CFA Level II Cheat Sheet Equity Band of Investment (BOI): R0 = (mortgage weight x mortgage

Franchise value: intrinsic P/E = (tangible P/E) + (franchise cost) + (equity weight x equity cost)
g
P/E) = r1 + F F · G where F F = r1 − ROE1
and G = r−g
Quantitative Methods Fixed Income
√
r
correlation: t = √ n−2 P0 1
1−r 2
= SM M = 1 − (1 − CP R)1/12
E1 rreal + ((1 − f lowthrough)rinf lation )
AR(p): lose p observations 100% PSA: CP R = t0.2% . . . t = 1 . . . 30, and 6% after 30
ρt,t−k NOPLAT = EBITA - taxes
residuals t correlated: t-stat √ , T − 2 df, H0 : no months
T g = ROEb = P RAT , P: profit margin, R: retention ratio, A: (X −X̄)2
correlation asset turnover, T: leverage Volatility: Σ Tt −1 , where Xt = 100 ln( YYTTMMt )
t−1
D (1+g ) D H(g −g )
SSE RSS H-model: V0 = 0r−g L + 0 r−gS L
M SE = , M SR = L L Derivatives
n − (k + 1) k Emerging Markets 1+r−d
πU =
M SR 1. Forecast real operating results, Revenue, EBITDA, u−d
F = Depr, EBITA
M SE ∆put = ∆call − 1
√
SEE = M SE 2. Forecast nominal operating results, NOPLAT = EBITA 1−Zn
Swap valuation: C =

n−1
 - tax Σi Zi
2 X−F (0,T )
Radj =1− (1 − R2 ) 3. Forecast real NOPLAT Put Call Parity for Options on Forwards c0 + = p0
n − (k + 1) (1+r)T
4. Forecast real and nominal FCF = NOPLAT + D - Since F (0, T ) = S0 (1 + r)T , this is equivalent to the normal
Economics FCInv - NWCInv, also gnom and greal put call parity
pricebasketinFC
Sreal = Sspot (DC/F C) 5. Compute value of firm, nominal and real.
pricebasketinDC (1 + W ACCnom ) = (1 + W ACCreal )(1 + i)
Portfolio Management
Forwards premium or discount: ∆f wd = F −S0 360 2 asset P: σp2 = w12 σ12 + w22 σ22 + 2w1 w2 Cov1,2
S0 T FCFF = NI + NCC + (Int x (1-t)) - FCInv - WCInv
FCFF = (EBIT x (1-t)) + Dep - FCInv - WCInv 3 asset P: σp2 = w12 σ12 + w22 σ22 + w32 σ32 + 2w1 w2 Cov1,2 +
Corporate Finance FCFF = (EBITDA x (1-t)) + Dep x t - FCInv - WCInv 2w1 w3 Cov1,3 + 2w2 w3 Cov2,3

EP = EVA = NOPAT - WACC$ FCFF = CFO + (Int x (1-t)) - FCInv Equal weight P: σp2 = n 1
σ¯i 2 + n−1 ¯ = σ¯i 2 1−ρ + ρ
Cov
n n
NOPAT = EBIT (1-t) FCFE (forecast) = SML: Covij = βi βj σM 2
MVA = MV - (invested capital) N I − [(1 − DR)(F CInv − Dep)] − [(1 − DR)W CInv] Active risk (benchmarkq B):
TNOCF = SalT + NWCInv - t (SalT - BT ) Σ(rP −rB )2
WACC$ = (invested capital) · WACC% Alternative Assets rP − rB , s(rP − rB ) = n−1
r¯P −r¯
%∆EBIT Q(P − V ) Real Estate Information ratio: IR = B
s(rP −rB )
DOL = = CFAT = NOI - Debt Service - Taxes, Taxes = (NOI - D - Int)t
%∆Sales Q(P − V ) − F Return after realized taxes:
ERAT = selling price - selling costs - mortgage balance - taxes RART = r(1 − PI TI − PD TD − PCG TCG )
%∆EP S EBIT on sale Effective capital gains tax rate (for unrealized taxes)
DF L = = (1−PI −PD −PCG )
%∆EBIT EBIT − Int TECG = TCG (1−P T −P
CFATk ERAT I I D TD −PCG TCG )
Share repurchase: EPS = totearnings−aftertaxcostofdebt NPV = Σn
k + − EI F V IF = (1 + rART )n (1 − TECG ) + TECG − (1 − B)TCG
#sharesafterrepurchase (1 + iat )k (1 + iat )n