CFA Level II 2024 Formula Sheet

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

2. Adjusted R2 5. Akaike’s information criterion (AIC)
QUANTITATIVE METHODS 𝑛−1 NNP
D+
𝑅 =1−I L (1 − 𝑅+ ) AIC = n ln j d
k + 2(k + 1)
𝑛−𝑘−1

3. F-Statistic or F-Test 6. Schwarz’s Bayesian information

Learning Module 1: QRS TU VWRXYZ YZ[YZVV\T] criterion (BIC or SBC)
MNO ( )
Basics of Multiple Regression and = = ^
NNP
MNP (
QRS TU VWRXYZV ZYYTY
) BIC = n ln j k + ln(n)(k + 1)
Underlying Assumptions ]_^_` d

where,
df numerator = k = 1 Learning Module 3:
1. Multiple Regression
df denominator = n – k – 1 = n – 2 Model Misspecification
Yi = b0 + b1X1i + b2X2i + … + bkXki + εi,i =
1, 2, … n.
4. ANOVA
2. Prediction Equation 1. Breusch–Pagan (BP) test
Prediction equation = Y "# = b&' + b&) X)# + ANOVA SS MSS F Test statistic = n × R2residuals
b&+ X+# +. . . +b&- X-# + ε# , i SSR
d SSRg where,
Regression SSR k
= b(yB# SSEg
df = 1 k
#e) (n − k − 1)
− yD)+ R2residuals = R2 from a second regression
Learning Module 2:
of the squared residuals from the first
Evaluating Regression Model Fit and SSE
d regression on the independent variables
Interpreting Model Results Error SSE
= b(y# n = number of observations
df = n-2 n−k−1
#e)
− yB)+
2. Variance Inflation Factor VIFo
1. Coefficient of Determination: R2
SST 1
Sum of square regression d VIFo =
= Total 1 − R+o
Sum of square total = b(y#
∑ni=1(YB − YD)2 df = n-1
#e)
= n
∑i=1(Yi − YD)2 − yD)+

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 CFA Level II 2024 Formula Sheet

2. Log-Linear Trend Models yt = xt - x t-1 = b0 + εt

Learning Module 4: b0 +b1t
Extensions of Multiple Regression yt = e
7. Using Dickey-Fuller Test
xt - x t-1 = b0 + (b1 -1) x t-1 + εt
3. Autoregressive Time-Series Models
First order autoregressive AR (1):
1. Studentized residual t #∗ 8. Smoothing Past Values with n-Period
xt = b0 + b1 x t-1 + εt
st∗ ~ xyzy) Moving Average
𝑡r ∗ = = w } pth-order autoregressive AR (p):
uv∗ uu{()y| tt )yst
xt = b0 + b1 x t-1 + b2 x t-2 + …..+ bp x t-p +εt xt + xt -1 + xt -2 + ..... + xt -( n-1)
2. Cook’s distance D# n
4. Mean reverting level 9. Correcting Seasonality in Time Series
𝑒r+ ℎrr
𝐷r = † ˆ b Models:
𝑘 × 𝑀𝑆𝐸 (1 − ℎrr )+ xt = 0
1 - b1 For quarterly data
3. Linear regression
xt = b0 + b1x t-1 + b2x t-4 + εt
with 3 independent Variables
5. Chain Rule of Forecasting:
𝑌r = 𝑏' + 𝑏) 𝑋)r + 𝑏+ 𝑋+r + 𝑏Œ 𝑋Œr + 𝑒r
For monthly data
One-period ahead forecast xt = b0 + b1x t-1 + b2x t-12 + εt
4. Logistic regression (logit)
= In ()y•)
• x̂t+1 = b̂0 + b̂1 xt
10. ARCH model =
= b0 + b1X1 + b2X2 +b3X3 + ε
) Two-period ahead forecast= eˆ 2 t = a 0 + a1eˆ 2 t -1 + µ t
P = )Žs••[y(’)“) Ž ’+“+ Ž’Œ“Œ Ž ”)]
x̂t+2 = b̂0 + b̂1 xt+1
where
Learning Module 5:
6. Random Walks and Unit Roots: µt is an error term
Time Series Analysis
Random Walk without drift: Predicting variance of errors in period
xt = x t-1 + εt where, b0 = 0 and b1 = 1. 2 2
t+1 = σˆ t+1 = α̂ 0 + α1εˆt
1. Linear Trend Models
yt = b0 + b1t+ εt Correcting Random Walk:
yt = xt - x t-1 Learning Module 6:
Machine Learning
Predicted/fitted value of yt in period (T +
1) Random walk with a drift:
xt = b0 + x t-1 + εt where, b0 ≠ 0 and b1 = 1
= yˆ t +1 = bˆ0 + bˆ1 (T + 1) 1. LASSO:
By taking first difference Penalty term (when l > 0) = 𝜆 ∑˜ze)—𝑏Dz —

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 CFA Level II 2024 Formula Sheet

x ˜
TPR =
• 1 + i∫
b(𝑌r − 𝑌r )+ + 𝜆 b—𝑏&˜ — ¡Ž¦• F∫ /· = S∫ ¾ À
g
· (1 + i· )
re) ze)
4. Root Mean Square Error: RMSE:
(•šsŸr§¨sŸt y©§¨ªœ•t )} Using day count convention:
When l = 0, RMSE = ∑xre) x ' ! Actual $*
)1+ id # ,=
LASSO penalized regression = OLS ( " 360 &%+
regression ECONOMICS ' ! Actual $*' 1 *
S f /d )1+ i f # ,) ,
Learning Module 7: ( " 360 &%+)( Ff /d ,+
Big Data Projects Learning Module 1
Currency Exchange Rates æ é Actual ù ö
ç1+ i f ê ú÷
1. Normalization Ff / d = S f /d ç ë 360 û ÷
𝑋r − 𝑋›rx ç é Actual ù ÷
1. Bid-offer Spread ç 1 + id ê ÷
ë 360 úû ø
𝑋r(x™š›œ•ržsŸ) =
𝑋›œ• − 𝑋›rx Offer price – Bid price è

where Xi = value of observation 2. Forward Rate: 6. Uncovered Interest Rate Parity :

Fwd rate = Spot Exchange rate i f - %DS e f / d = id
Performance Metrics: •
Forward points
2. Accuracy +
10,000 %DS e f / d = i f - id
•Ž ¡ •
=
¢£ Ž ¤£ Ž ¢¥ Ž ¤¥
3. Forward Premium or Discount: Forward premium or discount:
F1 score = (2*P*R)/(P + R) ²³´µ¶´· ¸³#d¹º
spot exchange rate − (
)','''
) • For one year horizon =
= Ff /d − S f /d =
spot exchange rate
where
−1 "i −i %
T = true, F = false, P = positive,
N = negative S f /d $ f d ' ≅ S f /d (i f − id )
4. To convert spot rate into forward quote: # 1+ id &
Spot exchange rate × (1 + % premium) • Using day count convention:
3. Receiver Operating Characteristic (ROC):
Spot exchange rate × (1 - % discount) ( " Actual % +
* $ -
False positive rate: FPR # 360 '& -
¦• 5. Covered interest rate parity: Ff /d − S f /d = S f /d * (i f − id )
FPR = * 1+ i " Actual % -
¡Ž¦• 1 * d$ -
(1 + i· ) = S∫ ¼1 + i∫ ½ ¾ À ) # 360 '& ,
g
· F∫ /·
True positive rate TPR:

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 CFA Level II 2024 Formula Sheet

7. Forward discount or premium as % of

Learning Module 1
spot rate: 5. Cobb-Douglas Production Function
Economic Growth
Ff / d - S f / d F (K, L) = Kα L1 - α
@ (i f - id )
S f /d 1. Economic growth: 6. Under Cobb-Douglas production
If uncovered interest rate parity holds Annual % ∆ in real GDP or in real per function:
• Ff /d − S f /d capita GDP
= = %ΔS ef /d ≅ (i f − id ) Marginal product of capital = MPK = α
S f /d 2. Relation between Stock Prices and AK α-1 L 1-α = α Y/K
Economic growth:
8. Purchasing Power parity (PPP) α Y/K = r èα = r (K) / Y = Capital
• Pf = S f/d × Pd P
P = GDP jÁ£k jPk
£ income / Output or GDP
• S f/d = Pf / Pd
7. Output per worker or Average labor
where,
9. Relative version of PPP productivity (Y/L or y):
P = Aggregate value (price) of equities
= %∆S f/d = πf – πd GDP/Labor input = TFP × capital-to-labor
E = Aggregate corporate earnings
ratio × share of capital in GDP
10. Ex ante version of PPP Or
3. Expressing in terms of logarithmic rates:
= %∆Sef/d = πef – πed y = Y/L = Akα
• (1/T) % ∆P = (1/T) % ∆GDP + (1/T)
11. Real Exchange Rate %∆ (E / GDP) + (1/T) % ∆(P / E) 8. Contribution of Capital Deepening
• % ∆ in stock MV = % ∆ in GDP + % ∆ = Labor productivity growth rate – TFP
æ S f / d Pd ö æ ö
ç ÷ = S f / d ç Pd ÷ in share of earnings (profit) in GDP +
ç P ÷ çP ÷ % ∆ in the P/E multiple
qf/d = è f ø è f ø 9. Contribution of Improvement in
technology
4. A two-factor aggregate production Labor productivity growth rate – Capital
or
function: Deepening
æ CPI d ö Y = AF (K, L)
qf /d = S f /d ç ÷
ç CPI ÷ 10. Growth Accounting based on Solow
è f ø Y = Level of aggregate output in the Approach
12. Fisher effect: economy ∆Y /Y = ∆A / A + α ∆K/K + (1 – α) ∆L/ L
id = rd + πεd L = Quantity of labor or number of
if = rf + πεf workers or hours in the economy 11. Labor productivity growth accounting
if – id = (rf – rd) + (πεf- πεd) K = Stock of capital used to produce equation
(rf – rd) = (if – id) - (πεf- πεd) goods and services
A = Total Factor Productivity (TFP)

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 CFA Level II 2024 Formula Sheet

Growth rate in potential GDP = long-term Ä Å

= ∆y / y = Çj)y Ãk + 𝛼𝑠 j˜ − 𝛹kÉ =
growth rate of labor force + long-term Ä FINANCIAL STATEMENT ANALYSIS
growth rate in labor productivity j)yÃk + 𝛼𝑠 (y/k – Ψ)
(1)
12. Balanced or Steady State Rate of Capital-to-labor ratio
Growth in Neoclassical Growth Theory: Ä Å
= ∆k / k = Çj)y à k + 𝑠 j˜ − 𝛹kÉ =
Growth in physical capital stock = ∆K = Learning Module 1
Ä
sY – δK j)yÃk + s (y/k – Ψ) Interoperate Investments

13. In the steady state: 15. Proportional impact of the saving rate
change on the capital-to-labor ratio and 1. Goodwill:
Growth rate of capital per worker per capita income over time: = Cost of acquisition – investor’s share
= ∆k / k = ∆y / y = ∆A / A + α ∆k / k =
¦•
of the FV of the net identifiable assets
)y Ã
è Steady state growth rate of labor 1
' ! Y $ *α −1
productivity. )# & , Purchase Price Xxx
knew " K %new , Less: (xxx)
=)
Growth rate of Total output • kold )!Y $ , (% of Ownership Interest × BV of
= ∆Y / Y = Growth rate of TFP scaled by )( #" K &%old ,+ Investee’s Net Assets)
labor force share + Growth rate in the = Excess Purchase Price Xxx
Ä a
Less:
labor force = )y à + n y new é k new ù
=ê ú o Attributable to Net Assets
Steady state Output-to-capital ratio •
yold ë k old û o P& E (% of Ownership
Interest × difference b/w
Å ) Ä
= = j k Çj k + 𝛿 + 𝑛É = 𝛹 BV & FV)
˜ Æ )y à 16. Production function in the endogenous o Land (% of Ownership
growth model Interest × difference b/w
Gross investment per worker ye = f (ke) = cke BV & FV)
Ä
= Çj)y Ãk + 𝛿 + 𝑛É 𝑘 = Residual Amount Xxx
Growth rate of output per capita (Treated as Goodwill)
Slope of straight line ∆ye/ye = ∆ke/ke = sc – δ – n
= [δ + n + θ / (1 – α)] where P & E = Plant and Equipment

Learning Module 3
14. During the transition to the steady state
Economics of Regulation
growth path:

Growth rates of output per capita

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 CFA Level II 2024 Formula Sheet

2. Amortization of Excess Purchase Price: Transactions with Associates: 4. Downstream Transactions

Investment in associate: 3. Upstream Transactions: Investor’s share of Associate’s xxx
Investor’s share of Associate’s xxx reported NI (% of Ownership
Purchase Price Xxx reported NI (% of Ownership Interest × Reported NI)
Add: Xxx Interest × Reported net income) Less: Amort of excess PP (xxx)
Investor’s share of Investee’s NI Less: Amort. of excess purchase (xxx) Less: Unrealized profit (% of (xxx)
(% of Ownership Interest × price Ownership Interest × Profit from
Investee’s NI) Less: Unrealized profit (% of (xxx) the downstream sale in
Less: (xxx) Ownership Interest × Profit from Associate’s NI)
Div. received (% of Ownership upstream sale in Associate’s NI) = Equity Income to be reported as xxx
Interest × Div. paid) = Equity Income to be reported as xxx a line item on Investor’s I.S
Less: Amort. of excess PP (xxx) a line item on Investor’s I.S*
attributable to P&E (Amount Unrealized profit
attributable to PP&E* ÷ Balance in the investment in Associate to be = % of goods unsold × Profit on the sale to
Remaining life of PP&E) reported at the end of year: investee
= Balance in investment in Xxx Purchase Price xxx
Investee Add: Equity income (as calculated xxx Investor’s share of the unrealized profit
above)* = Unrealized profit × % of goods unsold
where, *Amount attributable to P&E = % of Less: Div. received (% of Ownership (xxx)
Ownership Interest of investor × (FV of P&E – Interest × Div paid) Investor’s share of associate’s xxx
BV of P&E) = Value of Investment in Associate’s xxx reported NI (% of Ownership
company at the end of year Interest × Reported NI)
Beg net assets Xxx Less: Amort of excess PP (xxx)
Add: NI Xxx Add: Realized profit (% of goods xxx
Composition of Investment account:
Less: Div. paid (xxx) unsold × Unrealized profit)
Investor’s proportionate share of xxx
= Ending net assets Xxx = Equity Income to be reported as xxx
Associate’s net equity = [% of
Investor’s proportionate share of Xxx a line item on Investor’s I.S
Ownership Interest × (beg BV of net
Investee’s recorded net assets (%
assets) + (Reported NI of associate
of Ownership Interest × Ending net Business Combinations
– Profit from upstream sale in
assets) 5. Merger
Associate’s NI) – Div. paid by the
Add: Unamortized excess PP xxx = Company X + Company Y = Company X
associate)]
(Excess PP – Amount attributable
Add: Unamortized excess PP xxx
to PP&E) 6. Acquisition
(Excess PP – Amort. of excess PP)
= Investment in Investee xxx = Company X + Company Y = (Company X +
Company Y)

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 CFA Level II 2024 Formula Sheet

11. Allocation of excess PP: Impaired when CA of the Cash-

7. Consolidation Excess PPP = Sum of diff b/w FV and BV generating Unit > RA of the Cash-
= Company X + Company Y = Company Z of identifiable assets + Goodwill generating Unit

Goodwill 12. Combined Assets & Liabilities (A&L) where

8. Full Goodwill reported on Consolidated B.S under CA = carrying value
= Total FV of the Subsidiary – FV of acquisition method: RA = Reporting Unit
subsidiary’s identifiable net assets
= BV for A&L of Investor + FV for A&L Impairment loss = CA of Cash-generating
9. Partial Goodwill Method: acquired from Acquiree Unit - RA of Cash-generating Unit
Goodwill
= FV of acquisition – Acquirer’s share of 13. Combined Paid-in Capital (PIC) where,
FV of all identifiable tangible & intangible = (FV of the stock issued to effect the RA = Higher of Net SP and its VIU
assets, liabilities & contingent liabilities transaction – Par value of the stock Net SP = FV – costs to sell
acquired issued) + Additional PIC of investor VIU = PV of expected future CF of cash-
or generating unit
Goodwill 14. Minority Interest
= Purchase price – parent’s (acquirer’s) = % of subsidiary not owned by the
proportionate share of the FV of Parent × Subsidiary’s Equity 18. Goodwill Impairment Test under U.S.
subsidiary’s identifiable net assets. GAAP
15. Value of non-controlling interest under Two Step Approach
10. Under Acquisition method, the full goodwill method
allocation of PP: = Non-controlling interest’s proportionate Step 1: Goodwill Impairment Test
interest in subsidiary × FV of subsidiary Impaired when CV of Reporting Unit
FV of the stock issued xxx on acquisition date (including Goodwill) > FV of Reporting
Add: BV of Investee’s net xxx Unit (including Goodwill).
assets 16. Value of non-controlling interest under
= Excess PP xxx partial goodwill method Step 2:Measurement of Impairment loss
= Non-controlling interest’s proportionate = CV of Reporting unit’s Goodwill –
FV of the stock issued xxx interest in subsidiary × FVof the
Less: FV allocated to (xxx) subsidiary’s identifiable net assets on Implied FV of Reporting unit’s Goodwill
identifiable net assets acquisition date
= Goodwill xxx Where Implied FV of Reporting unit’s
Goodwill Impairment: Goodwill = FV of Reporting Unit – FV of
17. Goodwill Impairment Test under IFRS: Reporting unit’s net assets

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 CFA Level II 2024 Formula Sheet

Learning Module 2 = CTA = Assets – Liabilities – Common

Employee Compensation: Post- Stock – Retained Earnings 7. Restated Revenue
Employment and Share-Based = Revenue original value ×
2. Balance Sheet Exposure: Öδ´Ðd¹ ×´Ø º ¸´#ÑÐ #d·ÐÓ
Foreign Currency (FC) ÍÒÕ.¸´#ÑÐ #d·ÐÓ

1. Diluted Shares Outstanding B.S

Strength Weakness
= Basic shares outstanding + Shares
Exposure 8. Loss from holding beg balance in cash
When assets = -Beg balance in cash ×
issued from conversion or exercise of Net
translated at +ve Öδ´Ðd¹ ×´Ø º ¸´#ÑÐ #d·ÐÓ –Ù#º¹³´#Ñ¶Ú ¸´#ÑÐ #d·ÐÓ
share-based awards Asset -ve
current X rate translat Ù#º¹³´#Ñ¶Ú ¸´#ÑÐ #d·ÐÓ
ͺºÎÏз ¸´³ÑÐзº ²´³Ï ѳdÒдº#³d ³´ B.S translation
ÐÓдÑ#ºÐ ³² ¹ÔÐ ºÔ¶´Ðy’¶ºÐ· ¶µ¶´·º
> liabilities ion
− ÍÒд¶ÕÐ exposur adj
ºÔ¶´Ð ¸´#ÑÐ ²³´ ¹ÔÐ ´Ð¸³´¹#dÕ ¸Ð´#³· translated at adj 9. Loss from increase in cash during the yr
e
current X rate = - Increase in cash ×
2. Assumed proceeds from conversion or When Öδ´Ðd¹ ×´Ø º ¸´#ÑÐ #d·ÐÓyÍÒÕ ¸´#ÑÐ #d·ÐÓ
exercise of the share-based awards liabilities Net -ve ÍÒÕ ¸´#ÑÐ #d·ÐÓ
translated at Liability +ve
= Cash proceeds from exercise +
current X rate B.S translat translation
Average unrecognized share-based 10. Gain from holding note payable
> assets exposur ion Adj
compensation expense = Notes payable ×
translated at e adj
Öδ´Ðd¹ ×´Ø º ¸´#ÑÐ #d·ÐÓyÙ#º¹³´#Ñ¶Ú ¸´#ÑÐ #d·ÐÓ
current X rate
Ù#º¹³´#Ñ¶Ú ¸´#ÑÐ #d·ÐÓ
3. Basic shares outstanding, end of period (X = exchange)
= Basic shares outstanding, beg. of
11. Avg. effective tax rate
period + RSUs vested and/or share 3. Re-measurement Gain ¢¶Ó PÓ¸
options exercised + share issuances = £´Ð¹¶Ó ÍÑѳÎd¹#dÕ £´³²#¹º
= NI − NI before re-measurement gain
from secondaries, acquisitions etc. −
share repurchases 4. Re-measurement Gain 12. Organic sales growth
= NI − NI before Re-measurement loss = Net sales growth + Foreign X impact +
4. Funded Status Acquisition/Divestiture impact.
= Fair value of plan assets – Pension Hyperinflationary Economy
obligation 5. Restatement Factor
Öδ´Ðd¹ ×´Ø º ¸´#ÑÐ #d·ÐÓ
= Learning Module 4
Learning Module 3 Ù#º¹³´#Ñ¶Ú ¸´#ÑÐ #d·ÐÓ
Analysis of Financial Institutions
Multinational Operations
6. Restated Capital Stock
= Capital stock original value ×
1. Cumulative Translation Adjustment CTA Öδ´Ðd¹ ×´Ø º ¸´#ÑÐ #d·ÐÓ ³´ ·¶¹Ð ³²
ѳd¹´#’ι#³d,µÔ#ÑÔÐÒд #º Ú¶¹Ð´
Ù#º¹³´#Ñ¶Ú ¸´#ÑÐ #d·ÐÓ

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 CFA Level II 2024 Formula Sheet

9. Earnings NI − Equity income

Learning Module 5 Adjusted Tax Burden =
Earnings t+1 = α + (β1 × Earnings t) + ε EBT
Evaluating Quality of Financial Reports OÐÒ
ßÐÕ ¢ÍyßÐÕ Pã.àdÒº¹Ïd¹.Ž
10. Account receivable turnover Pd· ¢ÍyPd· Pã.àdÒº¹Ïd¹
Adjusted TATO =
= (365/DSO) 2
1. DSR (days sales receivable index)
DSR= (Receivablest/Salest) / 11. Z-score Accruals and Earnings Quality
(Receivablest–1/Salest–1) ¥Ð¹ ÜÖ O.P 2. B.S based Aggregate Accruals
= j1.2 × k + j1.4 × k+
¢Í ¢Í Aggregate Accrualst = NOAt – NOAt-1
PßࢠM.â ³² PãÎ#¹×
2. Gross Margin Index: GMI j3.3 × ¢Í
k + j0.6 × k+
ß.â ³² Ú#¶’#Ú#¹#к
GMI = Gross margint–1 / Gross margint N¶Úк where, NOAt = Net operating Assets t =
j1.0 × k
¢.Í Op Assets t – Op Liab t = [{TA t – (Cash t +
3. Asset Quality Index ST invstmnt. t)} – {Total liab t – (Total LT
Learning Module 6 debt t + Debt in current liab.)}]
AQI = [1–(PP&Et+ CAt)/TAt]/[1–(PP&Et–1+
Integration of Financial Statement
CAt-1)/TAt-1]
Analysis 3. B.S based Accrual Ratio
4. Sales growth index: SGI (NOA¨ − NOA¨y) )
=
SGI = Salest/Salest–1 (NOA¨ + NOA¨y) )g
1. DuPont Analysis: 2
5. Depreciation Index 4. CF based Aggregate Accruals:
ROE = Tax Burden × Interest Burden ×
DEPI= Dep ratet–1/Dep ratet Aggregate Accruals = NI t – (CFO t + CFI t)
EBIT margin × TATO × Financial Leverage
where, Dep rate = Dep/(Dep + PP&E)
ROE = NI/EBT × EBT/EBIT × EBIT/Sales CF based Accruals Ratio
× Sales/Assets × Assets/Equity [NI¹ − (CFO¹ + CFI¹ )]
6. Sales, general, and admin exp Index =
(NOA¹ + NOA¹y) )g
SGAI= (SGAt/Salest)/(SGAt–1/Salest–1) 2
ROE = Net profit margin × asset turnover
Operating (Op.) CF before interest and
× leverage
7. Accruals taxes
Accruals = (Income before extraordinary = Op. CF + cash i paid + cash taxes paid
Adjusted Asset base = Adjusted Total
items – Cash from operations)/TA
Assets = Total Assets of the company –
Op income adjusted for accounting ∆
Investments in Associates
8. Leverage Index: LEVI = Profit before i& taxes + amort. of
LEVI = Leveraget/Leveraget–1 goodwill
Adjusted NI = NI of Co – NI from
Associates
where, Leverage = Debt / Assets

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 CFA Level II 2024 Formula Sheet

5. Cash return on Assets 13. Implied P/E ratio of Parent Co.

Op. CF Implied Value of Parent Co. CORPORATE ISSUERS
Cash ROA = (excluding subsidiary/affiliates)
Avg T. A
=
NI of Parent Co. −Equity Income from
6. Cash Flow to Reinvestment subsidiary/affiliates
ì¸.Ö¤
= Ѷ¸#¹¶Ú ÐÓ¸Ðd·#¹Î´Ðº Learning Module 1
14. Discount to Benchmark
ð
ßÐdÑÔ϶´-Ø º y £¶´Ðd¹ Ö³.£/P Analysis of Dividends & Share
ñ
7. Cash Flow to Total Debt = ßÐdÑÔ϶´-Ø º £/P Repurchases
ì¸.Ö¤ ’в³´Ð #d¹Ð´Ðº¹ & ¨œ•sÆ
=
¢.Â
Off-Balance Sheet Leverage from
1. Dividend Yield
8. Capacity to pay debt (in years) Operating Leases
= Annual dividends per share/share
¢.Â
= price
ì¸.Ö¤yÖ¶¸#¹¶Ú PÓ¸Ðd·#¹Î´Ðº 15. Adj. Fin Lev
¢.Í Ž £â ³² ÚжºÐ ¸¶×ÏÐd¹º
= Effective Tax Rate: ETR
9. CF Interest Coverage ¢.P
ì¸.Ö¤ ’в³´Ð r& ¨œ•sÆ 2. Double Taxation Method:
= r £¶#· 16. Adj. D-to-E ratio ETR= Corp. tax rate + {(1 – Corp. tax
=
¢.ÂŽ£â ³² ÚжºÐ ¸¶×ÏÐd¹º rate) (Indiv. tax rate)}
Decomposition and Analysis of the Co’s ¢.P

Valuation: 3. Dividend imputation tax system:

17. Adj. i-coverage Ratio
10. Parent Co. pro-rata share of Pßà¢yÂи ÐÓ¸ŽOÐd¹ PÓ¸ ETR = SH’s Marginal Tax Rate
subsidiary/affiliates =
r ÐÓ¸ŽÍººÎÏз r ÐÓ¸ ³d ÚжºÐº
= (Subsidiary’s share price in FC× Shares 4. Split tax system:
held by Parent Co. × X- rate)/Parent Co. ETR = Corp. tax rate on div + {(1 – Corp.
total market capitalization Learning Module 6 tax rate on div.) (personal tax rate)}
Financial Statement Modeling
11. Implied Value of Parent Co. (excl. Payout Policies:
subsidiary/affiliates) 5. Stable Dividend Policy
= Parent Co.’s Mkt Cap - Value of Expected ↑ in Div.
subsidiary/affiliate holdings = (Expected Earnings × Target payout
ratio – Previous dividend) × Adj. factor
12. P/E ratio of Parent Co
£¶´Ðd¹ Ö³.’º Ï-¹ Ö¶¸
= where,
¥à ³² £¶´Ðd¹ Ö³.
Adj. factor = 1/no. of yrs. over which adj.
in div. will take place

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 CFA Level II 2024 Formula Sheet

3. Cost of Debt: 8. Bond Yield Plus Risk Premium: BYPRP

6. Residual Dividend Policy 𝑟s = 𝑟ô + (𝐸𝑅𝑃 + 𝐼𝑅𝑃) BYPRP Cost of Equity = 𝑟s = 𝑟Ÿ + 𝑅𝑃
Dividends = Earnings – (Capital budget ×
Equity % in capital structure) or 𝑟s = 𝐸(𝑟ô ) + ( 𝐸𝑅𝑃 + 𝐼𝑅𝑃) Cost of Equity = YTM on the company’s
Long-term debt + Risk Premium
Dividends. = Zero, whichever is greater. where,
ERP = equity risk premium 9. Capital Asset Pricing Model Approach
7. Div. Payout Ratio IRP = idiosyncratic risk premium CAPM = 𝑟s = 𝑟ô + 𝛽' (𝐸𝑅𝑃)
Â#Ò.
=
¥à
4. Rate implicit in the lease (RIIL) 10. Fama-French Model
8. Div. Coverage Ratio = PV of lease payments +PV of residual 𝑟s = 𝛽) 𝐸𝑅𝑃 + 𝛽+ 𝑆𝑀𝐵 + 𝛽Œ 𝐻𝑀𝐿
¥à value to lessor = FV of leased asset +
= Â#Ò.
Lessor’s direct initial costs • SMB(small minus big)
• HML (high minus low)
9. FCFE Coverage Ratio 5. Dividend Discount Model Estimates
¤Ö¤P
= [Â#Ò.ŽNÔ¶´Ð OиδÑÔ¶ºÐº] 𝐷) 𝐷) 11. Build-Up Approaches
𝑽𝟎 = = +𝑔
𝑟s − 𝑔 𝑉' 𝑟s = 𝑟ô + ERP + Size premium +Specific
FCFE = CFO – FCInv + Net Borrowings Co. risk premium
where,
g = expected earnings growth rate in 12. Country risk premium
Learning Module 2
dividends +,-.t/0
ESG Considerations in Investment !`
CRP = Sovereign yield spread × +12~3
Analysis "#
= expected dividend yield
𝑟s = required rate of return on equity 13. International CAPM
E(re) = 𝑟ô + 𝛽4 ¼𝐸¼𝑟5› ½ − 𝑟ô ½ +
6. Equity risk Premium ERP
D) 𝛽6 ¼𝐸(𝑟§ ) − 𝑟ô ½ +
𝐸𝑅𝑃 = 𝐸 I L + E(𝑔) − r²
Learning Module 3 V'
Cost of Capital: Advanced Topics •
ERP = [DY + ∆ j{ k + 𝑖 + 𝑔 + ∆𝑆-𝐸(𝑟ô )]
Learning Module 3
Various Methods for The Cost of Equity Corporate Restructuring
1. Weighted Average Cost of Capital:
WACC = wdrd (1 – t) + wprp + were 7. Dividend Discount Model: DDMs
𝐷)
𝒓𝒆 = +𝑔
𝑃'
2. Cost of Debt:
𝑟Ÿ = 𝑟ô + 𝐶𝑟𝑒𝑑𝑖𝑡 𝑠𝑝𝑟𝑒𝑎𝑑

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 CFA Level II 2024 Formula Sheet

5. Gordon Growth Model (GGM)

EQUITY Valuation 1 3. In RI Model: Value of stock V' =
Â# ×()ŽÕ) Â `
or = ´yÕ
´yÕ
= BVPS at t = 0 + PV of expected future
residual earnings
6. GGM for Preferred stock (fixed rate
Learning Module 1 perpetual preferred stock)
where,
Equity Valuation: Applications & V' =
Â
´
Processes
BVPS = common SHs’ equity / no. of
common shares outstanding 7. GGM ERP
1. Mispricing 1-yr. forecasted div. yield on market
VE – P = (V- P) + (VE – V) RI model assumes Clean Surplus index + consensus LT earnings growth
VE–P: Mispricing Accounting holds rate – LT govt. bond yield
V–P: True Mispricing BV t = BVt-1 + NIt – Divt
VE–V: Valuation Error 8. Actual value of a company’s share
4. Value of Stock through DDM E)
V' = + PVGO
where, r
VE = estimated value With Single Holding Period Value of where,
P = market price Stock
V = intrinsic value PV of expected Div. + PV of expected PVGO =Sum of PV of expected profitable
Selling Price at the end of year one = opportunities of reinvesting the earnings.
`Â `£
2. Residual Income Model V' = ()Ž´) ` + ()Ž´)`
NI – (cost of equity × Beg value Equity) E1/r = no-growth value per share

Value of stock for 2 years Holding Period When P0 = V0

  £
Learning Module 2 `
V' = ()Ž´) } }
` + ()Ž´)} + ()Ž´)}
P`
then. PVGO = P' −
Discounted Dividend Valuation ´
â# £# £
Can be restated as or or =
For n-Holding Periods P` P` P
d ) £âÁì
D¹ Pd Ç´É + Ç É
P`
1. Asset’s value is PV of its expected future V' = b +
(1 + r)¹ (1 + r)d
¹e)
CFs where, 1/r = value of P/E for no-growth
Ö¤
V' = ∑d¹e) ()Ž´)7 7 When HP is extended into indefinite company.
future: PVGO/E1 = component of P/E value that
2. Residual Income: Â represents growth opportunities.
V' = ∑8 7
¹e) ()Ž´)7
RI = NI – (cost of equity × Beg. BV of
common equity)

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 CFA Level II 2024 Formula Sheet

£ gL= normal LT div. growth rate after year

9. Leading P ratio
D) 2H EQUITY Valuation 2
P' gE (1 − b)
)
= = =
E) (r − g) (r − g) gS= initial ST div. growth rate

10. Trailing P ratio

£ H = half-life in years of the high-growth Learning Module 1
period i.e. high growth period = 2H years Free Cash Flow Valuation
D' (1 + g)
P' gE (1 − b)(1 + g)
'
= = = 14. Estimating Sustainable Growth Rate
E' (r − g) (r − g)
g = b × ROE 1. PV of FCFF
11. GGM can be used to derive required RoR NI − Dividends NI ¤Ö¤¤7
g= × = Firm Value = ∑8
¹e)
Â# ()ŽÕ) Â NI Sales ()ŽÜÍÖÖ)7
=r=Ç £#
É + g = Ç£ ` É + g Sales
#
× 2. WACC
Total Assets
12. Two-Stage Div Discount Model Total Assets MV of D
d × = †
D¹ Vd Shareholders@ Equity MV of D + MV of E
V' = b + × {r· × (1 − Tax rate)}ˆ
(1 + r)¹ (1 + r)d
¹e) g = PRAT
MVof E
g = profit margin (P) × retention rate (R) + †
where, × asset turnover (A) × financial leverage MVof D + MVof E
D' × (1 + g N )d (1 + g ; ) (T) × (rÐ )ˆ
Vd =
(r − g ; )
3. PV of FCFE
V' 15. ROE ¤Ö¤P
d = Equity value = ∑8 7
¹e) ()Ž´)7
D' (1 + g N )¹ NI
= b< = =
(1 + r)¹ Shareholders@ equity
¹e)
NI 4. Constant-Growth FCFF valuation Model
D' × (1 + g N )d × (1 + g ; ) =
+† ˆ Total Assets = Firm Value = V'
(1 + r)d (r − g ; )
Total Assets FCFF)
× =
Shareholder @ s equity WACC − g
13. H-Model ¥à N¶Úк
= N¶Úк × ¢³¹¶Ú ͺºÐ¹º × FCFF' × (1 + g)
V' =
Â# ×()ŽÕ> )
+
Â# ×Ù×(ÕQ yÕ> ) =
(´yÕ> ) (´yÕ> ) ¢³¹¶Ú ͺºÐ¹º WACC − g
=
or NÔ¶´ÐԳڷдºØ ÐãÎ#¹×
[D' × (1 + g ; )] + = Net profit margin × Asset 5. Constant-Growth FCFE valuation Model
[D' × H × (g N − g ; )] Turnover × Leverage = Equity Value = V' =
¤Ö¤P`
=
V' = ´yÕ
(r − g ; ) ¤Ö¤P# ×()ŽÕ)
where, ´yÕ

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 CFA Level II 2024 Formula Sheet

FCFE = CFO – FCInv + Net Borrowing + 13. FCFE

6. Computing FCFF from Net Income issuance of preferred stocks – = NI – (FCInv – Dep) – WCInv + Net
= FCFF = NI + NCC + Int × (1 – Tax rate) redemption of preferred stock borrowing
+ Preferred stock div. – FCInv – WCInv
Total value of Equity (common) where,
a) When no LT assets are sold during the = Total Firm value – Market value of
yr: Debt – Preferred stock Net borrowing = DR×(FCInv – Dep) +
FCInv = End gross PPE – Beg. gross DR×(WCInv)
PPE 9. Finding FCFF and FCFE from EBIT or Or
b) When LT assets are sold during the yr: EBITDA
FCInv = Capital expenditures – FCFE = NI – (FCInv – Dep) – WCInv +
proceeds from sale of LT assets or FCFF = EBIT (1 – Tax rate) + Dep – FCInv (DR) ×(FCInv – Dep) + (DR) ×(WCInv)
– WCInv Or
FCInv = (End. gross PPE – Beg. gross
PPE) - Proceeds from sale of LT assets FCFF = EBITDA (1 – Tax rate) + Dep (Tax FCFE = NI - (1-DR) ×(FCInv – Dep) – (1 –
rate) – FCInv – WCInv DR) ×(WCInv)
WCInv = ∆ in Current assets excl. cash
& cash equivalents – ∆ in Current liab. FCFE = FCFF – Int (1 – Tax rate) + Net 14. Modified Build-Up method to estimate
excl. ST debt borrowing + issuance of preferred real discount rate:
stocks – redemption of preferred Country return (Real) [in %]
7. CF from operating activities stock. +/ - Industry Adjustment [in %]
= CFO = NI + NCC – WCInv. +/ - Size Adjustment [in %]
10. Forecasted FCFF +/ - Leverage Adjustment [in %]
8. Computing FCFE from FCFF = Forecasted [EBIT ×(1 – Tax rate) –
FCFE = FCFF – Int ×(1 – Tax rate) – FCInv – WCInv] Required rate of return (real) [in %]
preferred stock dividends + Net
Borrowing + issuance of preferred stocks 11. Incremental fixed capital expenditures 15. Single-Stage FCFF and FCFE Model for
– redemption of preferred stock as a proportion of sales increases International Valuation:
FCFE = NI + NCC – FCInv – WCInv + Net =
Ö¶¸#¹¶Ú ÐÓ¸yÂи ÐÓ¸ FCFF' ×
Borrowing + issuance of
àdѴжºÐ #d º¶Úк (1 + g ´Ð¶Ú )
Value of firm = V' =
preferred stocks – redemption of WACC´Ð¶Ú − g ´Ð¶Ú
12. Incremental working capital
preferred stock
expenditures as a proportion of sales FCFF)
=
increases WACC´Ð¶Ú − g ´Ð¶Ú
àdѴжºÐ #d ÜÖ
=
àdѴжºÐ #d º¶Úк

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 CFA Level II 2024 Formula Sheet

Value of Stock = V'

FCFE' × (1 + g ´Ð¶Ú ) 7. PEG ratio
= Learning Module 1
r´Ð¶Ú − g ´Ð¶Ú N¹³Ñ-Ø º £/P
Market-Based Valuation: Price & = PÓ¸Ðѹз P¶´d#dÕº Á´³µ¹Ô O¶¹Ð #d %
FCFE)
= Enterprise Value Multiples
r´Ð¶Ú − g ´Ð¶Ú
8. Yardeni Model CEY
1. Trailing P/E or Current P/E = CBY – (b × LTEG) + Residual
16. Two-stage FCFF valuation model
Öδ´Ðd¹ M-¹ £´#ÑÐ ¸Ð´ ºÔ¶´Ð
equation is: = ϳº¹ ´ÐÑÐd¹ F Gζ´¹Ð´ºØP£N
¤Ö¤¤7 where,
• Firm Value = ∑d¹e) + CEY = current earnings yield on the mkt.
()ŽÜÍÖÖ)7
¤Ö¤¤]E`
× ()ŽÜÍÖÖ)]
) 2. Forward P/E or Leading P/E or index.
(ÜÍÖÖyÕ)
Prospective P/E
Öδ´Ðd¹ M¶´-й £´#ÑÐ ¸Ð´ ºÔ¶´Ð
= CBY = current Moody’s Investors Service
• Two-stage FCFE valuation model ¥ÐÓ¹ Hж´Ø º PÓ¸Ðѹз P¶´d#dÕº
A-rated corporate bond yield.
equation = Equity Value =
¤Ö¤P7 ¤Ö¤P]E` ) 3. Basic EPS
∑d¹e) + × ()Ž´)] LTEG = consensus 5-year earnings
()Ž´)7 (´yÕ) Total Earnings
= growth rate forecast for the mkt index.
Wghtd Avg no. of shares actually
Non-Operating Assets And Firm Value outstanding during the period
17. Value of Firm b = coefficient
= Value of Operating Assets + Value of 4. Diluted EPS
£ )
Non-operating Assets Total Earnings By taking inverse: = ÖßHy’ × ;¢PÁ
P
=
No. of shares outstanding
where, when holders of 9. Own Historical P/E: Justified price
Value of Operating Assets = value excercised their options = Benchmark value of own historical
estimated by discounting FCFF to obtain common stock P/Es × Most recent EPS

18. Excess Cash 5. Justified Forward P/E

I`
10. Terminal Value (T.V) based on
= Total Cash Available ñ` )y’ Fundamentals:
= P0/E1 = =
´yÕ ´yÕ
− †Total Assets of Firm T.V in yr n = (justified trailing P/E) ×
(forecasted earnings in year n).
Median level o f Industry cash 6. Justified Trailing P/E
× ˆ ()y’)×()ŽÕ)
Median level of Industry Total Asset = P0/E0 =
Â# ()ŽÕ)/P#
= where T.V in year n = (justified leading P/E) ×
´yÕ ´yÕ
P = price; E = earnings; D = dividends; r (forecasted earnings in year n+1)
= required rate of return; and g =
dividend growth rate

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 CFA Level II 2024 Formula Sheet

11. Terminal Value based on Comparables: where Net Sales = Total Sales – returns–
customer discounts Leading Div Yield
T.V in yr n = (Benchmark trailing P/E) × Forecasted Div per
(forecasted earnings in year n) 16. P/S - in terms of Gordon Growth Model share over the next yr
=
£# j
ñ#
Q#
k()y’)()ŽÕ) Current mkt. Price per share
= Justified P/S = =
T.V in yr n = (Benchmark leading P/E) × N# (´yÕ)
(forecasted earnings in year n+1) 20. Dividend Yield (by using GGM)
where, E0/S0 = Business’s profit margin Â' ´yÕ
= Justified Div Yield = £'
= )ŽÕ
12. Price to Book. Value:
£´#ÑÐ ¸Ð´ NÔ¶´Ð
P/B = ß³³- â¶ÚÎÐ ¸Ð´ NÔ¶´Ð 17. g = Retention rate (b) × ROE
21. Enterprise Value: EV
N¶Úк
EV = MV of Common equity + MV of
where g = b × PM0 × ¢³¹¶Ú ͺºÐ¹º × preferred stock + MV of debt – Cash &
¢³¹¶Ú ͺºÐ¹º Short-term Investments
BVPS for equity shareholders =
NÔ¶´ÐԳڷдºØ PãÎ#¹×
¢Í – ¢; – £.N
d³.³² ѳÏϳd º¹³Ñ- ºÔ¶´Ðº ³/º
=
MV of Common equity = No. of shares
NÙØ ºØ ÐãÎ#¹× – ¹³¹¶Ú ÐãÎ#¹× Ò¶ÚÎÐ ÑÚ¶#Ϻ where, PM0 = Profit Margin at t = 0
¹Ô¶¹ ¶´Ð ºÐd#³´ ¹³ ѳÏϳd º¹³Ñ- o/s × Price per share
# ³² Ö.N ºÔ¶´Ðº ³/º
18. Price to Cash Flow
£´#ÑÐ ¸Ð´ ºÔ¶´Ð
Cash & Investments = cash, cash
= P¶´d#dÕº ¸Úκ d³dѶºÔ ÑÔ¶´Õк equivalents, short term investments etc.
BVPS for whole company = or
¹³¹¶Ú ¶ººÐ¹º – ¹³¹¶Ú Ú#¶’#Ú#¹#к
=
£´#ÑÐ ¸Ð´ ºÔ¶´Ð 22. Return on Invested Capital:
dÎϒд ³² ºÔ¶´Ðº ³Î¹º¹¶d·#dÕ Ö¶ºÔ ²Ú³µ ²´³Ï ì¸Ð´¶¹#³dº ì¸Ð´¶¹#dÕ ¸´³²#¹ ¶²¹Ð´ ¹¶Ó
ROIC =
or ¢³¹¶Ú #dÒк¹Ð· Ö¶¸#¹¶Ú
13. Justified P/B £´#ÑÐ ¸Ð´ ºÔ¶´Ð
OìPyÕ
=
¤Ö¤P 23. Total Invested Capital
= P0/B0 =
´yÕ or
TIC = MV of Common equity + MV of
£´#ÑÐ ¸Ð´ ºÔ¶´Ð
= preferred stock + MV of debt
14. Justified P/B based on RI model Pßà¢ÂÍ

= P0/B0
£â ³² ÐÓ¸Ðѹз ²Î¹Î´Ð 19. Dividend Yield 24. Earnings Surprise
= 1+
´Ðº#·Î¶Ú ж´d#dÕº D Div per share UEt = EPS t – E (EPS t)
ß' = =
P Price per share
where,
15. Price to Sale
£´#ÑÐ ¸Ð´ ºÔ¶´Ð Trailing Div Yield UEt= unexpected earnings for quarter t
P/S = ÍddÎ¶Ú dй º¶Úк ¸Ð´ ºÔ¶´Ð Dividend Rate EPSt= reported/actual EPS for quarter t
= E(EPSt) = expected EPS for the quarter
Current mkt Price per share

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 CFA Level II 2024 Formula Sheet

D t = E t - (B t - B t-1) = E t + B t-1 - B t 6. RI model

Percent Earning Surprise RIt = E t – (r × B t-1) = (ROE – r) × B t-1
P¶´d#dÕº Nδ¸´#ºÐ 2. Residual Income (RI)
=
PÓ¸Ðѹз P£N
= NI – Equity Charge = NI – (Equity Two components of intrinsic value of
Capital × Cost of Equity Capital) stock/equity
Scaled Earnings Surprise
P¶´d#dÕº Nδ¸´#ºÐ
i. Current BV of Equity that is B0.
= N. ³² ¶d¶Ú׺¹º@ ж´d#dÕº ²³´ÐѶº¹ = NOPAT – Total Capital Charge = NOPAT ` Oà
ii. PV of expected future RIN()Ž´) ` +
– Debt Charge – Equity Charge = NOPAT
Oà} Oà
O
25. Standardized Unexpected Earnings – (AT cost of debt × Debt Capital) – (cost ()Ž´)}
+ ()Ž´) O +⋯Q
of equity × Equity Capital)
P£N yP (P£N7 ) 8
SUE t = + [P£N7 RI¹
7 yP (P£N7 )] 3. RI (with preferred stock) V' = B' + b = B'
(1 + r)¹
= NI – Equity Charge – Preferred Stock ¹e)
where, Div
8
E¹ − rB¹y)
EPSt= reported/actual EPS for time t +b
(1 + r)¹
E (EPSt) = expected EPS for the time t RI = (ROIC – Effective Capital Charge) × ¹e)

σ [𝐸𝑃𝑆¨ − 𝐸 (𝐸𝑃𝑆¨ )] = S.D of [𝐸𝑃𝑆¨ − RI) RI+

Beg. Capital V' = B' + R )
+
𝐸 (𝐸𝑃𝑆¨ )] over some historical time (1 + r) (1 + r)+
period. RIŒ
4. Economic Value Added + + ⋯S
(1 + r)Œ
EVA = NOPAT – (C% × TC)
26. Relative strength indicator Or = [EBIT (1 – t)] – (WACC × invested
N¹³Ñ-Ø º ¸Ð´²³´Ï¶dÑÐ 7. RI Model (general)
=£Ð´²³´Ï¶dÑÐ ³² ¶d PãÎ#¹× àd·ÐÓ capital) (OìP7 y´)×ß7_`
= V' = B' + ∑8
¹e) ()Ž´)7
where,
27. Harmonic Mean
d C% = cost of capital 8. Justified Price to Book
= XH= ] `
∑\M`( ) TC = Total capital P
L\
Justified
WACC × invested capital = dollar cost of B
capital P'
Learning Module 3 =
Invested capital = net WC + net fixed B'
Residual Income Valuation assets = BV of LT debt + BV of equity ROE − g
=
r−g
5. Market Value Added: ROE − r
= 1+I L
1. Ending BV of equity MVA = MV of Co. – Accounting BV of total r−g
= Beg. BV of equity + Earnings – Div. capital = MV of Co – (BV of Debt + BV of
B t = B t-1 + E t – Dt & Equity) where

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 CFA Level II 2024 Formula Sheet

P0 = V0
PV of continuing RI in year T-1 = FIXED INCOME (1)
BV of equity B0 OàU
=
OàU
=
()Ž´yV)()Ž´)U_` ()Ž´y')()Ž´)U_`
= Total assets – total liab. OàU
()Ž´)U_`
Learning Module 1
9. Tobin’s q
MV of Debt and Equity The Term Structure & Interest Rate
RI declines to 0 as ROE approaches r
= Dynamics
Replacement cost of Total Assets over time (& RI will become 0
eventually). i.e. 0 ≤ ω ≤ 1
9. Single-Stage RI Valuation
OìPy´
= V' = B' + j k × B' PV of continuing RI in year T-1= 1. Discount Factor
´yÕ OàU ) )
()Ž´yV)()Ž´)U_`
= P (T) = [)ŽÆ•™¨šœ¨s]X = [)Žš ( )]X
Implied Growth rate in RI
ß# (OìPy´) RI declines to long-run mean level of 2. Forward pricing model:
=g=r−Ç É
â# yß#
mature industry. P (T* + T) = P (T*) × F (T*,T)
10. Multi-Stage RI Valuation
Where premium over book value is 3. Forward rate model
= V0 = B0 + (PV of interim high-growth RI)
assumed at the end of time horizon T (PT = [1 + r (T* + T)] (T* + T) = [1 + r (T*)] T* × [1
+ (PV of continuing RI)
– Bt), current value: + f (T*, T)] T
PV of continuing RI in year T–1
Oà
(V0) = 4. Spot rate for a security, having maturity
U
= ()Ž´yV)()Ž´) U_`
B0 + å
T
(ROEt - r )Bt -1 + PT - BT of T > 1
r (T) = {[ 1 + r (1)] [1 + f (1,1)] [1 + f
where, ω= persistence factor, 0 ≤ ω ≤ 1 t =1 (1 + r )T (1 + r )T (2,1)] [1 + f (3,1)] … [1 + f (T – 1,1)]} (1/T)
-1
Assumptions about Continuing RI: where
RI is at +ve level currently and will persist PT =BT × (forecasted P/B ratio) 5. Forward rate model can be expressed
at this level in the future indefinitely: as:
X∗
[1 + 𝑟(𝑇 ∗ + 𝑇)] X
PV of continuing RI in year T-1 Y [ [1 + 𝑟(𝑇 ∗ + 𝑇)]
[1 + 𝑟(𝑇 ∗ )]
RI¢ RI¢ RI¢
= = = = [1 + 𝑓(𝑇 ∗ , 𝑇)]
1+r−ω 1+r−1 r

RI will become 0 from the terminal yr

forward.

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 CFA Level II 2024 Formula Sheet

6. Yield Curve Movement and the Forward = Fixed-rate of an interest rate swap –
Curve Interest rate on “on-the-run” Govt. Learning Module 2
•( ∗ Ž ) security
F (T*, T) = The Arbitrage Free Valuation Framework
•( ∗)
•(¨ Ž ) 𝑠 (𝑇) 1
P* (T) = b + =1
•(¨) [1 + 𝑟(𝑡)]¹ [1 + 𝑟(𝑇) ]
•∗ ( ∗ Ž y¨) cddddddddeddddddddf
¨e) ↓
F*(t, T*, T) = 𝑓𝑙𝑜𝑎𝑡𝑖𝑛𝑔𝑟𝑎𝑡𝑒𝑙𝑒𝑔
•∗ ( ∗ y¨) ↓
] (/EX∗ EX_/)
] (/) •∗ ( ∗ Ž ) 𝑓𝑖𝑥𝑒𝑑𝑟𝑎𝑡𝑒𝑙𝑒𝑔
F*(t, T*, T) = ] (/EX∗ _/) = • ( ∗)
=F Learning Module 3
] (/)
10. TED spread Valuation & Analysis: Bonds with
(T*, T)
= LIBOR - T-bill rate of matching maturity Embedded Options
Active Bond Portfolio Management
7. 1-year. Holding Period Return: 11. Libor–OIS spread 1. Value of callable bond
[)Žš( Ž))]XE` = Libor - Overnight indexed swap (OIS) = Value of straight bond – Value of
HPR = [)Žô(), )]X
= [1 + 𝑟(1)] rate issuer call option

when the spot curve one year from today 12. Local expectations theory 2. Value of issuer call option
is today’s forward curve. = • (¨,
)
= [1 + 𝑟(1)][1 + 𝑓(1,1)][1 + = Value of straight bond – Value of
)
𝑓(2,1)][1 + 𝑓(3,1)] … [1 + 𝑓(𝑇 − 1,1)] callable bond
8. Return of the 2-year zero-coupon bond
over 1-yr Holding Period: 3. Value of putable bond
£´#ÑÐ ³² ¶ + ×´ ^д³ ѳθ³d 13. Cox–Ingersoll–Ross (CIR) Model
’³d· ) ×´ ²´³Ï ¹³·¶× = Value of straight bond + Value of
HP = −1 = dr = a (b – r) dt + σ √𝑟𝑑𝑧
£Î´ÑÔ¶ºÐ ¸´#ÑÐ ³² ’³d· investor put option
14. Vasicek Model
Price of a 2-yr zero-coupon bond 1 yr 4. Value of investor put option
= dr = a(b – r)dt + σdz
from today = Value of putable bond – Value of
•œš_œ•ªs™ô`™xŸ
= ()Ž¦aŸšœ¨sô™š)bš`™xŸ)bšôš™›¨™Ÿœb) straight bond
15. Ho-Lee model
= drt = θtdt + σdzt
5. The rate in the up state
Price of a 3-yr zero-coupon bond 1 yr
from today 16. Interest rate volatility for a security with = Ru = Rd × e2σ√𝑡

=
•œš _œ•ªs ™ô `™xŸ
=
•œš _œ•ªs ™ô `™xŸ maturity T at time t = σ (t, T)
()Ž¦aŸ šœ¨s ô™š ¨a™ b š )Žô(),+) ∆o (/.X) where,
`™xŸ ) bsœš ôš™› ¨™Ÿœb) nÇ É
o (/,X)
=
√∆¨
Rd = Rate in the down state
9. Swap Spread
σ = Interest rate volatility

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 CFA Level II 2024 Formula Sheet

t = Time in years between “time slices” = Market price of C.stock × CR = Straight value + Value of call option on
stock – Value of call option on bond
6. Duration 15. Straight Value or Investment Value
â_ yâE = Market value of a security without 24. Callable & Putable Convertible bond
D=
+×â# ×(∆H)
conversion option value
= Straight value + Value of call option on
7. Convexity:
16. Min. Value of a Convertible Security is stock – Value of call option on bond +
âE Žâ_ y(+×â# )
Convexity = +× â# ×(∆H)} (greater of conversion value or straight Value of Put option on bond
value)
8. Effective Duration 25. Value of Call Option – Value of Put
(£â_ )y(£âE) 17. Market Conversion Price or Conversion Option
=
+×(∆ÖδÒÐ)×(£âT ) Parity Price = PV (Forward price of bond on exercise
=
M¶´-й £´#ÑÐ ³² Ö³dÒд¹#’ÚÐ NÐÑδ#¹× date – Exercise price)
9. Effective Convexity ÖO
(•"_ )Ž(•"E )y[+×(•"# )]
= (∆6ªš_s)} ×(•"# ) 18. Market Conversion Premium per share Learning Module 4
= Market Conversion Price – Current Credit Analysis Models
10. Value of capped floater Market Price
= Value of straight bond – Value of
embedded cap 19. Premium Payback Period
M¶´-й Ö³dÒдº#³d ¸´ÐÏ#ÎÏ ¸Ð´ ºÔ¶´Ð
1. Expected loss
= ¤¶Ò³´¶’ÚÐ àdѳÏÐ Â#²²Ð´Ðd¹#¶Ú ¸Ð´ ºÔ¶´Ð = Full amount owed – Expected recovery
11. Value of floored floater
= Value of straight bond + Value of or = Loss given default × Probability of
embedded floor 20. Favorable Income Differential per share default
ֳθ³d #d¹Ð´Ðº¹y(ÖO ×Ö.º¹³Ñ- Â#Ò.¸Ð´ ºÔ¶´Ð)
= ÖO
Analysis of a Convertible Bond 2. Credit spread
= Yield to maturity of a risky bond – Yield
21. Premium over straight value
12. Conversion Ratio (CR) M¶´-й £´#ÑÐ ³² Ö³dÒд¹#’ÚÐ ß³d·
to maturity of a Govt. bond
= –1
= No. of shares of C.stock from N¹´¶#ÕÔ¹ â¶ÚÎÐ

exercising call option 3. Put option’s price

22. Non-callable/Non-putable Convertible = Value of risky debt – Value of riskless
13. Conversion Price (or stated conversion security value debt
price) = Straight value + Value of Call option on
= Par value of convertible bond ÷ CR stock 4. Black-Scholes Option pricing Formula
−r(T −1)
= St = At N(d1 ) − ke N(d2 )
14. Conversion Value (or Parity) 23. Callable Convertible bond value
Where,

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 CFA Level II 2024 Formula Sheet

æA ö 1 7. Co.’s asset R in CAPM (a static one- Probability of default over [t, t+∆]
lnçç t ÷÷ + r (T - t ) + s 2 (T - t ) period model): 1
K 2
d1 = è ø
= Prob (t) = N
-a - å bi X i t
s T -1 = Rf + b of co.’s asset (Expected R per 1+ e i =1

d2 = d1 – σ √T − 1 year on Mkt. portfolio – Rf)

Parameters estimation:
5. Value of debt = D (t, T) = Rf+ (b of co.’s asset × Mkt.’s ERP)
æ dt ö N
÷ = a + å bi X t
i
= PV of payoff on co.’s debt if default lnç
occurs + PV of payoff on co.’s debt if 8. Price of debt𝐷(𝑡, 𝑇) è 1 - dt ø i =1

default does not occur 𝐾

= 𝐸D † ˆ where
(1 + 𝑟) ∆)(1 + 𝑟)Ž∆ ) … (1 + 𝑟 Ž∆ )
- r (T -1) dt = {1 if default, 0 if no default}
= At N (-d1 ) + Ke N (d 2 )
9. Credit risk measures in reduced form
model: To estimate the loss given default: t(Xt)
where, N

Default probability over [0,T] = c 0 + å ci X i t

N (d2) = Risk neutral probability of the = Prob (𝑡 ≤ 𝑇)
i =1

co.’s debt not defaulting

⎧ 𝑡(𝑋r )𝐾 ⎫ where
=1−𝐸 {ci for i = 1, …, N} are constants.
6. Credit Risk Measures ⎨[1 + 𝜆(𝑋' ∆)] + [1 + 𝜆(𝑋∆ )]⎬
Probability of the debt defaulting = Prob. ⎩ … [1 + 𝜆(𝑋 y∆ )∆] ⎭
(AT< K) 11. Price of the coupon bond (assuming no
Expected loss = arbitrage and frictionless markets)
= 1 – Prob. (AT ≥ K) = 1 – N(e2)
y∆ ¨(y )˜ T -1
𝐸¨e' t
x[)Žz(y#∆)]Ž[)Žz(y 𝜆(𝑋r )∆{
where
∆ )]…
[)Žz(yt )∆]
BG (t) = å CP(t , i) + (C + F ) P(t, T )
i =1
æA ö 1
lnçç t ÷÷ + u (T - t ) + s 2 (T - t ) Present value of the expected loss
K 2 12. Credit spread (t)
e1 = è ø = K P (t,T) – D (t,T)
s T -t
= Avg. yields on risky zero-coupon bond –
e2 = e1 - σ √T − 1 10. Historical Estimation
Avg. yields on riskless zero-coupon bond

or

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 CFA Level II 2024 Formula Sheet

= [Average yields on the risky zero- • Prob. of default (at some point Credit spread ≈ (Upfront prem./D) +
coupon bond – Average yields on riskless during T years) = 1 – Prob. of no Fixed coupon
zero-coupon bond] + Liquidity premium default during T years
Upfront premium in % = 100 – Price of
or 5. Value of Protection Leg CDS in currency per 100 Par
= Expected payoff of bond/loan with
= Expected % loss per year on the risky credit risk - Expected payoff of bond/loan Price of CDS in currency per 100 Par =
zero-coupon bond + Liquidity Premium with no credit risks 100 – Upfront premium %

13. PV of expected loss 6. Value of Premium Leg 10. Profit for the buyer of protection
= PV of CF of riskless debt – PV of CF of = PV of pmts. made by the protection ≈ ∆ in spread in bps × D × NP
risky debt = [P (t,T) – D (t,T)] XT buyer to the protection seller
11. % change in CDS price
where 7. Upfront Payment = ∆ in spread in bps × D
XT = Promised CF at T of a risky Co. = PV of protection leg – PV of premium
leg 12. Basis
Learning Module 4 = CDS spread (prem.) – Bond’s credit
Credit Default Swaps 8. Credit spread spread
≈ Prob. of default × Loss given default
(%) Bond’s Credit spread
1. Upfront premium = Yield on bond - Investor’s cost of
= Credit spread – Standard rate 9. Credit spread Pricing Conventions funding

2. Expected Credit Loss (%) Upfront premium Bond yield

= Payout ratio = 1 – Recovery rate (%) = PV of credit spread – PV of fixed = Rf rate + Funding spread + Credit
coupon spread
3. Expected Credit Loss Amount or Payout Or
amount where
= Payout ratio × Notional amount = (Credit spread – Fixed coupon) × D of Rf + Funding spread = LIBOR
the CDS
4. Loss Given Default: 13. Synthetic CDO
• Expected loss = Full amount owed – PV of credit spread = Upfront prem. + PV = Portfolio of default-free securities +
Expected recovery of fixed coupon CDS holdings
• Expected loss = Loss given default ×
Probability of default

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 CFA Level II 2024 Formula Sheet

10. F0(T) = 𝑆' 𝑒 (´ÑŽÄy|)¢ (carry arbitrage:

DERIVATIVES continuous compounding) 19. fd,T[S0−PVCI0,T] = B0(T+Y)+AI0−PVCI0,T]

Interest Rate Forward & Future Contract: 20. Conversion factor adj. FV adj. for carry
11. Terminal Amount = TA = NA[1 + L0(m)tm] QF0(T) =
Learning Module 1 [1/CF(T)]{FV0,T[B0(T+Y)+AI0]−AIT−FVCI0,T}
Pricing & Valuation of Forward 12. Interest Paid = TA – NA = NA[L0(m)tm]
Commitments Currency Forward & Future Contracts:
FRAs
13. Settlement amount at h for receive- 21. F0(£/€,T)
Pricing & Valuing of Forwards & Futures floating: =FV£,T(1)/[FV€,T(1)S0(€/£)]
1. Forward contract value (Long) VT(T) NA {[Lh(m)−FRA(0,h,m)]tm}/[1+Dh(m)tm] = S0(£/€)FV£,T(1)/FV€,T(1)
= ST – F0(T).
14. Settlement amount at h for receive- 22. Vt (T)
2. Forward contract value (short)VT(T) fixed: = PV£,t,T[Ft(£/€,T)−F0(£/€,T)]
= F0(T) – ST. NA{[FRA(0,h,m)−Lh(m)]tm}/[1+Dh(m)tm]

3. FV(S0) = S0ercT. (compounded 15. FRA(0,h,m)

continuously) = {[1+L0(h+m)th+m]/[1+L0(h)th]−1}/tm Pricing & Valuing Swap Contracts:
Interest Rate Swap Contracts:
4. FV(S0) = S0(1 + r)T (compounded 16. FRA Value at time g
annually) =FRA(0,h,m) Floating Leg Cash Flow:
={[1+L0(h+m)th+m]/[1+L0(h)th]−1}/tm
¡©!
5. Vt(T) = PVt,T[Ft(T) – F0(T)] 23. Si = CFFLT,i= APFLT,irFLT,I =( ¥¢Â}~X,t )rFLT,i
}~X,t
Fixed Income Forward & Future Contracts:
6. Forward Price (carry arbitrage): ¡©!}•€,t
F0(T) = Soe(rc−γ)T 17. Accrued interest = Accrual period × FS=CFFIX,i= APFIX,irFIX,I = ( )rFIX
¥¢Â}•€,t
Periodic coupon amount
7. F0(T) = FV0,T(S0) Or
AI = (NAD/NTD) × (C/n) Value of Floating Rate Bond:
8. Future Value (adj. for carry cash flows)
= F0(T) =FV0,T(S0+θ0−γ0) Fixed Income Forward/Future Price including 24. FB = C∑xre) 𝑃𝑉',¨r (1)+PV0,tn(1)
conversion factor:
9. F0(T) = FV0,T(S0 + θ0 – γ0) 25. Swap Pricing = ∑~
)y£â',¹d())
18. F0(T) = QF0(T)CF(T) tM` •"#,/t ())Ž

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 CFA Level II 2024 Formula Sheet

26. Value of fixed rate swap at time t =

V = NA(FS0−FSt)∑xre) PVt, ti 7. Single-period call = c = hS + PV(–hS– + 20. Two period Binomial Hedge Ratio h+
c–) § EE y§ E_
= u EEyu E_
27. Value of fixed rate bond in currency k:
FBk=Ck∑xre) 𝑃𝑉',¨r,z (1) + 𝑃𝑉',¹d,- (Park) 8. Single-period put
21. c = PV[π2c++ + 2π(1 – π)c+– + (1 – π)2c– –]
p = hS + PV(–hS– + p–)
28. Equilibrium Fixed Swap rate
22. p = PV[π2p++ + 2π(1 – π)p+– + (1 – π)2p–]
)y•"',¨x,`()) 9. Call: c = PV[πc+ + (1 – π)c–]
= rFIX,b= •"#,/t,• ())
Expected terminal option payoffs:
10. Put: p = PV[πp+ + (1 – π)p–]
Va = NAa,0(rFIX,a,0∑x@ 23. E(c2) = π2c++ + 2π(1 – π)c+– + (1 – π)2c
29. re) 𝑃𝑉¨,¨r,œ +
𝑃𝑉¨,¨xØ,œ )−StNAb,0(rFIX,b,0∑x@
re) 𝑃𝑉¨,¨r,` + 𝑏) where
24. E(p2) = π2p++ + 2π(1 – π)p+– + (1 – π)2p– –
probability of an up move
30. Vt = FBt(C0) – (St/St–)NAE – PV(Par – NAE) π = [FV(1) – d]/(u – d)
BSM Model
25. c = SN(d1) – e–rTXN(d2)
Expected terminal option payoffs
Learning Module 2 11. E(c1) = πc+ + (1 – π)c
Valuation of Contingent Claims 26. p = e–rTXN(–d2) – SN(–d1)
12. E(p1) = πp+ + (1 – π)p–
where
•x(u/y)Ž(šŽn+/+)
1. Call Value = cT = Max(0,ST – X) 13. Put Call Parity = S + p = PV(X) + c d1 = n√
d2=d1− 𝜎√𝑇
2. Put Value pT = Max(0,X – ST) Two Period Binomial Model:
For calls: 27. Replicating strategy cost = nSS + nBB
One Period Binomial Model: 14. c++ = Max(0,S++ – X) = Max(0,u2S – X)
28. nS = N(d1) > 0 for calls
3. Up factor 15. c+– = Max(0,S+– – X) = Max(0,udS – X)
uŽ
= u= Æ 29. nS = –N(–d1) < 0 for puts
16. c– – = Max(0,S– – – X) = Max(0,d2S – X)
uy 30. nB = –N(d2) < 0 for calls
4. Down factor = d= Æ For puts:
17. p++ = Max(0,X – S++) = Max(0,X – u2S) 31. nB = N(–d2) > 0 for puts
§ E y§ _
5. Call Hedge ratio h= u Eyu _ ≥0
18. p+– = Max(0,X – S+–) = Max(0,X – udS) Carry Benefit-Adjusted BSM Model
•E y•_ 32. c = Se–γTN(d1) – e–rTXN(d2)
6. Put Hedge ratio = u Eyu _ ≥0 19. p– – = Max(0,X – S– –) = Max(0,X – d2S)

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 CFA Level II 2024 Formula Sheet

52. c=c+Deltac(𝑆' −S)

33. p = e–rTXN(–d2) – Se–γTN(–d1) 42. PVA = ∑x…e) 𝑃𝑉',¨… (1)
Gamma:
Carry benefit-adjusted put–call parity: Payer Swaption: s _‹U
53. Gammac = Gammap = n(d1)
34. p + Se–γT = c + e–rTX 43. PAYSWN = (AP)PVA[RFIXN(d1) – RXN(d2)] Nn√

35. E(cT) = Se(r–γ)TN(d1) – XN(d2) Receiver swaption: Delta-plus- Gemma Approximation:

44. RECSWN = (AP)PVA[RXN(–d2) – RFIXN(–d1)]
4œ››œŒ
36. E(pT) = XN(–d2) – Se(r–γ)TN(–d1). 54. cB−c ≈ Deltac ( 𝑆' − 𝑆 ) + +
( 𝑆' −
Payer Swaption Model Value: +
𝑆 ) for calls
European Options on Futures 45. PAYSWN = PV[E(PAYSWN,T)]
4œ››œ•
55. pB−p ≈ Deltap ( 𝑆' − 𝑆 ) + ( 𝑆' −
37. c = e–rT[F0(T)N(d1) – XN(d2)] +

46. RECSWN = PV[E(RECSWN,T)], 𝑆 )+ for puts

38. p = e–rT[XN(–d2) – F0(T)N(–d1)]
where
39. Futures option put–call parity: E(PAYSWN,T) = erTPAYSWN ALTERNATIVE INVESTMENTS
c = e–rT[F0(T) – X] + p E(RECSWN,T) = erTRECSWN.

Price of Interest Rate call & Put options: Option Greeks & Implied Volatility
Learning Module 1
Introduction to Commodities and
40. C = (𝐴𝑃)𝑒 yš(¨…y)Ž¨›) 47. Call Deltac = e–δTN(d1) Community Derivatives
[FRA(0,tj−1,tm)N(d1)−RXN(d2)]
48. Put Deltap = –e–δTN(–d1)
41. p= (𝐴𝑃)𝑒 yš(¨…y)Ž¨›) 1. Theory of Storage states:
[RXN(−d2)−FRA(0,tj−1,tm)N(−d1)] 49. Optimal # of Hedging Units = NH Future Prices = Spot Price of the physical
•™š¨ô™•r™Ÿs•¨œ commodity + Direct Storage costs –
=− !s•¨œ‰
where Convenience Yiled.
•x[¦†©(',¨…y),¨›)/†y]Ž(n+/+)¨…y)
d1= Change in option Price based on Delta
n‡¨…y) 2. Price Return
d2=d1−σ ‡𝑡𝑗 − 1 Approximation: = (Current Price – Previous
Price)/Previous Price
Swaptions 50. cB−c ≅ Deltac(𝑆' −S) for calls
PV of annuity matching Forward Swap 3. Roll Return
payment: 51. pB−p ≅ Deltap(𝑆'−S) for puts

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 CFA Level II 2024 Formula Sheet

= P/FFO = Current stock prices / Year- 2. Arbitrage Pricing Theory

¡sœš ¨sš› ôª¨ªšsÆ §™x¨šœ§¨ §•™Ærx5 •šr§sy ahead estimated FFO = E (R p) = RF + λ1β p,1 + λ2β p,2 + …..+ λk
¦œš¨|sš ¨sš› ôª¨ªšs §™x¨šœ§¨ §•™Ærx5 •šr§s
Ž ¡sœš ¨sš› ôª¨ªšsÆ §™x¨šœ§¨ §•™Ærx5 •šr§s • × βp,k
5. Adjusted funds from operations
% of the position in the futures contract
AFFO = FFO – Non cash rent – Recurring 3. Carhart Four Factor Model
being rolled
Maintenance type Capital expenditures – = E (Rp) = RF+ βp1RMRF + + βp2SMB + +
Leasing costs βp3HML ++ βp4WML…..+ ℰ P
4. Total return
= Price return + Roll return + Collateral
where
return Learning Module 4
RMRF = Portfolio’s sensitivity to Mkt.
Hedge Fund Strategies
Index
Learning Module 2 SMB = small minus big
Overview of Types of Real HML = high minus low
Estate Investment WML = winners minus losers

4. Multifactor and / or Fundamental Factor

PORTFOLIO MANAGEMENT 1 Model
= Ri =ai + b i1 F1 + bi2 F2+ …..+ biKFK+ εi
Learning Module 3
Investment in Real Estate through 5. Standardized Beta:
"œ•ªs ™ô z ô™š œÆÆs¨ ry©_sšs5s _œ•ªs ™ô z
Publicly Traded Securities biK =
Learning Module 1 n (ô™š _œ•ªsÆ ™ô z)
Exchange-Traded Funds: Mechanics &
1. Net asset value per share: Applications 6. Actual Inflation Inf.
NAVPS = Net asset value / Number of = Predicted Inf. + Surprise Inf.
shares outstanding
7. Active Return
2. Appraised Value R = 𝑅• − 𝑅‘
Appraised value = Net operating income
(NOI) / Cap rate Learning Module 2 8. Active R (decomposition)
Using Multifactor Models
= ∑)z[(𝑃𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 𝑠𝑒𝑛𝑠𝑡𝑖𝑣𝑖𝑡𝑦) −
¥ìà
3. Capitalization rate = £´³¸Ð´¹× Ò¶ÚÎÐ (𝑏𝑒𝑛𝑐ℎ𝑚𝑎𝑟𝑘 𝑠𝑒𝑛𝑠𝑡𝑖𝑣𝑖𝑡𝑦)z ] ×
(𝐹𝑎𝑐𝑡𝑜𝑟 𝑅)z + 𝑠𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝑠𝑒𝑙𝑒𝑐𝑡𝑖𝑜𝑛
1. Multifactor Model
4. Price-to-funds from operations = Ri = ai + b i1I1 + bi2I2+ …..+ biK IK+ εi 9. Tracking Error TE = s(RP-RB)

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 CFA Level II 2024 Formula Sheet

Õ™ yÕš ∆ rx ™•¨r™x _œ•ªs

6. Delta = ∆ rx _œ•ªs ™ô ªxŸsš•brx5 1 − P¹,) 1
10. Information Ratio = = = −1
º¼O™ yOš ½
P¹,) E¹ žm
¦ ¹,)
∆ rx !s•¨œ
11. Active risk squared = s2(RP-RB) 7. Gemma = ∆ rx _œ•ªs ™ô ªxŸsš•brx5 Risk premium on risky assets:

12. Active risk squared = Active factor risk + ∆ rx ™•¨r™x _œ•ªs

8. Vega = 4. Relation b/w expected value and Cov.
Active specific risk ∆ rx _™•œ¨r•r¨b ™ô ªxŸsš•brx5
= 𝐸¨ (𝑥§𝑦§) = 𝐸¨ (𝑥§)𝐸¨ (𝑦§) + 𝐶𝑜𝑣(𝑥§, 𝑦§)

13. Active specific risk = ∑xre)(𝑤rœ )+ 𝜎œ+t 5. Alternate way to view the pricing
Learning Module 4 {/ ž•¨ /E`,©_`
where relation = 𝑃¨,Æ = +
Backtesting and Simulation )Ž•/,`
𝑤rœ = ith asset’s active weight 𝑐𝑜𝑣¨ ž𝑃¨¨Ž),Æy) , 𝑚
¦ ¨,)
𝜎œ+t is ith asset’s residual risk
6. Expected Holding period return
Learning Module 3 {/ ž•¨ /E`,©_` y•/,©
= 𝑟¨,Æ = •/,©
Measuring & Managing Market Risk

PORTFOLIO MANAGEMENT 2 7. Pricing for real default free i rate

t
6¦/E©
1. Standard Normal Distribution: =𝑃¨r = ∑¡
Æe) ©
†y• ¼)Ž•/,© ½
z-dist.= n
Learning Module 1
Learning Module 1
2. To obtain a 5% VaR Analysis of Active Portfolio Management
Economics & Investment Markets
= ž¼𝐸(†•) − 1.65𝜎• ½(−1) Portfolio Value

3. Equity Exposure Measure 1. Present Value Model 1. Benchmark Portfolio = 𝑅‘ = ∑¡

re) 𝑤‘,r 𝑅r
= E(Ri) = RF + βi[E(RM) – RF] ¢
P7 ÇÖ¤ ¡ É
7EV
= ∑¥ 2. Portfolio Return = 𝑅• = ∑¡
re) 𝑤•,r 𝑅r
ºe) V
¼)ŽÚ7,V Ž£7,V Ž¤\7,V½
4. Fixed Income Exposure Measure using
Duration 3. Value added return = RP-RB
∆‘ ∆b
2. Price of default-free bond certain to pay
= ‘
= −𝐷 )Žb off one unit of real consumption at time
† y†
5. Fixed Income Exposure Measure using s 4. Sharpe Ratio SR = u.!] († })
]
Duration & Convexity P¹,º = E¹ ž1m¥¹,º = E¹ žm¥¹,º
∆‘ ∆b ) ∆b } †] y†1 †ª
= = −𝐷 + 𝐶 ()Žb)} 5. Information Ratio IR = =
‘ )Žb + u.! (†] ) u.! (†] )
3. One period Rf interest rate l¹,)

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 CFA Level II 2024 Formula Sheet

• nª
= ∆𝑤r∗ = n}t }
6. 𝑆𝑅•+ = 𝑆𝑅‘+ + 𝐼𝑅 + t
¬∑¯
-t «† ∗
tM` } ®t 15. σÍ = 𝑇𝐶 u† 𝜎‘
1

Ǡ
7. S.D(RA) = u† × 𝑆. 𝐷(𝑅‘ )
1 10. Grinold Rule = 𝜇r = 𝐼𝐶𝜎r 𝑆r 16. 𝑆𝑅•+ = 𝑆𝑅‘+ + (𝑇𝐶)+ (𝐼𝑅∗ )+

8. Active Security R as residual R in • n

11. ∆w#∗ = n}t «6√‘†
ª Ex Ante Measurement of Skill
t
17. 𝜎© = 𝜎«6 √𝑁𝜎†´
Single factor statistical model
12. Anticipated value added for Active
=𝑅©r = 𝑅r − 𝑅‘ «6
portfolio = E(RA) = IC√𝐵𝑅𝜎© 18. 𝐸(𝑅© ) = 𝜎
n•µ ©

Multi factor statistical model

13. Transfer Coefficient TC= ¡
= 𝑅©r = 𝑅r − ∑z…e) 𝛽…,r , 𝑅… 19. Breadth BR = )Ž(¡y))¶
Cor(𝜇r ⁄𝜎r , ∆𝑤r 𝜎r )
9. Mean-var optimal security weights for
14. Fundamental Law: E(RA) =
uncorrelated active R subject to limit on
active portfolio risk (TC)(IC)√𝐵𝑅𝜎©

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