CFA Level III

Formula Sheet – Total Combined

http://www.cpa-cfa.org
Objectives

Return

Risk

Constraints

Time Horizon

Taxes

Liquidity

Legal & Regulatory

Unique circumstances

1
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

FV Annual Tax (Accrual) =

FV Wealth Based Tax =

FV Deferred Account =

FV Deferred CG (MV = Basis) =

FV Deferred CG (MV ≠ Basis) =

If only a % of cap gains recognized each year (PCG), find equivalent rates

r* = r* =

T* = T* =

%R After Tax =

Accrual Equivalent R After Tax =

Accrual Equivalent Tax rate =

Tax Drag % =

2
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

P (Joint Survival) yr n =

Core Capital Value yr n =

Real rf =

RV = T ig = TB=

RV After tax taxable gift =

(if individual receiving pays)

RV After tax taxable gift =

(if bequest pays)

T Exemption Method =

T Credit Method =

T Deduction Method =

T Source =

T Residence =

Operating Assets B =

B=

Cov A,M =

3
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org
Covariance Matrix
Covariance
Equity Bonds

Equity

Bonds

Sensitivity (B)
Equity Bonds

Market1

Market2

Cov 1,2 =

Jensen’s Alpha =

Treynor Measure =

Sharpe Ratio =

M2 =

Sortino Ratio =

Downside Deviation =

•
4
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

Grinold Kroner E(R) Equity =

Bond yield plus risk premium approach:

• Historical equity risk premium =

• Expected equity risk premium =

Singer Terhaar E(R) approach:

• ERP Full integration =

• ERP Full segmentation =

• ERP =

• E(R) =

Taylor Rule -

R optimal =

PPP Exchange Rate =

Earnings Multiplier Approach:

• Earnings multiplier =

• Return estimate =

5
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

FCFE =

LT Growth Forecast =

Utility Risk Adjusted Return =

•

Roys Safety Criteria =

Optimal addition to new portfolio =

Corner Portfolio Theorem:

• Req Return =

• SAA =

No Constraint with Tangency Portfolio:

• Req Return =

Variance with Int’l Portfolio = =

Variance FA = =

Currency Contribution =

$ Return FA =
6
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

Tracking Risk = =

Portfolio spread duration =

Dollar Duration –

DD =

Rebalancing ratio =

Cash needed =

Contingent Immunization Strategy:

• Required Terminal Value =

• Required Assets at T =

• Safety of Margin =

Mean Reversion Analysis =

7
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

N Futures for Target Duration =

Change in MV Foreign Bond =

Change in D Contribution Foreign Bond =

Levered Portfolio Return =

Levered Portfolio Duration =

Sample Leveraged =
Portfolio Duration

Current Spread Payoff =

FX Prem / Disc =

FX Fwd =

Fwd Prem =

Int’l Unhedged Return =

8
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org
Int’l Hedged Return =

Yield Adv Nominal =

Yield Offset A = Yield Offset B =

Positive & Negative Convexity:

Price Increase Change =

Price Decrease Change =

2 Bond Hedge:

1) Price Change for

______ ______ _________________

2) Price Change for

______ ______ _________________

3) Solve for H2 and H10

Level:

Twist:

Hedge ratio:

9
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

Active Return =

Misfit Return =

Total / Portfolio Active Risk =

IR =

IR =

Swap Price n:

Swap price =

Swap price =

Bootstrapping:

10
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

F 0,T =

F 0,T =

or

F 0,T = or F 0,T =

FV Storage Costs = =

Lease Rate =

Return C&C Non Loanable =

Return C&C Loanable =

X-Y-Z Crack Spread =

Notional Principal on Fwd =

Long FRA Pmt =

Long FRA Pmt 0 =

11
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

Historical VAR:

• 5% VAR =

• VAR Point =

Analytical VAR:

• 5% VAR =

• 1% VAR =

E(R) Weekly = Std Dev Weekly =

Variance Covariance VAR:

Fwd Asset Price =

Long Fwd Value =

•

FX Fwd Contract Value =

•

Credit Risk / Amount Owed =

12
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

P(R) Hedged =

Translation gain/loss =

Delta Hedge # of Option Contracts =

•

Change in Delta =

Option premium =

Long FX Option Contract Value / Profit =

•

Credit Risk / Amount Owed =

NF for Beta =

Return =

NF for Duration =

Create Synthetic Position:

NF for Index =

$ Value for Synthetic =

to invest in rf bonds

13
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org
# of Synthetic Stk =
Effective rate earned on interest rate swap:

1a) Interest rate payoff, call =

1b) Interest rate payoff, put =

2) FV option premium =

3) Interest income =

4) Effective rate earned =

Long Call VT = Long Put VT =

Short Call VT = Short Put VT =

Collar -

VT = PU,T =

Profit = Max Profit =

B/E = Max Loss =

Straddle -

VT =

Profit = Max Profit =

B/E = Max Loss =

14
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

Bull spread -

VT = PU,T =

Profit = Max Profit =

B/E = Max Loss =

Bear spread -

VT =

Profit = Max Profit =

B/E = Max Loss =

Butterfly call spread -

VT =

Profit = Max Profit =

B/E = Max Loss =

and

B/E =

Box Spread -

VT =

Profit = Max Profit =

B/E = Max Loss =

15
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

Swap Notional =

Floating rate note i pmt =

D Floating Quarterly =

D Floating Semi-annual =

D Fixed =

D N year receive fixed, pay floating quarterly =

Effective spread, Buy =

Effective spread, Sell =

VWAP Price =

Estimated implicit costs, Buy =

Estimated implicit costs, Sell =

Implementation Shortfall:

Active mgmt return =

Style return =

16
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org
Information ratio =
TWRR =

MWRR:
End value =
•

Annualized LIRR =

Micro Attribution:

• Pure Sector =

• Allocation/Selection =

• Within Sector =

Macro Attribution:

• Asset category =

• Benchmark/misfit =

• Manager/Active =

Global Attribution:

• Market allocation =

• Currency allocation =

• Security allocation =

17
 CFA Level III
Formula Sheet – Total Combined
http://www.cpa-cfa.org

% R CF End =

R Original Dietz =

R Modified Dietz =

Allocated Cash Beg period method =

Allocated Cash Strategic =

Income tax rate =

GIPS Total Return Real Estate =

Income Return ( )=

Capital Return =

18