The key Portfolio Management formulas and decision rules for 2026, module by module. Portfolio Management is 8-12% of the Level I exam.
Free to read, no sign-up. A revision companion to use alongside your curriculum or prep provider. The full sheet (16 concepts, 9 formulas, 3 decision rules) is in the study dashboard.
The ones to know cold before exam day.
Where: Excess return per unit of total risk
Open the lessonWhere: Rf = risk-free, β = beta, E(Rm)-Rf = market risk premium
Open the lessonWhere: Positive α = outperformance vs CAPM
Open the lessonKey concepts and formulas from each of the 3 Portfolio Management modules. Open a module for its lesson page, or the dashboard for the full sheet.
Higher expected return requires accepting higher risk. Historical data: stocks > bonds > T-bills in return and risk.
U = E(R) - ½Aσ². Risk-averse investors (A>0) require compensation for bearing risk. Indifference curves slope upward.
Where: A = risk aversion coefficient (A>0 for risk-averse)
Where: Slope = Sharpe ratio of optimal portfolio
Full sheet: 6 concepts · 4 formulas · 1 decision rules
CAL using the MARKET portfolio as the optimal risky portfolio. E(R) = R<sub>f</sub> + [(R<sub>m</sub>-R<sub>f</sub>)/σ<sub>m</sub>]σ<sub>p</sub>.
Systematic (market/non-diversifiable): β measures sensitivity. Unsystematic (company-specific): eliminated by diversification.
Where: Rf = risk-free, β = beta, E(Rm)-Rf = market risk premium
Where: σ²m = variance of market returns
Full sheet: 5 concepts · 5 formulas · 1 decision rules
Document governing the investment process. Includes: return objectives, risk tolerance, constraints (LTTLU).
Liquidity needs, Time horizon, Tax considerations, Legal/regulatory, Unique circumstances.
Full sheet: 5 concepts · 1 decision rules
Start with the free module, then add your own notes to every Portfolio Management cheat sheet in the dashboard.