DHAIRYA KHARBANDA

CFA
FORMULA CHEATSHEET
LEVEL 1
LEVEL 2
LEVEL 3
 CFA® Program
Level I
FORMULA SHEET (2024) Version 1.0
Prepared by: Fabian Moa, CFA, FRM, CTP, FMVA, AFM, FSA Credential

FOR REFERENCE ONLY

(Note: Formula Sheet is not provided in the CFA exam)

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NOESIS EXED SDN BHD

Block VO2, Level 5, Unit 8, Lingkaran SV, Sunway Velocity, 55100 Kuala Lumpur, Malaysia
Website: www.noesis.edu.sg

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by Noesis Exed. CFA
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CFA Level 1 (2024) Formula Sheet – Noesis Exed

CFA Level 1 – Formula Sheet (2024)

Setting Up the Texas BA II Plus Financial Calculator

Video: https://youtu.be/0MS8d8QOFmc

Using Texas BA II Plus Financial Calculator

Video: https://youtu.be/LWmTTiZz8BU

Video (Requires Login to Facebook): https://fb.watch/nci5V7Dwtj/

QUANTITATIVE METHODS

Learning Module 1: Rates and Returns

ed
Determinants of Interest Rates

Interest rate, = Real risk-free rate + Inflation premium + Default risk premium
Ex
+ Liquidity premium + Maturity premium

(1 + Nominal risk-free rate) = (1 + Real risk-free rate) × (1 + Inflation premium)

s

Nominal risk-free rate = Real risk-free rate + Inflation premium

si

Maturity premium = Interest rate on longer-maturity, liquid Treasury debt

oe

– Interest rate on short-term Treasury debt

N

− +
Holding Period Return

= Price at the beginning of the period

where:

= Price at the end of the period

= Income

= 1+ × 1+ × …× 1 + −1
If given holding period returns , , …, over the holding period:

2
CFA Level 1 (2024) Formula Sheet – Noesis Exed

1 1
Arithmetic Return

= = + + ⋯+

Geometric Mean Return

= 1+ −1= 1+ × 1+ × …× 1+ −1

Harmonic Mean
= %& >0
∑# 1⁄

)*&+*, -. +*/ = 0 -,ℎ+*,-. +*/ × 2/ +& -. +*/

Relationship between Arithmetic Mean, Geometric Mean, and Harmonic Mean

34

ed
Money-Weighted Return (MWR)

=0
Ex
1 + 56
s
Time-Weighted Return (TWR)
si

Given the holding period returns for each sub-period, , , …,

oe

0 7/8-9*: 6 = ; 1 + × 1+ × …× 1 + < −1
If T > 1 year, then
⁄

= 1 year, then
N

0 7/8-9*: 6 = 1 + × 1+ × …× 1 + −1
If

< 1 year, then

6 %& ℎ&8:- > ?* -&: = 1 + × 1+ × …× 1+ −1
If

EFA
Non-Annual Compounding

@ = 4@A B1 + D
C
+

+ = Number of compounding periods per year

where:

G = Quoted annual interest rate

H = Number of years

3
CFA Level 1 (2024) Formula Sheet – Noesis Exed

= L1 + MNNOKP Q −1
R
Annualizing Returns
I##JIK

I##JIK = L1 + FS# TKP Q − 1

= L1 + UI KP Q −1
R
I##JIK

= L1 + UI KP Q − 1
assuming 252 trading days per year
R
MNNOKP assuming 5 trading days per week

= * VW,
Continuously Compounded Returns

, = ln B D

, = , + , + ⋯+ E , E + E ,

ed
Real Returns

(1 + real return) = (1 + real risk-free rate) × (1 + risk premium)

Ex
Pre-Tax and After-Tax Nominal Return

After-tax nominal return = Pre-tax nominal return × (1 – Tax rate)

s

;1 + *- /\ &+- /8 *,7 × 1 − /\ /,* <

si

0%,* -,/\ */8 *,7 = −1

1 + %8/,-& ? *+-7+
oe

Leveraged Return
N

@_
Return on a leveraged portfolio

= + −
] ^
@` ^ a

^ = Return on the investment portfolio (unleveraged)

where:

a = Cost of debt
@_ = Debt/borrowed funds
@` = Equity of the portfolio

4
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 2: The Time Value of Money in Finance

4@
4@ = @ 1 + @=
1+

4@ = Future value at time ,

where:

@ = Present value
= Discount rate per period
, = Number of compounding periods

As compounding frequency becomes very large (i.e., continuous compounding)

4@ = @* V @ = 4@ * EV

4@
Present Value of Zero-Coupon Bond

@ b-c.&7 , d& : =
1+

ed
4@ = Principal (or Face Value)
where: Ex
= Market discount rate per period
, = Maturity of bond

4@ ⁄
s

=B D −1
@
si
oe

5 5 5 + 4@
Present Value of Coupon Bond

@ 3&7?& d& : = + +⋯+

1+ 1+ 1+ A
N

@ = Bond’s price
where:

5 = Periodic coupon payment

4@ = Face value
H = Number of periods
= Market discount rate per period

5
Present Value of a Perpetual Bond (Perpetuity)

@ * ?*,7/8 d& : =

5
CFA Level 1 (2024) Formula Sheet – Noesis Exed

@
Annuity Instruments (e.g., Mortgage)

0=
1− 1+ E

0 = Periodic cash flow

where:

= Market interest rate per period

@ = Present value or principal amount of loan/bond
, = Number of payment periods

b
Price of a Preferred Share

@ =

b = Fixed periodic dividend

where:

= Expected rate of return

ed
Price of a Common Share

Constant Dividend Growth Rate into Perpetuity

Ex
b 1+> be
@ = = >>
−> −>
s

b = Common dividend at time ,

where:
si

> = Constant growth rate

= Expected rate of return
oe

be
= +>
@
N

b
@ f × 1+>
=
f −>

be
@ fe
=
fe −>

f = Earnings per share for period ,

where:

= Trailing price-to-earnings ratio

^gh
`h

= Forward price-to-earnings ratio

^gh
`hij

6
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Two-stage Dividend Discount Model

#
b 1 + >G f k e#
@ = +
1+ 1+ #

>G = Higher short-term dividend growth rate

where:

>] = Lower long-term dividend growth rate

= Initial growth phase
f k e# = Stock value in periods (Terminal value)
b e#e
=
− >]

1+
Forward Rate

4, = −1
1+

ed
4 , = One-year forward rate one year from now
where:

= Discount rate on one-year risk-free discount bond

= Discount rate on two-year risk-free discount bond
Ex
Learning Module 3: Statistical Measures of Asset Returns
s
si

Measures of Central Tendency

#
1
k/+?8* 5*/ , =
oe

= Observation - (- = 1, 2, 3, … , )
N

where:

Position of median =
Median
AJFnNV So SnGNVpI S#Ge

Interquartile range = qr − q
Quantiles

where: q = First quartile

qr = Third quartile

7
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Box and Whisker Plot

s??* %* .* = qr + 1.5 × q

v&w* %* .* = q − 1.5 × q

Measures of Dispersion

Range = Maximum value – Minimum value

∑# | − |
Mean Absolute Deviation (MAD)

50b =

∑# −
Sample Variance

c =

ed
−1

Sample Standard Deviation

Ex
∑# −
c=y
−1
s
si

Sample Target Semideviation

∑#{| }_ −d
c =y
IVzN
−1
oe

d = target
where:

= total number of sample observations

N

c
Coefficient of Variation
3@ =

1 ∑# − r
Sample Skewness

k~*w *cc ≈ B D
cr

1 ∑# − •
Sample Excess Kurtosis

€` ≈ B D −3
c•

8
CFA Level 1 (2024) Formula Sheet – Noesis Exed

1
#
Sample Covariance

c{‚ = − ƒ −ƒ
−1

c{‚
Sample Correlation Coefficient
=
{‚
c{ c‚

Learning Module 4: Probability Trees and Conditional Expectations

#
Expected Value of a Discrete Random Variable

f =

„ = f; − f <

ed
Variance of a Random Variable

= ; −f <
Ex
f |k = |k + |k + ⋯+ # |k
Conditional Expected Value of a Random Variable
#
s
si

„ |k = |k ; − f |k < + |k ; −f |k < + ⋯
Conditional Variance of a Random Variable

+ # |k ; # − f # |k <
oe

f = f |k k +f |k k + ⋯+ f |k# k#
N

Total Probability Rule for Expected Value

where: k , k , …, k# are mutually exclusive and exhaustive events.

d|0
Bayes’ Formula

0|d = × 0
d
%& +/,-& |f…* ,
f…* ,| %& +/,-& = × f…* ,
%& +/,-&

Video (Bayes’ Formula and Total Probability Rule): https://youtu.be/9_h0EzssPZ4

9
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 5: Portfolio Mathematics

For assets in a portfolio

f ^ =w f +w f + ⋯ + w# f
Expected return on portfolio
#

# #
Variance on portfolio

„ ^ = w w† 3&…L , †Q
†

# #E
Requires variances and distinct covariances to estimate portfolio variance.

3&…L , †Q = f ‡L −f Qˆ − fL † Q‰Š
Covariance

ed
†

1
#

= L − QL − †Q
−1 , †,
Ex
For a two-asset ( = 2) portfolio:
„ ^ = w „ + w „ + 2w w 3&… ,
s

where: 3&… , =‹ , ׄ ׄ
si
oe

Video: https://youtu.be/lUwulZ9ONC0

For a three-asset ( = 3) portfolio:

„ ^ = w „ + w „ + wr „r + 2w w 3&… ,
N

+2w wr 3&… , r + 2w wr 3&… , r

Covariance Given a Joint Probability Function

3&… Œ, _ = L Œ, , _,† Q ו Œ, −f Œ Ž×• _,† −f _ Ž

†

If X and Y are uncorrelated, then f ƒ =f f ƒ

If X and Y are independent, then ,ƒ = ƒ

10
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Safety-First Optimal Portfolio

f −
Safety-First Ratio

k4 /,-& =
^ ]
„^

kℎ& ,%/88 -c~ = Pr;f ^ < ]< = H& +/8 −k4 /,-&

] = Investor’s threshold level

where:

f ^ = Expected portfolio return

„^ = Portfolio standard deviation

Video: https://youtu.be/S3x5JrGIOUA

ed
Learning Module 6: Simulation Methods

Lognormal Distribution Ex
‘] = exp ‘ + 0.50„
Mean of a lognormal random variable
s

„] = exp 2‘ + „ × ;exp „ − 1<

Variance of a lognormal random variable
si
oe

‘ = Mean of the normal random variable

where:

„ = Variance of the normal random variable

N

Continuously Compounded Rates of Return

= expL , Q

= Current asset price

where:

= Asset price at time

, = Continuously compounded return from 0 to

, = , + , + ⋯+ E , E +
If returns are independently and identically distributed (i.i.d.), then
E ,

11
CFA Level 1 (2024) Formula Sheet – Noesis Exed

If the one-period continuously compounded returns are i.i.d. random variables with mean ‘
and „ , then
fL , Q=‘
„ L , Q=„

„L , Q = „√

Learning Module 7: Estimation and Inference

−
kℎ/ ?* /,-& =
^ –
„^

^ = Portfolio return
where:

– = Risk-free rate
„^ = Portfolio standard deviation of return

ed
@/ -/ .* &% ,ℎ* c/+?8- > :-c, -—7,-& „
=
&% ,ℎ* c/+?8* +*/ c
Ex
k,/ :/ : * & &% „
=
,ℎ* c/+?8* +*/ √
s

„ = Population standard deviation

where:
si

= Sample size
oe

Note: If „ is not known, use c, the sample standard deviation.

N

Bootstrap Resampling

1
_

c{ = L˜™n − ˜̅Q
d−1
n

c{ = Estimate of the standard error of the sample mean

where:

d = Number of resamples drawn from the original sample

˜™n = Mean of a resample
˜̅ = Mean across all the resample means

12
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 8: Hypothesis Testing

Confidence level = 1 − ›

Power of the test = 1 − œ

› = Significance level (Probability of Type I error)

where:

œ = Probability of Type II error

Test of a Single Mean

−‘
Test statistic

,=
c ⁄√

ed
Degrees of freedom = −1

c
1 − › % 3& %-:* .* ,* …/8 = + 3 -,-./8 …/87* × B D
Ex
√

Test of the Difference in Means

s
si

− − ‘U − ‘U
Test statistic

,=
U U
oe

cž cž
y +
U U
N

Degrees of freedom = U + U −2

− 1 cU + U − 1 cU
cž =
U

U + U −2

Test of the Mean of Differences

:̅ − ‘U
Test statistic

,=
cU

Degrees of freedom = −1

13
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Test of a Single Variance

−1 c
Test statistic

Ÿ =
„

Degrees of freedom = −1

Test of the Difference in Variances

c_NoSVN
Test statistic

4=
cŒo NV

Degrees of freedom = − 1, −1

ed
Test of a Correlation Ex
√ −2
Test statistic

,=
√1 −
s

Degrees of freedom = −2
si
oe

Test of Independence (Categorical Data)

L − f †Q
F
Test statistic
N

Ÿ =
†
f†

Degrees of freedom = −1 .−1

+ = Number of cells in the table

where:

† = Number of observations in each cell of row - and column ¡

f † = Expected number of observations in each cell of row - and column ¡

14
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 9: Parametric and Non-Parametric Tests of Independence

Test of a Correlation

√ −2
Test statistic

,=
√1 −

Degrees of freedom = −2

c{‚
=
Pearson Correlation (or Bivariate Correlation)
{‚
c{ c‚
Spearman Rank Correlation Coefficient

6 ∑# :
=1−
−1

ed
C

where:
: = Difference in ranks
Ex
Test of Independence (Categorical Data)
s
si

L − f †Q
F
Test statistic

Ÿ =
†
f†
oe

Degrees of freedom = −1 .−1

N

+ = Number of cells in the table

where:

† = Number of observations in each cell of row - and column ¡

f † = Expected number of observations in each cell of row - and column ¡
&,/8 &w - × &,/8 .&87+ ¡
=
…* /88 ,&,/8

−f†
Standardized Residual (or Pearson Residual)
k,/ :/ :-9*: *c-:7/8 =
†
f†

15
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 10: Simple Linear Regression

ƒ =— +— + ⋯ + —# # + £ , - = 1, 2, … ,

ƒ = Dependent variable
where:

= Independent variable
— = Intercept
— = Slope coefficient, - = 1, 2, … ,
£ = Error term
— , — , … , —# = Regression coefficients

Ī = Ѫ + Ѫ +*

Ī = Estimated value on the regression line for the ith observation

where:

ed
—™ = Intercept
—™ = Slope
* = Residual for the ith observation
Ex
3&…/ -/ .* &% / : ƒ ∑# ƒ − ƒ −
—™ = =
@/ -/ .* &% ∑# −
s

—™ = ƒ − —™
si
oe

Sum of Squares Total, kk = ∑# ƒ −ƒ = kk + kkf

Sum of Squares Regression, kk = ∑# Lƒ™ − ƒQ

N

Sum of Squares Error, kkf = ∑# Lƒ − ƒ™ Q = ∑# *

kk kkf
Coefficient of Determination

= =1−
kk kk

3&…/ -/ .* &% / : ƒ
Correlation coefficient

=
k,/ :/ : :*…-/,-& &% k,/ :/ : :*…-/,-& &% ƒ

Note: (Correlation coefficient)2 = Coefficient of determination

16
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Sample standard deviation of X

∑# −
k{ = y
−1

Sample standard deviation of Y

∑# ƒ −ƒ
k‚ = y
−1

f £ = „¤ , - = 1, 2, … ,
Homoskedasticity

ANOVA F-Test

kk
Mean square regression (MSR)

5k =

ed
Ex ~

kkf
Mean square error (MSE)

5kf =
−~−1
s

5k
F-distributed test statistic

4=
si

5kf
oe

= Number of observations
where:

~ = Number of independent variables

N

Standard error of estimate

∑# Lƒ − ƒ™ Q
cN = √5kf = y
−~−1

17
CFA Level 1 (2024) Formula Sheet – Noesis Exed

—™ − d
Hypothesis Test of the Slope Coefficient

,=
cn™j

Degrees of freedom, :% = −~−1

d = Hypothesized population slope

where:

cn™j = Standard error of the slope coefficient

cN
=
¥∑# −

—™ − d
Hypothesis Test of the Intercept

,# =
NV¦Nž
cn™W

ed
Standard error of the intercept, cn™W

1
Ex
cn™W = y +
∑# −
s

ƒ™o ± ,¨⁄ × co
Prediction Intervals
si

where: Īo = Ѫ + Ѫ
oe

o
N

1 L − Q
Variance of the prediction error of Y, given X

co = cN ©1 + + ª
o
− 1 c{

Standard error of the forecast

1 L − Q
co = cN y1 + +
o
− 1 c{

18
CFA Level 1 (2024) Formula Sheet – Noesis Exed

ln ƒ = — + —
The Log-Lin Model

ƒ = — + — ln
The Lin-Log Model

ln ƒ = — + — ln
The Log-Log Model

Learning Module 11: Introduction to Big Data Techniques

No formula.

ed
Ex
s
si
oe
N

19
CFA Level 1 (2024) Formula Sheet – Noesis Exed

ECONOMICS

Learning Module 1: Firms and Market Structures

Total profit = Total revenue – Total cost

Economic profit = Total revenue – Total economic costs

Accounting profit = Total revenue – Total accounting costs

&,/8 *…* 7* = -.* × q7/ ,-,« = ×q

&,/8 *…* 7*
0…* />* *…* 7* =
q7/ ,-,«

Δ 3
5/ >- /8 .&c, =

ed
Δq

&,/8 …/ -/—8* .&c,

0…* />* …/ -/—8* .&c, =
Ex
q7/ ,-,«

&,/8 %-\*: .&c,

0…* />* %-\*: .&c, =
q7/ ,-,«
s
si

Total cost = Total fixed cost + Total variable cost

oe

Average total cost = Average fixed cost + Average variable cost

N

#
Concentration Ratio

3& .* , /,-& /,-& = 5/ ~*, cℎ/ *

#
Herfindahl-Hirschman Index (HHI)

22 = 5/ ~*, cℎ/ *

Learning Module 2: Understanding Business Cycles

No formula

20
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 3: Fiscal Policy

d7:>*, c7 ?87c⁄ :*%-.-, = ) − +d

) = Government spending
where:

= Taxes
d = Payments of transfer benefits

ƒb = ƒ − H = 1 − , ƒ
Disposable Income

, = Net tax rate

where:

H = Net taxes = Taxes – Transfers

,ƒ = Total tax revenue

ed
1
The Fiscal Multiplier

4-c./8 +78,-?8-* =
1−. 1−,
Ex
. = Marginal propensity to consume
where:

, = Tax rate
s
si

Learning Module 4: Monetary Policy

H*7, /8 /,* = * : > &w,ℎ + %8/,-& ,/ >*,

oe
N

Learning Module 5: Introduction to Geopolitics

No formula

Learning Module 6: International Trade

No formula

21
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 7: Capital Flows and the FX Market

*/8 *\.ℎ/ >* /,*U⁄o = kU⁄o ×

o

L1 + %Δ o Q
% 3ℎ/ >* - */8 *\.ℎ/ >* /,* = L1 + %ΔkU⁄o Q × −1
1 + %Δ U
≈ %ΔkU⁄o + %Δ o − %Δ U

Percentage change in base currency % (vs currency :)

fLkU⁄o Q − kU⁄o
kU⁄o

kU⁄o = Spot exchange rate

where:

o = General price level of goods indexed in currency %

ed
U = General price level of goods indexed in currency :

Learning Module 8: Exchange Rate Calculations

Ex
Cross-Rate
0 0 3
= ×
s

d 3 b
si
oe

Forward Rate
1+ ×
4Œ⁄_ = kŒ⁄_ × - ®
Œ
1+ _×
N

4& w/ : ?&- ,c = 4Œ⁄_ − kŒ⁄_

−
= kŒ⁄_ B D
Π_
1+ _

kŒ⁄_ = Spot exchange rate

where:

4Œ⁄_ = Forward exchange rate

= Time to maturity

22
CFA Level 1 (2024) Formula Sheet – Noesis Exed

CORPORATE ISSUERS

Learning Module 1: Organizational Forms, Corporate Issuer Features, and Ownership

No formula

Learning Module 2: Investors and Other Stakeholders

No formula

Learning Module 3: Working Capital and Liquidity

No formula

Learning Module 4: Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

ed
3/cℎ
b/«c &% - …* ,& « b/«c c/8*c b/«c ?/«/—8*c
.& …* c-& = + −
& ℎ/ : &7,c,/ :- > &7,c,/ :- >
.«.8*
Ex
aIPG # ‚NIV
f0 &% k7??8-* b-c.&7 ,% ^IPFN# ^NV SUEa G¦SJ# ^NV SU
= B1 + D −1
4- / .- > 100% − b-c.&7 ,%
s

&,/8 w& ~- > ./?-,/8 = 37 * , /cc*,c − 37 * , v-/—-8-,-*c

si

H*, w& ~- >

= 37 * , /cc*,c *\.87:- > ./cℎ / : +/ ~*,/—8* c*.7 -,-*c
oe

./?-,/8
−37 * , v-/—-8-,-*c *\.87:- > cℎ& ,-,* + / : .7 * , :*—,
N

= Cash received from customers

Cash flow from operations

+ Interest and dividends received on financial investments

− Cash paid to employees and suppliers
− Taxes paid to governments
− Interest paid to lenders

Free cash flow = Cash flow from operations – Investments in long-term assets

37 * , /cc*,c
37 * , /,-& =
37 * , 8-/—-8-,-*c

23
CFA Level 1 (2024) Formula Sheet – Noesis Exed

3/cℎ + kℎ& ,-,* + +/ ~*,/—8* - c, 7+* ,c + *.*-…/—8*c

q7-.~ /,-& =
37 * , 8-/—-8-,-*c

3/cℎ + kℎ& ,-,* + +/ ~*,/—8* - c, 7+* ,c

3/cℎ /,-& =
37 * , 8-/—-8-,-*c

Learning Module 5: Capital Investments and Capital Allocation

34 34 34 34
Net Present Value

H @ = 34 + + + ⋯+ =
1+ 1+ 1+ 1+

34 = After-tax cash flow at time ,

where:

= Required rate of return

34 = Initial outlay

ed
34
Internal Rate of Return

=0
1+
Ex
Video: https://youtu.be/bzck7QLhICw
s
si

0%,* -,/\ &?* /,- > ? &%-,

Return on Invested Capital

3=
0…* />* - …*c,*: ./?-,/8
oe

?* /,- > ? &%-, × 1 − /\ /,*

=
0…* />* ,&,/8 8& >-,* + 8-/—-8-,-*c / : *¯7-,« E ,
N

0%,* -,/\ &?* /,- > ? &%-, k/8*c

3= ×
k/8*c 0…* />* - …*c,*: ./?-,/8

Real Options in Capital Budgeting

&¡*., H @ &¡*., H @
= − ?,-& .&c, + ?,-& …/87*
w-,ℎ &?,-& w-,ℎ&7, &?,-&

24
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 6: Capital Structure

6033 = wU 1 − , + wN
Weighted Average Cost of Capital
U N

wU = Target weight of debt in capital structure = ae`

a
where:

wN = Target weight of common stock in capital structure = ae`

`

U = Before-tax marginal cost of debt

, = Marginal tax rate
U 1 − , = After-tax marginal cost of debt
N = Marginal cost of common stock

4-\*: .&c,c
Operating Leverage

?* /,- > 8*…* />* =

&,/8 .&c,c

ed
&%-, —*%& * - ,* *c, / : ,/\*c
Interest Coverage
Ex
,* *c, .&…* />* =
,* *c, *\?* c*
s
Modigliani-Miller Capital Structure Propositions
@] = @° + ,b
si

b
= + − 1−,
N U
f
oe

34N − Ub 1−,
f=
N
N

34N 1 − ,
@] =
±Œ²²

@] = Value of levered firm

where:

@° = Value of unlevered firm

, = Marginal tax rate
N = Cost of equity
U = Cost of debt
= Cost of capital (for a 100% equity-financed company)
b = Market value of debt
f = Market value of equity
34N = After-tax cash flows to shareholders
U b = Interest expense on debt

25
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Static Trade-off Theory of Capital Structure

@] = @° + ,b − @ 3&c,c &% 4- / .-/8 b-c, *cc

Learning Module 7: Business Models

No formula

ed
Ex
s
si
oe
N

26
CFA Level 1 (2024) Formula Sheet – Noesis Exed

FINANCIAL STATEMENT ANALYSIS

VOLUME 2
Learning Module 1: Introduction to Financial Statement Analysis

No formula

Learning Module 2: Analyzing Income Statements

Gross profit = Revenue – Cost of Goods Sold

Operating income = Gross margin – Selling, General, and Administrative Expense

Taxable income = Operating income – Interest expense

Net income = Taxable income − Taxes

ed
Ending shareholders’ equity = Beginning shareholders’ equity + Net income
+ Other comprehensive income
Ex
− Dividends
+ Net capital contributions from shareholders

Ending retained earnings = Beginning retained earnings + Net income – Dividends

s
si

H*, - .&+*
oe

Return on Equity

f=
0…* />* cℎ/ *ℎ&8:* c ³ *¯7-,«
N

H*, - .&+*
Net Profit Margin

H*, ? &%-, +/ >- =

*…* 7*

H*, - .&+* − *%* *: :-…-:* :c

Basic EPS

d/c-. f k =
6*->ℎ,*: /…* />* 7+—* &% cℎ/ *c &7,c,/ :- >

H*, - .&+*
Diluted EPS (for convertible preferred stock)

b-87,*: f k =
6*->ℎ,*: /…* />* 7+—* H*w .&++& cℎ/ *c ,ℎ/, w&78:
+
&% cℎ/ *c &7,c,/ :- > ℎ/…* —** -cc7*: /, .& …* c-&

27
CFA Level 1 (2024) Formula Sheet – Noesis Exed

0%,* ,/\ - ,* *c, *\?* c*

Diluted EPS (for convertible debt)
H*, - .&+* − *%* *: :-…-:* :c +
b-87,*: f k = & .& …* ,-—8* :*—,
6*->ℎ,*: /…* />* 7+—* H*w .&++& cℎ/ *c ,ℎ/, w&78:
+
&% cℎ/ *c &7,c,/ :- > ℎ/…* —** -cc7*: /, .& …* c-&

H*, - .&+* −
*%* *: :-…-:* :c
Diluted EPS (for options)

b-87,*: f k =
6*->ℎ,*: /…* />* 7+—* 0::-,-& /8 .&++&
+ cℎ/ *c -cc7*: 7?&
&% cℎ/ *c &7,c,/ :- >
.& …* c-&

0::-,-& /8 .&++& H*w cℎ/ *c kℎ/ *c *?7 .ℎ/c*: &?& ,-& &% «*/
Treasury stock method

cℎ/ *c -cc7*: 7?& = ´ -cc7*: /, − w-,ℎ ./cℎ *.*-…*: µ × :7 - > wℎ-.ℎ &?,-& c
.& …* c-& &?,-& *\* .-c* % &+ &?,-& *\* .-c*: w* * &7,c,/ :- >

Video (Basic & Diluted EPS): https://youtu.be/2C-mwVqO2SQ

ed
Learning Module 3: Analyzing Balance Sheets

6& ~- > ./?-,/8 = 37 * , /cc*,c − 37 * , 8-/—-8-,-*c

Ex
37 * , /cc*,c
Liquidity Ratios

37 * , /,-& =
37 * , 8-/—-8-,-*c
s
si

3/cℎ + 5/ ~*,/—8* c*.7 -,-*c + *.*-…/—8*c

q7-.~ /.-: ,*c, /,-& =
37 * , 8-/—-8-,-*c
oe

3/cℎ + 5/ ~*,/—8* c*.7 -,-*c

3/cℎ /,-& =
37 * , 8-/—-8-,-*c
N

v& >-,* + :*—,

Solvency Ratios

v& >-,* + :*—,-,&-*¯7-,« =

&,/8 *¯7-,«

&,/8 :*—,
b*—,-,&-*¯7-,« =
&,/8 *¯7-,«

&,/8 :*—,
&,/8 :*—, =
&,/8 /cc*,c

&,/8 /cc*,c
4- / .-/8 8*…* />* =
&,/8 *¯7-,«

28
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 4: Analyzing Statements of Cash Flows I

3/cℎ %8&w 3/cℎ %8&w 3/cℎ %8&w

f :- > d*>- - >
= + % &+ &?* /,- > + % &+ - …*c,- > + % &+ %- / .- >
./cℎ ./cℎ
/.,-…-,-*c /.,-…-,-*c /.,-…-,-*c

f :- > /..&7 ,c d*>- - > /..&7 ,c 3/cℎ .&88*.,*:

= + *…* 7* −
*.*-…/—8* *.*-…/—8* % &+ .7c,&+* c

f :- > d*>- - > 3&c, &%

= + 7 .ℎ/c*c −
- …* ,& « - …* ,& « >&&:c c&8:

f :- > /..&7 ,c d*>- - > /..&7 ,c 3/cℎ ?/-:

= + 7 .ℎ/c*c −
?/«/—8* ?/«/—8* ,& c7??8-* c

f :- > w/>*c d*>- - > w/>*c 6/>*c 3/cℎ ?/-:

= + −
?/«/—8* ?/«/—8* *\?* c* ,& *+?8&«**c

ed
f :- > - ,* *c, d*>- - > - ,* *c, ,* *c, 3/cℎ ?/-:
= + −
?/«/—8* ?/«/—8* *\?* c* %& - ,* *c,
Ex
f :- > - .&+* d*>- - > - .&+* .&+* ,/\ 3/cℎ ?/-:
= + −
,/\ ?/«/—8* ,/\ ?/«/—8* *\?* c* %& - .&+* ,/\*c

f¯7-?+* , f¯7-?+* ,
s

f :- > &f = d*>- - > &f + −

?7 .ℎ/c*: c&8:
si

0..7+78/,*:
f :- > /..7+78/,*: d*>- - > /..7+78/,*: b*? *.-/,-&
oe

= + − :*? *.-/,-& &

:*? *.-/,-& :*? *.-/,-& *\?* c*
*¯7-?+* , c&8:
N

)/- & c/8* 3/cℎ *.*-…*: % &+ d&&~ …/87* &%

Note:
= −
&% *¯7-?+* , c/8* &% *¯7-?+* , *¯7-?+* , c&8:

f :- > *,/- *: d*>- - > *,/- *: H*,

= + − b-…-:* :c
*/ - >c */ - >c - .&+*

29
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 5: Analyzing Statements of Cash Flows II

4344 = H + H33 + , 1 − /\ /,* − 43 … − 63 …

Free Cash Flow To Firm (FCFF)

= 34 + , 1 − /\ /,* − 43 …

H = Net income
where:

H33 = Non-cash charges (e.g., depreciation and amortization)

, = Interest expense
43 … = Capital expenditures
63 … = Working capital expenditures
34 = Cash flow from operating activities = H + H33 − 63 …

434f = 34 − 43 … + H*, d& &w- >

Free Cash Flow to Equity (FCFE)

ed
H*, d& &w- > = b*—, -cc7*: − b*—, *?/-:
where:
Ex
Performance Ratios

34
3/cℎ %8&w ,& *…* 7* =
*…* 7*
s
si

34
3/cℎ *,7 & /cc*,c =
0…* />* ,&,/8 /cc*,c
oe

34
3/cℎ *,7 & *¯7-,« =
0…* />* cℎ/ *ℎ&8:* c *¯7-,«
N

34
3/cℎ ,& - .&+* =
?* /,- > - .&+*

34 − *%* *: :-…-:* :c
3/cℎ %8&w ?* cℎ/ * =
H7+—* &% .&++& cℎ/ *c &7,c,/ :- >

Coverage Ratios

34
b*—, .&…* />* /,-& =
&,/8 :*—,

30
CFA Level 1 (2024) Formula Sheet – Noesis Exed

34 + ,* *c, ?/-: + /\*c ?/-:

,* *c, .&…* />* /,-& =
,* *c, ?/-:

34
*- …*c,+* , /,-& =
3/cℎ ?/-: %& 8& > ,* + /cc*,c

34
b*—, ?/«+* , /,-& =
3/cℎ ?/-: %& 8& > ,* + :*—, *?/«+* ,

34
b-…-:* : ?/«+* , /,-& =
b-…-:* :c ?/-:

34
…*c,- > / : %- / .- > /,-& =
3/cℎ %8&w %& - …*c,- > / :
%- / .- > /.,-…-,-*c

ed
Learning Module 6: Analysis of Inventories

…* ,& -*c = v&w* &% 3&c, / : H*, */8-9/—8* @/87* H @

IFRS
Ex
H @ = Estimated selling price less estimated costs of completion and costs necessary to
s
complete the sale
si

…* ,& -*c = v&w* &% 3&c, / : H @

US GAAP
oe

…* ,& -*c = v&w* &% 3&c, / : 5/ ~*, @/87*

For last-in, first-out (LIFO) method or retail inventory methods
N

5/ ~*, …/87* = 37 * , *?8/.*+* , .&c, c7—¡*., ,& 8&w* / : 7??* 8-+-,c

Lower limit = H @ − H& +/8 ? &%-, +/ >-

Upper limit = H @

Video: https://youtu.be/V8C31msIBzs

3&c, &% c/8*c

…* ,& « ,7 &…* /,-& =
0…* />* - …* ,& «

H7+—* &% :/«c - ?* -&:

b/«c &% - …* ,& « & ℎ/ : =
…* ,& « ,7 &…* /,-&

31
CFA Level 1 (2024) Formula Sheet – Noesis Exed

f :- > - …* ,& « 4 4 = f :- > - …* ,& « v 4 +v 4 *c* …*

3 )k 4 4 = 3 )k v 4 − 3ℎ/ >* - v 4 *c* …*

Learning Module 7: Analysis of Long-Term Assets

H*, —&&~ …/87* = 2-c,& -./8 .&c, − 0..7+78/,*: :*? *.-/,-&

)/- & c/8* &% /cc*, = k/8* ? &.**:c − H*, —&&~ …/87*

fc,-+/,*: ,&,/8 fc,-+/,*: />* fc,-+/,*:

= +
7c*%78 8-%* &% *¯7-?+* , *+/- - > 8-%*

fc,-+/,*: ,&,/8 ) &cc &f

=
7c*%78 8-%* 0 7/8 :*? *.-/,-& *\?* c*

fc,-+/,*: />* 0..7+78/,*: :*? *.-/,-&

ed
=
&% *¯7-?+* , 0 7/8 :*? *.-/,-& *\?* c*

fc,-+/,*: H*, &f

Ex
=
*+/- - > 8-%* 0 7/8 :*? *.-/,-& *\?* c*
s

2-c,& -./8 .&c, − k/8…/>* …/87*

Straight-line Depreciation

0 7/8 :*? *.-/,-& *\?* c* =

fc,-+/,*: 7c*%78 8-%*
si
oe

*…* 7*
Fixed Asset Turnover

4-\*: /cc*, ,7 &…* =

0…* />* *, &f
N

Impairment of Long-Lived Assets

Impairment = Carrying amount – Recoverable amount

IFRS

Recoverable amount = max(Fair value less costs to sell, Value in use)

where:

US GAAP

Impairment = Carrying amount – Fair value

If asset’s carrying amount > undiscounted expected future cash flows:

32
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 8: Topics in Long-Term Liabilities and Equity

Lessee Accounting – Finance Lease (IFRS)

,* *c, *\?* c*
= +?8-*: - ,* *c, /,* × d*>- - > 8*/c* 8-/—-8-,«
& 8*/c*

- .-?/8 *?/«+* , = v*/c* ?/«+* , − ,* *c, *\?* c*

f :- > 8*/c* d*>- - > 8*/c*

= + ,* *c, *\?* c* − v*/c* ?/«+* ,
8-/—-8-,« 8-/—-8-,«

0+& ,-9/,-& -,-/8 s /cc*, …/87* − k/8…/>* …/87*

If ROU asset is amortized on a straight-line basis:

=
*\?* c* v*/c* ,* +

f :- > s d*>- - > s 0+& ,-9/,-&

= −

ed
/cc*, /cc*, *\?* c*

Lessee Accounting – Operating Lease (US GAAP)

Ex
0+& ,-9/,-&
= v*/c* ?/«+* , − ,* *c, *\?* c*
*\?* c*
s

f :- > s d*>- - > s 0+& ,-9/,-&

= −
/cc*, /cc*, *\?* c*
si

f :- > 8*/c* d*>- - > 8*/c* 0+& ,-9/,-&

oe

= −
8-/—-8-,« 8-/—-8-,« *\?* c*
N

Stock Options

4/- …/87* &% &?,-& c > / ,*:

3&+?* c/,-& *\?* c* =
@*c,- > ?* -&:

33
CFA Level 1 (2024) Formula Sheet – Noesis Exed

VOLUME 3
Learning Module 1: Analysis of Income Taxes

Deferred Tax Asset/Liability

b*%* *: ,/\ 3/ «- > /+&7 , /\ —/c*

For Assets:
= /\ /,* × B − D
8-/—-8-,«⁄ /cc*, &% /cc*, &% /cc*,

b*%* *: ,/\ /\ —/c* 3/ «- > /+&7 ,

For Liabilities:
= /\ /,* × B − D
8-/—-8-,«⁄ /cc*, &% 8-/—-8-,« &% 8-/—-8-,«

3ℎ/ >*c - :*%* *: ,/\

.&+* ,/\ *\?* c* = .&+* ,/\ ?/«/—8* +
/cc*,c / : 8-/—-8-,-*c

.&+* ,/\ *\?* c*

f%%*.,-…* ,/\ /,* =

ed
*-,/\ - .&+*

3/cℎ ,/\
3/cℎ ,/\ /,* =
Ex
*-,/\ - .&+*

Learning Module 2: Financial Reporting Quality

s
si

k&%,w/ * &c,-
Adjusted EBITDA
0:¡7c,*: 0:¡7c,*:
= + / : &b + b*? *.-/,-& + cℎ/ *-—/c*:
fd b0 fd
oe

/+& ,-9/,-& /+& ,-9/,-&

N

3&c, − k/8…/>* …/87*

Straight-line method of depreciation

b*? *.-/,-& *\?* c* =

sc*%78 8-%*

2
Double-Declining Balance method

b*? *.-/,& *\?* c* = × 3&c, − 0..7+78/,*: :*? *.-/,-&

sc*%78 8-%*

Video: https://youtu.be/6RskYAxdAFk

s -,c ? &:7.*:
Units-of-Production method

b*? *.-/,-& *\?* c* = × 3&c, − k/8…/>* …/87*

&,/8 7 -,c &…* 7c*%78 8-%*

34
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 3: Financial Analysis Techniques

Activity Ratios

3&c, &% c/8*c

…* ,& « ,7 &…* =
0…* />* - …* ,& «

H7+—* &% :/«c - ,ℎ* ?* -&:

b/«c &% - …* ,& « & ℎ/ : =
…* ,& « ,7 &…*

*…* 7*
*.*-…/—8*c ,7 &…* =
0…* />* *.*-…/—8*c

H7+—* &% :/«c - ,ℎ* ?* -&:

b/«c &% c/8*c &7,c,/ :- > =
*.*-…/—8*c ,7 &…*

7 .ℎ/c*c

ed
/«/—8*c ,7 &…* =
0…* />* ?/«/—8*c

H7+—* &% :/«c - ,ℎ* ?* -&:

Ex
H7+—* &% :/«c &% ?/«/—8*c =
/«/—8*c ,7 &…*

*…* 7*
6& ~- > ./?-,/8 ,7 &…* =
s

0…* />* w& ~- > ./?-,/8

si

*…* 7*
4-\*: /cc*, ,7 &…* =
0…* />* *, %-\*: /cc*,c
oe

*…* 7*
&,/8 /cc*, ,7 &…* =
0…* />* ,&,/8 /cc*,c
N

Liquidity Ratios

37 * , /cc*,c
37 * , /,-& =
37 * , 8-/—-8-,-*c

3/cℎ + kℎ& , ,* + +/ ~*,/—8* - …*c,+* ,c + *.*-…/—8*c

q7-.~ /,-& =
37 * , 8-/—-8-,-*c

3/cℎ + kℎ& , ,* + +/ ~*,/—8* - …*c,+* ,c

3/cℎ /,-& =
37 * , 8-/—-8-,-*c

b*%* c-…* - ,* …/8 3/cℎ + kℎ& , ,* + +/ ~*,/—8* - …*c,+* ,c + *.*-…/—8*c

=
/,-& b/-8« ./cℎ *\?* :-,7 *c

35
CFA Level 1 (2024) Formula Sheet – Noesis Exed

3/cℎ .& …* c-& b/«c &% - …* ,& « b/«c &% c/8*c H7+—* &% :/«c
= + −
.«.8* & ℎ/ : &7,c,/ :- > &% ?/«/—8*c

Video (Cash Conversion Cycle): https://youtu.be/IFsI9c4wUD4

Solvency Ratios

b*—,-,&-/cc*,c /,-& &,/8 :*—,

=
"Total debt ratio" &,/8 /cc*,c

&,/8 :*—,
b*—,-,&-./?-,/8 /,-& =
&,/8 :*—, + &,/8 *¯7-,«

&,/8 :*—,
b*—,-,&-*¯7-,« /,-& =
&,/8 *¯7-,«

0…* />* ,&,/8 /cc*,c

ed
4- / .-/8 8*…* />* /,-& =
0…* />* ,&,/8 *¯7-,«

&,/8 & *, :*—,

Ex
b*—,-,&-fd b0 /,-& =
fd b0
s
Coverage Ratios

fd
si

,* *c, .&…* />* /,-& =

,* *c, ?/«+* ,c
oe

fd + v*/c* ?/«+* ,c
4-\*: .ℎ/ >* .&…* />* /,-& =
,* *c, ?/«+* ,c + v*/c* ?/«+* ,c
N

Profitability Ratios

) &cc ? &%-,
) &cc ? &%-, +/ >- =
*…* 7*

?* /,- > - .&+*

?* /,- > ? &%-, +/ >- =
*…* 7*

fd
*,/\ +/ >- =
*…* 7*

H*, - .&+*
H*, ? &%-, +/ >- =
*…* 7*

36
CFA Level 1 (2024) Formula Sheet – Noesis Exed

?* /,- > - .&+*

?* /,- > 0=
0…* />* ,&,/8 /cc*,c

H*, - .&+*
0=
0…* />* ,&,/8 /cc*,c

fd × 1 − f%%*.,-…* ,/\ /,*

*,7 & - …*c,*: ./?-,/8 =
0…* />* ,&,/8 :*—, / : *¯7-,«

H*, - .&+*
f=
0…* />* ,&,/8 *¯7-,«

H*, - .&+* − *%* *: :-…-:* :c

*,7 & .&++& *¯7-,« =
0…* />* .&++& *¯7-,«

DuPont Analysis

ed
f= 0 × 4- / .-/8 v*…* />*

f = H*, ? &%-, +/ >- × &,/8 /cc*, ,7 &…* × 4- / .-/8 8*…* />*

Ex
/\ ,* *c, fd &,/8 /cc*, 4- / .-/8
f= × × × ×
—7 :* —7 :* +/ >- ,7 &…* 8*…* />*
s
si

H*, - .&+*
where:

/\ —7 :* =
fd
oe

fd
,* *c, —7 :* =
fd
N

Business Risk

3&*%%-.-* , &% …/ -/,-& k,/ :/ : :*…-/,-& &% &?* /,- > - .&+*
=
&% &?* /,- > - .&+* 0…* />* &?* /,- > - .&+*

3&*%%-.-* , &% …/ -/,-& k,/ :/ : :*…-/,-& &% *, - .&+*

=
&% *, - .&+* 0…* />* *, - .&+*

3&*%%-.-* , &% …/ -/,-& k,/ :/ : :*…-/,-& &% *…* 7*

=
&% *…* 7* 0…* />* *…* 7*

37
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Financial Sector Ratios

5& *,/ « *c* …* *¯7- *+* , *c* …*c ℎ*8: /, .* , /8 —/ ~

=
3/cℎ *c* …* /,-& k?*.-%-*: :*?&c-, 8-/—-8-,-*c

H*, - ,* *c, - .&+*

H*, - ,* *c, +/ >- =
&,/8 - ,* *c, */ - > /cc*,c

0?? &…*: */:-8« +/ ~*,/—8* c*.7 -,-*c

v-¯7-: /cc*, *¯7- *+* , =
k?*.-%-*: :*?&c-, 8-/—-8-,-*c

H*, - ,* *c, - .&+*

H*, - ,* *c, +/ >- =
&,/8 - ,* *c, */ - > /cc*,c

Learning Module 4: Introduction to Financial Statement Modeling

ed
Nothing new.
Ex
s
si
oe
N

38
CFA Level 1 (2024) Formula Sheet – Noesis Exed

EQUITY INVESTMENTS

Learning Module 1: Market Organization and Structure

1
5/\-+7+ 8*…* />* /,-& =
Minimum margin requirement

k/8*c 5/ >- k/8*c

+ b-…-:* :c − v&/ − −
Total return on leveraged stock investment:

? &.**:c - ,* *c, .&++-cc-&

&,/8 *,7 = −1
-,-/8 7 .ℎ/c*
+
*¯7-,« .&++-cc-&

5- -+7+ +/ >-
-,-/8 *¯7-,« = × &,/8 ?7 .ℎ/c* ? -.*
*¯7- *+* ,

Video (Return on Leveraged Stock Position): https://youtu.be/tZd4XtvjjlI

ed
1 − -,-/8 5/ >-
5/ >- 3/88 -.* =
1 − 5/- ,* / .* 5/ >-
Ex
Learning Module 2: Security Market Indexes

∑A
Price Return Index, @^ÃÄ =
b
s
si

= the number of units of constituent security i held in the index portfolio

H = the number of constituent securities in the index
where:
oe

= the unit price of constituent security i

b = value of the divisor
N

@^ÃÄ − @^ÃÄ
Price return of an index, =
Ä
@^ÃÄ

@^ÃÄ − @^ÃÄ + .Ä
Total Return Index, =
Ä
@^ÃÄ

@^ÃÄ = value of the price return index at the end of the period
where:

@^ÃÄ = value of the price return index at the beginning of the period
.Ä = total income (dividends and/or interest) from all securities in the index held
over the period

39
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Weighting Methods

Price weighting, w^ =
∑A
† †

Video (Recalculating the divisor of a price weighted index): https://youtu.be/eYiZNK-ETrg

1
Equal weighting, w` =
H

q
Market-capitalization weighting, wÎ =
∑A
† q† †

%q
Float-adjusted market capitalization weighting, wÎ =
∑A
† %† q† †

ed
% = fraction of shares outstanding in the market float
where:

q = number of shares outstanding of security i

= share price of security i
Ex
H = number of securities in the index

4
Fundamental weighting, w– =
∑A
s

† 4†
si
oe

where Fi denotes a fundamental size measure of company i

Learning Module 3: Market Efficiency

N

No formula

Learning Module 4: Overview of Equity Securities

H
Return on Equity (using average total book value of equity)
f =
d@f + d@f E /2

H
Return on Equity (using beginning book value of equity)
f =
d@f E

where BVE = book value (Assets – Liabilities)

40
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 5: Company Analysis: Past and Present

*…* 7*
5/ ~*, cℎ/ * =
5/ ~*, c-9*

k/8*c ?&,* ,-/8 = 100% − 5/ ~*, cℎ/ *%

H*, c/8*c = 0…* />* c*88- > ? -.* × q7/ ,-,« c&8:

*…* 7* */ *: % &+ , / c/.,-& c

/~* /,* = × 100%
&,/8 , / c/.,-& …&87+*

?* /,- > - .&+* = q × − @3 − 43

q = Units sold in a period

where:

= Price per unit

ed
@3 = Variable operating cost per unit
43 = Fixed operating costs
− @3 = Contribution margin per unit
Ex
%ΔOperating income
b*> ** &% &?* /,- > 8*…* />* b v =
%ΔSales
s

%ΔNet income
si

b*> ** &% %- / .-/8 8*…* />* b4v =

%ΔOperating income
oe

6*->ℎ, ) &cc .&c, 6*->ℎ, 3&c, &%

6033 = × × 1 − ,/\ /,* + ×
&% :*—, &% :*—, &% *¯7-,« *¯7-,«
N

Learning Module 6: Industry and Company Analysis

Ö
Herfindahl-Hirschman Index (HHI)

22 = c

c = Market share of participant - (stated as a whole number)

where:

41
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 7: Company Analysis: Forecasting

%Δ 3&c, &% *…* 7* + ?* /,- > *\?* c*

%@/ -/—8* .&c, ≈
%Δ *…* 7*

%4-\*: .&c, ≈ 1 − %@/ -/—8* .&c,

H7+—* &% 7 -,c c&8: H7+—* &% 7 -,c c&8: f\?*.,*:

= −
?&c,-./ -—/8-9/,-& ? *-./ -—/8-9/,-& ./ -—/8-9/,-&

f\?*.,*: H7+—* &% 7 -,c c&8: 3/ -—/8-9/,-&

= ×
./ -—/8-9/,-& ? *-./ -—/8-9/,-& %/.,&

Learning Module 8: Equity Valuation: Concepts and Basic Tools

ed
#
b
Dividend Discount Model (DDM)

@ = +
#
1+ 1+ #
Ex
@ = Intrinsic value of a share at , = 0
where:

b = expected dividend in year t

= required rate of return on stock
s

# = expected price per share at t = n (terminal value)

si

434f
Ö
oe

Free-cash-flow-to-equity (FCFE) Valuation Model

@ =
1+
N

434f = 34 − 43 … + H*, d& &w- >

where:

43 … = Fixed capital investment

H*, d& &w- > = Borrowings minus repayments

b
Value of preferred stock (non-callable, non-convertible, perpetual)
@ =

b / …/87*
#
Value of preferred stock (non-callable, non-convertible, maturity at time n)

@ = +
1+ 1+ #

42
CFA Level 1 (2024) Formula Sheet – Noesis Exed

b b 1+>
Gordon Growth Model
= =
−> −>

b = Most recent annual dividend

where:

b = Expected dividend in the next period

> = Constant growth rate
= Required return on equity

>=—× f
Sustainable growth rate

where:

f = Return on equity
b = earnings retention rate (= 1 – Dividend payout ratio)

Video: https://youtu.be/MnfRRRhuGpA

ed
#
b 1 + >G @#
Two-Stage Dividend Discount Model

@ = +
1+ 1+
Ex
>] = Long-term stable growth rate
where:

>G = Short-term growth rate

b#e b 1 + >G 1 + >]
@# = =
s

− >] − >]
si

b-…-:* : ?/«&7, /,-&

oe

Justified forward P/E

=
f −>
N

5/ ~*, …/87* 5/ ~*, …/87* 5/ ~*, …/87* 3/cℎ / :

Enterprise Value

f@ = + + − cℎ& , ,* +
&% *¯7-,« &% ? *%* *: c,&.~ &% :*—,
- …*c,+* ,c

0:¡7c,*: 5/ ~*, …/87* 5/ ~*, …/87*

= −
Asset-based Valuation

—&&~ …/87* &% /cc*,c &% 8-/—-8-,-*c

43
CFA Level 1 (2024) Formula Sheet – Noesis Exed

FIXED INCOME

Learning Module 1: Fixed-Income Instrument Features

0 7/8 .&7?&
37 * , «-*8: =
d& : ? -.*

3&7?& 3&7?& 3&7?& + 4/.* …/87*

d& : ? -.* = + + ⋯+
1+ 1+ 1+ #

3&7?& ?* ?* -&: = Coupon rate per period × Face value

where:

= Yield to maturity per period

= Number of payments

Floating-rate Note (FRN) coupon rate = MRR + Spread

ed
Learning Module 2: Fixed-Income Cash Flows and Types
Ex
× - .-?/8
Fully Amortizing Loan with Level Payment

0=
1 − 1 + EA
s

0 = Periodic payment
where:
si

= Market interest rate per period

H = Number of payment periods
oe

If the periodic payment is monthly:

N

Monthly interest payment = Interest rate per month × Beginning principal of loan

Monthly principal payment = Total monthly payment – Monthly interest payment

Ending principal of loan = Beginning principal of loan – Monthly principal payment

Capital-Index Bond (e.g., TIPS)

Inflation-adjusted principal = Principal amount × (1 + Inflation adjustment)

Coupon per period = Coupon rate per period × Inflation-adjusted principal

44
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Deferred Coupon Bond

Video: https://youtu.be/erRbAUOGIyM

Convertible Bonds

3& …* c-& 3& …* ,-—8* —& : ?/ …/87*

=
/,-& 3& …* c-& ? -.*

3& …* c-& 3& …* c-& 37 * , cℎ/ *

= ×
…/87* /,-& ? -.*

Zero-Coupon Bond

Original issue discount = Bond par value – Issuance price

ed
Learning Module 3: Fixed-Income Issuance and Trading

No formula
Ex
Learning Module 4: Fixed-Income Markets for Corporate Issuers
s
Repurchase Agreements

*?& ,* + - :/«c
si

*?7 .ℎ/c* ? -.* = -.* &% —& : × ×1 + *?& /,* × Ø

H7+—* &% :/«c - / «*/
oe

k*.7 -,« ? -.*

-,-/8 +/ >- =
7 .ℎ/c* ? -.*
N

k*.7 -,« ? -.* − 7 .ℎ/c* ? -.*

2/- .7, =
k*.7 -,« ? -.*

@/ -/,-& +/ >- = -,-/8 +/ >- × 7 .ℎ/c* ? -.* − k*.7 -,« ? -.*

Learning Module 5: Fixed-Income Markets for Government Issuers

No formula.

45
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 6: Fixed-Income Bond Valuation: Prices and Yields

5 5 5 A + 4@A
@= + + ⋯+
1+ 1+ 1+ A

5 = Coupon that occurs in , periods

where:

= Market discount rate per period

H = Number of periods to maturity
4@ = Face value of bond

Full Price, Flat Price, and Accrued Interest (Video: https://youtu.be/l7G075JAu5w)

PVFull = PVFlat + Accrued Interest

= @_Ù^ × 1 + /

ed
Accrued Interest = × 5
where:

, = number of days from the last coupon payment to the settlement date
= number of days in the coupon period
Ex
,/ = fraction of the coupon period that has gone by since the last payment
@_Ù^ = price on the previous coupon date (before the settlement date)
s

* & IVzN − * & C

Matrix Pricing
,* ?&8/,*: «-*8: = ƒ-*8:C + B D × ƒ-*8:] − ƒ-*8:C
si

* & ]− * &C
oe

ƒ-*8:C = Yield of shorter-term bond

where:

ƒ-*8:] = Yield of longer-term bond

* & C = Tenor of shorter-term bond
N

* & ] = Tenor of longer-term bond

* & IVzN = Tenor of the subject bond
* & C < * & IVzN < * & ]

Required yield spread = Bond YTM – Government Bond YTM (Similar maturity)

46
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 7: Yield and Yield Spread Measures for Fixed Rate Bonds

0 F
0 #
Periodicity Conversion

B1 + D = B1 + D
F #
+

0 F = Annual percentage rate for + periods per year

where:

0 # = Annual percentage rate for periods per year

0 7/8 .&7?&
37 * , «-*8: =
d& : ? -.*

365
)&…* +* , *¯7-…/8* , «-*8:, ƒ-*8:Œ² = × ƒ-*8:r
⁄Œ²
360 ⁄rÚ

4@ − @
3&7?& +ˆ H ‰
k-+?8* «-*8: =
48/, ? -.*

ed
5 5 5 + 3/88 ? -.*
Callable Bonds
@= + + ⋯+
Ex
1+ƒ 3 1+ƒ 3 1+ƒ 3 A

@ = Price of the callable bond

where:

5 = Coupon payment per period

s

ƒ 3 = Yield to call per period

H = Number of periods to when the bond can be called at the call price
si

Option-adjusted price = Flat price of bond + Value of embedded call option

oe

Value of call option = Price of option-free bond – Price of callable bond

N

G-spread = Bond YTM – Interpolated sovereign bond YTM

I-spread = Bond YTM – Swap rate

5 5 5 + 4@
Z-Spread
@= + + ⋯+
1+9 +Û 1+9 +Û 1 + 9A + Û A

Û = Z-spread
where:

9A = Spot rate for H periods

OAS = Z-spread – Option value (in basis points per year)

47
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 8: Yield and Yield Spread Measures for Floating-Rate Instruments

Value of Floating Rate Note (FRN)

5
+ q5 5 + q5 5 + q5
ˆ + ‰ × 4@ ˆ + ‰ × 4@ ˆ + ‰ × 4@ + 4@
@= + +⋯+
5 + b5 5 + b5 5 + b5 #
ˆ1 + ‰ ˆ1 + ‰ ˆ1 + + ‰
+ +

q5 = Quoted Margin
where:

b5 = Discount Margin
5 = Market reference rate
+ = Periodicity (i.e., number of payment periods per year)

H = Number of evenly spaced periods to maturity

FV = Face Value of FRN

ed
Video: https://youtu.be/zqYOtVLkYR8

Yield Measures for Money Market Instruments Ex

b/«c
Discount Rate Basis
@ = 4@ × B1 − ×b D
ƒ*/

ƒ*/ 4@ − @
s

b = ×B D
b/«c 4@
si

@ = present value of money market instrument

oe

where:

4@ = future value paid at maturity

b/«c = number of days between settlement and maturity
ƒ*/ = number of days in the year
N

b = discount rate (stated as annual percentage rate)

4@
Add-on Rate Basis
@=
b/«c
ˆ1 + ƒ*/ × 0 ‰

ƒ*/ 4@ − @
0 = ×B D
b/«c @

365 4@ − @
d& : *¯7-…/8* , «-*8: = ×B D
b/«c @

48
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 9: The Term Structure of Interest Rates: Spot, Par, and Forward Curves

Calculation of Bond Price Using Spot Rates

5 5 5 + 4@
@= + +⋯+
1+Û 1+Û 1 + ÛA A

@ = Price of bond
where:

5 = Bond coupon payment

ÛA = Spot rate (or zero-coupon yield or zero rate) for period H
4@ = Face value of bond

Given a Par Rate, 4@ = @ and 5 = / /,* % × 4@

5 5 5 + 100
100 = + + ⋯+
1+Û 1+Û 1 + ÛA A

ed
Forward Rates, IFR
Ex
1 + 9Œ Œ
× 1+ 4 Œ,_EŒ
_EŒ
= 1 + 9_ _

4 Œ,_EŒ = Forward rate for d − 0 periods that starts in period 0

where:
s

9_
si

d
oe

9Œ 4 −0
0 A
Œ,_EŒ
N

Learning Module 10: Interest Rate Risk and Return

b7 /,-& >/? = 5/./78/« :7 /,-& − …*c,+* , ℎ& -9&

Duration Gap

5 5
Macaulay Duration

1+ , E ⁄ ,1+ E ⁄
5/./78/« :7 /,-& = B1 − D Ü Ý + B2 − D Ü Ý+⋯
@ –JKK @ –JKK

5 + 4@
,
1 + AE ⁄
+ BH − D Ü Ý
@–JKK

49
CFA Level 1 (2024) Formula Sheet – Noesis Exed

1+ 1 + + ;H × . − < ,
5/./78/« :7 /,-& = Þ − ß−
.×; 1+ A − 1< +

= Yield per period

where:

. = Coupon rate per period

H = Number of evenly spaced periods to maturity as of the beginning of the current period
, = Number of days from the last coupon payment to the settlement date
= Number of days in the coupon period

Video: https://youtu.be/USgjcdCk7Fs

Learning Module 11: Yield-Based Bond Duration Measures and Properties

5/./78/« b7 /,-&
Modified Duration

5&:-%-*: b7 /,-& =
1+

ed
@E − @e
Approximate Modified Duration
0 5&:b7 ≈
2 × ∆ƒ-*8: × @
Ex
%∆ @ –JKK ≈ −0 5&:b7 × ∆ƒ-*8:
s
si

Money Duration

Money duration = 0 5&:b7 × @ oJKK

oe

∆ @ –JKK ≈ −5& *«b7 × ∆ƒ-*8:

N

Duration of Zero-Coupon Bond

5/.b7 = -+* ,& +/,7 -,«

-+* ,& +/,7 -,«

5&:b7 =
1+

Duration of Perpetual Bond

1+
5/.b7 =

1
5&:b7 =

50
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Duration of Floating-Rate Notes

−, 4 /.,-& &% ?* -&: *+/- - > 7 ,-8

5/.b7 = =
,ℎ* *\, *c*, :/,*

Learning Module 12: Yield-Based Bond Convexity and Portfolio Properties

@
, ,+1 ×
Convexity
A

3& …*\-,« = @–JKK

1+ƒ 5

@E + @e − 2 @
Approximate Annualized Convexity
0?? &\3& … ≈
∆ƒ-*8: × @

ed
%∆ @ –JKK ≈ −0 5&:b7 × ∆ƒ-*8: + ×0 3& …*\-,« × ∆ƒ-*8:
Ex 2

5& *«3& = 0 3& …*\-,« × @ –JKK

Money Convexity

1
∆ @ –JKK ≈ − 5& *«b7 × ∆ƒ-*8: + - × 5& *«3& × ∆ƒ-*8: ®
s

2
si
oe

Portfolio Duration and Convexity

& ,%&8-& 5&:-%-*: b7 /,-& = w × 5&:b7

N

& ,%&8-& 3& …*\-,« = w × 3& …*\-,«

w = Weight of bond -, measured in market value

where:

51
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 13: Curve-Based and Empirical Fixed-Income Risk Measures

@E − @e
Effective Duration

f%%b7 =
2 × Δ37 …* × @

@E + @e − 2 × @
Effective Convexity

f%%3& =
Δ37 …* × @

1
%∆ @ –JKK ≈ −f%%b7 × ∆37 …* + × f%%3& × ∆37 …*
2

1 Δ @
Key Rate Duration

€*« /,*b7 =− ×
O
@ ΔO

ed
%Δ @ = −€*« /,*b7 O ×Δ O
Ex
#

€*« /,*b7 O = f%%b7

O
s

O = ~th key rate

where:
si
oe

Learning Module 14: Credit Risk

fv = v)b × b
Expected Loss
N

v)b = ff × 1 −

b = Probability of default
where:

v)b = Loss given default

ff = Expected exposure
= Recovery rate
1− = Loss severity

3 *:-, c? */: ≈ b × v)b

52
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Decomposing Bond Yields

ƒ-*8: c? */: = d& : ƒ 5 − )&…* +* , —& : ƒ 5 k-+-8/ +/,7 -,«

v-¯7-:-,« c? */: = d& : ƒ 5 d-: − d& : ƒ 5 %%*

3 *:-, c? */: = ƒ-*8: c? */: − v-¯7-:-,« c? */:

Price Impact Given a Change in Yield Spread

1
%∆ @ –JKK ≈ −0 5&:b7 × ∆k? */: + ×0 3& …*\-,« × ∆k? */:
2

@E − @e
where:

0 5&:b7 ≈
2 × ∆ƒ-*8: × @
@E + @e − 2 @
0 3& …*\-,« ≈

ed
∆ƒ-*8: × @
Ex
Learning Module 15: Credit Analysis for Government Issuers

No formula.
s

Learning Module 16: Credit Analysis for Corporate Issuers

si

?* /,- > - .&+*

fd +/ >- =
*…* 7*
oe

?* /,- > - .&+*

fd ,& - ,* *c, *\?* c* =
,* *c, *\?* c*
N

b*—,
b*—, ,& fd b0 =
fd b0

*,/- *: ./cℎ %8&w

34 ,& *, :*—, =
b*—, − 3/cℎ / : +/ ~*,/—8* c*.7 -,-*c

44
44 ,& :*—, =
b*—,

44 = Net income from continuing operations + Depreciation & amortization

where:

+ Deferred income taxes + Other non-cash items

53
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 17: Fixed-Income Securitization

No formula.

Learning Module 18: Asset-Backed Security (ABS) Instrument and Market Features

No formula.

Learning Module 19: Mortgage-Backed Security (MBS) Instrument and Market Features

v&/ /+&7 ,
Loan-to-value (LTV) ratio

v @=
2&7c* ? -.*

5& ,ℎ8« :*—, ?/«+* ,

Debt-to-income (DTI) ratio

b =
5& ,ℎ8« ? *-,/\ > &cc - .&+*

ed
Ex
3d
A
Mortgage Pass-Through Securities

603 = . B D
3d
s

3d
A

605 = 55 B D
3d
si
oe

603 = Weighted average coupon

where:

605 = Weighted average maturity

. = Coupon rate on mortgage -
N

55 = Number of months to maturity for mortgage -

H = Number of mortgages in MBS
3d = Current balance on mortgage -
3d = Total current balance of mortgages in MBS

Commercial Mortgage-Backed Securities (CMBS)

H*, &?* /,- > - .&+*

Debt Service Coverage Ratio (DSCR)

bk3 =
b*—, c* …-.*

H = * ,/8 - .&+* − 3/cℎ &?* /,- > *\?* c*c − *?8/.*+* , *c* …*c
Net Operating Income (NOI)

54
CFA Level 1 (2024) Formula Sheet – Noesis Exed

DERIVATIVES

Learning Module 1: Derivative Instrument and Derivatives Market Features

No formula.

Learning Module 2: Forward Commitments and Contingent Claim Features and

Instruments

Forward Contract

Buyer (Long) payoff = k − 4

Seller (Short) payoff = −;k − 4 <

ed
k = Spot price on contract’s maturity
where:

4 = Forward price with maturity of

Ex
Futures Contract
s
For one futures contract:

Long Futures daily mark-to-market = % −%E

si

Short Futures daily mark-to-market = −;% −%E <

oe
N

% = Closing price of futures contract on day ,

where:

%E = Closing price of futures contract on day , − 1

= Maturity of futures contract

If margin balance < maintenance margin:

@/ -/,-& 5/ >- = -,-/8 +/ >- − 5/ >- —/8/ .*

55
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Options Contract

LONG Call option

/«&%% & @/87* /, *\?- /,-& , . = max 0, k −

&%-, /, *\?- /,-& , Π = max 0, k − −.

. = Call premium
where:

= Exercise/Strike price
k = Spot price at expiration

SHORT Call option

/«&%% & @/87* /, *\?- /,-& , . = − max 0, k −

ed
&%-, /, *\?- /,-& , Π = −;max 0, k − Ex −. <

LONG Put option

/«&%% & @/87* /, *\?- /,-& , ? = max 0, −k

s

&%-, /, *\?- /,-& , Π = max 0, −k −?

si
oe

SHORT Put option

/«&%% & @/87* /, *\?- /,-& , ? = − max 0, −k

N

&%-, /, *\?- /,-& , Π = −;max 0, −k −? <

Credit Default Swap (CDS)

3bk 5 5 3ℎ/ >* = Δ3bk k? */: × 3bk H&,-& /8 × f%%b7 ²aC

In a credit event, payment from CDS seller to CDS buyer ≈ v)b % × H&,-& /8

Learning Module 3: Derivative Benefits, Risks, and Issuer and Investor Uses

No formula.

56
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 4: Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives

Forward price, 4 =k 1+
If there are no underlying costs or benefits:

Forward price, 4 = ;k − @ .&+* + @ 3&c, < 1 +

If there are underlying costs or benefits in present value terms:

k = Current spot price

where:

= Risk-free rate
= Tenor of forward contract

Under continuous compounding, 4 = k *V

ed
4 = k * Ve¦E
Under continuous compounding, with income (-) and cost (.) expressed in %:

Foreign Exchange Forward Contract

Ex
4 ,o⁄U =k ,o⁄U * Vâ EVã
s

4 ,o⁄U = Forward exchange rate

si

where:

k ,o⁄U = Spot exchange rate

oe

o = Continuously compounded risk-free rate (for price/quote currency)

U = Continuously compounded risk-free rate (for base currency)

= Maturity of forward contract
N

Learning Module 5: Pricing and Valuation of Forward Contracts and for an Underlying
with Varying Maturities

@ =0
Value of LONG Forward Prior to Expiration

4
@ =k − =k −4 × 1+ E E
1+ E

@ =k −4

57
CFA Level 1 (2024) Formula Sheet – Noesis Exed

If the asset incurs cost or generates income from time , through maturity,
@ = ;k − @ .&+* + @ 3&c, < − 4 × 1+ E E

@ = k ,o⁄U − 4 × * ELVâ EVãQ

For foreign exchange forward contract,
E
,o⁄U

@ =0
Value of SHORT Forward Prior to Expiration

4
@ = − ×k − Ø
1+ E

@ = −;k − 4 <

Interest Rate Forward Contracts (Forward Rate Agreements (FRA))

ed
1 + 9Œ Œ
× 1+ 4 Œ,_EŒ
_EŒ
= 1 + 9_ _
Ex
9Π= Spot rate for 0 periods
where:

9_ = Spot rate for d periods

4 Œ,_EŒ = Implied forward rate for d − 0 periods, starting in 0 periods
s

Payoff for a Long FRA = L5 − 4 Œ,_EŒ Q × H&,-& /8 ? - .-?/8 × * -&:

si

_EŒ
oe

Payoff for a Short FRA = −L5 _EŒ − 4 Œ,_EŒ Q × H&,-& /8 ? - .-?/8 × * -&:
N

Learning Module 6: Pricing and Valuation of Futures Contracts

Futures price, % =k 1+
If there are no underlying costs or benefits:

% = ;k − @ .&+* + @ 3&c, < 1 +

If there are underlying costs or benefits in present value terms:

Under continuous compounding, % = k *V

% = k * Ve¦E
Under continuous compounding, with income (-) and cost (.) expressed in %:

58
CFA Level 1 (2024) Formula Sheet – Noesis Exed

% ,o⁄U =k *
Foreign Exchange Forward Contract
Vâ EVã
,o ⁄U

%Œ,_EŒ = 100 − L100 × 5 Œ,_EŒ Q

Interest Rate Futures Contract

%Œ,_EŒ = Futures price for a market reference rate for d − 0 periods

where:

that begins in 0 periods

Futures contract basis point value, d @ = H&,-& /8 ? - .-?/8 × 0.01% × * -&:

Learning Module 7: Pricing and Valuation of Interest Rates and Other Swaps

* -&:-. c*,,8*+* , …/87* = 5 − cA × kw/? H&,-& /8 × * -&:

For a fixed-rate payer in an interest rate swap:

ed
* -&:-. c*,,8*+* , …/87* = cA − 5 × kw/? H&,-& /8 × * -&:
For a fixed-rate receiver in an interest rate swap:
Ex
cA = Fixed swap rate
where:

5 = Market reference rate

s
si

4 cA
A A
Calculating Par Swap Rate

=
oe

1+9 1+9

4 = Implied forward rates

where:
N

cA = Fixed swap rate

H = Tenor of swap contract

Valuation of Interest Rate Swap

37 * , c*,,8*+* ,
=
Value of a pay-fixed interest rate swap on a settlement date after inception
+ Σ 48&/,- > ?/«+* ,c − Σ 4-\*: ?/«+* ,c
…/87*

37 * , c*,,8*+* ,
= + Σ 4-\*: ?/«+* ,c − Σ 48&/,- > ?/«+* ,c
Value of a receive-fixed interest rate swap on a settlement date after inception

…/87*

59
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 8: Pricing and Valuation of Options

Option value = Exercise value + Time value

At time , (prior to option expiration):

3/88 &?,-& *\* .-c* …/87* = 5/\•0, k − 1+ E E

Ž

3/88 &?,-& ,-+* …/87* = . − 5/\•0, k − 1+ E E

Ž

7, &?,-& *\* .-c* …/87* = 5/\•0, 1+ E E

−k Ž

7, &?,-& ,-+* …/87* = ? − 5/\•0, 1+ E E

−k Ž

Lower bound of call option value = 5/\•0, k − 1+ E E

Ž

ed
Upper bound of call option value = k

Lower bound of put option value = 5/\•0, 1+ −k Ž

Ex E E

Upper bound of put option value =

s
si

k = Spot price at time ,

where:

= Exercise price (or strike price)

oe

= Maturity of option
= Risk-free rate
N

Learning Module 9: Option Replication Using Put-Call Parity

k +? =. + 1+ E
Put-Call Parity

4 1+ E
+? =. + 1+ E
Put-Call Forward Parity

@ = . + @ b*—, − ?
Value of the Firm

Value of debt = @ b*—, − ?

Value of equity = .

60
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 10: Valuing a Derivative Using a One-Period Binomial Model

1+ − U
Risk-neutral probability of a price increase in underlying

å= J
− U

kJ
where:
J
= s? %/.,& = >1
k
kU
U
= b&w %/.,& = <1
k
k = Current asset price
k J = One-period asset price when price moves up
k U = One-period asset price when price moves down

Video: https://youtu.be/ymUlKgz-rAw

ed
.J − .U
Hedge ratio

ℎ∗ =
kJ − kU
Ex
. J = max 0, k J −
where:

. U = maxL0, k U − Q
s

Riskless portfolio with a Call: ç of the underlying, è, and short call position, é
si

@ = ℎk − .
oe

@ J = ℎk J − . J
N

@ U = ℎk U − . U

Riskless portfolio with a Put: ç of the underlying, è, and long put position, ê

@ = ℎk + ?

@ J = ℎk J + ?J

@ U = ℎk U + ?U

61
CFA Level 1 (2024) Formula Sheet – Noesis Exed

å. J + 1 − å . U
Value of a one-period call option

. =
1+

å?J + 1 − å ?U
Value of a one-period put option

? =
1+

?J = max 0, − kJ
where:

?U = maxL0, − kUQ

Video: https://youtu.be/bXEC-78y_AU

ed
Ex
s
si
oe
N

62
CFA Level 1 (2024) Formula Sheet – Noesis Exed

ALTERNATIVE INVESTMENTS

Learning Module 1: Alternative Investment Features, Methods, and Structures

GP Compensation Structure

^ = max;0, ? − <
Ignoring management fee; no catch-up clause
T

^ = max;0, ¦J + ? − − <
Ignoring management fee; with catch-up clause
T ¦J

^ = GP’s rate of return

where:

? = Performance fee as a percentage of total return

= Single-period rate of return

ed
T = Hard hurdle rate
¦J = Catch-up clause
Ex
Learning Module 2: Alternative Investment Performance and Returns
s
Multiple on Invested Capital

*/8-9*: …/87* &% - …*c,+* , + s */8-9*: …/87* &% - …*c,+* ,

5 3=
si

&,/8 /+&7 , &% - …*c,*: ./?-,/8

oe

Leveraged Portfolio Return

@n
N

= + −
]
@¦ n

= Periodic rate of return on invested funds

where:

n = Periodic cost of borrowing

@n = Amount of borrowed funds
@¦ = Amount of cash (investor’s own capital)

63
CFA Level 1 (2024) Formula Sheet – Noesis Exed

− −
Investor’s Return Net of Fees

=
^

^ = × F + max;0, − × ?<

= Beginning-of-period asset value

where:

= End-of-period asset value

? = GP performance fee
^ = GP’s return in current terms
F = GP’s management fees as a percentage of assets under management

Calculating Hedge Fund Fees and Returns

5/ />*+* , %5/ />*+* , d*>- - > 5/ ~*,

Management Fee Based on Beginning Market Value

= ×
4** 4** @/87*

ed
Ex
5/ />*+* , %5/ />*+* , f :- > 5/ ~*,
Management Fee Based on Ending Market Value

= ×
4** 4** @/87*
s

.* ,-…* % .* ,-…*
Incentive Fee Calculated Independent of Management Fee

= × )/-
4** 4**
si
oe

.* ,-…* % .* ,-…*
Incentive Fee Calculated Net of Management Fee

= × )/- − 5/ />*+* , 4**

4** 4**
N

.* ,-…* % .* ,-…*
Incentive Fee with Hard Hurdle (Independent of Management Fee)

= × )/- − 27 :8*
4** 4**

.* ,-…* % .* ,-…*
Incentive Fee with Hard Hurdle (Net of Management Fee)

= × )/- − 5/ />*+* , 4** − 27 :8*

4** 4**

27 :8* = 27 :8* /,* × d*>- - > +/ ~*, …/87*

Note: 1) No incentive is paid if hedge fund incurs loss for the year.
2) Gain may be subject to high watermark.

Video: https://youtu.be/0DKmCgsAAdc

64
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 3: Investments in Private Capital: Equity and Debt

No formula.

Learning Module 4: Real Estate and Infrastructure

5& ,>/>* 8-/—-8-,«

Loan-to-Value (LTV) Ratio

v @=
& ,%&8-& …/87*

Required reduction in mortgage liability = Mortgage liability – Required mortgage liability

Learning Module 5: Natural Resources

No formula.

ed
Learning Module 6: Hedge Funds Ex
No formula.

Learning Module 7: Introduction to Digital Assets

s
si

No formula.
oe
N

65
CFA Level 1 (2024) Formula Sheet – Noesis Exed

PORTFOLIO MANAGEMENT

VOLUME 2
Learning Module 1: Portfolio Risk and Return: Part I

1+f = 1+ × ;1 + f å < × ;1 + f <

Expected Return on Asset
V–

V– = Real risk-free rate

where:

f å = Expected inflation
f = Expected risk premium for the asset

1
Utility on Investment

s=f − 0„
2

ed
s = Utility of investment
where:

f = Expected return of investment

Ex
0 = Risk aversion coefficient
„ = Variance of investment (Note: Substitute „ in decimals)
s
Capital Allocation Line (CAL)
si

For a portfolio of risky assets (Weight: w ) and risk-free asset:

oe

f −
fL žQ = +× Ø „ž
o
o
„
N

o = Rate of return on risk-free asset

where:

f = Expected return of risky asset

fL ž Q = Expected return of portfolio
„ = Standard deviation of risky asset’s returns
„ž = Standard deviation of portfolio’s returns = w × „
f − o
= 5/ ~*, ? -.* &% -c~
„

Two-asset portfolio

Portfolio expected return, fL žQ =w +w

Portfolio variance, „ž = w „ + w „ + 2w w 3&… ,

66
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Portfolio standard deviation, „ž = w „ + w „ + 2w w 3&… ,

Note: 1) 3&… , =‹ „„
# #E
2) n securities requires n variances and covariances

Video: https://youtu.be/lUwulZ9ONC0

Foreign Asset

a = 1 + K¦ × 1 + −1
Return of a foreign asset in domestic currency
–{

Standard deviation of return of a foreign asset in domestic currency

„a = ¥„K¦ + „–{ + 2 × ‹ × „K¦ × „–{

ed
K¦ = Return of foreign asset (in local currency)
where:

–{ = Change in exchange rate (FX rate quoted as domestic currency/foreign currency)

„K¦ = Standard deviation of foreign asset’s returns
Ex
„–{ = Standard deviation of the exchange rate (DC/FC)
‹ = Correlation coefficient between returns on foreign asset and exchange rate
s
Portfolio of Many Risky Assets

„ H−1 „ H−1
si

„ž = + 3&… = + ‹„
H H H H
oe

H = Number of assets in portfolio

where:

„ = Average variance
N

3&… = Average covariance

67
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Learning Module 2: Portfolio Risk and Return: Part II

Capital Market Line (CML)

f −
fL žQ = wo + 1 − wo f = +× Ø „ž
F o
o F o
„F

„ž = 1 − wo „F

O
Return-Generating Models

f − o = œ •f F − oŽ + œ † fL4† Q
†

f − o = Expected excess return on asset -

where:

~ = Number of factors
œ † = Factor weights (also called factor loadings)

ed
f F = Expected return on market

„
Ex
f − =B D •f − oŽ
The Single-Index Model
o
„F F

„
= 4/.,& 8&/:- > & %/.,& w*->ℎ,
where:

„F
s
si

f = + œ •f − oŽ
Capital Asset Pricing Model
oe

o F

=› +œ +*
The Market Model
N

Beta of security ë

3&… , ‹ ,F „
œ = =
F
„F „F

Portfolio beta, œž = ∑# w œ

Total variance = Systematic variance + Nonsystematic variance

„ = œ „F + „N

Total risk, „ = ¥œ „F + „N

68
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Arbitrage Pricing Theory (APT) Model

f ^ = – + ì œ^, + ⋯ + ìí œ^,í

f ^ = Expected return on portfolio

where:

– = Risk-free rate
ì† = Risk premium for factor ¡
œ^, = Sensitivity of the portfolio to factor ¡
€ = Number of risk factors

Fama-French Model

f = › + œ ,Îí 5€ + œ ,CÎ_ k5d + œ , Î] 25v

Carhart Model

f = › + œ ,Îí 5€ + œ ,CÎ_ k5d + œ , Î] 25v + œ ,°Îa s5b

ed
f = Return on an asset in excess of the one-month T-bill return
where:

5€ = Excess return on the market portfolio

Ex
k5d = Difference in returns between small-capitalization stocks and large-capitalization

25v = Difference in returns between high-book-to-market stocks and low-book-to-market

stocks (Size)
s

s5b = Difference in returns of the prior year’s winners versus losers (Momentum)
stocks (Value versus growth)
si
oe

Portfolio Performance Appraisal Measures

−
Sharpe ratio =
ž o
„ž
N

−
Treynor ratio =
ž o
œž

„F
5 =L − oQ + = kℎ/ ?* /,-& × „F +
ž
„ž o o

5 /8?ℎ/ = 5 − F

Jensen’s Alpha, ›ž = ž −• o + œž L F − o QŽ

69
CFA Level 1 (2024) Formula Sheet – Noesis Exed

Security Characteristic Line (SCL)

− o =› +œL F − oQ

›
Information ratio =
„N

VOLUME 6
Learning Module 1: Portfolio Management: An Overview

No formula.

Learning Module 2: Basics of Portfolio Planning and Construction

No formula.

ed
Learning Module 3: The Behavioral Biases of Individuals

No formula.
Ex
Learning Module 4: Introduction to Risk Management
s

No formula.
si
oe
N

70
 CFA® Program
Level II
FORMULA SHEET (2024) Version 2.0
Prepared by: Fabian Moa, CFA, FRM, CTP, FMVA, AFM, FSA Credential

FOR REFERENCE ONLY

(Note: Formula Sheet is not provided in the CFA exam)

Follow us on:

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NOESIS EXED SDN BHD

Block VO2, Level 5, Unit 8, Lingkaran SV, Sunway Velocity, 55100 Kuala Lumpur, Malaysia
Website: www.noesis.edu.sg

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by Noesis
Exed. CFA Institute, CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Contents
Setting Up the Texas BA II Plus Financial Calculator ............................................................................... 4
QUANTITATIVE METHODS ...................................................................................................................... 4
Learning Module 1 | Basics of Multiple Regression and Underlying Assumptions ............................ 4
Learning Module 2 | Evaluating Regression Model Fit and Interpreting Model Results ................... 4
Learning Module 3 | Model Misspecification ..................................................................................... 6
Learning Module 4 | Extensions of Multiple Regression .................................................................... 6
Learning Module 5 | Time-Series Analysis.......................................................................................... 7
Learning Module 6 | Machine Learning.............................................................................................. 8
Learning Module 7 | Big Data Projects ............................................................................................... 9
ECONOMICS .......................................................................................................................................... 10
Learning Module 1 | Currency Exchange Rates: Understanding Equilibrium Value ........................ 10
Learning Module 2 | Economic Growth and the Investment Decision ............................................ 12
FINANCIAL STATEMENT ANALYSIS ........................................................................................................ 14
Learning Module 1 | Intercorporate Investments ............................................................................ 14
Learning Module 2 | Employee Compensation - Post-Employment and Share-Based .................... 15
Learning Module 3 | Multinational Operations................................................................................ 16
Learning Module 4 | Analysis of Financial Institutions ..................................................................... 17
Learning Module 5 | Evaluating Quality of Financial Reports .......................................................... 18
Learning Module 6 | Integration of Financial Statement Analysis Techniques ................................ 19
Learning Module 7 | Financial Statement Modeling ........................................................................ 19
CORPORATE ISSUERS ............................................................................................................................ 20
Learning Module 1 | Analysis of Dividends and Share Repurchases ................................................ 20
Learning Module 3 | Cost of Capital: Advanced Topics .................................................................... 21
Learning Module 4 | Corporate Restructuring ................................................................................. 25
EQUITY VALUATION .............................................................................................................................. 26
Learning Module 1 | Equity Valuation Applications and Processes ................................................. 26
Learning Module 2 | Discounted Dividend Valuation ...................................................................... 26
Learning Module 3 | Free Cash Flow Valuation................................................................................ 27
Learning Module 4 | Market-Based Valuation Price and Enterprise Value Multiples...................... 29
Learning Module 5 | Residual Income Valuation ............................................................................. 31
Learning Module 6 | Private Company Valuation ............................................................................ 32
FIXED INCOME....................................................................................................................................... 33
Learning Module 1 | The Term Structure and Interest Rate Dynamics............................................ 33
Learning Module 2 | The Arbitrage-Free Valuation Framework ...................................................... 34
Learning Module 3 | Valuation and Analysis - Bonds with Embedded Options ............................... 35

2
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 4 | Credit Analysis Models .................................................................................... 37

Learning Module 5 | Credit Default Swaps....................................................................................... 38
DERIVATIVES ......................................................................................................................................... 39
Learning Module 1 | Pricing and Valuation of Forward Commitments ........................................... 39
Learning Module 2 | Valuation of Contingent Claims ...................................................................... 42
ALTERNATIVE INVESTMENTS ................................................................................................................ 47
Learning Module 1 | Introduction to Commodities and Commodity Derivatives ............................ 47
Learning Module 2 | Overview of Types of Real Estate Investment ................................................ 47
Learning Module 3 | Investments in Real Estate Through Publicly Traded Securities ..................... 48
Learning Module 4 | Hedge Fund Strategies .................................................................................... 49
PORTFOLIO MANAGEMENT .................................................................................................................. 50
VOL5 Learning Module 1 | Exchange-Traded Funds: Mechanics and Applications ......................... 50
VOL5 Learning Module 2 | Using Multifactor Models ...................................................................... 50
VOL5 Learning Module 3 | Measuring and Managing Market Risk .................................................. 52
VOL5 Learning Module 4 | Backtesting and Simulation ................................................................... 52
VOL6 Learning Module 1 | Economics and Investment Markets ..................................................... 53
VOL6 Learning Module 2 | Analysis of Active Portfolio Management ............................................. 55

3
CFA Level 2 (2024) Formula Sheet – Noesis Exed

CFA Level 2 – Formula Sheet (2024)

Setting Up the Texas BA II Plus Financial Calculator

Video: https://youtu.be/0MS8d8QOFmc

QUANTITATIVE METHODS

Learning Module 1 | Basics of Multiple Regression and Underlying Assumptions

= + + + ⋯+ + + = 1, 2, 3, … ,

= dependent variable
where:

= independent variable

ed
= intercept
, , … , = slope coefficients
= error term
Ex
= number of observations
= number of independent variables
, , , … , = regression coefficients
s

!
si

= −
"
oe

Learning Module 2 | Evaluating Regression Model Fit and Interpreting Model Results
N

Coefficient of determination, #
$%& $'% () #(* ()) $$# $$-
# = = = 1−
$%& $'% () + , $$+ $$+

$%& $'% () + ,, $$+ = −

"
!

$%& $'% () #(* ()) , $$# = ./ − 0

"
!

$%& $'% () - , $$- = . − /0

"
$$- ⁄ − − 1 −1
123%) (2 # , # = 1 − 4 6=1−7 8 1−#
$$+⁄ − 1 − −1

4
CFA Level 2 (2024) Formula Sheet – Noesis Exed

$%& )'% () (
Akaike’s information criterion (AIC)
19: = ln 7 8+2 +1

= Sample size
where:

= Number of independent variables in the model

Schwarz’s Bayesian information criterion (BIC of SBC)

$%& )'% () (
=9: = ln 7 8 + ln +1

F-distributed test statistic for jointly omitted variables

$%& )'% () ( () ? (2 & 2(, − $%& )'% () % () ? (2 ⁄'

>=
$%& )'% () % () ? (2 & 2(,⁄ − − 1

ed
' = Number of restrictions (i.e., number of variables omitted in the restricted model
where:

compared to the unrestricted model)

Ex
@ : B = BC = ⋯ = BCDE = 0
@G : At least one of the ' slopes ≠ 0
s
si

F-test for joint test of slope coefficients

I
oe

$$# ⁄
ANOVA df SS MS
$$# $$# ⁄
$$- ⁄ − − 1
Regression
− − 1 $$- $$- ⁄ − −1
N

−1 $$+
Residual
Total

J( $'% ( #(* ()) $$# ⁄

>) ) ?= =
J( $'% ( - $$- ⁄ − − 1

@: = =⋯= =0
@G : At least one K ≠ 0

5
CFA Level 2 (2024) Formula Sheet – Noesis Exed

/K − =K
t-test statistic for slope coefficient

=
)L/M

/K = Regression estimate of K
where:

=K = Hypothesized value of coefficient 3

)L/M = Estimated standard error of /K

Video (Simple Linear Regression): https://youtu.be/uR_9im2JP18

Learning Module 3 | Model Misspecification

+() $ ) ?, χOP, = #
Breusch-Pagan Test

# = #-squared between squared residuals and independent variables

where:

ed
Variance Inflation Factor (VIF)
Ex
9>K =
1 − #K

#K = Variation in − 1 independent variables

where:
K
s
explained by the other
si

Learning Module 4 | Extensions of Multiple Regression

oe

Sum of individual leverages for all observations = +1

Detecting Influential Points
N

If observation’s leverage > 3 R S ⇒ Potentially influential observation

C
!

Studentized Deleted Residual, UV∗

(∗ ( − −1
= = [
)X ∗ YJ$- 1 − ℎ $$- 1 − ℎ − (
∗

( ∗ = The residual with the th observation deleted

where:

)X ∗ = The standard deviation of the residuals

= The number of independent variables
J$- = Mean squared error of the regression model that deletes the th observation
ℎ = The leverage value for the th observation

6
CFA Level 2 (2024) Formula Sheet – Noesis Exed

( ℎ
Cook’s Distance

\ = ] ^
+ 1 J$- 1 − ℎ

( = Residual for observation

where:

= The number of independent variables

J$- = Mean square error of the estimated regression model
ℎ = The leverage value for the th observation

If \ > _ ` , then th observation is highly likely to be an influential data point

Logistic Regression (Logit)

a
ln 7 8= + + + ⋯+ +
1−a

ed
1
a=
1 + expe− + Ex + +⋯+ + f

a
ln 7 8 = g * 22)
1−a

h22) = ( Li
s
si

Likelihood ratio (LR) test

g# = −2 g * , (, ℎ 2 () ? (2 & 2(, − g * , (, ℎ 2% () ? (2 & 2(,

oe
N

Learning Module 5 | Time-Series Analysis

= + + = 1,2, … , +
Linear Trend Models
j j

= time (independent variable)

= ( LkCLlj = 1,2, … , +
Log-Linear Trend Models
j

ln j = +

Growth rate of = ( Ll − 1

7
CFA Level 2 (2024) Formula Sheet – Noesis Exed

p-th order autoregressive model, mn o

pj = + pjE + pjE + ⋯ + q pjEq + j

Test statistic for autocorrelation of residuals

#() 2% , % ? (, −0 #() 2% , % ? (,
= =
$ 2 2( 1⁄√+

: u j , jE
where:
st, = = jw
2( % ? (, ℎ( () 2% ,
vt

Mean reverting level for AR(1) model

pj =
1−

ed
Root Mean Squared Error
$'% (2 (
#J$- = [
Ex
pj − pjE = + * pjE +
Dickey and Fuller Unit-Root Test
s
j
si

* = −1
where:
oe

vxjC = + ŷj
ARCH(1):
N

Learning Module 6 | Machine Learning

Neural Networks

a , 2( u u( ℎ(
{(| ( |
= h,2 |( *ℎ − g( * (×~ ,( | ℎ ()•(? €
|( *ℎ
ℎ( ,2 |( *ℎ

8
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 7 | Big Data Projects

− B!
Normalization of variable X
=
BG† − B !
!•‚BGƒ „X…

−ˆ
Standardization of variable X
=
‡jG!…G‚… „X…
v

+ %( a ) u(
a (? ) ,a =
+ %( a ) u( + > ,)( a ) u(

+ %( a ) u(
#(? ,,, # =
+ %( a ) u( + > ,)( {(* u(

+ %( a ) u( + + %( {(* u(

ed
1??% ?‰ =
+ %( a ) u( + > ,)( a ) u( + + %( {(* u( + > ,)( {(* u(

2 × a (? ) × #(? ,,
>1 $? (=
Ex
a (? ) + #(? ,,

> ,)( a ) u(
> ,)( a ) u( # (, >a# =
+ %( {(* u( + > ,)( a )
s

u(
si

+ %( a ) u(
+ %( a ) u( # (, +a# =
+ %( a ) u( + > ,)( {(* u(
oe

$( ( ?( : % | ℎŠ 2
\ ?%&( > ('%( ?‰, \> =
N

+ , {%& ( $( ( ?()

1
9 u( )( \ ?%&( > ('%( ?‰, 9\> = log 7 8
\>

+>-9\> = +> × 9\>

9
CFA Level 2 (2024) Formula Sheet – Noesis Exed

ECONOMICS

Learning Module 1 | Currency Exchange Rates: Understanding Equilibrium Value

Cross Rates

When given and , then = ×

• Ž • • Ž
Ž O O Ž O

When given Ž and Ž , then O = Ž ×

• O • •
•
R•S

p ‰
Currency pair Bid Bid/Ask

⁄
1 ‰ 1⁄p
A/B
B/A

ed
Video: https://youtu.be/wyDKKPkPhzw

Arbitrage Opportunities Between Dealers and Interbank

Ex
Video: https://youtu.be/Lqo9UZ3yyEA

1? % ,
Covered Interest Rate Parity
1+ R 360 S
s
‘
>‘⁄… = $‘⁄… ’ ”
1? % ,
1 + … R 360 S
si
oe

1? % ,
>‘⁄… − $‘⁄… ‘− … R 360 S
=
$‘⁄… 1? % ,
1+ … R 360 S
N

Video: https://youtu.be/9jOzFA9GuHU

Mark-to-Market Value of a Forward Contract

Original position: Long base currency d forward at forward rate > ,‘⁄… (Offer side)

.>j,‘⁄… − > ,‘⁄… 0 × : ? $ •(

,%( g *> | 2=
#(& * 2 ‰) & % ‰
1+ ‘7 360 8

>j,‘⁄… = Forward rate at valuation date, t (Bid side)

Video: https://youtu.be/wLqyZRrutAc

10
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Uncovered Interest Rate Parity

1? % ,
1+
R 360 S ‘
- $‘⁄… = $‘⁄… ’ ”
1? % ,
1 + … R 360 S

1? % ,
‘ −R 360 S
… 1? % ,
%Δ$‘X⁄… = ≈ − 7 8
1? % , ‘ …
360
1 + … R 360 S

Video (Carry Trade): https://youtu.be/_26fG3Zvzyg

a‘
Absolute PPP
$‘⁄… =
a…

ed
1? % ,
Relative PPP
š‘ − š… R 360 S 1? % ,
%Δ$‘⬚⁄… = ≈ š‘ − š… 7 8
1? % , 360
1 + š… R S
Ex
360

1? % ,
Ex ante PPP
%Δ$‘X⁄… ≈ š‘X − š…X 7 8
s

360
si

− = š‘X − š…X
International Fisher Effect
oe

‘ …

š X = Expected inflation rate

where:

š = Actual inflation rate

N

Mundell-Fleming Model

Bonus Video: https://youtu.be/xNo3GpWYgKA

11
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 2 | Economic Growth and the Investment Decision

Grinold-Kroner Model
- #X = \ + Δ a⁄- + + * − Δ$

- #X = Expected equity return

where:

\ = Dividend yield
Δ a⁄- = Expected repricing
= Expected inflation rate
* = Real economic growth rate
Δ$ = Change in shares outstanding

Δ$ = {( %‰ ? + #(, u( 2‰ & )&

Dilution effect

ed
Cobb-Douglas Production Function
= +› œ g Eœ
Ex where a < 1

where:

• = Share of output allocated to capital (›)

Y = Output

1 − • = share of output allocated to labor (g)

s

+ = total factor productivity (+>a), represents technological progress of the economy

si

› œ
žŸ ¡Ÿ ¡¢£ ¤¥£¦¢£ = = +7 8
oe

g g

a( ?( *( ?ℎ *( a( ?( *( ?ℎ *( a( ?( *( ?ℎ *(
= +
N

, • 2%? u ‰ , ? • 2%? u ‰ ? • , 2((•( *

Δ ⁄g Δ+ Δ › ⁄g
= +•
⁄g + ›⁄g

Marginal product of capital, MPK

Ja› = • 7 8
›

›
Amount of output that is allocated to providers of capital, a
•=

12
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Growth Accounting equation:

∆ ∆+ ∆› ∆g
= +• + 1−•
+ › g

Growth rate in potential GDP = Long-term growth rate + Long-term growth rate
of labor force in labor productivity
∆ ∆g Δ ⁄g
= +
g ⁄g

g ?(
g ?( • ?• =
Š * *( • •%,

¨
Sustainable growth rate of output per capita
*∗ =
1−•

ed
¨
Sustainable growth rate of output (Steady state growth rate)
©∗ = +
1−•
Ex
1 ¨
Equilibrium output-to-capital ratio (in steady state):
= ] + + ª^
› ) 1−•
s

¨ = growth rate of TFP

where:
si

• = elasticity of output with respect to capital

) = fraction of income (Y) that is saved
oe

ª = rate of depreciation of physical capital stock

= labor supply growth = %∆g
N

Endogeneous Growth Model

‰X = ?
Production function:
X

Δ‰X Δ
Growth rate of output per capita:
= = )? − ª −
‰X X

‰X = output per worker

where:

X = capital per worker

? = marginal product of capital in the aggregate economy (constant)

13
CFA Level 2 (2024) Formula Sheet – Noesis Exed

FINANCIAL STATEMENT ANALYSIS

Learning Module 1 | Intercorporate Investments

Investments in Associates (Equity Method)

- 2 * =(* * $ℎ ( 1& • (p?())

$ℎ (
u() &( = u() &( + − 2 u 2( 2 −
( ? &( •% ?ℎ )( • ?(
)) ? () )) ? () (?( u(2

$ℎ ( 1& • (p?()) $ℎ ( « ( , •(2 • &

Impact on Investor’s Income Statement
= − −
( ? &( •% ?ℎ )( • ?( 2 | ) ( & %•) ( & ) ,(

Business Combinations (Acquisition Method)

Excess purchase price

ed
= Acquisition price – %Ownership × Book value of net identifiable assets

Partial Goodwill Ex
= Acquisition price – (%Ownership × Fair value of identifiable net assets)
= Acquisition price – (%Ownership × Book value of identifiable net assets)
– (%Ownership × Excess purchase price attributable to identifiable net assets)

{ ? ,, * ( () = %{:9 × > u ,%( 2( ,( ( ))( )

s
si

Full Goodwill
oe

= Fair value of entity – Fair value of net identifiable assets

{ ? ,, * ( () = %{:9 × > u ,%( ( ‰

N

Video: https://youtu.be/RgxmPbx4-0o

9&• &( : ‰ * u ,%( #(? u( ,( & %

IFRS
= −
, )) ? )ℎ *( ( *% ? )ℎ *( ( *%

9&•, (2 > u ,%( > u ,%( (• * % ′)

US GAAP
= −
* 2| ,, (• *% 2( ,( ( ))( )

9&• &( : ‰ * u ,%( 9&•, (2

= −
, )) * 2| ,, * 2| ,,

14
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 2 | Employee Compensation - Post-Employment and Share-Based

Share-Based Compensation Accounting

> u ,%( | 2 * 2 (
: &•( ) (p•( )( =
() * •( 2

Treasury Stock Method

a ?((2) &
- ? u( ) (p( ? )( ®
\ ,% (2 = )? $ℎ () ))%(2 &
)ℎ ( )(2 | 2)
)ℎ () = )ℎ () + ? u( ) (p( ? )( −
1u( *( )ℎ ( • ?(
%) 2 * %) 2 * )ℎ ( )(2 | 2)
ℎ( (• * •( 2

ed
1u( *( % (? * •(2
1))%&(2 : )ℎ • ?((2)
= + )ℎ (- )(2
• ?((2) & (p( ? )(
? &•( ) (p•( )(
Ex
Forecasting Shares Outstanding With Share-Based Awards

= ) ? )ℎ () = ) ? )ℎ ()
%) 2 *, = %) 2 *, $ℎ ( • )
s

+ #$«) u() (2 +
( 2 •( 2 (* * •( 2 (p( ? )(2
si

$ℎ () ))%(2 &
$ℎ (
oe

+ )(? 2 (), −
(•% ?ℎ )()
?'% ) ), ( ?.
N

Financial Reporting for Defined Benefit Pension Plans

>% 2(2 ) %) = > u ,%( •, ))( ) − a( ) ,*

- 2 * u ,%( =(* * u ,%( 1? % , ( % =( ( )

= +: % )+ −
•, ))( ) •, ))( ) •, ))( ) • 2

- 2 * •( ) =(* * •( ) $( u ?( 9 ( () 1? % , =( ( )
= + + + −
,* ,* ? )) ? ) , ))⁄ * • 2

=(* * •( ) (,2 u() &( * 2(

9 ( () ? ) = ×
,* ? • ( 2

15
CFA Level 2 (2024) Formula Sheet – Noesis Exed

IFRS Only

In income statement,
= +
⁄

"
⁄
= − ×

Learning Module 3 | Multinational Operations

Net assets = Total assets – Total liabilities

Net monetary assets = Monetary assets – Monetary liabilities

Current Rate Method

ed
Currency translation adjustment
= Total assets of foreign subsidiary in parent currency terms
Ex
− Total liabilities of foreign subsidiary in parent currency terms
− Shareholder capital of foreign subsidiary in parent currency terms
− Other equity items of foreign subsidiary in parent currency terms
s
Hyperinflationary Environment
si

IFRS
oe

%
=
# & %
N

%
=
- # &

%
=
' ℎ

16
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 4 | Analysis of Financial Institutions

+ , + ( 1 : && -'% ‰ 122 ,

= +
: • , + ( 1: • , + ( 1: • ,

+ , #(*%, ‰ + ,+ ( 1 + ,+ ( 2
= +
: • , : • , : • ,

: && -'% ‰ : && -'% ‰ + ( 1 : • ,

= ≥ 4.5%
+ ( 1# # ) Š( *ℎ (2 1))( )

+( 1 + ,+ ( 1: • ,
= ≥ 6.0%
# # ) Š( *ℎ (2 1))( )

+ ,: • , + , #(*%, ‰: • ,
= ≥ 8.0%
# # ) Š( *ℎ (2 1))( )

g '% 2 ‰ : u( *( @ *ℎ µ% , ‰ g '% 2 1))( )

ed
=
# , g:# -p•(? (2 ? )ℎ % , |)

{%& ( 2 ‰) ℎ ? | ℎ) 2
Ex
= g:# × 30
) ()) ,(u(, u ,%&( ? )ℎ % , |)
s

(g:# × 30 days.
Number of days that bank can withstand a stress level volume of cash outflows for
si

{( $ ,( >% 2 * 1u , ,( $ ,( >% 2 *
=
# , {$># #('% (2 $ ,( >% 2 *
oe

Property and Casualty Companies

N

g )) 2 , )) 23%) &( g )) (p•( )( + g )) 23%) &( (p•( )(

=
(p•( )( {( • (& %&) ( (2

« 2( | * « 2( | * (p•( )(
=
(p•( )( {( • (& %&) | (

: & (2 g )) 2 , )) 23%) &( « 2( | *

= +
(p•( )( (p•( )(

\ u 2( 2) • , ?‰ℎ ,2( ) \ u 2( 2) • , ?‰ℎ ,2( ) )ℎ (ℎ ,2( )

=
)ℎ (ℎ ,2( ) {( • (& %&) ( (2

: & (2 : & (2 \ u 2( 2) • , ?‰ℎ ,2( )

= +
¶·U¸¹ ºV»Vº¸¼º½ )ℎ (ℎ ,2( )

17
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 5 | Evaluating Quality of Financial Reports

J-)? ( = – 4.84 + 0.920 \$# + 0.528 ©J9 + 0.404 1µ9 + 0.892 $©9
Beneish Model

+ 0.115 \-a9 – 0.172 $©19 + 4.670 1?? % ,) – 0.327 g- 9

#(?( u ,()j ⁄$ ,()j

where:

DSR day sales receivable index =

#(?( u ,()jE ⁄$ ,()jE
©JjE
GMI gross margin index =
©Jj
e1 − aa-j + :1j /+1j f
AQI asset quality index =
e1 − aa-jE + :1jE /+1jE f
$ ,()j
SGI sales growth index =
$ ,()jE
\(• (?
DEPI depreciation index =
jE
\(• (? j

ed
$©1j /$ ,()j
SGAI sales, general, and administrative expenses index =
$©1jE /$ ,()jE
9 ? &( ( ( (p 2 ‰ (&) − : )ℎ & •( )
Accruals =
Ex
+ , ))( )
g(u( *(j
LEVI leverage index =
g(u( *(jE
s

Earnings Persistence
si

- *)jC = • + Ý - *)j +
oe

- *)jC = • + Ý : )ℎ , |j + Ý 1?? % ,)j +

N

Cash-flow-based accruals = NI – (CFO + CFI)

18
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 6 | Integration of Financial Statement Analysis Techniques

{( h•( * h•( * h•( *

= −
1))( ) {h1 1))( ) g , ()
+ , : )ℎ 2 + , + ,
=R − S−R − S
1))( ) $ℎ - ( & 9 u() &( ) g , () \(

= , ?(-)ℎ(( - )(2 {h1j − {h1jE

=
?? % ,) {h1j + {h1jE ⁄2

: )ℎ- , |- )(2 {9j − :>hj + :>9j

=
?? % ,) {h1j + {h1jE ⁄2

Learning Module 7 | Financial Statement Modeling

Growth Relative to GDP Growth approach

ed
If company’s revenue is forecast to grow at K bps above the nominal GDP growth rate
(*%), then company’s revenue growth rate = *% + %
Þ
Ex
If company’s revenue is forecast to grow @% faster than the nominal GDP growth rate
(*%), then company’s revenue growth rate = *% × R1 + S
ß
s

Market Growth and Market Share approach

si

> (? ) (u( %( = J ( )ℎ ( % × 9 2%) ‰ (u( %(

oe

{hag1+
Return on Invested Capital
ROIC =
9 u() (2 : • ,
N

{hag1+ = Net operating profit less adjusted taxes

where:

9 u() (2 : • , = h•( * ))( ) − h•( *, , ()

19
CFA Level 2 (2024) Formula Sheet – Noesis Exed

CORPORATE ISSUERS

Learning Module 1 | Analysis of Dividends and Share Repurchases

Dividend Payout Policies

Target payout adjustment model (Lintner model)

-p•(? (2 g ) -p•(? (2 + *( • ‰ % g ) 123%) &(

= +7 × − 8×
2 u 2( 2 2 u 2( 2 - *) 2 u 2( 2 ?

1
where:
123%) &( ? =
{%& ( ‰( ) 23%) &( ( •, ?(

\ u 2( 2 :% (
Constant dividend payout ratio policy

ed
\ u 2( 2 = ×
• ‰ % ( *)

Video: https://youtu.be/hhcvNiTpZX4
Ex
EPS and BVPS After Share Repurchase

- *) ( ( %‰ ? −1 ( p? ) % 2)
s

-a$ ( %‰ ? =
$ℎ () % ) 2 * ( %‰ ?
si
oe

Video: https://youtu.be/Pd0-QQF-VhQ

= ,%( ( ( %‰ ? − ,%( )ℎ ( %‰ ?
= a$ ( %‰ ? =
$ℎ () % ) 2 * ( %‰ ?
N

Analysis of Dividend Safety

\ u 2( 2)
\ u 2( 2 • ‰ % =
{( 9 ? &(

{( 9 ? &(
\ u 2( 2 ? u( *( =
\ u 2( 2)

>:>-
>:>- ? u( *( =
\ u 2( 2) + $ℎ ( (•% ?ℎ )()

20
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 3 | Cost of Capital: Advanced Topics

Š1:: = |… 1− + |q + |X
Weighted average cost of capital
… q X

|… = Weight of debt in capital structure

where:

|q = Weight of preferred equity in capital structure

|X = Weight of common equity in capital structure
… = Pre-tax cost of debt
q = Cost of preferred equity
X = Cost of common equity

Cost of debt, … = ‘ + : (2 )• ( 2

Cost of equity, X = ‘ + -#a + 9#a

ed
=( ?ℎ& 2(p #) ((
where:
-#a = Equity risk premium = −
(% (
Ex
9#a = Idiosyncratic risk premium

a ()( ,%(
Leases
s

a ()( ,%( > ,%( g()) ) \ (?

â
+ = +
g( )( a ‰&( ) #() 2% , ,%( g( )(2 1))( 9 ,: ) )
si

g())
oe

Equity Risk Premium

1u( *( )
N

1u( *( ( ?ℎ&
Historical Approach (Ex-Post)
-#a = −
2(p ( % (( (

\
Gordon Growth model
-#a = +*− ‘

21
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Grinold-Kroner Model

-#a = e\ + Expected repricing + - *) * | ℎ •( )ℎ (f − ‘

-#a = e\ + Δ a⁄- + + * − Δ$f − ‘

- *) * | ℎ •( )ℎ ( = + * − Δ$

\ = Dividend yield of market index

where:

Δ a⁄- = Expected growth rate in P/E

Cãäåæçèéêëçì íîïð
= Expected inflation = Cãäåæñòó
−1
* = Expected growth rate in real earnings per share
Δ$ = Expected change in shares outstanding (Δ$ > 0 for share issuance; Δ$ < 0 for
share buyback)

ed
Cost of Equity

Gordon Growth Model

Ex
\
= +*
X
a
s
Two-Stage DDM
!
\j a!
si

a = +
1+ X j 1+ X !
oe

"

Bond Yield Plus Risk Premium Approach (BYPRP)

= + # ) • (& %&
N

X …

where … = Cost of company’s long-term debt

X = + Ý × -#a
Capital Asset Pricing Model (CAPM)
‘

22
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Fama-French model

Three-factor model

X = ‘ + Ý -#a + Ý $J= + Ýõ @Jg

Five-factor model

X = ‘ + Ý -#a + Ý $J= + Ýõ @Jg + Ýö #JŠ + Ý÷ :J1

$J= = Size premium

where:

@Jg = Value premium

#JŠ = Profitability premium
:J1 = Investment premium

Expanded CAPM
= + ÝqXX‚ -#a + $a + 9a + $:#a

ed
X ‘

$a = Size premium (for smaller, privately held companies)

where:
Ex
9a = Industry risk premium
$:#a = Company-specific risk premium
s

Build-Up Approach
si

X = ‘ + -#a + $a + $:#a
oe

Country Spread Model

-#a
-#a = +ø×: % ‰ ) • (& %&
2(u(, •(2 & (
N

ø = Level of exposure of the company in the local country

where:

: % ‰ ) • (& %& = $ u( ( * ‰ (,2 )• ( 2

(,2 (&( * * & ( 2)

$ u( ( * ‰ (,2 (,2 2(u(, •(2 & (
= 2( & (2 ℎ( ?% ( ?‰ −
)• ( 2 * u( &( 2)
ℎ( 2(u(, •(2 & (

23
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Aswath Damodaran’s CRP

vùDú jû
: % ‰ ) • (& %& = $ u( ( * ‰ (,2 )• ( 2 ×
vO•!…

vùDú jû = Volatility of the local country’s equity market

where:

vO•!… = Volatility of the local country’s bond market

International CAPM
- X = ‘ + Ýü ý-. þB 0 − ‘ + ÝŽ ý- Ž − ‘

-. þB 0 − ‘ = Risk premium of a global index

where:

Ž = Wealth-weighted foreign currency index return

ed
Ex
s
si
oe
N

24
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 4 | Corporate Restructuring

Evaluating Materiality Based on Size

,%( ) ?
For Acquisition/Divestiture:

- ( • )( u ,%( ?'% * ? &• ‰

: ) ) u *)
For Cost Restructuring:

$ ,()

\a − $a
Premium Paid Analysis
+ ( u( • (& %&, a#J =
$a

ed
\a = Deal price per share of the target company
where:

$a = Unaffected stock price of the target company (i.e., pre-announcement)

Ex
s
si
oe
N

25
CFA Level 2 (2024) Formula Sheet – Noesis Exed

EQUITY VALUATION

Learning Module 1 | Equity Valuation Applications and Processes

VE – P = (V – P) + (VE – V)

ù = Estimated intrinsic value

where:

a = Market price
= Intrinsic value

Conglomerate discount = Sum-of-the-parts value – Market value

Learning Module 2 | Discounted Dividend Valuation

ed
!
Discounted Dividend Valuation
:>j
=
1+ j
j"
Ex
\ \ \! a!
= + + ⋯+ +
1+ 1+ 1+ ! 1+ !
s

\ \ 1+*
Gordon Growth Model
si

= =
−* −*
oe

\
Fixed-rate perpetual preferred stock
=
N

Value of stock = Value of a company + Present value of growth

-
with zero-growth opportunities (PVGO)
= + a ©h

a 1 a ©h
= = +
- - -

\
If dividend and earnings growth rate is constant,
= +*
a

26
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Two-Stage Dividend Discount Model

!
\ 1 + *‡ j
\ 1 + *‡ ! 1 + *
= +
1+ j 1+ ! −*
j"

Video: https://youtu.be/7vXWsTKiSPE

\ 1+* +\ @ * −*
The H-Model

=
−*

@ = half-life in years of the high-growth period

where:

* = Short-term growth-rate
* = Long-term growth rate

ed
Video: https://youtu.be/IAMFZXSPKOY

PRAT model Ex
Sustainable growth rate, * = × #h-

Video: https://youtu.be/MnfRRRhuGpA
s

{9 − \ u 2( 2) {9 $ ,() +1
*= × × ×
{9 $ ,() +1 +-
si
oe

Learning Module 3 | Free Cash Flow Valuation

N

Free Cash Flow to the Firm (FCFF) Valuation Approach

>:>>j
> & ,%( =
1 + Š1::
If non-operating
j
j"
assets = 0

Equity Value = Firm Value – Market Value of Debt

FCFE Valuation Approach

>:>-j
-'% ‰ ,%( =
1+ j
j"

27
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Single-Stage (Constant Growth) FCFF and FCFE Model

>:>> >:>> 1 + *
FCFF Valuation Approach
> & ,%( = =
Š1:: − * Š1:: − *

>:>- >:>- 1 + *
FCFE Valuation Approach
-'% ‰ ,%( = =
−* −*

Free cash flow to the Firm, FCFF

FCFF = NI + NCC + Int(1 – Tax Rate) – FCInv – WCInv

= CFO + Int(1 – Tax Rate) – FCInv
= EBIT(1 – Tax Rate) + Dep – FCInv – WCInv

ed
= EBITDA(1 – Tax Rate) + Dep(Tax Rate) – FCInv – WCInv

NI = Net income available to common shareholders

where: Ex
NCC = Net noncash charges (e.g. depreciation)
Int = Interest expense
FCInv = Fixed capital investments = Maintenance Capex + Growth Capex
= Δ© )) aa- = Δ{( aa- + \(• (?
s
si

WCInv = Investment in working capital

oe

Free cash flow to the Equity, FCFE

FCFE = FCFF – Int(1 – Tax Rate) + Net borrowing

= CFO – FCInv + Net borrowing
N

where:
Net borrowing = Debt issued – Debt repaid

Video: https://youtu.be/rtIvIy6Fl0A

If (FCInv – Dep) and WCInv funded using Debt (based on debt ratio):

FCFE = NI + Dep – FCInv – WCInv + Net borrowing

where:

\(
Net borrowing = DR(FCInv – Dep) + DR(WCInv)
\# = \( =
1))( )

28
CFA Level 2 (2024) Formula Sheet – Noesis Exed

If company issues preferred shares:

FCFF = CFO + Int(1 – Tax Rate) + Preferred dividends – FCInv

Two-Stage Free Cash Flow Models

!
>:>>j >:>>!C 1
> & u ,%( = + ] ^
1 + Š1:: j Š1:: − * 1 + Š1:: !
j"

!
>:>-j >:>-!C 1
-'% ‰ u ,%( = + ] ^
1+ j −* 1+ !
j"

Value of Firm = Value of operating assets + Value of nonoperating assets

(PV of FCFF)

Learning Module 4 | Market-Based Valuation Price and Enterprise Value Multiples

ed
Enterprise value, EV = Market value of common stock
+ Market value of preferred equity
+ Market value of debt + Minority interest
Ex
– Cash and Short-term investments

Actual Justified
J ( • ?( •( )ℎ ( 1− 1+*
s

-a$ u( • (u %) 12 & ℎ) −*
Trailing P/E
si

J ( • ?( •( )ℎ ( 1−
> (? ) (2 -a$ u( (p 12 & ℎ) −*
oe

Leading P/E

#h- − *
N

−*
J ( • ?( •( )ℎ (
= u ,%( •( )ℎ (
P/B
Video:
https://youtu.be/c0vmCUtDpZs

- 1− 1+*
= ×
$ $ −*

J ( • ?( •( )ℎ (
$ ,() •( )ℎ (
- 1−
P/S or

= ×
$ $ −*

29
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Actual Justified
4×J ) (?( '% ( ,‰ 2 u 2( 2 −*
J ( • ?( •( )ℎ ( 1+*
Trailing D/P

> (? ) 2 u 2( 2) u( ℎ( (p ‰(
−*
J ( • ?( •( )ℎ (
Leading D/P

-a$ −*
a ?( •( )ℎ ( 1− 1+*
Earnings yield

Underlying Earnings = EPS – non recurring gains + non recurring loss

Normalized Earnings

Method 1: Average EPS Approach

!
1
Normalized EPS = -a$
"

ed
Method 2: Average ROE Approach
!
1
Normalized EPS =
Ex
#h- × :% ( = u ,%( •( )ℎ (
"

a/-
s
Price-to-Earnings Growth (PEG) Ratio
a-© =
* %
si
oe

Momentum Indicators

Earnings surprise = Reported EPS – Expected EPS

N

#(• (2 -a$ − -p•(? (2 -a$

¶ ¸º ¸¶¹¼V¼ ½ ½ ¹o¹V½¸ =
v 1 ,‰) (? ) -a$

Standardized unexpected earnings (SUE) =

ùG‚! !þ‡ ú‚q‚ ‡X
ùG‚! !þ‡ ú‚q‚ ‡X

1
Portfolio P/E
Š( *ℎ (2 ℎ & ? &( = |
∑!"

| = Weight of stock i in portfolio

where:

= P/E of stock i

30
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 5 | Residual Income Valuation

- 1j = -=9+j 1 − + − Š1:: × 9 u() (2 : • ,jE

Economic Value Added (EVA)

J 1j = J ( u ,%( > &j − 9 u() (2 : • ,j

Market Value Added (MVA)

#9j = -j − × =jE = #h- − × =jE

Residual Income, RI

#9 #9 #9õ
Residual Income Model
== +] + + +⋯^
1+ 1+ 1+ õ

Video: https://youtu.be/O0KTBkEtP9M

ed
#h- − × = #9
Single-stage residual income valuation model

== + == +
−* −* Ex
Video: https://youtu.be/82GJu5umrB0

J ( u ,%( 2( + J ( u ,%( ('% ‰

Tobin’s Q
s

+ â
)µ =
#(•, ?(&( ? ) , ))( )
si
oe

Continuing Residual Income

äE
#9j #9ä
== + + 0≤ ≤1
1+ j 1+ − 1+ äE
j"
N

= Persistence factor

If RI declines to Long-run level in mature industry, with premium over book value
ä
#9j aä − =ä
== + +
1+ j 1+ ä
j"

Video: https://youtu.be/vhRW3q70E0w

=j = =jE + -j − \ uj
Clean surplus relationship:

31
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 6 | Private Company Valuation

Capitalized Cash Flow Method (CCM)

>:>> 1 + * -'% ‰ > & J ( u ,%(

> & u ,%( = = −
Š1:: − * u ,%( u ,%( \(
→

>:>- 1 + *
-'% ‰ u ,%( =
−*

Excess Earnings Method (EEM)

- *) ('% (2 • u 2(
¸½½ { & , •(2
= − ℎ( ('% (2 ( (%
¸¶¹¼V¼ ½ ( *)
¹ V¼ ¶oVU¶, 2 ·V ¸º ¶½½¸U½

-p?()) - *)
,%( ℎ( * ,( ))( ) =

ed
−*
Ex
Value of the firm = Working capital + Fixed assets + Intangible Assets

Video: https://youtu.be/137ga1xgAbA
s
Control Premium
si

-'% ‰ u ,%( -'% ‰ u ,%(

= × 1+: , • (& %&
| ℎ? , • (& %& | ℎ % ? , • (& %&
oe

\(
123%) (2 ? , • (& %& = : , • (& %& × 71 + 8
1))( )
N

Discount for Lack of Control and Marketability

1
Discount for Lack of Control (DLOC)
\gh: = 1 −
1+: , • (& %&

Total discount = 1 – (1 – DLOC)(1 – DLOM)

,%( 1+J •
\ghJ =
$ℎ ( • ?(

32
CFA Level 2 (2024) Formula Sheet – Noesis Exed

FIXED INCOME

Learning Module 1 | The Term Structure and Interest Rate Dynamics

Forward Pricing Model

\>O = \>• × >•,OE•

1
where:
\>O =
1 + •O O

1
>•,OE• = OE•
.1 + •,OE• 0

Forward Rate Model

ed
OE•
1 + •O O
= 1 + •• •
.1 + •,OE• 0
Ex
•O = Spot rate for period =
where:

•,OE• = = − 1 forward rate that starts in period 1

s
Calculating spot rate from one-period forward rates
ڊ
•ä = ý 1 + • .1 + 0.1 + 0 … .1 + 0 −1
si

, , äE ,
oe

Boostrapping Spot Rates From Par Rates

N

Video: https://youtu.be/-FnweFO172Q

Fixed swap rate

1 − \>ä 1 − \ )? % > ? g ) a ‰&(
)ä = =
∑äj" \>j $%& \ )? % > ? )

Swap spread = YTM of swap rate – YTM of government bond (same maturity)

TED spread = LIBOR – YTM of T-bill (same maturity)

LIBOR-OIS spread = LIBOR – OIS Fixed rate

33
CFA Level 2 (2024) Formula Sheet – Noesis Exed

For Parallel shifts in yield curve:

%∆a = −J 2\% × ∆ +J ∆a = −J 2\% × ∆ +J × a

%∆a = −- \% × ∆:% u( ∆a = −- \% × ∆:% u( × a

Non-parallel shifts (i.e. change in slope or curvature):

%∆a = −›(‰# (\% × ∆›(‰ # (

Bond Risk Premium

(,2 2( %, (( (,2 2( %, ((
= 2 ) • (& %& = −
, * ( & 2 )ℎ ( & 2

Learning Module 2 | The Arbitrage-Free Valuation Framework

ed
Arbitrage-free Value of Bond
: : > +:
= + + ⋯+
1+• 1+• 1 + •! !
Ex
•! = Spot rate for period n
where:
s
si

Backward Induction Valuation Methodology

0.5 × + 0.5 × +:
= 2 u ,%( ‰ 2( =
ß
1+
oe

ß = bond’s value if the higher forward rate is realized one year hence
where:
N

= bond’s value if the lower forward rate is realized one year hence
: = coupon payment that is not dependent on interest rates

Video (Backward Induction Valuation): https://youtu.be/DhAVQ3hIXlQ

Video (Backward Induction with Financial Calculator): https://youtu.be/FycX2UwJxCM

Video (Pathwise Valuation): https://youtu.be/3oM-220oi7o

,ß = , (
Binomial Interest Rate Tree

,ßß = , (ö ,ß = , (

õ,ßßß = õ, ( õ,ßß = õ, (ö õ, ß = õ, (

34
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Equilibrium Term Structure Models

Cox-Ingersoll-Ross (CIR) Model

2 = ¨− j 2 + v Y j 2•

Vasicek Model
2 = ¨− j 2 + v2•

= Speed of reversion (> 0)

where:

¨ = Long-run interest rate

v = Interest rate volatility

Arbitrage Free Models

ed
Ho-Lee Model
2 j = ¨j 2 + v2•j
Ex
Kalotay-Williams-Fabozzi (KWF) Model
2 ln j = ¨j 2 + v2•j
s

¨j = Time-dependent drift term

where:
si
oe

Learning Module 3 | Valuation and Analysis - Bonds with Embedded Options

Callable and Putable Bonds

N

Value of callable bond = Value of straight bond – Value of issuer call option

Value of putable bond = Value of straight bond + Value of investor put option

Video (Valuing a callable bond): https://youtu.be/lWLSodiqZaM

Video (Valuing a putable bond): https://youtu.be/qmUnAtpXIAg

aE − a C
- (? u( 2% =
2 × Δ:% u( × a

a + a C −2×a
- (? u( ? u(p ‰ =
E
a × Δ:% u(

35
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Capped and Floored Floaters

Value of capped floater = Value of straight floater – Value of cap

Value of floored floater = Value of straight floater + Value of floor

Video (Valuing a capped floater): https://youtu.be/d4LNMdXV9vU

Video (Valuing a floored floater): https://youtu.be/YJZU0THHBNE

Convertible Bonds

: u( ) « 2( ,‰ * : u( )
= ×
u ,%( )ℎ ( • ?(

V¼V »¶ ¸ : u( ) ,%( % 2( ,‰ *
= ¶ ] , ^
? u( ,( 2 u ,%( $ *ℎ 2

ed
J ( ? u( ) : u( ,( 2 • ?(
=
• ?( : u( )
Ex
J ( ? u( ) J ( ? u( ) « 2( ,‰ * )ℎ (
= −
• (& %& •( )ℎ ( • ?( • ?(

J ( ? u( ) J ( ? u( ) • (& %& •( )ℎ (
s

=
• (& %& « 2( ,‰ * )ℎ ( • ?(
si

a (& %& u( : u( ,( 2 • ?(
oe

= −1
$ *ℎ u ,%( $ *ℎ u ,%(
N

,%( ? ,,
Convertible Bond (With No Additional Options)
,%( ,%(
= + •
? u( ,( 2 ) *ℎ 2
))%( â ) ) ?

,%( ? ,, ,%(
Callable Convertible Bond
,%( ,%(
= + • − ))%( ? ,,
? u( ,( 2 ) *ℎ 2
))%( â ) ) ? •

,%( ? ,, ,%(
Putable Convertible Bond
,%( ,%(
= + • + u() •%
? u( ,( 2 ) *ℎ 2
))%( ) ) ?
â •

36
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 4 | Credit Analysis Models

©-)• ( 2 = +J : • ( 2 − +J © u( &( 2

g )) * u( -p•(? (2 #(? u( ‰
= × R1 − S
2( %, (p• )% ( (

g )) #(? u( ‰
=1−
)(u( ‰ (

Expected Loss = Probability of Default × Loss Given Default

> u ,%( > u ,%( 2 : (2 ,%

= −
? (2 ) ‰ 2 ))%& * 2( %, 123%) &(

!
-gj ah\ × g©\
: (2 u ,% 23%) &( , : 1= =
1+ j j 1+

ed
j" =1

-gj = Expected loss of bond at time t

where:

ah\j = Probability of default of bond at time t

Ex
g©\j = Loss given default at time t = -p•(? (2 -p• )% (j − #(? u( ‰j
j = Risk-free rate at time t
= Bond’s remaining tenor
s

-gj
a (p•(? (2 , )) •( 2 =
1+ j j
si

ah\j = 1 − @ • 2 ( ×@ • 2 (
oe

jE

Approximation of credit spread ≈ Annual hazard rate × (1 – Recovery rate)

N

Video (Probability of Default): https://youtu.be/e7K4x48Eg4U

Video (Valuing a Credit Risky Bond – Zero Interest Rate Volatility):

https://youtu.be/2I9bgu-o7aI

Video (YTM of Corporate Bonds – Default and Non-Default):

https://youtu.be/K253Y7c2Yto

Expected percentage price change of a corporate bond

a , ‰ ? (2 & * × %∆a

%∆a = −J 2\% × ∆? (2 )• ( 2
where:

37
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Structural Model

1j = \ , + + $j

In terms of… Call options Put options

Equity - + = J pe1 + − ›, 0f - + = 1 + − › + J pe› − 1 + , 0f

Debt \ + = 1 + − J pe1 + − ›, 0f \ + = › − J pe› − 1 + , 0f

$j = -'% ‰ u ,%( &(

where:

1ä = 1))( u ,%( &( +

› = > ?( u ,%( 2(

Learning Module 5 | Credit Default Swaps

ed
CDS payout amount = Payout ratio × Notional
= (1 – Recovery rate of CTD bond) × Notional
Ex
Upfront payment = PV of protection leg – PV of premium leg

«• a a
= −
• (& %& : (2 $• ( 2 > p(2 : %•
s

: (2 > p(2
si

≈7 − 8 × :\$ \%
$• ( 2 : %•
oe

a ?( :\$ •( 100 , = 100 − «• • (& %&

% :ℎ *( :ℎ *(
= × \%
N

:\$ • ?( )• ( 2 •)

38
CFA Level 2 (2024) Formula Sheet – Noesis Exed

DERIVATIVES

Learning Module 1 | Pricing and Valuation of Forward Commitments

Forward Contracts

> =$ 1+ ä
Forward Pricing:

> = $ + :: − := 1+ ä

> = $ (‚ ä

> =$ ( ‚ CŽŽEŽO ä

$ = Current spot price

ed
where:

> = Forward price (set today)

= Annually compounded risk-free rate
= Continuously compounded risk-free rate
Ex
:: = PV of Carry cost
:= = PV of carry benefits
:: = Continuously compounded cost of carry
s

:= = Continuously compounded carry benefit

si

=0
oe

Forward Valuation (Long Position):

>j − > >

= = $j −
1+ 1+
N

j äEj äEj

ä = $ä − >

39
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Forward Rate Agreement (FRA)

{ ,egB − >#1 f
¼ >#1 • ‰ ¸ oV¹¶UV ¼ >#1 =
B
1 + \B B

1 + gä 1
>#1 = 7 − 18 7 8
ä
1 + gw w B

Valuation at time = * (prior to FRA expiration):

{ ,.>#1þ − >#1 0
,%( g * >#1 * =
B
1 + \äEþ äEþ

\B = Discount rate for m periods at t = h

where:

ℎ = FRA tenor
& = Tenor of the underlying rate
+ = ℎ + & = Maturity of underlying instrument

ed
Video (Pricing an FRA): https://youtu.be/uBmAt_z9f3Y
Ex
Video (Valuing an FRA): https://youtu.be/AYKRVdaYvxY

Fixed Income Forwards and Futures

s

µ% (2 % % () : u( )
Pricing:
> = ×
si

• ?( ?
= > = + 19 − 19ä − > :9
oe

j = a ()( u ,%( 2 ( ( ?( | 2 • ?()

Valuation for fixed income forward contracts:
N

= a e>j − > f

j = Price change since previous day’s settlement

Valuation for fixed income futures contracts:

= = Quoted bond price

where:

{%& ( ?? %(2 2 ‰) ) ?( , ) ? %• • ‰&( 1 % , ? %•

19 = ×
+ , 2 ‰) 2% * ℎ( ? %• • ‰&( •( 2 : %• ('%( ?‰

40
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Interest Rate Swaps (IRS)

1−a !
>$ =
∑!" a

1
a =
\ ‰) J % ‰
1 + $• ( R 360 S

Pay-fixed, receive-floating IRS

!

,%( $| • = { , × >$j − I a
"

Receive-fixed, pay-floating IRS

!

,%( $| • = { ,× I − >$j a
"

ed
Video (Pricing an Interest Rate Swap) : https://youtu.be/0QvtKZutr5E
Ex
Video (Valuing an Interest Rate Swap): https://youtu.be/_A2a909etvg

Currency Swap
s

1 − a !,G
Pricing for fixed leg of currency swap in currency
>$G = !
si

∑ " a ,G
oe

Ž = { ,G × − $j × { ,L ×
Value of a fixed-for-fixed currency swap
G L
N

G = >$G a ,G +a !,G ×a G = ,%( ?% ( ?‰ ,(* (?( u(

"
!

L = >$L a ,L +a !,L ×a L = ,%( ?% ( ?‰ ,(* • ‰

"
$j = Spot exchange rate at time (quoted as ⁄ )

Video (Pricing a currency swap): https://youtu.be/XZlxcVByc00

Video (Valuing a currency swap): https://youtu.be/3h4mElS48aA

41
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Equity Swap

$j
Value of equity swap (receive fixed-rate, pay equity return)

ù ,j = : − ×{ ,−a j a −{ ,
$jE

$j
,%( -'% ‰ g(* = ×{ ,
$jE

Cash flow for equity leg = { , × a( 2 ? ('% ‰ ( %

: = Value at time of a fixed-rate bond initiated with coupon : at Time 0

where:

$j = Current equity index level

$jE = Equity index level at last reset date

ed
Learning Module 2 | Valuation of Contingent Claims

?C − ?E
Hedge Ratio
Ex
ℎ = ≥0
Gƒƒ
$C − $E

•C − •E
ℎqúj = ≤0
$C − $E
s
si

No-arbitrage Approach:
oe

?=ℎ Gƒƒ $ +a −ℎ Gƒƒ $

C
+ ?C = ℎ Gƒƒ $ +a −ℎ Gƒƒ $
E
+ ?E

• = ℎqúj $ + a .−ℎqúj $ C + •C 0 = ℎqúj $ + a .−ℎqúj $ E + •E 0

N

Expectations Approach:

1+ −2
š=
%−2

% = Up factor
where:

2 = Down factor
= Risk-free rate

42
CFA Level 2 (2024) Formula Sheet – Noesis Exed

š? C + 1 − š ? E
One-period Binomial Model

?=
1+

š•C + 1 − š •E
•=
1+

š = Risk-neutral probability of an up-move

where:

Note: For interest rate options, š = 0.5 and discount expected option payoff using the
1-period forward rates.

Video (Valuing interest rate options): https://youtu.be/X4R8j_cf8SA

Two-period Binomial Model:

ed
š ? CC + 2š 1 − š ? CE + 1 − š ? EE
?=
1+Ex
š •CC + 2š 1 − š •CE + 1 − š •EE
•=
1+
s
For 2-period American-styled call option with dividend in t = 1:
si

$C = % × $ − a 2 u 2( 2) ) (( (
oe

$E = 2 × $ − a 2 u 2( 2) ) (( (
N

Video: https://youtu.be/U_XkIZjJIAU

43
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Black-Scholes Option Pricing Model

? = ${ 2 − ( E‚ä { 2

• = ( E‚ä { −2 − ${ −2

$ 1
ln R S + R + v S +
2 = 2
v √+

2 = 2 − v √+

Put-call parity: • + $ = ? + ( E‚ä

Hedge ratio for calls = { 2

Probability that the call option expires in the money = { 2 = a $ä >
•

Hedge ratio for puts = { 2 − 1 = −{ −2

•

ed
Probability that the put option expires in the money = 1 − { 2
•

a $ä < = { −2
•
Ex
? = $( E!ä { 2 − ( E‚ä { 2
BSM model with carry benefits

• = ( E‚ä { −2 − $( E!ä { −2
s

$ 1
si

ln R S + R − " + 2 v S +
2 =
v √+
oe

2 = 2 − v √+
N

Put-call parity: • + $( E!ä = ? + ( E‚ä

44
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Black Option Valuation Model

European Options on Futures

? = ( E‚ä e> + { 2 − { 2 f

• = ( E‚ä { −2 − $( E!ä { −2

> + 1
ln ] ^+ 2v +
2 =
v √+

2 = 2 − v √+

Put-call parity: ? = ( E‚ä e> + − f + •

Interest Rate Options

ed
? = 1a ( E‚.jM#lCj$ 0 ý>#1.0, KE , B 0{ 2 − # ( E‚ä { 2

• = 1a ( E‚.jM#l Cj$0 ý# ( E‚ä { −2 − >#1.0, , B 0{ −2

Ex KE

>#1.0, , B0 1
ln 4 6 + R2 v S
KE
KE
2 =
s

v Y KE
si

2 = 2 − v Y KE
oe

Payer Swaption
!

a1 = 1a × e# { 2 −# { 2 f× a 1
N

%& K
K"

Receiver Swaption
!

#-: %& = 1a × e# { −2 −# { −2 f × a K 1
K"

# 1
ln R # S + R2 v S +
2 =
v √+
2 = 2 − v √+

Video (Interest Rate Options & Swaptions Equivalences:

https://youtu.be/uZQO50sEzso

45
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Optimal Number of Hedging Units (for Delta Hedging)

a , 2(,
{ß = −
\(, ß

Video: https://youtu.be/v8RcvkQKFpw

Option Greeks

\(, Gƒƒ = ( E'ä { 2

\(, qúj = −( E'ä { −2

ª = Continuously compounded dividend yield

where:

( E'ä

ed
© && = © && = { 2
$v √+
Gƒƒ qúj

1
Ex
? = ? + \(, × ($ + © && × ($
Gƒƒ
2 Gƒƒ

1
• = • + \(, × ($ + © && × ($
qúj
2 qúj
s
si
oe
N

46
CFA Level 2 (2024) Formula Sheet – Noesis Exed

ALTERNATIVE INVESTMENTS

Learning Module 1 | Introduction to Commodities and Commodity Derivatives

>% % () $• • ?( $ *( : u( ( ?(
= + −
• ?( •ℎ‰) ? , ? && 2 ‰ ? )) ‰ (,2

{( ( & g *( ( &
: ,( 2
= % % () ? ? − % % () ? ?
)• ( 2
?, ) * • ?( ?, ) * • ?(

:% ( • ?( − a (u %) • ?(
a ?( ( % =
a (u %) • ?(

{( ( & g *( ( &
- % % () ? ? − % % () ? ? ®
a( ?( *( ℎ( • )
?, ) * • ?( ?, ) * • ?(
# ,, ( % = × ℎ( % % () ? ?

ed
{( ( &
( * ,,(2
% % () ? ?
?, ) * • ?(
Ex
+ , a ?( # ,, : ,, ( , #( , ? *
= + + +
(% (% (% (% (% 2(p ,‰
s

Learning Module 2 | Overview of Types of Real Estate Investment

si
oe

Net and Gross Leases

{( ( =© )) ( − h•( * (p•( )()

N

Retail Rent

#( •( J &%& ( #(u( %( •( { % , ( •
= + $ℎ (% × −
)'% ( •( )'% ( )'% ( •( )'% (

Appraisal-based index

: • , - 2 * =(* *
{h9 − +R − S
-p•( 2 % () & ( u ,%( & ( u ,%(
#( % =
=(* *& ( u ,%(

47
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 3 | Investments in Real Estate Through Publicly Traded Securities

,%( ,%( + , 2(
Net Asset Value Approach
+ −
•( * () ( ℎ( ))( ) 2, , ()
{1 •( )ℎ (=
{%& ( )ℎ () % ) 2 *

{h9
If valuation of operating real estate is not provided:
,%( •( * () (=
: • (

Video: https://youtu.be/WncC3BZmfs8

© )) ( , -) & (2 u ? ?‰ 2 h•( *
{h9 = − −
(u( %( ? ,,(? ) , )) (p•( )()

ed
Relative Value Approach

\(• (? © ) ) ,( g )) ) ,(
Funds from Operations:
>>h = {( ? &( + − +
2 & • • •( ‰ • •( ‰
Ex
{ ? )ℎ #(?% * ? • , (p•( 2 % (
Adjusted Funds from Operations:
1>>h = >>h − −
( 2 ,( ) * ? ) )
s
si

Two-Stage Dividend Discount Model

oe

,%( #-9+ )ℎ (=a 2 u 2( 2) + a ( & , u ,%(

N

48
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Learning Module 4 | Hedge Fund Strategies

Equity Market Neutral Pairs Trading

1& % $ℎ a ) =( % 2( u ,%(2 ) ? × 1& % 9 u() (2

=−
hu( u ,%(2 $ ? =( u( u ,%(2 ) ?

Merger Arbitrage Strategy

For a stock-for-stock deal:

a ‰ &( *( ) )%??()) %, = {• × a• − {ä × aä

{• = Number of acquirer’s shares to short sell

where:

a• = Share price of acquirer post announcement

{ä = Number of target’s shares to buy

ed
aä = Share price of target post announcement

Conditional Factor Risk Model

Ex
# ,j = • + Ý , > ? 1 j+Ý, > ? 2 j + ⋯ + Ý ,Þ > ? › j+
+\j Ý , > ? 1 j + \j Ý , > ? 2 j + ⋯ + \j Ý ,Þ > ? › j + ( ,j
s
si

# ,j = Return of hedge fund in period

where:

Ý ,Þ > ? › j = Exposure to risk factor › for hedge fund in period during

oe

\j Ý ,Þ > ? › j = Incremental exposure to risk factor › for hedge fund in period

normal times
N

\j = Dummy variable that equals 1 during financial crisis periods (0 otherwise)

during financial crisis periods

• = Intercept for hedge fund

( ,j = Random error with zero mean and standard deviation v

49
CFA Level 2 (2024) Formula Sheet – Noesis Exed

PORTFOLIO MANAGEMENT

VOL5 Learning Module 1 | Exchange-Traded Funds: Mechanics and Applications

End-of-day ETF premium or discount (%)

-+> • ?( − {1 •( )ℎ (
{1 •( )ℎ (

Intraday ETF premium or discount (%)

-+> • ?( − 9 2 ? (2 {1 •( )ℎ (
9 2 ? (2 {1 •( )ℎ (

@ ,2 * •( 2? ) % =# % 2 • 2( ? ) % +J *(&( (( %

# % 2 • 2( ? ) % = h ( | ‰ ? && )) % × 2 + = 2 ) )• ( 2 %

ed
Ex
VOL5 Learning Module 2 | Using Multifactor Models

Arbitrage Pricing Theory (APT)

- #q = # + ø Ýq, + ⋯ + øÞ Ýq,Þ
s
si

- #q = the expected return to portfolio p

where:

# = the risk-free rate

oe

Ýq,K = the sensitivity of the portfolio to factor j

øK = the expected reward for bearing the risk of factor j
› = the number of factors
N

Carhart Four-Factor Model

-.#q 0 = # + Ýq, #J#> + Ýq, $J= + Ýq,õ @Jg + Ýq,ö ŠJg

#J#> = Return on a value-weighted equity index minus one-month T-bill rate

where:

SMB = small minus big; average return on three small-cap portfolios minus the
average return on three large-cap portfolios
HML = high minus low; average return on two high book-to-market portfolios minus
average return on two low book-to-market portfolios
WML = winners minus losers, a momentum factor; return on a portfolio of past year’s
winners minus return on a portfolio of past year’s losers.

50
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Macroeconomic Factor Model

# = + > + > +⋯+ Þ >Þ +

> = the surprise in the factor k

where:

= the sensitivity of the return on asset i to a surprise in factor k, k = 1, 2, …,

= Expected return on the portfolio

Fundamental Factor Model

Value of attribute for asset − Average value of attribute
=
v Values of attribute

Return Attribution

1? u( ( % = #P − #O
Þ
a , =( ?ℎ& > ? $(?% ‰

ed
= 47 8 −7 8 6 ×R S +
)( ) u ‰ )( ) u ‰ (% )(,(?
"

+ ? *( , +- = ) #P − #O
Ex
#P − #O
9 & , 9# =
) #P − #O
s
si

Active risk squared = Active factor risk + Active specific risk

oe
N

51
CFA Level 2 (2024) Formula Sheet – Noesis Exed

VOL5 Learning Module 3 | Measuring and Managing Market Risk

Parametric VaR (Using Normal Distribution)

a ,
,%( #) , # = −ý-.#q 0 − • × vq ×
,%(

-.#q 0 = Portfolio expected return

where:

vq = Portfolio standard deviation

Two-asset portfolio:

-.#q 0 = | - # +| - #

vq = | v + | v + 2| | s , v v

ed
#…G ƒû × 250 2 * 2 ‰)
Scaling from daily returns to annual returns (Assuming 1 year = 250 trading days):
Ex
Scaling from daily standard deviation to annual standard deviaton:
v…G ƒû × √250
s

9 ? (&( , # 9 # = # ( ?ℎ *( − # ( ( ?ℎ *(
si

ΔB Δ‰ 1 Δy
Percentage change in bond price:
oe

≈ −\% + : u(p ‰ 7 8
= 1+‰ 2 1+‰
N

New call price: ? + Δ? ≈ ? + Delta Δ$ + Gamma Δ$ + (* Δv

New put price: • + Δ• ≈ • + Deltaq Δ$ + Gammaq Δ$ + (* q Δv

VOL5 Learning Module 4 | Backtesting and Simulation

No formula.

52
CFA Level 2 (2024) Formula Sheet – Noesis Exed

VOL6 Learning Module 1 | Economics and Investment Markets

1
One-period real-risk free rate:
,j, = −1
-j ý&
* j,

-j ý&
* j, = Inter-temporal rate of substitution
where:

-ýa+jC ,‡E
a ?( ) ‰ ))( = + ? uj ýa+jC ,&
1 + ,j, ,‡E * j,

where:
= risk neutral present value
ùýP+,-l,ê#l
Cƒ,,l
? uj ýa+jC ,‡E ,&
= covariance between investor’s inter-temporal rate of substitution
* j,
and the random future price the investment at t + 1, based on the

ed
) = time to maturity of investment
information available to investor today.

Default-free nominal coupon-paying bond

Ex
:>jC‡
aj =
&

1 + ,j,‡ + ¨j,‡ + šj,‡

⬚ ‡
s
‡"
si

,j,‡ = Real-risk free rate

where:
oe

¨j,‡ = Expected inflation rate

šj,‡
⬚
= Uncertainty in future inflation rate
¨j,‡ + šj,‡
⬚
= Breakeven rate of inflaton
N

Short-dated nominal zero-coupon government bonds (e.g., T-bills)

:>jC‡
aj =
1 + ,j,‡ + ¨j,‡ ‡

53
CFA Level 2 (2024) Formula Sheet – Noesis Exed

• = 9j + šj + 0.5 šj − šj∗ + 0.5 −

Taylor Rule
∗
j j j

• j = policy rate at time t

where:

9j = level of real short-term interest rates that balance long-term savings and borrowing

šj = rate of inflation
in the economy

šj∗ = target rate of inflation

j = logarithmic level of actual GDP
j = logarithmic level of potential real GDP
∗

j − j = output gap
∗

Corporate bond
-j ý:>
aj =
&
. jC‡

‡"
1 + ,j,‡ + ¨j,‡ + šj,‡
⬚
+ "j,‡
⬚ ‡

ed
= Credit premium
where:
⬚
"j,‡
Ex
Equity

-j ý:>
s

aj =
. jC‡
1 + ,j,‡ + ¨j,‡ + šj,‡
⬚
+ "j,‡
⬚
+ /j,‡
⬚ ‡
si

‡"
-j ý:>
aj =
. jC‡
oe

‡"
1 + ,j,‡ + ¨j,‡ + šj,‡
⬚
+ ø⬚
j,‡
‡
N

= Equity premium relative to risky bonds

where:
⬚
/j,‡
øj,‡ = "j,‡
⬚ ⬚
+ /j,‡
⬚
= Equity risk premium

Commercial Real Estate

-j ý:>
aj =
&
. jC‡

‡"
1 + ,j,‡ + ¨j,‡ + šj,‡
⬚
+ "j,‡
⬚
+ /j,‡
⬚
+ 0j,‡
⬚ ‡

= liquidity risk premium

where:
⬚
0j,‡

54
CFA Level 2 (2024) Formula Sheet – Noesis Exed

VOL6 Learning Module 2 | Analysis of Active Portfolio Management

Active return, #• = #P − #O

1,•ℎ , •q = #q − Ýq #O

å å

,%( 22(2, #• = ∆|K #O,K + |P,K #•,K

K" K"

$#P = $#O + 9#

v #P = v #O + v #•

9#
For optimal Sharpe ratio,
v #• = v #O
$#O

ed
ˆ
+ ) ( : ( ?( , +: = : 7 , ∆| v 8
v
Ex
#• ˆ
9 & : ( ?( , 9: = : 7 , 8
v v
s

9: ≈ 2 a , ‰ *ℎ ? ,, − 1
si

Forecasted active return, ˆ = 9: × v × $

oe

where: $ is set of standardized forecasts of expected returns across securities

N

ˆ v•
Mean-variance optimal weights
∆| ∗ =
v 9: √=#

Full Fundamental Law

- #• = +: × 9: √=#v•

9# = +: × 9: √=#

9# ∗
v #• = +: × v #O
$#O

$#P = $#O + +: 9#∗

55
CFA Level 2 (2024) Formula Sheet – Noesis Exed

Performance Measurement
#• = - #• |9:2 + { )(

+: = Proportion of variation in realized performance attributed to realized information

coefficient

9:2 = realized information coefficient

where:

Ex-ante measurement of skill

9:
- #• = v
vŽ •

Independence of Investment Decision

{
=# =
1+ {−1 s

ed
Ex
s
si
oe
N

56
 CFA® Program
Level III
FORMULA SHEET (2024) Version 1.0
Prepared by: Fabian Moa, CFA, FRM, CTP, FMVA, AFM, FSA Credential

FOR REFERENCE ONLY

(Note: Formula Sheet is not provided in the CFA exam)

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NOESIS EXED SDN BHD

Block VO2, Level 5, Unit 8, Lingkaran SV, Sunway Velocity, 55100 Kuala Lumpur, Malaysia
Website: www.noesis.edu.sg

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by Noesis Exed. CFA
Institute, CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
CFA Level 3 (2024) Formula Sheet – Noesis Exed

CFA Level 3 – Formula Sheet (2024)

Setting Up the Texas BA II Plus Financial Calculator

Video: https://youtu.be/0MS8d8QOFmc

VOLUME 1

Learning Module 1: Capital Market Expectations, Part 1: Framework and Macro

Considerations

ℎ ℎ
= +
ℎ

ℎ ℎ ℎ
where:
= +

e d
ℎ ℎ ℎ
= +
Ex
= × "# × $
Aggregate market value of equity
s

$% =& +
si
oe

Over a finite horizon:

$% = %Δ + %Δ" # + %Δ $ +
N

Over the long-term:

$% = %Δ +

= Aggregate market value of equity

where:

= Nominal level of GDP

" # = Share of profits in the economy =
)*+,
-.*,
$ = P/E ratio

2
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Taylor Rule (Video: https://youtu.be/Cl_SShKmOwA)

∗
= 0 1 234 + 5 + 0.59:; − :; 2 0= > + 0.5(5 − 5 32@ )

∗
= target nominal policy rate
where:

0 1 234 = real neutral policy rate

5 = expected inflation rate 5 32@ = target inflation rate
:; = expected real GDP growth rates :; 2 0= = trend real GDP growth rates
∗
− 5 = real, inflation-adjusted policy rate

B − C = (" − D) + (E − )

B − C = Net exports
where:

" = Savings
D = Investment
E − = Government surplus

Learning Module 2: Capital Market Expectations, Part 2: Forecasting Asset Class Returns

Grinold-Kroner model

Expected equity return

$(F ) ≈ + (%Δ$ − %ΔS) + %Δ ⁄$

= Dividend yield
.
where:

*
%Δ$ = Expected % change in total earnings
%Δ$ = Expected nominal earnings growth return
%ΔS = Expected % change in shares outstanding (%ΔS < 0: Net share repurchases)
%Δ ⁄$ = Expected % change in price-to-earnings ratio
%Δ ⁄$ = Expected repricing return
%Δ$ − %ΔS = Growth rate of earnings per share
− %ΔS = Expected cash flow (“income”) return
.
*
%Δ$ + %Δ ⁄$ = Expected capital gains

In the long run, %Δ$ = Nominal GDP growth, %ΔS = 0, %Δ ⁄$ = 0

Video: https://youtu.be/yOmaMz2YC18

3
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Risk Premium Approaches to Equity Returns

Equity-vs-bills premium = Term premium + Equity-vs-bond premium

Term premium = Return on bonds – Return on bills

Singer-Terhaar Approach

F -N
Risk premium under full integration:

F -
= LK,-N OK P Q
K
O-N

"ℎ
Risk premium under complete segmentation:
F +
= 1 × OK ×
K S

d
Note:

e
• Add liquidity premium where appropriate Ex
• If Sharpe ratio of segmented market not given, use Sharpe ratio of global market
portfolio

Singer-Terhaar risk premium, F K = TF K

-
+ (1 − T)F K
+
s

Expected return of asset class , $(FK ) = FU + F

si

K
oe

LK,-N = correlation between ith asset and global market portfolio

where:

OK = standard deviation of ith asset’s return

= Sharpe ratio of global market portfolio
N

V*WX
YWX
T = Degree of integration
FU = Risk-free rate

Video: https://youtu.be/RK2WETqIzoQ

4
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Risk Premium (Building Block) Approach to Fixed Income Returns

Bond Required Return

Short-term fixed-rate
Real risk-free rate + Inflation premium
government bill
Long-term fixed-rate
Real risk-free rate + Inflation premium + Maturity premium
government bond
Long-term inflation-linked
Real risk-free rate + Maturity premium
government bond
Long-term fixed-rate Real risk-free rate + Inflation premium + Maturity premium
corporate bond + Credit premium
Long-term callable fixed- Real risk-free rate + Inflation premium + Maturity premium
rate corporate bond + Credit premium + Call risk

Real Estate

$(F2 ) = & + Z[D ℎ

Long-run:

$(F2 ) = & + Z[D ℎ − %Δ&

Finite horizon:

Capital Flows

$9%Δ"= ⁄\ > = ( − \)
+ (E −E \)
+ (& −& \)
In the long run
= = =

\)
+($% =
− $% + (] % =
−] % \
)

For a currency pair, ⁄ , if changes by ^% against , then changes by _`a − 1 against .

_
Currency

VCV Matrix with Sample Statistics

With Z assets, required:

• Z variances
b(bc_)
d
• covariances

5
CFA Level 3 (2024) Formula Sheet – Noesis Exed

VCV Matrices from Multi-Factor Models

h
Return on ith asset:

K = eK + f gKh ih + kK
#j_

h h
Variance of the ith asset:

OKd = f f gKl gK0 Ll0 + mKd

lj_ 0j_

h h
Covariance between ith and jth asset:

OKn = f f gKl gn0 Ll0

lj_ 0j_

e d
With Z assets and o factors, required:
Ex
• (Z × o) factor sensitivities
h(h`_)
d
• factor covariances

eK = Intercept
s

gKh = Asset’s sensitivity to the kth factor

si

ih = kth common factor return

kK = stochastic term (mean = zero)
oe

Ll0 = correlation between mth and nth factors

mKd = variance of unique component of ith asset’s return
N

Video: https://youtu.be/XVpJ8yuTnqo

F = (1 − p) + pF 0<p<1
Smoothed Returns
c_

1+p
( )=P Q (F)
1−p

F = Current observed return F c_= Previous observed return

= Current true return ( ) = True variance

6
CFA Level 3 (2024) Formula Sheet – Noesis Exed

ARCH Model

O d = q + eO dc_ + grd q, e, g ≥ 0, e + g < 1

O d = q + (e + g)O dc_ + g(r d − O dc_ )

O d = Variance in period
r = Unexpected component of return in period (mean = 0)
r d − O dc_ = Shock to variance in period

q
Unconditional expected value of variance

1−e−g

7
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Learning Module 3: Overview of Asset Allocation

$ Z t ℎ=$ −$ ]

$ =i + $^
$ ] =i ] + $^ ]

Learning Module 4: Principles of Asset Allocation

Mean-Variance Optimization

ul = $(Fl ) − 0.005pOl
d
Utility

ul = Investor’s utility for asset mix,

Fl = Return for asset mix,

d
p = Investor’s risk aversion coefficient
Ol
d
= Expected variance of return for asset mix

e
Ex (in %)

" =C S −

C S
i =
s
si

ul = $9Fw,l > − 0.005pOw,l

Surplus Optimization
vV d
oe

ulvV
= Surplus objective function’s expected value for asset mix m
$9Fw,l > = Expected surplus return for asset mix
N

&ℎ − &ℎ
$9Fw,l > =
D
Ow,l = Surplus return volatility for asset mix
p = Investor’s risk aversion

Goals-based Asset Allocation

Video: https://youtu.be/ufo0cNWmfbo

8
CFA Level 3 (2024) Formula Sheet – Noesis Exed

1
Risk Parity

K ×& 9 K, x> = Oxd

K = Weight of asset
where:

& 9 K , x > = Covariance of asset with portfolio

= Number of assets
Ox = Variance of portfolio
d

Risk Budgeting

Marginal Contribution to Risk

C&EF = ×

ℎ
Actual Contribution to Risk
&EF = × C&EF

$^ −F S
F ^ C&EF =
C&EF

Learning Module 5: Asset Allocation with Real-World Constraints

After-tax Portfolio Optimization

3 = x (1 − )

O3 = Ox (1 − )

FFx
FF3 =
1−

3 = Expected after-tax return

x = Expected pre-tax return
where:

= Expected tax rate

O3 = Expected after-tax standard deviation
Ox = Expected pre-tax standard deviation
FF3 = After-tax rebalancing range
FFx = Pre-tax rebalancing range

9
CFA Level 3 (2024) Formula Sheet – Noesis Exed

VOLUME 2

Learning Module 1: Option Strategies

B
Put-call parity

"y + = +
y y
(1 + )z

iy B
Put-call-forward parity

+ = +
(1 + )z y y
(1 + )z

iy − B
Synthetic long forward

− =
y y
(1 + )z

d
Option premium = Time value + Intrinsic value

$^ = "z − C ^("z − B, 0)
e
Covered Calls
Ex Video: https://youtu.be/2SocH6PqhOk

$^ = "z − C ^("z − B, 0) + y − "y

C ^ = B − "y + y
C ^ = "y − y
s

{ S = "y − y
si

=" S −& = 1 − Δ|344

oe

=" S −& = −Gamma|344 < 0

=" S −& = −Vega|344 < 0
ℎ = " S Eℎ − & Eℎ = −Theta|344 > 0
N

$^ = "z + C ^(B − "z , 0)

Protective Puts Video: https://youtu.be/VLK1lXbXtRk

$^ = "z + C ^(B − "z , 0) − "y − y

C ^ =∞
C ^ = "y − B + y
{ S = "y + y

=" S + = 1 + Δx1
=" S + = Gammax1 > 0
=" S + = Vegax1 > 0
ℎ = " S Eℎ + Eℎ = Thetax1 < 0

10
CFA Level 3 (2024) Formula Sheet – Noesis Exed

$^ = C ^("z − Bv , 0) − C ^("z − Bˆ , 0)
Call Bull Spread Video: https://youtu.be/3NHweIzEU0k

$^ = C ^("z − Bv , 0) − C ^("z − Bˆ , 0) − ( v − ˆ )
C ^ = Bˆ − Bv − ( v − ˆ )
C ^ = v− ˆ
{ S = Bv + v − ˆ

$^ = C ^(Bv − "z , 0) − C ^(Bˆ − "z , 0)

Put Bull Spread Video: https://youtu.be/Lf1Fi-zy7w4

$^ = C ^(Bv − "z , 0) − C ^(Bˆ − "z , 0) − ( v − ˆ )

C ^ = ˆ− v
C ^ = Bˆ − Bv + v − ˆ
{ S = Bˆ + v − ˆ

$^ = C ^(Bˆ − "z , 0) − C ^(Bv − "z , 0)

Put Bear Spread Video: https://youtu.be/eTejezNXZbU

$^ = C ^(Bˆ − "z , 0) − C ^(Bv − "z , 0) − ( ˆ − v )

C ^ = Bˆ − Bv − ( ˆ − v )
C ^ = ˆ− v
{ S = Bˆ − ˆ + v

$^ = C ^("z − Bˆ , 0) − C ^("z − Bv , 0)
Call Bear Spread

$^ = C ^("z − Bˆ , 0) − C ^("z − Bv , 0) − ( ˆ − v)
C ^ = v− ˆ
C ^ = Bˆ − Bv + ˆ − v
{ S = Bv + v − ˆ

$^ = C ^("z − B, 0) + C ^(B − "z , 0)

Straddle Video: https://youtu.be/oDklmeMTnCg

$^ = C ^("z − B, 0) + C ^(B − "z , 0) − y − y

∞ "z > B
C ^ =‰
B − "z − y − y "z < B
C ^ = y+ y
{ S = B ± ( y + y)

11
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Note: Bv < "y < Bˆ

Collar Video: https://youtu.be/LkS_sxmg2cs

$^ = "z + C ^(Bv − "z , 0) − C ^("z − Bˆ , 0)

$^ = "z + C ^(Bv − "z , 0) − C ^("z − Bˆ , 0) − "y − y + y
C ^ = Bˆ − "y − y + y
C ^ = −Bv + "y + y − y
{ S = "y + y − y

For zero-cost collar, y = y

Implied Volatility
For 252 trading days in a year and 21 trading days in a month:

252
O300134 = Ol‹0 Œ4• Ž
21

e d
Zx‹wK × Delta’“”•–•“— + ZŒ × =0
Delta hedging
Ex
K‹0 =@ Œ =@

Video: https://youtu.be/v8RcvkQKFpw
s
si

Learning Module 2: Swaps, Forwards, and Futures Strategies

oe

Managing Interest Rate Risk

C uFz − C uF*
Interest Rate Swaps

Z+ = P QC
N

C uF+ *

Z+ = Swap notional principal

where:

C uFz = Target modified duration

C uF* = Modified duration of portfolio
C uF+ = Modified duration of swap
C * = Market value of portfolio

Note: Modified duration of cash = 0 (unless stated otherwise in case)

Money Market Instrument

{ =i × × 0.01%
360

12
CFA Level 3 (2024) Formula Sheet – Noesis Exed

$ = 100 −
Interest Rate Futures

i &
Treasury Futures

= × ×&
100 i

Basis Point Value Hedge Ratio (BPVHR)

{ −{
{ šF = P Q×& i
z *
{ ›z.

{ z = C uFz × 0.01% × C *
where:

{ * = C uF* × 0.01% × C *
{ ›z. = C uF›z. × 0.01% × C ›z.
&E
C ›z. = ×i
100
{ ›z.
{ U=
&i

F % ℎ
Hedging Currency Risk with Futures

Z\ =
&

gz − g+ "
Hedging Equity Risk with Futures

Z\ = œ •P Q
g\ i

gz = Target beta
where:

g+ = Portfolio beta
g\ = Futures beta
" = Portfolio market value
i = Futures price

%ΔPortfolio value
$ =
%ΔIndex value

Note: Beta of cash = 0

Video: https://youtu.be/VMVQ2GOrG0Q

13
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Od − Bd
Variance Swap

" = œ •
z
2B
= (O d − B d )

× (O d − B d )
=
E−
1+ ש E ª

E−
where:

Od = × O2d 34K« = (0, ) + × OKlx4K

d
= ( , E)
E E

Video: https://youtu.be/YVNPCXGTdWk

d
Probability of a Change in Federal Funds Rate

D i −&

e
ℎ =
E ℎS
Ex
& =C
s
si

Fed funds futures price = 100 – Implied Fed funds rate

oe

Learning Module 3: Currency Management An Introduction

F.› = (1 + FU› )(1 + FU¬ ) − 1

N

F.› = Domestic-currency return

FU› = Foreign-currency return
FU¬ = Percentage change in foreign currency against domestic currency
(currency quoted as DC/FC)

Video (Unhedged Returns): https://youtu.be/7Cycb5teSbU

O.›
d
= OU›
d
+ OU¬
d
+ 2OU› OU¬ LU›,U¬
Volatility of foreign asset (in domestic currency terms)

O.› = OU¬ (1 + FU› )

For a foreign-risk free asset:

14
CFA Level 3 (2024) Formula Sheet – Noesis Exed

= e + g^ + k
Minimum Variance Hedge Ratio

= change in value of asset to be hedged (measured in DC) = F.›

where:

^ = change in value of hedging instrument (measured in DC) = FU¬

& (^, ) O•
C šF, g= = La,• P Q
(^) Oa

Learning Module 4: Overview of Fixed Income Portfolio Management

$(F) = : +F
Expected fixed-income return

+$(&ℎ -
ℎ S )
+$(&ℎ - )
+$(&ℎ -
ℎ )

:
=
( ) &

−
F = ( ℎ )
)0= y

Rolling yield = Yield income + Rolldown return

&ℎ
1
$® -
¯ = −C × Δ: + ×& ^ × (Δ: )d
2
ℎ S

Note: For bonds with embedded options, use effective duration and effective convexity.

&ℎ
$® -
¯

1
= −" × Δ" + ×" & ^ × (Δ" )d
2

15
CFA Level 3 (2024) Formula Sheet – Noesis Exed

F.› = (1 + FU› )(1 + FU¬ ) − 1

For foreign fixed income investments:

FU› = : +F
+$(&ℎ -
ℎ S )
+$(&ℎ - )

FU¬ = Percentage change in exchange rate (DC/FC)

$9".›⁄U› > − "y,.›⁄U›
= ( ℎ )
"y,.› ⁄U›
i.›⁄U› − "y,.› ⁄U›
= (ℎ )
"y,.› ⁄U›

Using Leverage in the Bond Portfolio

d
Leveraged portfolio return

= + ( °− ±)
±
* °

e
)
Ex
° = return on invested funds
where:

± = cost of borrowing
± = borrowed funds
) = value of portfolio’s equity
s
si

Video: https://youtu.be/NadocNKzDBw
oe

Z −C
] =
U1 12 w
C
N

E
Repo

= ×F ×
360

Securities Lending

F =& −"

16
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Learning Module 5: Liability-Driven and Index-Based Strategies

F %
Cash Flow Matching

ℎ =
1+& ℎ

Video: https://youtu.be/fB257bEp59c

b
Macaulay Duration, Dispersion, and Convexity

C =f K ×
j_

=
K
K

Note: To annualize MacDur, divide by periodicity.

=f K ×( −C )d
j_

1
b

& ^ = f × ( + 1)
(1 + & ℎ )d K
j_

Note: To annualize dispersion and convexity, divide by periodicity squared.

C +C
d
+
& ^ =
(1 + & ℎ )d

Video: https://youtu.be/qeky-p7Hljw

C
C =
1+& ℎ

C =C S ×C

{ =C S ×C × 0.0001

Note: For zero-coupon bonds, Macaulay duration = Maturity

17
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Number of bond futures contracts required to close the duration gap

] { − {
Z\ =
i {

{ ›z.
where:

i { ≈
&i›z.

= { −] {

Video (Derivatives overlay with futures): https://youtu.be/3ZlCA1nP8Zc

Video (Contingent immunization): https://youtu.be/bL9P0j5LNJk

] { − {
Required Swap Notional to close the duration gap

Z =

d
" { ⁄100

e
Note: Swap BPV quoted per $100 notional
Ex
Video: https://youtu.be/LGsJEXCYH0g

Δ š Δš ] Δ]
s

× + × = ×
{ { {
si
oe
N

18
CFA Level 3 (2024) Formula Sheet – Noesis Exed

VOLUME 3

Learning Module 1: Yield Curve Strategies

: ] "ℎ
= −

{ "ℎ C ]
=− +2× −

1
%ΔPVU144 = −(C × Δ: )+ ×& ^ × (Δ: )d
2
= %ΔPVU144 × U144

Repo carry return = Coupon income ± Rolldown Return − Financing cost

Repo carry trade

E F = %Δi −C
Long futures position

Video: https://youtu.be/EB9l0JwmzRA

E F = (" − CFF) + %Δ" S S

Receive-fixed interest rate swap

1 Δ
Key Rate Duration

o F = ×
#
Δ #

Learning Module 2: Fixed Income Active Management: Credit Strategies

& " = [ ×]

: :EC :EC
= −
ℎ S

:EC :EC
-" = −
:EC "
D-" = −

, "t = { −"

19
CFA Level 3 (2024) Formula Sheet – Noesis Exed

(CFF + ´C) × i (CFF + ´C) × i (CFF + ´C) × i

Discount margin (DM) for floating-rate notes
³ µ ³ µ ³ µ+i
= + + ⋯ +
CFF + C _ CFF + C d CFF + C 0
©1 + ª ©1 + ª ©1 + ª

´C = Quoted margin
C = Discount margin
= Periodicity
= Tenor of FRN
CFF = Market reference rate (assume constant)
i = Face value

C K
b

[ "=f × [ "K C =C S
C
Kj_

d
E "% , E" = " ×"

C K
e
b
Ex
E" = f × (" ×" K)
C K
Kj_

ΔD ^
$ ℎ ( )=− E" ×
s

D ^
si

1
oe

Impact of Yield Spreads on Portfolio Return

%Δ +x2 3=
≈ −$ " × Δ" + ×$ " & × (Δ" )d
2

( c) − ( `)
N

$ " =
2 × (Δ" )× y
( c ) + ( ` ) − 2( y)
$ " & =
(Δ" )d × y

20
CFA Level 3 (2024) Formula Sheet – Noesis Exed

$($^ " ) ≈ (" y × ) − ($ " × ·" )−( × [ ×] )

Excess return on credit risky bond

" y = Initial yield spread per annum

where:

Δ" = Change in spread over holding period

[ = Annualized expected probability of default
] = Expected loss severity
[ ×] = expected annual credit loss
= Holding period (in years)

Video: https://youtu.be/U1C5_eNFMBA

Floating-rate Note (FRN)

( c) − ( `)
Effective rate duration

$ F =
UVb
2 × (ΔCFF) × y

( c) − ( ` )
Effective spread duration

$ " =
UVb
2 × (Δ C) × y

Expected change in YTM based on a &% confidence interval over one month

Z
= Daily interest rate volatility × Ž ׸
ℎ

Credit Default Swap (CDS)

& " ≈ 1 + ¹(i ^ & −& "" )×$ " ›.+ º

For a $1 notional:

u = (i ^ −& " )×$ " ›.+

%Δ& " ≈ −Δ(& " " )×$ " ›.+

Δ& " ≈& "Z × %Δ& "

Note:
• Buy protection  CDS Notional < 0 (Short risk position)
• Sell protection  CDS Notional > 0 (Long risk position)

21
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Learning Module 4: Passive Equity Investing

0
Herfindahl Hirschman Index (HHI)

ššD = f d
K
Kj_

where: K = Weight of stock in portfolio

1
$ S =
ššD

E S x =√ V¼ cV½

$^ x = Fx − F¾

d
Learning Module 5: Active Equity Investing: Strategies

e ⁄$
Growth at a Reasonable Price (GARP)
Ex
$ =
( %)
s
Information Coefficient
si

Pearson IC = Correlation between factor score and subsequent month return

oe

Spearman rank IC = Correlation between rank of factor score and rank of subsequent month
return
N

l
Returns-based Style Analysis

= e + f gwFw + k
wj_

= fund return within period ending at time

where:

F = return of style index in same period

w

g w = fund exposure to style (∑l wj_ g = 1; g > 0 for long-only)

w w

e = manager’s value added

k = residual return that cannot be explained by the styles used

22
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Learning Module 6: Active Equity Investing: Portfolio Construction

b
Active Return

FÀ = f ΔtK FK
Kj_
FK = return on security
ΔtK = active weight = txK − t±K
where:

FÀ = f9gx# − g¾# > × i# + (e + k)

Kj_

gx# = sensitivity of portfolio ( ) to rewarded factor (S)

where:

g¾# = sensitivity of benchmark ( ) to rewarded factor (S)

i# = return of each rewarded factor
e = active return that can be attributed to manger’s specific skill/strategies (security

k = idiosyncratic return
selection, factor timing)

C ( ℎ ," )
=
ℎ

$(FÀ ) = D& × √{F × OVÁ × E&

Fundamental Law of Active Management

D& = Information coefficient

where:

{F = Breadth (Number of independent decisions made per year)

E& = Transfer coefficient (Unconstrained portfolio  TC = 1)
OVÁ = Manager’s active risk

0
1
"ℎ = f − ±,K Â
2 x,K
Kj_

where: = number of securities in either portfolio or benchmark

∑zj_(FÀ )d
F S E S $ , OVÁ =Ž
E−1

23
CFA Level 3 (2024) Formula Sheet – Noesis Exed

OVdÁ = O Ãf9gx# − g¾# > × i# Ä + OÅd

d

Kj_

O Ãf9gx# − g¾# > × i# Ä =

d
^
Kj_
OÅd = Variance attributed to idiosyncratic risk

Absolute Risk Attribution Video: https://youtu.be/zpk24jsMGDM

0 0

x = f f ^K ^n &Kn
Kj_ nj_

& K = f ^K ^n &Kn = ^K &Kx

d
nj_

x = Portfolio variance

e
& K = Contribution of asset to portfolio variance
^K = weight of asset in portfolio
Ex
&Kn = Covariance of returns between asset and Æ
&Kx = Covariance of returns between asset and portfolio
s
si

Relative Risk Attribution

0 0

= f f(^K − K )(^n − n )F&Kn

oe

x
Kj_ nj_
N

& K = f(^K − K )(^n − n )&Kn = (^K − K )F&Kx

nj_

x = Variance of portfolio’s active return

where:

& K = Contribution of asset to portfolio active variance

K = benchmark weight in asset
F&Kn = Covariance of relative returns between asset and Æ
&Kx = Covariance of returns between asset and portfolio

24
CFA Level 3 (2024) Formula Sheet – Noesis Exed

1
F@ = S × F3 − (S − 1)F= − (S × O)d
2

F@ = Compounded/geometric return
where:

F3 = Arithmetic/periodic return
S = Leverage factor = ⁄$%
F= = Cost of funding leverage

$^ =] + |"ℎ |

Z $^ =] − |"ℎ |

25
CFA Level 3 (2024) Formula Sheet – Noesis Exed

VOLUME 4

Learning Module 1: Hedge Fund Strategies

×{ + ×{ =0
Equity market neutral
v‹0@ v‹0@ +Œ‹2 +Œ‹2

where v‹0@ = +Œ‹2

Video: https://youtu.be/f12nI7W1vKM

Merger arbitrage
For a stock-for-stock deal:

Buy Z shares of target company −Z × z32@

Cash flow

Short (Z × ^ ℎ ) shares of acquiring company +Z × F × À|È1K2K0@

e d
= 9Z × F × À|È1K2K0@ > − 9Z × > F = Exchange ratio
If deal is successful,
Ex
z32@

Convertible Arbitrage
s

&
& =
&
si

& =& ×& S

oe
N

Conditional Risk Factor Model

šiK = eK + gK,_ (i 1) + gK,d (i 2) + ⋯ + gK,h (i o) +

+ gK,_ (i 1) + gK,d (i 2) + ⋯ + gK,h (i o) + kK,

šiK = Return of hedge fund i in period t

where:

gK,h (i o) = Exposure to risk factor o for hedge fund in period (normal times)
gK,h (i o) = Incremental exposure to risk factor o for hedge fund in period

1
(financial crisis periods)
=É
0
e = intercept for hedge fund
kK, = random error with mean zero and standard deviation of OK

26
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Learning Module 2: Asset Allocation to Alternative Investments

− ×
=
,2 x‹2 = c_,2 x‹2 =
,10wl‹‹ Œ =
1−

= serial correlation of time series

where:

& = F& × (&& − D& )

Liquidity Planning

=F × ¹Z c_ × (1 + )º

Z =Z c_ × (1 + ) + & −

& = Capital contribution in year F& = Rate of contribution in year

where:

&& = Committed capital D& = Paid in capital in year

F = Rate of distribution in year = Growth rate
Z = Net asset value in year

Learning Module 4: Topics in Wealth Management

After-Tax Holding Period Return, F -

( − y) +D −E ^
F- =
_

E ^
F- = F −
y

F= ^
where:

E ^=f K × ^ K
Kj_

Annualized after-tax holding period return

F-- = ¹(1 + F_- )(1 + Fd- ) … (1 + F0- )º_⁄0 − 1

27
CFA Level 3 (2024) Formula Sheet – Noesis Exed

E ^
Modified Dietz method

F- = F −
&n (Z − Æ)
+ ∑b
y nj_ Z

E ^ = Cumulative tax liability for all transactions during the month

where:

y = Initial value at the beginning of the month

&n = Cash flow on day Æ
Z = Number of calendar days in a month
Z − Æ = Number of days from cash flow to end of month

]% ^ _⁄0
After-tax Post Liquidation return

F*v = ³(1 + F_- )(1 + Fd- ) … (1 + F0- ) P1 − Qµ −1

i

$
]% ^= ×i ×& ^
( %)

d
= (i −E ^ )×& ^

e
Video: https://youtu.be/Kqj5w0Gng0Y
Ex
Tax Efficiency Ratio (TER)
^
s

E$F =
^
si

e = ^- − ^
oe

Tax alpha, 3a

where: ^ = Pre-tax excess return = F − { ^ - = After-tax excess return = F - − { -

N

Taxable Account i = ¹1 + (1 − K )º0

Tax-Deferred Accounts (TDA) i = (1 + )0 (1 − 0)

Tax-Exempt Accounts i = (1 + )0

where: K = ordinary income tax rate 0 = Tax rate at withdrawal

Z
Potential Capital Gain Exposure (PCGE)

& $=
E

28
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Gifts versus Bequests

i Ë1 + @ 91 − @ >Ì
0
Tax-Free Gift

F = =
z3aU2 -K\
z3aU2 -K\
i ± È1 w ¹1 + (1 − )º0 (1 − E )

i Ë1 + @ 91 − @ >Ì (1 − E@ )
0
Taxable Gift (Recipient pays gift tax)

F = =
z3a3¾4 -K\
z3a3¾4 -K\
i ± È1 w ¹1 + (1 − )º0 (1 − E )

@ = pre-tax return of recipient’s portfolio

where:

= pre-tax return of donor’s portfolio/estate

@ = income tax rate on recipient’s return = income tax rate on donor’s return
E@ = Tax rate on gift E = Tax rate on estate
= Donor’s life expectancy
E‹K = Ordinary income tax rate

] =F $ × ]E
Mortgage Financing

Learning Module 5: Risk Management for Individuals

( ) c_ (1 + )
b

š & , š&y = f
j_ 91 + \ + >

( ) = probability of survival in year

where:

c_ = wages in year − 1
= growth rate of wages in year
\ = risk free rate
= volatility of occupational income

Z t ℎ=E −E

$ Z t ℎ=Z t ℎ+ S − S

=Z +] $^ Æ

F = −
29
CFA Level 3 (2024) Formula Sheet – Noesis Exed

For annuity with growth, set [I/Y] to: Video: https://youtu.be/KbUTi65Ev9I

1+
Æ , ∗
= −1
1+

Net Payment Cost Index & Surrender Cost Index

Z ^= −
1+

& ℎ
" ^=Z ^−

Assumptions:

• Premium is paid at the beginning of the period

d
• Dividend is received at the end of the period
•

e
Cash value (for surrender cost index only)
Ex
Video (Net payment cost index): https://youtu.be/7LGscJpbk_g
Video (Surrender cost index): https://youtu.be/WTBaRAXq1DE
Human Life Value Method
s
si

After-tax/Non-taxable salary of deceased xxx

Plus: After-tax/Non-taxable employee benefits that
xxx
oe

family will no longer receive

Less: Expenses attributable to the deceased that will
(xxx)
cease to exist

CE =
After-tax income to be generated from insurance yyy
N

(1 − )
Pre-tax income from insurance to replace income

In the financial calculator, set MODE to BGN (if case states that insurance payout is based on
annuity due).

Z = Number of years to retirement (for deceased)

1+
D ⁄: = −1
1+ ℎ
i =0
[CPT] [PV]  Life insurance needed

Additional life insurance required = Life insurance needed – Existing life insurance

30
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Needs Analysis Method

Life Insurance Needed = Cash Needs + Capital Needs – Capital Available

Financial Needs = Cash Needs + Capital Needs

Capital Needs = PV of survivors’ expenses – PV of survivor’s income (Human capital)

31
CFA Level 3 (2024) Formula Sheet – Noesis Exed

VOLUME 5

Learning Module 1: Portfolio Management for Institutional Investors

" =" × (1 + D F )
Constant Growth rule:
`_

" =" × uC
Market Value rule:
`_

& ℎ C S
+ (1 − ) ×
Hybrid rule:
" `_ = ×

Bank and Insurance

d
)
Δ
Duration of equity capital,

=P Q − P − 1Q P Q

e
)
$ À
$ v
Δ
Ex
d d
OÍ)
d
⁄) = P Q OÍÀ⁄À + P − 1Q OÍv⁄v − 2 P Q P − 1Q LOÍÀ⁄À OÍv⁄v
d d
$ $ $ $
s

$
$% =
si
oe

À = Duration of assets
where:

v = Duration of liabilities
N

= Effective yield on liabilities

= Effective yield on assets
OÍ)⁄) = Variance of change in value of equity capital
d

OÍÀ
d
⁄À = Variance of change in value of assets
OÍv
d
⁄v = Variance of change in value of liabilities
L = Correlation between percentage value changes of assets and liabilities

32
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Learning Module 2: Trade Strategy and Execution

D" = −
Implementation Shortfall

=( 0 − = )"

= ©f n ª 0 −f n n −i
E = = ×"

D" = $^ +[ +i

$^ =f n n − ©f n ª =

[ = ©" − f n ª ( 0 − =)

$^ D" = +E +[ +i

= ©f n ª y − ©f n ª =

E =f n n − ©f n ª y

0 = Current price
where:

= = Decision price (Benchmark price)

y = Arrival price
" = Total order of shares (" > 0 for buy order; " < 0 for sell order)
n = Number of shares executed in Æth trade

n = Transaction price of Æth trade

∑ n = Total number of shares executed

Video (Buy order): https://youtu.be/xScTmNIylRQ

Video (Sell order): https://youtu.be/ssHM84hU3iw

33
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Trade Evaluation

+1 { Î = Average execution price

" =É
−1 "

Î−
( )=" × × 10,000

Î− t
t ( )=" × × 10,000
t

Î − Et
Et ( )=" × × 10,000
Et

Î−&
& ( )=" × × 10,000
&

d
C S Æ ( )= ( )−g×D ^ ( )

e
Ex
D ^ t −D ^
where:

D ^ ( )=" × × 10,000
D ^

( )= ( )−$ ( )
s
si

Learning Module 3: Portfolio Performance Evaluation

oe

ℎ ^ =F−{

F−{
N

^ =
1+{

Attribution based on Factor Models

F =F +"

F − { = f9g*,K − g±,K > × iK + "

g*,K = Sensitivity of the portfolio to the given factor

where:

g±,K = Sensitivity of the benchmark to the given factor

iK = Factor return

34
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Micro and Macro Return Attribution

0 0 0

F−{ =f K + f "K + f DK
Kj_ Kj_ Kj_

K = Weight of asset
where:

tK = Weight of asset
in portfolio

FK = Return of asset
in benchmark

{K = Return of asset
in portfolio
in benchmark

Video: https://youtu.be/yrzTVlfqloM

Brinson-Fachler Model

Allocation effect: K =( K − tK )({K − {)

Selection effect: "K = tK (FK − {K )

Interaction effect: DK = ( K − tK )(FK − {K )

Brinson-Hood-Beebower Model (BHB)

Allocation effect: K =( K − tK ){K

Selection effect: "K = tK (FK − {K )

Interaction effect: DK = ( K − tK )(FK − {K )

Decomposing Portfolio Returns

=C+"+

= Portfolio return
where:

C = Market index return

{ = Benchmark return
" = { − C = Style return (Misfit active return)
= − { = Active return (True active return)

35
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Performance Appraisal

Fx −
"ℎ =
\
Ox

Fx −
E =
\
gx

Fx − F±
D =
OV¼ cVÏ

e
(E { S )=
OÅ

OÅ = Standard error of regression (from factor model)

where:

d
= ÐO*d − gKd ONd

e
e = FK − ËF\ + gK 9FN − F\ >Ì
Ex
Fx − z
" =
O.‹Ñ0wK=
s
si

z = investor’s minimum acceptable return/target return

where:
oe

1
b

O.‹Ñ0wK= = Ò f min( − z , 0)
d
Z
j_
N

u &
& F =
&

Fl
u & = F± ≥ 0
F±
Fl
& = F± < 0
F±

36
CFA Level 3 (2024) Formula Sheet – Noesis Exed

Maximum Drawdown

( , ) − ( , ∗)
C ^ = min œÓ Ô , 0•
( , ∗)

( , ) = portfolio value of manager at time

where:

( , ∗ ) = peak portfolio value of manager

> ∗

Video: https://youtu.be/0tRDDT9E9AU

37
CFA Level 3 (2024) Formula Sheet – Noesis Exed

VOLUME 5

Learning Module 6: Overview of the Global Investment Performance Standards

= 91 + ,_ > × 91 + ,d > × … × 91 + ,0 > −1

Time-weighted return
Ñ2

,_ through ,0 = Sub-period returns

− y − &i
Modified Dietz method

=
_

y + ∑Kj_(&iK × K)
N‹=.K « 0

Video: https://youtu.be/guZWVXirJL0

d
0
Modified IRR method

= f¹&iK × (1 + CDFF)ÑÕ º + y (1 + CDFF)

e
_
Kj_
Ex
K = Proportion of period (in days) that each cash flow has been in the portfolio
where:

& − K
=
s

&
& = Total number of calendar days in the period
si

K = Number of calendar days from the beginning of the period to the time cash flow &iK
oe

0
occurs

&i = f &iK
N

Kj_

Composite Time-Weighted Return

0
Asset-weight individual portfolio returns using beginning-of-period values

= f ×
y,xK
› xK
∑xKj_ y,xK
0
xKj_

› = Composite return
where:

xK = Return of an individual portfolio

y,xK = Beginning value of portfolio

∑0xKj_ y,xK = Total beginning fair value of all individual portfolios in the composite

38
CFA Level 3 (2024) Formula Sheet – Noesis Exed

0
Use a method that reflects both beginning-of-period values and external cash flows

= f ×
xK
› xK
∑xKj_ xK
0
xKj_

xK = Beginning value of portfolio + Weighted external cash flows

where:

∑0xKj_ xK = Total beginning fair value and weighted external cash flows of all individual
portfolios in the composite

− y − &i
Aggregate Return method

=
_

y + ∑Kj_(&iK × K)
N‹=.K « 0

_ = Ending value of composite = Beginning value of composite

where:
y
0
E ^
&i = = f &iK
ℎ
Kj_
0 0
E Ö×ØÙÚÛ×Ü ^
f(&iK × K) = = f
ℎ xK
Kj_ xKj_

Equal-weighted standard deviation Asset-weighted standard deviation

∑0Kj_( K − |̅ )d 0
"| = Ž
"|,3Ñ = Òf ̅
× 9 K − x2‹a• >
d
K
Kj_

̅ = asset-weighted mean return

where:

= return for portfolio

x2‹a•
= ∑0Kj_ K × K
K

|̅ = equal-weighted mean = weight of portfolio =

Þß,Õ
K Þß,àá,âã
= number of portfolios in composite

39