Currency Management:
= BPVCTD = MDURCTD ´ 0.01% ´ MVCTD J × Í¥Â@’Å ÈÂ@ÉÅ An Introduction
ii) Settlement amountT =
where, M Y §ð Y
𝑁ÛÅöä LJ × w¥Â@’Å ÈÂ@ÉÅP =
MVCTD = (CTD price/100) ´ Future 1. Bid Fwd Rate:
𝑁ÛäÂ@ä¢ÉÅ (𝜎 J − 𝑋 J )
contract size
= Bid Spot exchange (X) rate +
16. Value of Variance Swap [h8 Zü8 €•h0"{
9. Basis Point Value Hedge Ratio: —à,ààà

§é=ÛN VarSwapt = 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 𝑛𝑜𝑡𝑖𝑜𝑛𝑎𝑙 × 2. Offer Forward (Fwd) Rate:

BPVHR = é=Û ´ 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑓𝑎𝑐𝑡𝑜𝑟 ¥
P<=
𝑃𝑉¥ (𝑇) × UÁ × [𝑅𝑒𝑎𝑙𝑖𝑧𝑒𝑑𝑉𝑜𝑙(0, 𝑡)]J + = Offer Spot X rate +
}††#2 Zü8 €•h0"{
—à,ààà
礴
10. When BPVT and MDURT is non-zero, [𝐼𝑚𝑝𝑙𝑖𝑒𝑑𝑉𝑜𝑙(𝑡, 𝑇)]J − 𝑆𝑡𝑟𝑖𝑘𝑒 J V
Á
3. Fwd Prem/Disc %
é=Û< §é=ÛN ]^_ `abc
BPVHR can be stated as: × 𝐶𝐹 Where {€•" \ 23"#§(
×C,CCC
)
é=ÛP<=
o VarSwapt = Mark-to-market = {ۥ" \ 23"#
–1

11. Number of futures contracts: valuation of a variance swap at time

t (VarSwapt) 4. To Convert Spot Rate into a Forward
o 𝑅𝑒𝑎𝑙𝑖𝑧𝑒𝑑𝑉𝑜𝑙(0, 𝑡) Quote (when points are represented as
Q< §QO w
𝑁· = n t LS P = 𝑅𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑣𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦 𝑓𝑟𝑜𝑚 𝑠𝑤𝑎𝑝 %)
QË
Q w 𝑖𝑛𝑖𝑡𝑖𝑎𝑡𝑖𝑜𝑛 𝑡𝑜 𝑡
12. When bT = 0, 𝑁· = − nQOt LS P Spot X rate × (1 + % prem)
Ë

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 CFA LEVEL I 2025 FORMULA SHEET

Spot X rate × (1 - % disct) 12. Forward Rate Bias: 19. Short Risk Reversal
b
Zi/j §ii/j (hi §hj)L P
klC
5. Mark-to-MV on dealer’s Position = ii/j
= b
= Long Put opt + Short Call opt
—-hj L P
klC

i#""4#X#0" 83y xZ
= b 13. Net delta of the combined position 20. Short Seagull Position
—-úh{ù" 23"#∗ L P
d

= Option delta + Delta hedge = Long protective (ATM) put + Short deep
6. CF at Settlement
OTM Call opt + Short deep OTM Put opt
14. Size of Delta hedge (that would set net
= Original Contract Size × (All-in-forward 21. Long Seagull Position
delta of the overall position to 0)
Rate for new, offsetting forward position
– Original forward rate) = Short ATM call + Long deep-OTM Call
= Option’s delta × Nominal size of the
contract opt + Long deep-OTM Put opt
7. Hedge Ratio:
Nominal Value of derivatives contract 22. Hedge ratio
= 15. Long Straddle
MV of the hedged asset
p2h0ùh€34 †3ù# •341# •† "û# 8#2h•3"h•#{
= Long atm put opt (with delta of -0.5) + ù•0"23ù" 1{#8 3{ 3 û#8:#
8. Domestic Currency Return: =
Long atm call opt (with delta of +0.5) p2h0ùh€34 †3ù# •† "û# û#8:#8 3{{#"

RDC =(1 + RFC)(1 + RFX)–1 16. Short Straddle 23. Min or Optimal Hedge Ratio

9. RDC (for multiple foreign assets)

= Short ATM put opt (with delta of -0.5) + ! S.D (RDC ) $
n
Short ATM call opt (with delta of +0.5) = r (RDC; RFX) × # &
= ∑ω (1+ R ) (1+ R ) −1
i FC,i FX,i
ATM = at the money
" S.D (RFX ) %
i=1
opt = option
10. Total Risk of DC Returns
17. Long Strangle:

𝜎 J (𝑅SU ) + 𝜎 J (𝑅Sð ) + Long OTM put option + Long OTM call opt
= 𝜎 J (𝑅<U ) ≈ H
[2𝜎(𝑅SU )𝜎(𝑅Sð )𝜌(𝑅SU , 𝑅Sð )] OTM = out of the money

11. % D in spot X rate (%∆SH/L) 18. Long Risk reversal

= Interest rate on high-yield currency (iH) = Long Call opt + Short Put opt
– Interest rate on low-yield currency (iL)

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 CFA LEVEL I 2025 FORMULA SHEET

SPECIALIZED PATHWAY: PORTFOLIO MANAGEMENT

E (𝑅À ) = ICm𝐵𝑅 𝜎𝑅À 𝑇𝐶

Learning Module 1
where, where,
Index-Based Equity Strategies
𝑅@ = return on society i IC = expected information coefficient
∆𝑊@ = active weight = diff. b/w portfolio BR = Breadth
weight and benchmark weight. TC = Transfer coefficient
𝜎𝑅À = Manager’s active risk
1. Tracking Error: 2. Ex post active return
5. Active Share:
= m𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒(XN§Xn)
—
𝑅À = ï L𝛽È’ − 𝛽æ’ × 𝐹’ = J ∑¢@–—p𝑤È,@ − 𝑤æ,@ p
2. Excess Returnp:
+ (𝛼 + 𝜀)P
where,
= 𝑅È − 𝑅æ w = weight, p= portfolio, b = benchmark
where,
6. Active Risk of Portfolio:
Learning Module 2 βpk = sensitivity of the portfolio (p) to
Active Equity Investing: Strategies each rewarded factor (k)
βbk = sensitivity of the benchmark to
𝜎X) = o𝜎 J ƒ∑ƒ𝛽È’ − 𝛽æ’ ‡ × 𝐹’ ‡ + 𝜎ÅJ
each rewarded factor
Fk = the return of each rewarded
factor where,
𝜎ÅJ = idiosyncratic risk
3. Active Risk:
Learning Module 3 7. Maximize Exposure to Rewarded Factor:
Active Equity Investing: Portfolio Y
∑<
ÿÖ×(X)< )
Construction (𝜎𝑅À ) = o — —
Á§— Max L∑õ
@–— 0 𝑆𝑖𝑧𝑒@ + 0 𝑉𝑎𝑙𝑢𝑒@ +
—
where, 𝑀𝑜𝑚𝑒𝑛𝑡𝑢𝑚@ P
0
1. Active Return: 𝑅ÀÁ = active return at time t

𝑅À = ∑¢@–— ∆𝑊@ 𝑅@ 4. Expected Active Portfolio Return

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 CFA LEVEL I 2025 FORMULA SHEET

8. Total Portfolio Variance 𝑅𝐶@£ = covariance of relative return b/w 5. Accumulated Benefit Obligation:
asset i and the portfolio.
¡×e×ÔC — —
ABO = × µÂ − Â×(—-Â)s ¸
𝑉= = ∑¢@–— ∑¢£–— 𝑥@ 𝑥£ 𝐶@£ 13. Expected Compounded Geometric (—-Â)<

Return:
9. Contribution of each Asset to Portfolio MY 6. Projected Benefit Obligation:
= 𝑅ö = 𝑅ä − J
Variance:
¡×e×ÔC ×(—-Ô)< — —
where, PBO = (—-Â)<
×µ − ¸
¢  Â×(—-Â)s

𝐶𝑉@ = ï 𝑥@ 𝑥£ 𝐶@£ = 𝑥@ 𝐶@È 𝑅ä = arithmetic return and 𝜎 = expected 7. Effective Duration:

£–— volatility.
(𝑃𝑉 −) − (𝑃𝑉 +)
10. Total Portfolio Variance: =
2 × ∆𝐶𝑢𝑟𝑣𝑒 × (𝑃𝑉à )
• Learning Module 4
𝑉È = 𝑉𝑎𝑟 qïƒ𝛽@È × 𝐹@ ‡r + 𝑉𝑎𝑟ƒ𝜀È ‡ Liability Driven and Index-Based
8. Liability BPV:
Strategies
@–—
wÔäÈ é=Û
Asset BPV + µ𝑁𝑃 × —àà
¸=
11. Variance of the Portfolio’s Active Return 1. Convexity 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝐵𝑃𝑉

CäÉ.<ÊÂä¥@V¢Y -CäÉ.<ÊÂä¥@V¢-<@ÍÈÅÂÍ@V¢ 9. Essential Relation for Full Interest Rate

𝐴𝑉= = ∑¢@–— ∑¢£–— (𝑥@ − 𝑏@ )(𝑥£ − 𝑏£ )𝑅𝐶@£ = (—-UäÍ" ·ÃVÔ å@ÅÃÄ)Y
Hedging:
where, 2. Money Duration
𝑥@ = asset’s weight, Asset BPV × ∆𝐴𝑠𝑠𝑒𝑡 𝑦𝑖𝑒𝑙𝑑𝑠 +
𝑏@ = benchmark weight 𝐻𝑒𝑑𝑔𝑒 𝐵𝑃𝑉 × ∆𝐻𝑒𝑑𝑔𝑒 𝑦𝑖𝑒𝑙𝑑𝑠 ≈
= bond’s modified duration x bond price
𝑅𝐶@£ = covariance of relative return b/w 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝐵𝑃𝑉 × ∆𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑦𝑖𝑒𝑙𝑑𝑠
asset i and j. 3. Future Contracts:
12. Contribution of Each asset to the
Ì@äæ@Ã@¥å =VÂ¥·VÃ@V é=Û§ÀÍÍÅ¥ ÈVÂ¥·VÃ@V é=Û
Portfolio Active Variance: Nf = SÊ¥ÊÂÅÍ é=Û

𝐶𝐴𝑉@ = (𝑥@ − 𝑏@ )𝑅𝐶@È 4. Future BPV

𝐵𝑃𝑉UÁ<
where ≈
𝐶𝐹UÁ<

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6. Swap BPV Learning Module 6

Learning Module 5 Fixed-Income Active Management Credit
Yield Curve Strategies CVÄ<ÊÂOtu; ×wÔäÈ õV¥VÈ¢äÃ
= Strategies
—à,ààà

7. Effective Duration 1. Z-spread:

PMT PMT PMT + FV
1. Expected Return: PV = + +... +
(𝑃𝑉 −) − (𝑃𝑉 +) (1+ z1 + Z )1 (1+ z2 + Z )2 (1+ z N + Z ) N
=
2 × ∆𝐶𝑢𝑟𝑣𝑒 × (𝑃𝑉à )
E(R) ≈ Coupon rate 2. Floating Rate Bond PV:
+/− Rolldown Return 8. Effective Convexity
+/− 𝐸𝑥𝑝. ∆𝑃 𝑑𝑢𝑒 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟 𝑣𝑖𝑒𝑤 (Oyyz{O)×x| (Oyyz{O)×x|
𝑜𝑓 𝑏𝑒𝑛𝑐ℎ𝑚𝑎𝑟𝑘 𝑦𝑖𝑒𝑙𝑑 = }
+ }
+
+/−Exp. ∆𝑃 𝑑𝑢𝑒 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟 𝑣𝑖𝑒𝑤 (𝑃𝑉 −) + (𝑃𝑉 +) − 2(𝑃𝑉à ) (Oyyz=O) ×
L—- P L—-
(Oyyz=O) Y
P
= } }
𝑜𝑛 𝑦𝑖𝑒𝑙𝑑 𝑠𝑝𝑟𝑒𝑎𝑑𝑠 (∆𝐶𝑢𝑟𝑣𝑒)J × (𝑃𝑉à ) L
(Oyyz{O)×x|
P-SÛ
}
+/- Exp. ∆𝑃 𝑑𝑢𝑒 𝑡𝑜 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟 𝑣𝑖𝑒𝑤 𝑜𝑓 ⋯ (Oyyz=O) ~
L—- P
𝑐𝑢𝑟𝑟𝑒𝑛𝑐𝑦 𝑣𝑎𝑙𝑢𝑒 𝑐ℎ𝑎𝑛𝑔𝑒𝑠 9. Key Rate Duration: }

2. Butterfly Spread — ∆=Û 3. Zero-Discount Margin (Z-DM):

KeyRateDurk = -=Û × ∆Â
v

= -(Short-term yield) + (2 x Medium-term Zero-spread (z-dm) PV =

yield) – Long-term yield 10. Effectifve Duration:
(Oyyz{O)×x| (•Y z{O)×x|

3. Average Modified Duration: ∑¢’–— KeyRateDur’ = EffDur = }

(Oyyzs!=O) ×
+ }
(• zs!=O) Y
+
L—- P L—- Y P
} }
(•~ z{O)×x|
L P-SÛ
CÛ 11. Portfolio Return Domestic: ⋯ }
AvgModDur = ∑Ý£–— 𝑀𝑜𝑑𝐷𝑢𝑟£ L CÛÜP (•~ zs!=O) ~
L—- P
}
𝑅<U = ƒ1 + 𝑅SU,@ ‡ƒ1 + 𝑅Sð,£ ‡ − 1
4. Average Convexity: 4. Yield Spread Changes:
CÛ
12. Covered Interest Rate Parity:
AvgConvexity = ∑Ý£–— 𝐶𝑜𝑛𝑣𝑒𝑥𝑖𝑡𝑦£ L CÛÜ P %∆𝑃𝑉wÈÂÅäÄ ≈ −(EffSpreadDur ×
<U <U (—-Â )< —
F LSU , 𝑇P = 𝑆à LSU P (—-Â=P)< ∆𝑆𝑝𝑟𝑒𝑎𝑑) + J × EffSpreadCon ×
5. Futures BPV xP
(∆Spread)J
é=ÛP<=
≈ 5. Effective Spread Duration:
USP<=

(=Û§)-(=Û-)
EffSpreadDur =
J×(∆UÊÂWÅ) ×(=ÛC )

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 CFA LEVEL I 2025 FORMULA SHEET

é@Ä-ÀÍ’ 9. ∆(CDS Price):

• for sell order ⟹Trade Size × ( J
−
6. Effective Spread Convexity:
𝑉𝑇𝑟𝑎𝑑𝑒 𝑃𝑟𝑖𝑐𝑒)
= −(∆𝐶𝐷𝑆 𝑆𝑝𝑟𝑒𝑎𝑑 ×
(=Û§)-(=Û-)§J(=ÛC )
EffSpreadCon = 8. CDS Price 𝐸𝑓𝑓𝑆𝑝𝑟𝑒𝑎𝑑𝐷𝑢𝑟U<w )
(∆UÊÂWÅ)Y ×(=ÛC )

∆U<w =Â@ÉÅ
7. Trading Cost: ≈ ((Fixed coupon – CDS Spread) 10. ∆U<w wÈÂÅäÄ
≈ −(∆(𝐶𝐷𝑆 𝑆𝑝𝑟𝑒𝑎𝑑) ×
• for buy order ⟹Trade Size × × 𝐸𝑓𝑓𝑆𝑝𝑟𝑒𝑎𝑑𝐷𝑢𝑟U<w ) 𝐸𝑓𝑓𝑆𝑝𝑟𝑒𝑎𝑑𝐷𝑢𝑟U<w )
é@Ä-ÀÍ’
(𝑇𝑟𝑎𝑑𝑒 𝑃𝑟𝑖𝑐𝑒 − J
)

13