Table of Contents Getting Started Flyer Table of Contents Page List Book 4: Fixed Income And Derivatives Readings and Learning Outcome Statements The Term Structure and Interest Rate Dynamics LOS 35.a: Describe relationships among spot rates, forward rates, yield to maturity, expected and realized returns on bonds, and the shape of the yield curve LOS 35.b: Describe the forward pricing and forward rate models and calculate forward and spot prices and rates using those models LOS 35.c: Describe how zero-coupon rates (spot rates) may be obtained from the par curve by bootstrapping LOS 35.d: Describe the assumptions concerning the evolution of spot rates in relation to forward rates implicit in active bond portfolio management LOS 35.e: Describe the strategy of riding the yield curve LOS 35.f: Explain the swap rate curve and why and how market participants use it in valuation LOS 35.g: Calculate and interpret the swap spread for a given maturity LOS 35.h: Describe the Z-spread LOS 35.i: Describe the TED and Libor–OIS spreads 10 LOS 35.j: Explain traditional theories of the term structure of interest rates and describe the implications of each theory for forward rates and the shape of the yield curve 11 LOS 35.k: Describe modern term structure models and how they are used 12 LOS 35.l: Explain how a bond’s exposure to each of the factors driving the yield curve can be measured and how these exposures can be used to manage yield curve risks 13 LOS 35.m: Explain the maturity structure of yield volatilities and their effect on price volatility 14 Key Concepts LOS 35.a LOS 35.b LOS 35.c LOS 35.d LOS 35.e LOS 35.f LOS 35.g LOS 35.h LOS 35.i 10 LOS 35.j 11 LOS 35.k 12 LOS 35.l 13 LOS 35.m 15 Concept Checkers Answers – Concept Checkers The Arbitrage-Free Valuation Framework LOS 36.a: Explain what is meant by arbitrage-free valuation of a fixedincome instrument LOS 36.b: Calculate the arbitrage-free value of an option-free, fixed-rate coupon bond LOS 36.c: Describe a binomial interest rate tree framework LOS 36.d: Describe the backward induction valuation methodology and calculate the value of a fixed-income instrument given its cash flow at each node LOS 36.e: Describe the process of calibrating a binomial interest rate tree to match a specific term structure LOS 36.f: Compare pricing using the zero-coupon yield curve with pricing using an arbitrage-free binomial lattice LOS 36.g: Describe pathwise valuation in a binomial interest rate framework and calculate the value of a fixed-income instrument given its cash flows along each path LOS 36.h: Describe a Monte Carlo forward-rate simulation and its application Key Concepts LOS 36.a LOS 36.b LOS 36.c LOS 36.d LOS 36.e LOS 36.f LOS 36.g LOS 36.h 10 Concept Checkers Answers – Concept Checkers Valuation and Analysis: Bonds with Embedded Options LOS 37.a: Describe fixed-income securities with embedded options LOS 37.b: Explain the relationships between the values of a callable or putable bond, the underlying option-free (straight) bond, and the embedded option LOS 37.c: Describe how the arbitrage-free framework can be used to value a bond with embedded options LOS 37.f: Calculate the value of a callable or putable bond from an interest rate tree LOS 37.d: Explain how interest rate volatility affects the value of a callable or putable bond LOS 37.e: Explain how changes in the level and shape of the yield curve affect the value of a callable or putable bond LOS 37.g: Explain the calculation and use of option-adjusted spreads LOS 37.h: Explain how interest rate volatility affects option-adjusted spreads LOS 37.i: Calculate and interpret effective duration of a callable or putable bond 10 LOS 37.j: Compare effective durations of callable, putable, and straight bonds 11 LOS 37.k: Describe the use of one-sided durations and key rate durations to evaluate the interest rate sensitivity of bonds with embedded options 12 LOS 37.l: Compare effective convexities of callable, putable, and straight bonds 13 LOS 37.m: Calculate the value of a capped or floored floating-rate bond 14 LOS 37.n: Describe defining features of a convertible bond 15 LOS 37.o: Calculate and interpret the components of a convertible bond’s value 16 LOS 37.p: Describe how a convertible bond is valued in an arbitrage-free framework 17 LOS 37.q: Compare the risk–return characteristics of a convertible bond with the risk–return characteristics of a straight bond and of the underlying common stock 18 Key Concepts LOS 37.a LOS 37.b LOS 37.c LOS 37.d LOS 37.e LOS 37.f LOS 37.g LOS 37.h LOS 37.i 10 LOS 37.j 11 LOS 37.k 12 LOS 37.m 13 LOS 37.l 14 LOS 37.n 15 LOS 37.o 16 LOS 37.p 17 LOS 37.q 19 Concept Checkers Answers – Concept Checkers 20 Challenge Problems Answers – Challenge Problems Credit Analysis Models LOS 38.a: Explain probability of default, loss given default, expected loss, and present value of the expected loss and describe the relative importance of each across the credit spectrum LOS 38.b: Explain credit scoring and credit ratings LOS 38.c: Explain strengths and weaknesses of credit ratings LOS 38.d: Explain structural models of corporate credit risk, including why equity can be viewed as a call option on the company’s assets LOS 38.e: Explain reduced form models of corporate credit risk, including why debt can be valued as the sum of expected discounted cash flows after adjusting for risk LOS 38.f: Explain assumptions, strengths, and weaknesses of both structural and reduced form models of corporate credit risk LOS 38.g: Explain the determinants of the term structure of credit spreads LOS 38.h: Calculate and interpret the present value of the expected loss on a bond over a given time horizon LOS 38.i: Compare the credit analysis required for asset-backed securities to analysis of corporate debt 10 Key Concepts LOS 38.a LOS 38.b LOS 38.c LOS 38.d LOS 38.e LOS 38.f LOS 38.g LOS 38.h LOS 38.i 11 Concept Checkers Answers – Concept Checkers 10 Credit Default Swaps LOS 39.a: Describe credit default swaps (CDS), single-name and index CDS, and the parameters that define a given CDS product LOS 39.b: Describe credit events and settlement protocols with respect to CDS LOS 39.c: Explain the principles underlying, and factors that influence, the market’s pricing of CDS LOS 39.d: Describe the use of CDS to manage credit exposures and to express views regarding changes in shape and/or level of the credit curve LOS 39.e: Describe the use of CDS to take advantage of valuation disparities among separate markets, such as bonds, loans, equities, and equity-linked instruments Key Concepts LOS 39.a LOS 39.b LOS 39.c LOS 39.d LOS 39.e Concept Checkers Answers – Concept Checkers Self-Test: Fixed Income Self-Test Answers: Fixed Income 11 Pricing and Valuation of Forward Commitments LOS 40.a: Describe and compare how equity, interest rate, fixed-income, and currency forward and futures contracts are priced and valued LOS 40.b: Calculate and interpret the no-arbitrage value of equity, interest rate, fixed-income, and currency forward and futures contracts LOS 40.c: Describe and compare how interest rate, currency, and equity swaps are priced and valued LOS 40.d: Calculate and interpret the no-arbitrage value of interest rate, currency, and equity swaps Key Concepts LOS 40.a, b LOS 40.c, d Concept Checkers Answers – Concept Checkers Challenge Problems Answers – Challenge Problems 12 Valuation of Contingent Claims LOS 41.a: Describe and interpret the binomial option valuation model and its component terms LOS 41.b: Calculate the no-arbitrage values of European and American options using a two-period binomial model LOS 41.e: Describe how the value of a European option can be analyzed as the present value of the option’s expected payoff at expiration LOS 41.c: Identify an arbitrage opportunity involving options and describe the related arbitrage LOS 41.d: Calculate and interpret the value of an interest rate option using a two-period binomial model LOS 41.f: Identify assumptions of the Black–Scholes–Merton option valuation model LOS 41.g: Interpret the components of the Black–Scholes–Merton model as applied to call options in terms of a leveraged position in the underlying; LOS 41.h: Describe how the Black–Scholes–Merton model is used to value European options on equities and currencies LOS 41.i: Describe how the Black model is used to value European options on futures 10 LOS 41.j: Describe how the Black model is used to value European interest rate options and European swaptions 11 LOS 41.k: Interpret each of the option Greeks 12 LOS 41.l: Describe how a delta hedge is executed 13 LOS 41.m: Describe the role of gamma risk in options trading 14 LOS 41.n: Define implied volatility and explain how it is used in options trading 15 Key Concepts LOS 41.a LOS 41.b LOS 41.c LOS 41.d LOS 41.e LOS 41.f LOS 41.g LOS 41.h LOS 41.i 10 LOS 41.j 11 LOS 41.k 12 LOS 41.l 13 LOS 41.m 14 LOS 41.n 16 Concept Checkers Answers – Concept Checkers 17 Challenge Problems Answers – Challenge Problems 13 Derivatives Strategies LOS 42.a: Describe how interest rate, currency, and equity swaps, futures, and forwards can be used to modify portfolio risk and return LOS 42.b: Describe how to replicate an asset replicating assets by using options and by using cash plus forwards or futures LOS 42.c: Describe the investment objectives, structure, payoff, and risk(s) of a covered call position LOS 42.d: Describe the investment objectives, structure, payoff, and risk(s) of a protective put position LOS 42.e: Calculate and interpret the value at expiration, profit, maximum profit, maximum loss, and breakeven underlying price at expiration for covered calls and protective puts LOS 42.f: Contrast protective put and covered call positions to being long an asset and short a forward on the asset LOS 42.g: Describe the investment objective(s), structure, payoffs, and risks of the following option strategies: bull spread, bear spread, collar, and straddle LOS 42.h: Calculate and interpret the value at expiration, profit, maximum profit, maximum loss, and breakeven underlying price at expiration of the following option strategies: bull spread, bear spread, collar, and straddle LOS 42.i: Describe uses of calendar spreads 10 LOS 42.j: Identify and evaluate appropriate derivatives strategies derivatives strategies consistent with given investment objectives 11 Key Concepts LOS 42.a LOS 42.b LOS 42.c, e LOS 42.d, e LOS 42.f LOS 42.g, h LOS 42.i LOS 42.j 12 Concept Checkers Answers – Concept Checkers 14 Self-Test: Derivatives Self-Test Answers: Derivatives 15 Formulas 16 Copyright Page List 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 i iii iv v vi vii viii ix 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Using the information in Figure 2, if Paxton wants to establish a covered call position using the Dec 16 option, the breakeven stock price will be closest to:? A $13.10 B $14.40 C $16.90 breakeven price on covered call = S0 – C0 = $15 – $1.90 = $13.10 Using the information in Figure 2, if Paxton wants to establish a protective put position using the Dec 16 option, the maximum loss is closest to:? A $0.60 B $0.98 C $1.98 maximum loss on protective put = S0 – X + P0 = 15 – 16 + 1.98 = $0.98 The risk of a protective put strategy is most accurately characterized by: A an increase in return volatility B a decrease in stock price C a decrease in portfolio return A protective put is analogous to an insurance policy and the put premium is similar to the policy premium The premium cost acts as a drag on portfolio return A protective put reduces downside risk and hence reduces return volatility A protective put has no impact on stock price volatility Using the information in Figure 2, which position is least likely to replicate the delta of a covered call position on 100 shares of ABC stock using the Dec 15 option? A A protective put using 100 shares and the Dec 15 option B A Dec 15/17 bull call spread C A short position in a forward contract on 50 ABC shares The question is asking for the least likely choice From Figure 2, delta of Dec 15 call = delta of Dec 15 put = 0.50 position delta of covered call = delta of stock – delta of call option = 1.0 – 0.50 = 0.50 position delta of protective put = delta of stock + delta of put option = 1.0 + (–0.50) = 0.50 position delta of short forward on 50 (i.e., 50% of the shares) = delta of stock – (0.5 × delta of the forward) = 1.0 – 0.50 = 0.50 Dec 15/17 bull call spread entails buying the Dec 15 call and writing the Dec 17 call position delta of Dec 15/17 bull call spread = delta of Dec 15 call – delta of Dec 17 call = 0.50 – 0.72 = –0.22 Out of the choices provided, only Dec 15/17 bull call spread does not have a delta of 0.50 Which of the following positions is least likely to have a limited upside? A A calendar spread B A bull call spread C A long straddle The question is asking for the least likely choice All spread strategies have limited upside A long straddle has unlimited upside (because the long call in the straddle has unlimited upside) Based on information in the third observation of Figure 1, most appropriate strategy is:? A a long straddle B a bull spread C a short straddle Based on the third observation in Figure 1, volatility is expected to increase A long straddle would benefit the most from an increase in volatility (and a short straddle would lose most) The short option in a bull spread would limit the gain from an increase in volatility Based on information in Figure 2, the maximum profit for a bull spread using Dec 16 and Dec 17 calls is closest to:? A $0.11 B Unlimited C $0.89 maximum profit on bull call spread = XH – XL – CL0 + CH0 = 17 – 16 – 1.90 + 1.01 = $0.11 10 A long calendar spread is least likely to have: A an initial cash outflow B a short position in near-dated option C a short position in longer-dated option The question is asking for the least likely choice A long calendar spread strategy is short the near-dated call and long the longer-dated call on the same stock with the same exercise price Because the longer-dated call has a higher time value than the near-dated call, a long calendar spread results in an initial cash outflow SELF-TEST: DERIVATIVES You have now finished the Derivatives topic section The following self-test will provide immediate feedback on how effective your study of this material has been The test is best taken timed; allow minutes per subquestion (18 minutes per item set) This selftest is more exam-like than typical Concept Checkers or QBank questions A score less than 70% suggests that additional review of this topic is needed Use the following information to answer Questions through Derrick Honny, CFA, has operated his own portfolio management business for many years Several of his clients have fixed income positions, and one of Honny’s analysts has advised him that the firm could improve the performance of these portfolios through swaps Honny has begun investigating the properties of swaps His plan is first to establish some minor positions to gain some experience before actively using swaps on behalf of his clients Honny knows that the most basic type of swap is the plain vanilla swap, where one counterparty pays LIBOR as the floating rate and the other counterparty pays a fixed rate determined by the swap market He feels this would be a good place to begin and plans to enter into a 2-year, annual-pay plain vanilla swap where Honny pays LIBOR and receives the fixed swap rate from the other counterparty To get an idea regarding the swap rate he can expect on the 2-year swap, he collects market data on LIBOR Details are shown in Figure Figure 1: Market Data on Term Structure of Interest Rates Year LIBOR Discount Factor 5.00% 0.9524 4.60% 0.9158 Honny knows that as interest rates change, the value of a swap position will change Suppose that one year after inception, the LIBOR term structure is as given in Figure 2: Figure 2: Term structure of Interest Rates after Six Months Year LIBOR Discount Factor 0.5 4.80% 0.9766 4.88% 0.9535 1.5 4.90% 0.9315 5.02% 0.9088 One of Honny’s clients, George Rosen, is aware of Honny’s plans to use swaps and other derivatives in the management of his clients’ portfolios Rosen has a position for which he thinks a swap strategy will be appropriate Rosen asks Honny to arrange for him a payer swaption that matures in three years Honny is uncertain of the level of Rosen’s familiarity with swaps and swaptions, so he wants to make sure that the derivative is appropriate for the client He asks Rosen exactly what he intends to accomplish by entering into the swaption Honny also discussed the possible use of a covered call strategy for Rosen's portfolio Rosen wonders about the motivations for such a strategy Which of the following would be the least appropriate alternative investments to replicate the exposure Honny will get from the 2-year, plain vanilla swap position that he plans to take? A Long a series of interest rate puts and short a series of interest rate calls B Short a series of bond futures C Short a series of forward rate agreements Given the 1- and 2-year rates, the 2-year swap fixed rate would be closest to: A 4.20% B 4.51% C 4.80% Which of the following is most likely to be a conclusion that Honny would reach if the payer swaption has the same exercise rate as the market swap fixed rate for the underlying swap? A The payer swaption would be out of the money B The value of the payer swaption would be same as the value of an otherwise identical receiver swaption C The payer swaption would be worth more than an otherwise identical receiver swaption For this question only, assume that the swap fixed rate is 4.50% and the notional principal is $1 million Based on the information in Figure 2, the value of the swap to Honny is closest to: A –$3,623 B –$3,800 C –$6,790 Which of the following is the least appropriate motivation for a covered call strategy? A Income generation B Target price realization C Lowering the exit price The gamma position of a covered call strategy is most likely to be: A positive B C negative zero SELF-TEST ANSWERS: DERIVATIVES Use the following information to answer Questions through Derrick Honny, CFA, has operated his own portfolio management business for many years Several of his clients have fixed income positions, and one of Honny’s analysts has advised him that the firm could improve the performance of these portfolios through swaps Honny has begun investigating the properties of swaps His plan is first to establish some minor positions to gain some experience before actively using swaps on behalf of his clients Honny knows that the most basic type of swap is the plain vanilla swap, where one counterparty pays LIBOR as the floating rate and the other counterparty pays a fixed rate determined by the swap market He feels this would be a good place to begin and plans to enter into a 2-year, annual-pay plain vanilla swap where Honny pays LIBOR and receives the fixed swap rate from the other counterparty To get an idea regarding the swap rate he can expect on the 2-year swap, he collects market data on LIBOR Details are shown in Figure Figure 1: Market Data on Term Structure of Interest Rates Year LIBOR Discount Factor 5.00% 0.9524 4.60% 0.9158 Honny knows that as interest rates change, the value of a swap position will change Suppose that one year after inception, the LIBOR term structure is as given in Figure 2: Figure 2: Term structure of Interest Rates after Six Months Year LIBOR Discount Factor 0.5 4.80% 0.9766 4.88% 0.9535 1.5 4.90% 0.9315 5.02% 0.9088 One of Honny’s clients, George Rosen, is aware of Honny’s plans to use swaps and other derivatives in the management of his clients’ portfolios Rosen has a position for which he thinks a swap strategy will be appropriate Rosen asks Honny to arrange for him a payer swaption that matures in three years Honny is uncertain of the level of Rosen’s familiarity with swaps and swaptions, so he wants to make sure that the derivative is appropriate for the client He asks Rosen exactly what he intends to accomplish by entering into the swaption Honny also discussed the possible use of a covered call strategy for Rosen's portfolio Rosen wonders about the motivations for such a strategy Which of the following would be the least appropriate alternative investments to replicate the exposure Honny will get from the 2-year, plain vanilla swap position that he plans to take? A Long a series of interest rate puts and short a series of interest rate calls B Short a series of bond futures C Short a series of forward rate agreements Since Honny will pay the floating rate in the 2-year swap, he gains when the floating rate goes down and loses when it goes up (relative to expectations at inception) This exposure could be replicated with either a short position in a series of FRAs or with a series of short interest rate calls and long interest rate puts Since short bond futures gain when floating rates increase and lose when floating rates decrease, such a position would give him an exposure opposite to the floating rate payer position in a fixed-for-floating interest rate swap Given the 1- and 2-year rates, the 2-year swap fixed rate would be closest to: A 4.20% B 4.51% C 4.80% Given the discount factors, the swap-fixed rate can be calculated as: Since the rates are already in annual terms, no further adjustment is necessary Which of the following is most likely to be a conclusion that Honny would reach if the payer swaption has the same exercise rate as the market swap fixed rate for the underlying swap? A The payer swaption would be out of the money B The value of the payer swaption would be same as the value of an otherwise identical receiver swaption C The payer swaption would be worth more than an otherwise identical receiver swaption If the exercise rate of a receiver option and a payer swaption are equal to the at-market forward swap rate, then the receiver and payer swaptions will have the same value When the exercise rate is equal to the market SFR, the payer option will be at-the-money For this question only, assume that the swap fixed rate is 4.50% and the notional principal is $1 million Based on the information in Figure 2, the value of the swap to Honny is closest to: A –$3,623 B –$3,800 C –$6,790 Value to the payer = There is only one settlement date remaining (one year away) Hence the sum of discount factors = the discount factor for the last settlement (one year away) = 0.9535 Also, given the single settlement date, the new swap fixed rate has to be the LIBOR rate for that settlement date, or 4.88% (given in Figure 2) value to the payer = 0.9535 × (0.0488 – 0.0450) × 360/360 × $1,000,000 = $3,623 The swap discussed is a receiver swap value to the receiver = –$3,623 Which of the following is the least appropriate motivation for a covered call strategy? A Income generation B Target price realization C Lowering the exit price Motivations for using a covered call strategy include income generation, target price realization, and improving on the market Lowering of the exit price is not a valid motivation for a covered call The gamma position of a covered call strategy is most likely to be: A positive B negative C zero A covered call strategy entails a long position combined with a short call A long position in stock has zero gamma Calls have positive gamma, and a short position in call would have a negative gamma This negative gamma position from short call combined with zero gamma of long stock results in a net negative gamma position of a covered call portfolio FORMULAS STUDY SESSIONS 12 AND 13: FIXED INCOME price of a T-period zero-coupon bond forward price (at t = j) of a zero-coupon bond maturing at (j+k) forward pricing model P(j+k) = PjF(j,k) Therefore: forward rate model [1 + S(j+k)](j+k) = (1 + Sj)j [1 + f(j,k)]k or [1 + f(j,k)]k = [1 + S(j+k)](j+k) / (1 + Sj)j swap spread swap spreadt = swap ratet – Treasury yieldt TED Spread TED Spread = (3-month LIBOR rate) – (3-month T-bill rate) Libor-OIS spread Libor-OIS spread = LIBOR rate – “overnight indexed swap” rate Portfolio value change due to level, steepness, and curvature movements callable bond Vcall = Vstraight – Vcallable putable bond Vputable = Vstraight + Vput Vput = Vputable – Vstraight effective duration = effective convexity = convertible bond minimum value of convertible bond = greater of conversion value or straight value market conversion premium per share = market conversion price – stock’s market price market conversion premium ratio callable and putable convertible bond value = straight value of bond + value of call option on stock – value of call option on bond + value of put option on bond credit analysis recovery rate = percentage of money received upon default of the issuer loss given default (%) = 100 – recovery rate expected loss = probability of default × loss given default present value of expected loss = (value of a credit-risky bond) – (value of otherwise identical risk-free bond) upfront premium % (paid by protection buyer) ≈ (CDS spread – CDS coupon) × duration price of CDS (per $100 notional) ≈ $100 – upfront premium (%) profit for protection buyer ≈ change in spread × duration × notional principal STUDY SESSIONS 14: DERIVATIVES forward contract price (cost-of-carry model) no-arbitrage price of an equity forward contract with discrete dividends value of the long position in a forward contract on a dividend-paying stock price of an equity index forward contract with continuous dividends forward price on a coupon-paying bond: value prior to expiration of a forward contract on a coupon-paying bond: price of a bond futures contract: quoted bond futures price based on conversion factor (CF): price of a currency forward contract: value of a currency forward contract price and value for a currency forward contract (continuous time): swap fixed rate: value of plain vanilla interest rate swap (to payer) after inception probability of an up-move or down-move in a binomial stock tree: πU= probability of an up move = πD = probability of a down move = (1 – πU) put-call parity: S0 + P0 = C0 + PV(X) put-call parity when the stock pays dividends: P0 + S0e-δT = C0 + e-rTX dynamic hedging change in option value ∆C ≈ call delta × ∆S + ½ gamma × ∆S2 ∆P ≈ put delta ì S + ẵ gamma ì S2 Option value using arbitrage-free pricing portfolio BSM model C0 = S0e-δTN(d1) – e-rTXN(d2) P0 = e-rTXN(-d2) – S0e-δTN(-d1) breakeven price analytics; volatility needed to break even: where All rights reserved under International and Pan-American Copyright Conventions By payment of the required fees, you have been granted the non-exclusive, nontransferable right to access and read the text of this eBook on screen No part of this text may be reproduced, transmitted, downloaded, decompiled, reverse engineered, or stored in or introduced into any information storage and retrieval system, in any forms or by any means, whether electronic or mechanical, now known or hereinafter invented, without the express written permission of the publisher SCHWESERNOTES™ 2018 LEVEL II CFA® BOOK 4: FIXED INCOME AND DERIVATIVES (eBook) ©2017 Kaplan, Inc All rights reserved Published in 2017 by Kaplan, Inc Printed in the United States of America ISBN: 978-1-4754-6112-1 If this book does not have the hologram with the Kaplan Schweser logo on the back cover, it was distributed without permission of Kaplan Schweser, a Division of Kaplan, Inc., and is in direct violation of global copyright laws Your assistance in pursuing potential violators of this law is greatly appreciated Required CFA Institute disclaimer: “CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by Kaplan Schweser CFA and Chartered Financial Analyst are trademarks owned by CFA Institute.” Certain materials contained within this text are the copyrighted property of CFA Institute The following is the copyright disclosure for these materials: “Copyright, 2017, CFA Institute Reproduced and republished from 2018 Learning Outcome Statements, Level I, II, and III questions from CFA® Program Materials, CFA Institute Standards of Professional Conduct, and CFA Institute’s Global Investment Performance Standards with permission from CFA Institute All Rights Reserved.” These materials may not be copied without written permission from the author The unauthorized duplication of these notes is a violation of global copyright laws and the CFA Institute Code of Ethics Your assistance in pursuing potential violators of this law is greatly appreciated Disclaimer: The Schweser Notes should be used in conjunction with the original readings as set forth by CFA Institute in their 2017 Level II CFA Study Guide The information contained in these Notes covers topics contained in the readings referenced by CFA Institute and is believed to be accurate However, their accuracy cannot be guaranteed nor is any warranty conveyed as to your ultimate exam success The authors of the referenced readings have not endorsed or sponsored these Notes ... 20 0 20 1 20 2 20 3 20 4 20 5 20 6 21 5 21 6 21 7 21 8 21 9 22 0 22 1 22 2 22 3 22 4 22 5 22 6 22 7 22 8 22 9 23 0 23 1 23 2 23 3 23 4 23 5 23 6 23 7 23 8 23 9 24 0 24 1 24 2 24 3 24 4 24 5 24 6 24 7 20 7 20 8 20 9 21 0 21 1 21 2 21 3 21 4. .. 24 4 24 5 24 6 24 7 20 7 20 8 20 9 21 0 21 1 21 2 21 3 21 4 21 5 21 6 21 7 21 8 21 9 22 0 22 1 22 2 22 3 22 4 22 5 22 6 22 7 22 8 22 9 23 0 23 1 23 2 23 3 23 4 23 5 23 6 23 7 23 8 23 9 BOOK – FIXED INCOME AND DERIVATIVES Readings and... 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 i iii iv v vi vii viii ix 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 39 40 41 42 43 44 45 46