CFA level II errata 0319

Change Log for CFA 2019 Level II Date Lesson and Content Identifier Change 03/07/2019 SS4 Economics / R11 Curency Exchange Rates: Determination and Forecasting / Lesson / Study Text This lesson covers LOS11a only LOS11b is covered in Lesson 02/21/2019 SS4 Economics / R11 Curency Exchange Rates: Determination and Forecasting / Lesson / Study Text 1.4 Triangular Arbitrage Assume that we are provided with the following exchange rate quotes by a European bank: USD/EUR = 1.3802 - 1.3806 GBP/EUR = 0.8593 - 0.8599 02/21/2019 SS4 Economics / R13 Economics of Regulation / Lesson / Study Text 1.2 Reasons for Decreased Reliance on Self-Regulation First sentence under LOS13d should read: “The regulatory capture theory argues that regulation can often actually advance the interests of the regulated industry (e.g., by restricting potential competition and coordinating the strategies of rivals) 01/29/2019 SS5 FRA (1) / R14 Intercorporate Investments / Lesson / Study Text 3.5 Impairment, last bullet point should read as follows: “Reversal of an impairment loss is not allowed under IFRS (except for nongoodwill impairment losses) or U.S GAAP.” 03/04/2019 02/28/2019 SS10 Equity Valuation / R29 Discounted Dividend Valuation / Lesson / Study Text Therefore, (in what is known as the PRAT model) SGR can be computed as: SS14 Derivatives / R41 Derivative Strategies / Lesson / Study Text Bull Spreads g = Profit margin x Retention rate x Asset turnover x Financial leverage The net premium paid is cL – cH = $5.48 – $0.51 = $4.97 The profit and loss diagram for the bull spread is shown in Figure 3.1, and the corresponding values using formulas are: Maximum gain = XH – XL – Net premium = $55.00 – $45.00 – $4.97 = $5.03 Page www.efficientlearning.com/support/updates Maximum loss = cL – cH, where neither of the calls is in-the-money, so the loss is limited to the net premium paid = $4.97 Breakeven point = Occurs in the region where the lower call is in-the-money The share price must rise enough above the lower exercise price to cover the net premium = XL + (cL – cH) = $45.00 + $4.97 = $49.97 Page www.efficientlearning.com/support/updates