Free CFA Level II Formula Sheet (2026)

Every CFA Level II formula you need on the test, grouped by topic, rendered with full math notation. 34 formulas across 9 topics, calibrated to the 2026 syllabus. Free forever, no signup required.

34 Formulas
9 Topics
2026 Syllabus
Free Forever
Print-ready PDF: 1080x1350 portrait, math pre-rendered, fonts embedded. Download once, study anywhere.
Download PDF →

All CFA Level II Formulas

Quantitative Methods 4 items
F-statistic (overall regression)
F=RSS/kSSE/(n−k−1)=MSRMSEF = \frac{RSS/k}{SSE/(n-k-1)} = \frac{MSR}{MSE}
k = predictors, n = observations
Tests H0:allslopecoefficients=0H_0: all slope coefficients = 0
Adjusted R-squared
Rˉ2=1−n−1n−k−1(1−R2)\bar{R}^2 = 1 - \frac{n-1}{n-k-1}(1 - R^2)
n = observations, k = number of independent variables
Penalizes for adding irrelevant predictors
R-squared (coefficient of determination)
R2=RSSSST=1−SSESSTR^2 = \frac{RSS}{SST} = 1 - \frac{SSE}{SST}
RSS = regression sum of squares, SSE = error sum of squares
SST = total sum of squares. Fraction of variation explained.
Standard error of regression (SEE)
SEE=SSEn−k−1=MSESEE = \sqrt{\frac{SSE}{n - k - 1}} = \sqrt{MSE}
SSE = sum of squared errors, n = observations, k = independent variables
Measures typical prediction error of the model
Economics 4 items
Relative PPP
E(%ΔSd/f)≈πd−πfE(\%\Delta S_{d/f}) \approx \pi_d - \pi_f
Expected % change in spot rate ≈ inflation differential
Holds better over long horizons
Covered Interest Rate Parity (CIP)
FS=1+rd1+rf\frac{F}{S} = \frac{1 + r_d}{1 + r_f}
F = forward rate (d/f), S = spot rate (d/f)
r_d = domestic rate, r_f = foreign rate
No-arbitrage; holds in practice
International Fisher effect
rnom,d−rnom,f≈E(πd)−E(πf)r_{nom,d} - r_{nom,f} \approx E(\pi_d) - E(\pi_f)
Nominal interest rate differentials reflect expected inflation differentials
Combines Fisher effect with PPP
Unhedged foreign asset return (in domestic currency)
(1+RDC)=(1+RFC)(1+RFX)(1 + R_{\text{DC}}) = (1 + R_{\text{FC}})(1 + R_{FX}); approx RDC≈RFC+RFXR_{\text{DC}} \approx R_{\text{FC}} + R_{FX}. RFXR_{FX} = foreign-currency appreciation vs. domestic.
Financial Statement Analysis 2 items
FCFF from EBIT
FCFF=EBIT(1−t)+D&A−ΔWC−CapExFCFF = EBIT(1-t) + D\&A - \Delta WC - CapEx
t = tax rate, D&A = depreciation & amortization
ΔWC\Delta WC = change in working capital
Net pension expense components (ASC 715)
NPPC=Service Cost+Interest Cost−Expected Return+Amort PSC±Amort Gain/Loss\text{NPPC} = \text{Service Cost} + \text{Interest Cost} - \text{Expected Return} + \text{Amort PSC} \pm \text{Amort Gain/Loss}. IFRS (IAS 19): net interest on net pension liability replaces expected return.
Corporate Issuers 4 items
FCFE from FCFF
FCFE=FCFF−Int(1−t)+ΔDebtFCFE = FCFF - Int(1-t) + \Delta\text{Debt}
Int = interest expense, t = tax rate, ΔDebt\Delta\text{Debt} = net new borrowing.
FCFE constant-growth valuation
V0=FCFE1re−gV_0 = \frac{FCFE_1}{r_e - g}. Requires re>gr_e > g; g = sustainable FCFE growth. Gordon-growth analog using FCFE instead of dividends.
FCFE from net income
FCFE=NI+NCC−ΔWC−CapEx+ΔDebtFCFE = NI + NCC - \Delta WC - \text{CapEx} + \Delta\text{Debt}
NI = net income, NCC = non-cash charges (D&A, deferred tax), ΔDebt\Delta\text{Debt} = net new borrowing.
MM Propositions I & II (with taxes)
Prop I: VL=VU+tDV_L = V_U + tD — debt tax shield adds value.
Prop II: re=r0+(r0−rd)(1−t)DEr_e = r_0 + (r_0 - r_d)(1-t)\frac{D}{E}; WACC declines with leverage. Theoretical optimum: 100% debt.
Equity Valuation 4 items
Build-up method for cost of equity (private company)
re=rf+ERP+Size premium+Specific-company premium±Industry premiumr_e = r_f + \text{ERP} + \text{Size premium} + \text{Specific-company premium} \pm \text{Industry premium}. Used when CAPM fails for illiquid/private firms.
Sustainable growth rate
g=ROE×bg = ROE \times b
b = retention ratio = 1 − payout ratio
ROE = net income / equity
Growth rate achievable without changing capital structure or issuing equity
Two-stage DDM
V0=∑t=1nD0(1+gS)t(1+r)t+Vn(1+r)nV_0 = \sum_{t=1}^{n} \frac{D_0(1+g_S)^t}{(1+r)^t} + \frac{V_n}{(1+r)^n}
Vn=Dn+1r−gLV_n = \frac{D_{n+1}}{r - g_L}
g_S = high growth (stage 1), g_L = long-run growth (stage 2)
Residual income model
V0=B0+∑t=1∞(ROEt−re)Bt−1(1+re)tV_0 = B_0 + \sum_{t=1}^{\infty} \frac{(ROE_t - r_e) B_{t-1}}{(1+r_e)^t}
B_0 = book value, ROE = return on equity, r_e = cost of equity.
Fixed Income 4 items
Credit spread decomposition (term structure)
Observed Spread=Expected Loss+Credit Risk Premium+Liquidity Premium\text{Observed Spread} = \text{Expected Loss} + \text{Credit Risk Premium} + \text{Liquidity Premium}. Expected loss = PD × LGD.
Option-Adjusted Spread (OAS)
OAS=Z-spread−Option value (bps)OAS = Z\text{-spread} - \text{Option value (bps)}
Callable: OAS < Z-spread. Putable: OAS > Z-spread.
Effective duration
Deff=P−Δy−P+Δy2P0ΔyD_{\text{eff}} = \frac{P_{-\Delta y} - P_{+\Delta y}}{2 P_0 \Delta y}. Used for bonds with embedded options (callable, putable, MBS).
Portfolio effective duration (market-value weighted)
Deff, port=∑iwiDeff,iD_{\text{eff, port}} = \sum_i w_i D_{\text{eff},i}; wiw_i = market-value weight. Assumes parallel yield-curve shift; use KRDs for non-parallel.
Derivatives 4 items
Option gamma
Γ=∂2V∂S2=∂Δ∂S\Gamma = \frac{\partial^2 V}{\partial S^2} = \frac{\partial \Delta}{\partial S}. Highest ATM near expiry; long options are positive gamma, short are negative.
Put-call parity
c+X(1+r)T=p+S0c + \frac{X}{(1+r)^T} = p + S_0. Continuous: c+Xe−rT=p+S0c + Xe^{-rT} = p + S_0. Same strike/expiry; European options.
Option vega
ν=∂V∂σ\nu = \frac{\partial V}{\partial \sigma}. Price change per 1-pp vol move. Long call or put = positive vega. Highest ATM with longer expiry.
Binomial option pricing (one period)
c=πucu+πdcd1+rc = \frac{\pi_u c_u + \pi_d c_d}{1+r}; πu=(1+r)−du−d\pi_u = \frac{(1+r) - d}{u - d}, πd=1−πu\pi_d = 1 - \pi_u (risk-neutral probs). u, d = up/down factors.
Alternative Investments 4 items
Direct capitalization (real estate)
V=NOI1Cap RateV = \frac{NOI_1}{\text{Cap Rate}}; NOI1NOI_1 = stabilized first-year NOI (after opex, before debt service/tax). Implicit: cap rate = r − g.
TVPI (Total Value to Paid-In)
TVPI=Distributions+Residual NAVPaid-inTVPI = \frac{\text{Distributions} + \text{Residual NAV}}{\text{Paid-in}} = DPI + RVPI (realized + unrealized multiples).
Pre-money and post-money valuation
Post-money=Pre-money+New investment\text{Post-money} = \text{Pre-money} + \text{New investment}
Investor share=InvestmentPost-money\text{Investor share} = \frac{\text{Investment}}{\text{Post-money}}
Price per share = pre-money / pre-money shares. PE / VC funding rounds.
Equity REIT NAV per share
NAV/share=Property value+Other assets−Total liabilitiesShares outstanding\text{NAV/share} = \frac{\text{Property value} + \text{Other assets} - \text{Total liabilities}}{\text{Shares outstanding}}
Property value typically from cap-rate or DCF on stabilized NOI. Price/NAV reveals premium or discount.
Portfolio Management 4 items
Fundamental Law of Active Management
IR=IC×BRIR = IC \times \sqrt{BR}
IC = information coefficient (skill), BR = breadth (independent bets), IR = information ratio.
Treynor ratio
Tp=Rp−RfβpT_p = \frac{R_p - R_f}{\beta_p}
R_p = portfolio return, R_f = risk-free rate, βp\beta_p = portfolio beta
Excess return per unit of systematic risk
Jensen's alpha
αp=Rp−[Rf+βp(Rm−Rf)]\alpha_p = R_p - [R_f + \beta_p(R_m - R_f)]
Actual return minus CAPM expected return
Positive α\alpha = outperformance after adjusting for systematic risk
M-squared (Modigliani-Modigliani)
M2=(Rp−Rf)×σmσp+RfM^2 = (R_p - R_f) \times \frac{\sigma_m}{\sigma_p} + R_f
Levered/delevered portfolio return at market's risk level
Expressed in % — directly comparable across portfolios

Frequently Asked Questions

Is the CFA Level II formula sheet free?
Yes. The full CFA Level II formula sheet is free, with no signup, no email, and no credit card required. 34 formulas across 9 topics, all rendered with the same KaTeX math notation used in the FreeFellow study app.
Can I download the CFA Level II formula sheet as a printable PDF?
Yes. A 1080x1350 portrait PDF (Instagram and LinkedIn carousel native size, also great for tablet study) is linked at the top of this page. The PDF is fully self-contained: math is pre-rendered, fonts are embedded, no internet connection needed once downloaded.
What's covered on the CFA Level II formula sheet?
Every formula is grouped by official syllabus topic, with the formula in math notation plus a one-line note on when to use it (or a watch-out from CAIA, CFA, or other prep-provider commentary). Coverage is calibrated to the 2026 syllabus and refreshed when the corpus changes.
Is this formula sheet affiliated with CFA?
FreeFellow LLC is a CFA Institute Prep Provider. CFA Institute does not endorse, promote, review, or warrant the accuracy or quality of the products or services offered by FreeFellow LLC.
What else is free at FreeFellow for CFA Level II candidates?
The full question bank with detailed solutions, mixed practice, readiness tracking, lessons (where available), and the formula sheet are all free forever. Fellow ($59/quarter or $149/year per track) unlocks timed mock exams, spaced-repetition flashcards, performance analytics, AI essay grading, and a personalized study plan.
Practice CFA Level II questions free →

Formula sheets for other exams

Exam P Exam FM Exam FAM Exam SRM Exam ALTAM Exam ASTAM CFA Level I CFA L3 Portfolio Mgmt CFA L3 Private Wealth CFA L3 Private Markets CFP CPA AUD

About FreeFellow

FreeFellow is an AI-native exam prep platform for actuarial (SOA & CAS), CFA, CFP, CPA, CAIA, and securities licensing candidates — built around modern AI as a core capability rather than as a bolt-on. Every lesson ships with AI-narrated audio. Every constructed-response item has a copy-to-AI prompt builder so candidates can paste their answer into their own ChatGPT or Claude for self-graded feedback. Fellow members get instant AI grading on essays against the official rubric (currently CFA Level III, expanding to other essay-bearing sections).

The 70% you need to pass — question bank, written solutions, lessons, formula sheet, mixed practice, readiness tracking — is free forever, with no trial period and no credit card. Become a Fellow ($59/quarter or $149/year per track) to unlock mock exams, flashcards with spaced repetition, performance analytics, AI essay grading, and a personalized study plan. FreeFellow LLC is a CFA Institute Prep Provider — our CFA® exam materials are validated by CFA Institute for substantial curriculum coverage and updated annually.