PMT Cheatsheet — Formulas, Decision Tables, Checklists & Glossary

Use this as your high-yield PMT® review. Pair it with the Syllabus for coverage and Practice for speed.

PMT in one picture (mandates + operations + reporting)

    flowchart LR
	  A["Mandate + benchmark"] --> B["Research + portfolio construction"]
	  B --> C["Trade execution"]
	  C --> D["Operations: confirm/settle/reconcile"]
	  D --> E["Risk + compliance oversight"]
	  E --> F["Reporting + performance attribution"]
	  F --> A

Official exam snapshot (CSI)

Official exam weightings (PMT)

CSI chapter map (official curriculum headings)

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

• Chapter 1 - Portfolio Management: Overview: What Is a Portfolio Manager?; Registration Categories Under National Instrument (NI) 31-103; Investment Industry Regulations; Best Practices; Managed Accounts Within a CIRO Dealer Member
• Chapter 2 - Ethics and Portfolio Management: Ethics; Code of Ethics; Trust and Fiduciary Duty
• Chapter 3 - The Institutional Investor: Financial Intermediation; Governance
• Chapter 4 - The Investment Management Firm: Ownership and Compensation Structures; Regulations and Licensing; Organizational Structure; Investor Types; Service Channels; Investment Mandates; Roles and Responsibilities of Institutional Investment Managers; Investment Management Fees; Industry Challenges; Corporate Governance
• Chapter 5 - The Front, Middle, and Back Offices: An Overview of the Front Office; The Four Areas of the Front Office; Information Flow Among Front-Office Staff; Front Office Best Practices; Getting Clients; Losing Clients; Overview of the Middle Office; The Middle Office; The Back Office
• Chapter 6 - Managing Equity Portfolios: Bottom-Up and Top-Down Approaches; Portfolio Management Styles; The Use of Derivatives in Equity Portfolio Management; Tax Considerations; The Use of Exchange-Traded Funds in Equity Portfolio Management
• Chapter 7 - Managing Fixed-Income Portfolios: Trading Operations, Management Styles, and Box Trades: Fixed-Income Trading Operations; Bond Management Styles; Box Trades
• Chapter 8 - Managing Fixed Income Portfolios: Other Bond Portfolio Construction Techniques, High Yield Bonds, and ETFs: Other Bond Portfolio Construction Techniques; High-Yield (Junk) Bonds; Fixed Income Exchange-Traded Funds (ETFs)
• Chapter 9 - The Permitted Uses of Derivatives by Mutual Funds: The Types of Mutual Funds that Use Derivatives; Mutual Fund Regulations; How Mutual Funds Use Derivatives; The Advantages of Derivatives; The Potential Risks of Derivatives
• Chapter 10 - Creating New Portfolio Management Mandates: New Investment Product Development Process; Investment Guidelines and Restrictions
• Chapter 11 - Alternative Investments: Definition of Alternative Investments; Reasons to Invest in Alternative Investments; Issues and Challenges with Alternative Investments; Performance Attribution; The Unique Risks of Alternative Investments; Due Diligence; Current Trends and Developments in Alternative Investing
• Chapter 12 - Client Portfolio Reporting and Performance Attribution: Client Portfolio Reporting; Portfolio Management Reports; Performance Attribution

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

Regulation + ethics (the “trust and permission” layer)

The three questions PMT expects you to answer quickly

1. Do we have permission? (mandate, policy, restrictions, permitted instruments)
2. Is it defensible? (client-first, conflict managed, documented rationale)
3. Can we run it safely? (controls, operations, reporting)

Conflict-handling (high-scoring framing)

• Identify the conflict (who benefits, what’s at risk).
• Disclose clearly when required (plain language).
• Avoid or mitigate (remove incentive, add oversight, change allocation method).
• Document the rationale and approvals.

“Trust” behaviours that usually score well

• Avoid overpromising (benchmarks and risk limits matter).
• Keep methodology consistent in reporting (no cherry-picking).
• Escalate when unsure (compliance/supervision).

Institutional investor + governance (how decisions are authorized)

Institutional roles (who does what)

Benchmark basics (the exam cue)

• A benchmark is not “just a number.” It defines risk budget, return expectation, and how you’re evaluated.
• A poor benchmark creates the illusion of skill or failure (misleading comparisons).

Firm operations (front/middle/back office)

Trade lifecycle (one table)

Front vs middle vs back (exam-friendly)

• Front office: research, portfolio decisions, trading, client relationship (where applicable).
• Middle office: risk + compliance monitoring, performance measurement, oversight controls.
• Back office: settlement, accounting, recordkeeping, report production, reconciliations.

Why firms lose institutional clients (common patterns)

• Style drift: the portfolio no longer behaves like the promised mandate.
• Operational failures: breaks, errors, late/incorrect reporting.
• Communication failures: surprises, unclear explanations, inconsistent methodology.

Managing equity portfolios (styles + tools)

Top-down vs bottom-up (fast compare)

Style drift (the testable idea)

If you promised a style, you need:

• constraints (sector/issuer limits, factor exposure bands)
• process (why this name belongs)
• monitoring (style metrics, tracking error vs benchmark)

ETFs as implementation tools

Use ETFs when you want:

• quick exposure (temporary equitization)
• broad diversification
• low-cost implementation

But watch:

• liquidity mismatch (especially in stress)
• tracking difference and costs

Managing fixed income portfolios (operations + construction)

Fixed income “rules of the road”

• Liquidity is often lower and pricing is less transparent than equities.
• Duration and curve exposure matter (benchmark-relative risk is a common evaluation lens).
• Credit risk is not just default: spreads and liquidity can dominate returns.

High-yield bonds (what’s different)

• Higher expected yield but higher credit + liquidity + event risk.
• In stress, high-yield can behave more like equity risk than “safe” fixed income.

Bond ETFs (why exam questions love them)

• Convenient exposure, but ETF liquidity can mask underlying bond liquidity.
• Stress periods can widen bid/ask and increase tracking difference.

Derivatives in mutual funds (permitted use + controls)

The “why” behind derivatives in funds

• Hedge risk (rates, FX, equity exposure).
• Efficient exposure (adjust market exposure without trading all holdings).
• Income enhancement (e.g., covered call strategies).

The “risk language” you must recognize

• leverage/amplification
• counterparty and collateral
• liquidity and margin calls
• operational complexity (valuation, controls, documentation)

Creating mandates (guidelines + restrictions)

Mandate template (what PMT wants you to think in)

• Objective (return + risk)
• Benchmark
• Eligible instruments
• Constraints (liquidity, concentration, leverage, derivatives, credit quality, ESG screens)
• Risk limits (tracking error, duration bands, drawdown, VaR-style language)
• Reporting expectations and review cadence

New product development (high level)

Idea → research → portfolio design → risk/compliance review → operational readiness → launch → monitoring/change control.

Alternatives (definition, risks, due diligence)

Why alternatives exist in portfolios

• diversify return drivers
• access illiquidity premia
• hedge inflation or specific risks (in some cases)

Due diligence (what you must be able to describe)

• strategy + edge (how returns are generated)
• people and process
• risk controls (leverage, concentration, liquidity)
• operations (valuation, custody, independent checks)
• fees and incentives

Reporting + performance attribution (what the report must explain)

What an institutional report must usually answer

• What did we own (and why)?
• How did we perform vs the benchmark (and why)?
• What risks did we take to get that result?
• Did we stay inside the mandate?
• What changes are recommended (if any)?

Attribution vocabulary (high-yield)

• Allocation effect: “we were heavier in the better area.”
• Selection effect: “we picked better securities inside the area.”
• Interaction effect (sometimes): overlap of allocation + selection.

Formula essentials (with explanations)

Holding period return (HPR)

\[ HPR=\frac{V_1-V_0+I}{V_0} \]

What it tells you: Total return over a period = change in value plus income, relative to starting value.

Symbols (what they mean):

• \(V_0\): starting value.
• \(V_1\): ending value.
• \(I\): income/distributions received.

Exam cue: If you see dividends/interest, include \(I\).

Common pitfalls: dividing by \(V_1\) instead of \(V_0\); forgetting income.

CAGR (annualized growth rate)

\[ CAGR=\left(\frac{V_n}{V_0}\right)^{1/n}-1 \]

What it tells you: The constant annual compound rate that turns \(V_0\) into \(V_n\) over \(n\) years.

Common pitfalls: using arithmetic average returns; using the wrong \(n\) (months vs years).

Expected portfolio return (weighted average)

\[ E[R_p]=\sum_{i=1}^{k} w_iE[R_i] \]

What it tells you: Expected portfolio return equals the weight-adjusted average of component expected returns.

Exam cue: Weights should sum to 1 (or 100%).

Portfolio weights sum to one

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

What it tells you: Your allocation accounts for the full portfolio value.

Common pitfall: missing cash (or hidden leverage) when weights don’t sum to 1.

Covariance from correlation

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

What it tells you: Covariance (co-movement in absolute terms) = correlation × both volatilities.

Exam cue: Correlation is unitless; covariance inherits units from returns.

Two-asset portfolio variance

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

What it tells you: Portfolio risk depends on individual volatilities and correlation (diversification benefit).

Common pitfalls: using \(\rho\) where covariance is required; mixing decimals and percentages.

Beta

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

What it tells you: Sensitivity of an asset to market movements (systematic risk).

Exam cue: \(\beta>1\) usually means more market sensitivity than the market; \(\beta<1\) less.

CAPM (expected/required return)

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

What it tells you: A simple model linking required return to market risk exposure.

Common pitfall: mixing required return vs expected return language.

Sharpe ratio

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

What it tells you: Excess return per unit of total volatility.

Exam cue: Use when comparing portfolios not benchmarked to the same index.

Information ratio (IR)

\[ \text{IR}=\frac{R_p-R_b}{\sigma_{p-b}} \]

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

Symbols (what they mean):

• \(R_b\): benchmark return.
• \(\sigma_{p-b}\): standard deviation of active returns (tracking error).

Fee drag (simple approximation)

\[ R_{net}\approx R_{gross}-\text{fees} \]

What it tells you: Fees reduce realized investor return; compounding makes the long-run impact larger than it looks.

Exam cue: When comparing managers, always clarify gross vs net.

Bond price (present value)

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

What it tells you: Bond price is the present value of coupons plus principal discounted at yield.

Symbols (what they mean):

• \(C\): coupon payment per period.
• \(F\): face value.
• \(y\): yield per period.
• \(n\): number of periods.

Exam cue: Higher yield → lower price (inverse relation).

Duration-based price sensitivity (approx)

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

What it tells you: Approximate percentage price change for a small yield change.

Common pitfall: sign error (yields up → prices down).

Formula pack (one place)

Use this as your “last 10 minutes” scan. Detailed explanations are in Formula essentials above.

• Holding period return: \(HPR=\frac{V_1-V_0+I}{V_0}\)
• CAGR: \(CAGR=\left(\frac{V_n}{V_0}\right)^{1/n}-1\)
• Expected portfolio return: \(E[R_p]=\sum w_iE[R_i]\)
• Two-asset variance: \(\sigma_p^2=w_1^2\sigma_1^2+w_2^2\sigma_2^2+2w_1w_2\sigma_1\sigma_2\rho_{12}\)
• Beta: \(\beta=\frac{\text{Cov}(R_i,R_m)}{\text{Var}(R_m)}\)
• CAPM: \(E[R_i]=R_f+\beta_i(E[R_m]-R_f)\)
• Sharpe: \(\frac{R_p-R_f}{\sigma_p}\)
• Information ratio: \(\frac{R_p-R_b}{\sigma_{p-b}}\)
• Bond PV: \(P=\sum\frac{C}{(1+y)^t}+\frac{F}{(1+y)^n}\)
• Duration approx: \(\frac{\Delta P}{P}\approx -D_{mod}\Delta y\)

Glossary (PMT terms)

Governance + mandates

• Benchmark: reference portfolio used to define objectives and evaluate performance/risk.
• Mandate: written authorization describing objective, benchmark, constraints, and risk limits.
• Style drift: portfolio behaviour drifts away from the promised style/mandate.
• Constraint: a rule limiting portfolio actions (liquidity, concentration, leverage, eligible assets).
• Risk limit: a quantitative or qualitative cap on risk-taking (e.g., duration band, tracking error ceiling).
• Investment policy: framework that sets objectives, roles, and decision rules for an institution.
• Delegation: assigning implementation to managers while retaining oversight accountability.

Firm operations

• Front office: research, portfolio decisions, trading, and client-facing functions (where applicable).
• Middle office: risk/compliance monitoring, oversight controls, performance measurement support.
• Back office: settlement, accounting, recordkeeping, reconciliations, report production.
• Trade allocation: assigning executed trades across accounts fairly and consistently.
• Reconciliation: matching positions/cash/records across systems and counterparties.
• Operational risk: risk of loss from process failures, people, systems, or external events.

Equity portfolio management

• Top-down: portfolio views driven by macro/sector themes.
• Bottom-up: security selection driven by company fundamentals.
• Active risk: risk of deviating from a benchmark (often proxied by tracking error).
• Tracking difference: realized return difference between a portfolio (or ETF) and its benchmark.
• ETF: exchange-traded fund used for fast, diversified exposure implementation.

Fixed income portfolio management

• Duration: sensitivity of bond price to yield changes (interest rate risk proxy).
• Convexity: curvature of the price-yield relationship; improves duration approximation for larger yield moves.
• Yield curve: relationship between yield and maturity; strategies often position on its shape.
• Credit spread: extra yield over a reference (e.g., government) for bearing credit/liquidity risk.
• High-yield bond: lower credit quality bond with higher default/spread risk and often lower liquidity.

Derivatives in funds

• Hedging: using instruments to reduce risk exposure (rates/FX/equity).
• Leverage: amplifying exposure relative to invested capital; increases upside and downside.
• Counterparty risk: risk the other side of a trade fails to perform (mitigated by collateral/controls).
• Margin/collateral: assets posted to support derivative positions and reduce credit risk.

Reporting + attribution

• Time-weighted return (TWR): return metric that removes the impact of cash flows; common for manager evaluation.
• Money-weighted return (MWR/IRR): return metric that reflects timing/size of cash flows; common for investor experience.
• Attribution: analysis explaining relative performance (allocation vs selection, etc.).
• Tracking error: volatility of active returns (portfolio minus benchmark).
• Information ratio: active return per unit of tracking error.