IMT Exam 1 Cheatsheet — Formulas, Decision Tables, Checklists & Glossary

Use this as your high-yield IMT Exam 1 review. Pair it with the Syllabus for coverage and Practice for speed.

IMT in one picture (process beats trivia)

    flowchart TD
	  A["Client facts (KYC + constraints)"] --> B["Risk profile + behavioural cues"]
	  B --> C["Investment Policy Statement (IPS)"]
	  C --> D["Asset allocation (policy ranges)"]
	  D --> E["Implementation (securities/products)"]
	  E --> F["Monitor + rebalance + report"]
	  F --> C

Official exam snapshot (CSI)

Official exam weightings (IMT Exam 1)

CSI chapter map (official curriculum headings)

These chapter headings and topic bullets are from CSI’s official IMT Curriculum page.

• Chapter 1 - The Portfolio Management Process: Seven steps; regulatory information; client discovery; objectives/constraints; IPS; communication skills
• Chapter 2 - Understanding a Client’s Risk Profile: Behavioural finance; questionnaires/limitations; biases; personality types; bias diagnosis for allocation; robo-advisors + behavioural biases
• Chapter 3 - Asset Allocation and Investment Strategies: Asset classes; allocation process/benefits; strategic/tactical/dynamic; asset location; equity strategies
• Chapter 4 - Investment Management Today: (CSI lists this chapter title without topic bullets on the curriculum page)
• Chapter 5 - Equity Securities: Individual equities vs managed products; equity features; Canadian + U.S. equity markets
• Chapter 6 - Economic and Industry Analysis: Macro analysis; strategy links; forecasts; key metrics; industry analysis
• Chapter 7 - Company Analysis and Valuation: IFRS vs GAAP; company analysis; valuation models; resource companies; limits of accounting data
• Chapter 8 - Technical Analysis: Chart/statistical/sentiment/intermarket; technical uses; combining technical + fundamental
• Chapter 9 - Debt Securities: Reasons to invest; features; risks; debt market trading mechanics
• Chapter 10 - Valuation, Term Structure and Pricing: Valuing debt; term structure; determining bond prices
• Chapter 11 - Price Volatility and Strategies: Key concepts of bond price volatility
• Chapter 12 - Conventionally Managed Products: Mutual funds; closed-end funds; wrap; overlay; fees/turnover; taxes vs returns
• Chapter 13 - Non-Conventional Assets + Structures: Hedge funds; commodities; real estate; infrastructure; private markets; collectibles; digital assets; ways to invest
• Chapter 14 - International Investing: Theory; benchmarks; advantages/risks; vehicles; skills; model limitations
• Chapter 15 - International Taxation: Double taxation; sources of tax law; jurisdiction; source vs residence taxation
• Chapter 16 - Managing Investment Risk: Risk types; measurement; diversification; hedging with options/futures/CFDs
• Chapter 17 - Impediments to Wealth Accumulation: Taxes/inflation/fees; tax-minimization; tax-efficient investments; cost efficiency
• Chapter 18 - Monitoring + Performance Evaluation: Monitoring and performance evaluation

Sources: https://www.csi.ca/en/learning/courses/imt/curriculum and https://www.csi.ca/en/learning/courses/imt/exam-credits

Portfolio management process (exam-friendly checklist)

The “seven steps” you should be able to describe

1. Establish the relationship + mandate
2. Gather client facts (objectives, constraints, risk profile)
3. Draft the IPS
4. Build strategic asset allocation (policy + ranges)
5. Implement (securities/products + trading plan)
6. Monitor + rebalance + review
7. Report + communicate + update IPS when facts change

IPS mini-template (what to include)

• Objectives: return/income/growth/preservation (measurable where possible)
• Constraints: time horizon, liquidity, tax, legal/regulatory, unique constraints
• Risk profile: tolerance + capacity (and how you resolve conflicts)
• Asset mix policy: target weights + allowable ranges
• Implementation: permitted instruments, rebalancing rules, benchmark choice
• Monitoring: frequency, triggers, and who approves changes

Risk profile + behavioural finance (high yield)

Three “risks” you must separate

• Risk tolerance (willingness): how the client feels about volatility/drawdowns
• Risk capacity (ability): whether the client can financially absorb losses
• Risk required: the return needed to meet goals (may exceed tolerance/capacity)

If these conflict, the safest response is usually: reset goals/constraints and re-align expectations.

Biases → what advisors do (fast mapping)

Questionnaire limitation (the line to remember)

Risk questionnaires are inputs, not answers. Validate with: behaviour, history, constraints, and scenario questions.

Asset allocation + rebalancing (must-know)

Strategic vs tactical vs dynamic (one-liners)

• Strategic: long-term policy weights aligned to IPS
• Tactical: temporary tilts around policy based on valuation/macros
• Dynamic: systematic adjustments driven by a rules-based model

Portfolio expected return and weights

Expected portfolio return:

\[ E[R_p]=\sum_{i=1}^{n} w_i E[R_i] \]

What it tells you: The portfolio’s expected return is the weighted average of the expected returns of its components.

Symbols (what they mean):

• \(E[R_p]\): expected return of the portfolio.
• \(w_i\): portfolio weight of asset \(i\) (fraction of portfolio value).
• \(E[R_i]\): expected return of asset \(i\).
• \(n\): number of assets.

How it’s tested (IMT):

• Compute expected return given weights and expected returns.
• Identify which exposure drives expected return (largest weight × high/low return).

Common pitfalls:

• Mixing percent and decimal returns (8 vs 0.08).
• Weights not summing to 1 (missing cash).

Portfolio weights sum to 1:

\[ \sum_{i=1}^{n} w_i = 1 \]

What it tells you: Your allocation uses 100% of the portfolio value (everything is accounted for across holdings).

Exam use: If weights don’t sum to 1, you’re missing something (often cash) or have a rounding error.

Correlation + diversification

Covariance:

\[ \sigma_{ij}=\rho_{ij}\,\sigma_i\,\sigma_j \]

What it tells you: Covariance (how returns move together in absolute terms) equals correlation × the two volatilities.

Symbols (what they mean):

• \(\sigma_{ij}\): covariance between returns \(i\) and \(j\).
• \(\rho_{ij}\): correlation between returns \(i\) and \(j\) (from -1 to +1).
• \(\sigma_i,\sigma_j\): standard deviations (volatilities).

Exam takeaway: Correlation is unitless; covariance scales with volatility. Lower correlation usually improves diversification.

Two-asset portfolio variance:

\[ \sigma_p^2 = w_1^2\sigma_1^2 + w_2^2\sigma_2^2 + 2w_1w_2\sigma_{12} \]

What it tells you: Portfolio variance depends on each asset’s volatility and the covariance term \(\sigma_{12}\).

How to connect it: Replace \(\sigma_{12}\) with \(\rho_{12}\sigma_1\sigma_2\) using the covariance formula above.

Interpretation (fast):

• If \(\rho_{12}\) is low/negative, the covariance term is smaller/negative → lower portfolio volatility.
• If correlation rises in stress, diversification benefits shrink.

Rule: Lower correlation → better diversification, but correlations can rise during crises.

Rebalancing quick math

1. Compute current weights \(w_i = \frac{V_i}{\sum V}\).
2. Compare to target weights/ranges.
3. Trade to bring back to target (or within bands).

Returns + compounding (core formulas)

Holding period return (HPR)

\[ HPR = \frac{P_1 - P_0 + D}{P_0} \]

What it tells you: Total return over a period = price change plus distributions, relative to the starting price.

Symbols (what they mean):

• \(P_0\): starting price.
• \(P_1\): ending price.
• \(D\): distributions received (dividends/interest).

Common pitfalls: forgetting \(D\), or dividing by \(P_1\) instead of \(P_0\).

Real return (inflation-adjusted)

\[ 1+r_{real} = \frac{1+r_{nom}}{1+\pi} \]

What it tells you: The return after inflation (purchasing-power return).

Symbols (what they mean):

• \(r_{nom}\): nominal return.
• \(\pi\): inflation rate.

Exam shortcut: for small rates, \(r_{real} \approx r_{nom}-\pi\) (approximation).

Arithmetic vs geometric

• Arithmetic mean: average of periodic returns (one-period expectation)
• Geometric mean: compound growth rate (long-term wealth growth)

Risk + performance metrics (high yield)

Beta and CAPM intuition

\[ \beta_i = \frac{\text{Cov}(R_i, R_m)}{\text{Var}(R_m)} \]

What it tells you: \(\beta\) measures sensitivity to the market (systematic risk).

Interpretation:

• \(\beta\approx 1\): moves like the market.
• \(\beta>1\): amplifies market moves.
• \(0<\beta<1\): less sensitive than the market.

\[ E[R_i] = R_f + \beta_i\,(E[R_m]-R_f) \]

What it tells you: A “required/expected” return given market exposure (CAPM).

Symbols (what they mean):

• \(R_f\): risk-free rate.
• \(E[R_m]-R_f\): market risk premium.
• \(\beta_i\): market sensitivity.

Exam use: Compare required returns for different betas; higher beta → higher required return (all else equal).

Sharpe ratio (risk-adjusted return)

\[ Sharpe = \frac{E[R_p]-R_f}{\sigma_p} \]

What it tells you: Excess return per unit of total volatility (risk-adjusted performance).

Common pitfalls: comparing Sharpe ratios using different horizons (monthly vs annual) or mixing gross vs net returns.

Tracking error and information ratio (active management)

Tracking error: \(\sigma_{active}\) (volatility of active return).

\[ IR = \frac{E[R_p - R_b]}{\sigma_{active}} \]

What it tells you: Active return per unit of active risk (tracking error).

Interpretation: Higher IR suggests more consistent active value-add relative to risk taken.

Time-weighted vs money-weighted returns (know the difference)

Time-weighted return (TWR)

Multiply subperiod returns (insensitive to external cash flows):

\[ TWR = \prod_{k=1}^{m} (1+r_k) - 1 \]

What it tells you: The investment performance independent of external cash flows (manager skill measure).

How it’s tested: Break returns into subperiods between deposits/withdrawals and chain-link them.

Money-weighted return (MWR / IRR)

Solve for \(r\) such that:

\[ 0 = \sum_{t=0}^{n} \frac{CF_t}{(1+r)^t} \]

What it tells you: The investor’s realized return accounting for the timing and size of cash flows.

Exam cue: If the question emphasizes contributions/withdrawals and “investor experience,” choose money-weighted/IRR.

Rule: If cash flows are large/timed poorly, MWR can differ materially from TWR.

Equities (what gets tested)

Top-down → bottom-up (fast structure)

1. Macro regime (growth/inflation/rates)
2. Industry structure (competition, cyclicality, regulation)
3. Company fundamentals (quality, profitability, leverage, cash flow)
4. Valuation (what you pay matters)

Common ratios (interpretation, not memorization)

Valuation formulas (know the shapes)

Gordon growth (dividend discount):

\[ P_0 = \frac{D_1}{r-g} \]

DCF skeleton:

\[ V_0 = \sum_{t=1}^{n} \frac{CF_t}{(1+r)^t} + \frac{TV_n}{(1+r)^n} \]

Technical analysis (don’t overpromise)

Use it for: trend/risk controls/entry-exit framing. Avoid “certainty” language.

Fixed income (must-know)

Bond price (PV of cash flows)

\[ P = \sum_{t=1}^{n} \frac{C}{(1+y)^t} + \frac{F}{(1+y)^n} \]

Duration approximation (price sensitivity)

\[ \frac{\Delta P}{P} \approx -D_{mod}\,\Delta y \]

Convexity adjustment:

\[ \frac{\Delta P}{P} \approx -D_{mod}\,\Delta y + \frac{1}{2}Cvx(\Delta y)^2 \]

Ladder vs barbell vs bullet (when you see it)

• Ladder: smooth cash flows; reduces reinvestment timing risk
• Barbell: more convexity; sensitive to curve changes
• Bullet: concentrates around a target maturity (liability matching)

Managed products (quick due diligence checklist)

When a question asks “what should you consider?”, the safe answer is often:

• mandate/objective fit
• risks (market/credit/liquidity/leverage)
• fees + turnover (net return matters)
• liquidity/structure (open-end vs closed-end)
• performance consistency + benchmark relevance

Alternatives (exam-level framing)

Alternatives are usually tested via structure + liquidity + risk.

International investing + taxation (keep it simple)

Currency risk decision

• Unhedged: keep currency exposure (adds volatility)
• Hedged: reduce currency volatility (costs + hedge mismatch)

Tax basics (exam-safe language)

• Cross-border investing can create withholding taxes and double taxation issues.
• Treaties and tax credits may reduce double taxation, but you should verify current rules using official sources or firm guidance.

Impediments to wealth accumulation (what to say)

• Taxes + fees + inflation compound silently.
• Behavioural errors (panic selling, chasing) can dominate outcomes.
• “Small” fee differences matter over long horizons.

Monitoring + performance evaluation (what reviewers do)

Monitoring checklist

• drift vs policy ranges
• concentration and liquidity
• credit quality/duration (fixed income)
• fees/turnover/tax drag
• performance vs benchmark (and why)
• changes in client objectives/constraints

Best answer pattern

If unsure, the safest move is: re-check IPS → verify constraints → rebalance/adjust within policy → document → communicate clearly.

Glossary (high-yield IMT terms)

• Active management: deviating from a benchmark to seek excess return.
• Alpha: return above what a risk model/benchmark would predict.
• Asset allocation: choosing weights across asset classes.
• Asset class: group of securities with similar risk/return drivers.
• Asset location: placing assets in accounts to optimize after-tax outcome.
• Benchmark: reference portfolio used to evaluate performance.
• Beta: sensitivity to market movements.
• Business cycle: expansion/peak/contraction/trough pattern in economic activity.
• Capital preservation: objective to limit loss of principal.
• Compounding: earning returns on prior returns over time.
• Constraint: limit affecting portfolio choices (liquidity, tax, legal, unique).
• Correlation (\(\rho\)): co-movement measure between returns.
• Covariance: scale-dependent co-movement between returns.
• Credit spread: yield difference between risky and risk-free debt.
• Currency risk: variability due to exchange rate changes.
• Discount rate: rate used to convert future cash flows to present value.
• Diversification: spreading exposure to reduce unsystematic risk.
• Drawdown: peak-to-trough decline in portfolio value.
• Duration: interest-rate sensitivity measure for bonds.
• Efficient frontier: set of portfolios with highest return for given risk (concept).
• Expected return: probability-weighted average return.
• Fee drag: reduction in wealth due to ongoing fees.
• Fundamental analysis: valuing a security using economic/financial data.
• Geometric mean: compound growth rate over multiple periods.
• Growth investing: style emphasizing high expected growth.
• Hedge: position intended to reduce risk exposure.
• Holding period return (HPR): total return over a period.
• Home bias: preference for domestic assets beyond what diversification suggests.
• Immunization: matching duration to liabilities to reduce rate risk (concept).
• Index: rules-based measure of a market segment.
• Inflation risk: loss of purchasing power.
• Information ratio: active return per unit active risk.
• IPS (Investment Policy Statement): document defining objectives, constraints, and rules.
• IRR / Money-weighted return: return that equates PV of cash flows to zero.
• Liquidity: ability to trade without large price impact.
• Market risk: risk driven by broad market movements.
• Modified duration: duration used for price sensitivity approximation.
• Momentum: tendency for winners/losers to continue short-term (concept).
• Policy range: allowed deviation bands around target weights.
• Portfolio drift: movement away from target weights due to market moves.
• Present value (PV): value today of future cash flows discounted.
• Real return: return after inflation.
• Rebalancing: trading to restore weights to targets/ranges.
• Reinvestment risk: risk that cash flows reinvest at lower yields.
• Risk capacity: financial ability to bear loss.
• Risk tolerance: willingness to bear volatility.
• Robo-advisor: algorithm-driven portfolio service with automated allocation/rebalancing.
• Sharpe ratio: excess return per unit total risk.
• Style drift: manager deviates from stated style/mandate.
• Suitability: recommendation must fit client objectives/constraints and risk profile.
• Technical analysis: price/volume-based analysis approach.
• Term structure: relationship between yields and maturities.
• Time-weighted return: return measure that neutralizes external cash flows.
• Tracking error: volatility of active return relative to benchmark.
• Turnover: rate at which holdings change (trading frequency).
• Value investing: style emphasizing low price relative to fundamentals.
• Volatility (\(\sigma\)): dispersion of returns; commonly standard deviation.

Sources: https://www.csi.ca/en/learning/courses/imt/curriculum and https://www.csi.ca/en/learning/courses/imt/exam-credits