IMT Exam 2 Cheat Sheet: Investment Management Techniques Cheat Sheet

Last revised: September 28, 2026

Cheat sheet for IMT Exam 2 formulas, portfolio constraints, fixed-income cues, valuation methods, performance metrics, and case-reading triggers.

Use this quick reference after you have studied the official material. It is a compact decision aid for Finance Prep practice, not an official CSI formula sheet. Use this quick review before IMT Exam 2 vignette practice. The goal is to read the client or portfolio case, isolate the controlling constraint, and choose the answer that best fits the mandate, not the answer that merely repeats a familiar formula. Finance Prep’s IMT Exam 2 practice is original and provider-specific. Mastery Exam Prep / Finance Prep is independent from CSI; these pages are not official CSI IMT Exam 2 questions, copied live-exam content, or exam dumps.

Use the tables for a quick pre-exam check.

Portfolio and return formulas

ItemFormulaWatch for
Holding-period return\((P_1 - P_0 + I) / P_0\)Include income and use beginning value
Geometric return\(\left[\prod(1+r_t)\right]^{1/n} - 1\)Compound growth over multiple periods
Real return\((1 + r) / (1 + inflation) - 1\)Purchasing power, not nominal dollars
Portfolio return\(\sum w_i r_i\)Weights must sum to the portfolio
Expected return\(\sum p_i r_i\)Scenario probabilities
CAPM\(R_f + beta(R_m - R_f)\)Systematic risk only

Fixed income cues

ConceptRemember
Price and yieldMove in opposite directions
DurationHigher duration means greater price sensitivity
ConvexityMatters when yield changes are large
Credit spreadWider spread lowers price if other inputs stay constant
Callable bondUpside may be capped when rates fall
ImmunizationNeeds monitoring and rebalancing, not a one-time setup
LadderSpreads maturity and reinvestment risk
BarbellConcentrates short and long maturities
BulletConcentrates around a target maturity

Equity and managed-product cues

ToolBest useTrap
Dividend discount modelStable dividend-paying companyGrowth cannot be treated casually
P/E ratioComparable earnings-based valuationLow P/E may reflect risk or decline
P/B ratioAsset-heavy or financial companiesWeak for intangible-heavy businesses
EV/EBITDAOperating comparison across capital structuresIgnores capital spending and debt service
Active fundSkill, mandate fit, and inefficiency are plausibleFees, turnover, and tracking error matter
Passive fundBroad exposure and cost controlMay not meet custom restrictions
Separate accountCustomization and tax managementSize and cost must be justified

Performance metric selector

If the question asks about…Use
Total portfolio risk-adjusted returnSharpe ratio
Systematic risk in a diversified portfolioTreynor ratio
Beta-adjusted excess returnJensen alpha
Active return relative to benchmark riskInformation ratio
Manager skill excluding client cash-flow timingTime-weighted return
Investor dollar experienceMoney-weighted return
Allocation versus selectionPerformance attribution

Suitability triggers

Case factFirst issue
Funds needed soonLiquidity and capital preservation
High tax rateAfter-tax return and asset location
Known liabilityDuration or cash-flow matching
Concentrated holdingDiversification and tax-aware transition
Benchmark mismatchPerformance conclusion is unreliable
ESG or legal restrictionUnique circumstances or mandate limit
Client anxiety about lossRisk willingness may be binding
High required return and low risk toleranceObjective conflict requiring planning repair

Final-pass map

AreaWhat to check firstCommon case trap
Investment policyReturn objective, risk objective, horizon, liquidity, tax, legal, unique circumstancesChoosing a product before the IPS constraint is clear
Asset allocationStrategic mix, required return, risk capacity, rebalancing ruleTreating a tactical view as a permanent policy
Fixed incomeDuration, convexity, credit spread, yield curve, reinvestment riskCalling a higher yield better without checking risk or horizon
Equity valuationDividend model, growth, required return, multiples, quality of earningsMixing cash-flow type and discount rate
Managed productsFees, mandate fit, liquidity, tax, tracking error, style driftIgnoring costs and suitability because past return is high
Performance reviewBenchmark, time-weighted return, money-weighted return, alpha, risk-adjusted ratiosUsing the wrong return or risk measure for the decision

Core formulas and cues

ItemFormula or cueUse when
Holding-period return\((P_1 - P_0 + I) / P_0\)Single-period total return
Real return\((1 + r_{nominal}) / (1 + inflation) - 1\)Client objective is stated in purchasing-power terms
Portfolio return\(\sum w_i r_i\)Weighting asset-class or security returns
CAPM\(R_f + beta(R_m - R_f)\)Required return for systematic risk
Jensen alphaActual return minus CAPM required returnBeta-adjusted performance
Modified durationMacaulay duration divided by \(1 + y/m\)Approximate bond price sensitivity
Gordon growth\(P_0 = D_1 / (k - g)\)Stable dividend growth valuation
Sharpe ratioExcess return divided by standard deviationTotal-risk performance review
Treynor ratioExcess return divided by betaWell-diversified portfolio review
Information ratioActive return divided by tracking errorActive manager review versus benchmark

Case-reading checklist

Before answering an IMT Exam 2 vignette question, write the issue in one sentence:

  • The client needs cash soon, so liquidity and capital preservation control the answer.
  • The portfolio has a known liability date, so duration or cash-flow matching may matter.
  • The investor has a high tax rate, so after-tax return and asset location matter.
  • The manager is being evaluated, so benchmark fit and risk-adjusted return matter.
  • The recommendation changes risk exposure, so suitability and IPS constraints matter.

If you cannot state the controlling issue, reread the case before choosing an answer.

High-yield traps

TrapBetter approach
Using nominal return when the case asks about purchasing powerConvert to real return or use inflation-aware reasoning
Treating high return as evidence of high skillCheck benchmark, risk, fees, and time period
Choosing duration only from maturityCheck coupon, yield, call features, and cash-flow timing
Reading beta as total riskUse beta for systematic risk; use standard deviation for total risk
Recommending rebalancing without cost reviewCheck taxes, liquidity, thresholds, and policy bands
Ignoring currency exposureSeparate local asset return from CAD return

Put the review into practice

Study Plan
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