2015 CFA Program: Level II Errata

6 April 2015

To be fair to all candidates, CFA Institute does not respond directly to individual candidate
inquiries. If you have a question concerning CFA Program content, please contact CFA Institute
(info@cfainstitute.org) to have potential errata investigated. The eBook for the 2015 curriculum
is formatted for continuous flow, so the text will fit all screen sizes. Therefore, eBook page
numberingwhich is linked to section headsdoes not match page numbering in the print
curriculum. Corrections below are in bold and new corrections will be shown in red; page
numbers shown are for the print volumes.
The short scale method of numeration is used in the CFA Program curriculum. A billion
9
is 10 and a trillion is 1012. This is in contrast to the long scale method where a billion is 1
million squared and a trillion is 1 million cubed. The short scale method of numeration is the
prevalent method internationally and in the finance industry.
There are a variety ways of quoting foreign exchange rates: $ to or per = $/ = : $.
The quote :$ is equivalent to a quote of $/. Authors use the two different methods of quoting
currency exchange rates to ensure readers develop familiarity with both.
Volume 1
Reading 2: There are a number of corrections in this reading:
o In the last line of Example 12 (Using an Expert Network) of Standard II(A), p. 67 of
print, The fund sells its current position in the company and writes buys many put
options
o The Comment on Example 5 (Disclosure of Referral Arrangements and Outside Parties)
of Standard VI(C) (page 164 of print) should read potential lack of objectivity in the
recommendation of Overseas is making by Arrow; this aspect
Reading 9: In the solution to Practice Problem 12 (top of p. 318 of print), the value of the
Multiple R (X2) should be negative because the estimated slope coefficient is negative.
Reading 10: In the solution to Practice Problem 2.A (p. 392 of print), the final symbol should
be a plus sign instead of equals: Ri = b0 + b1(B/M)i + b2Sizei + i
Reading 12: In the second equation of Solution 1 (p. 571 of print), the value for id in the
denominator should be 0.0543 (instead of 0.0573).
Reading 13: The expanded production function immediately above Section 4.5 (p. 595 of
print) should have an equal sign instead of plus. In Example 9, first bullet of Solution to 1
(p. 613 of print), the annual growth rate in population in China was 0.57 instead of 0.97.
Volume 2
Reading 17: In the last paragraph of Example 11 (p. 150 of print), make the following edit:
If the fair value of the reporting unit and its net assets were was $800,000
Reading 20: In the second sentence above Example 5 (p. 314 of print) and in the last sentence
of Example 5s Solution to 1, Beneishs likely relevant cutoff should be 3.8% (instead of
2.9%).

Volume 4
Reading 29: There are a number of corrections in this reading:
o In the next-to-last paragraph of Section 2.4 (beginning In this case and appearing
above Example 1, p. 52 of print), the one-year convergence should be 44.07 percent
instead of 42.46 percent.
o In the two equations following Equation 11 (p. 76 of print), the intercept should be
0.0003 instead of 0.003. The second equation then solves to 0.0942 (instead of 0.0969).
These corrections carry through to the next paragraph, where the second sentence should
read: The CAPM estimate would be 0.0003 + 1.20(0.059) = 0.071138 or less by about
9.4269 7.1138, or 2.31 percentage points.
o In the solution to Example 10 (p. 88 of print), WACC is approximately 5.73 percent
(instead of 6.13) calculated as WACC = 1.188% + 4.544% = 5.732 percent.
o In the solution to Practice Problem 10 (p. 98 of print), the final solution should read 0.043
or 4.3 percent.
Reading 32: In Exhibit 4 (p. 151 of print), the Year-over-Year % for Other Expense should
be negative 50.0. In Exhibit 49 (p. 211 of print), the second line item in each of the four
groupings should reference trade and other receivables instead of trade and other payables.
Reading 33: There are a number of corrections in this reading:
o In the fourth bullet point of Example 6 (p. 240 of print), MSEXs pretax cost of debt is
5.6 percent (instead of 6.9 percent).
o In Example 12 (p. 250 of print), the first calculation should show 2.532/80.19 + 0.055
instead of 0.55. The final solution is correct as given.
o Question 5 of Example 18 (p. 260 of print) should say that 11 percent growth resumes,
instead of 12 percent. In Solution to 2 of this example, when substituting values into the
equation for the H-model, the second expression should show 0.9436 in the numerator
instead of 0.9463.
Reading 34: There are a number of corrections in this reading:
o In the calculation of present values at the bottom of Example 16 (p. 336 of print) the
denominator under 54.55 should be to the power 3 instead of 4. The final solution is not
affected.
o The second paragraph below Exhibit 16 (p. 338 of print) should begin: After 2017,
FCFE will grow (instead of 2016).
Reading 35: There are a number of corrections in this reading:
o In the first paragraph of Example 4 (p. 383 of print), the closing price of TSM was
$18.21 (instead of $17.53). In this same Example, the last row of Exhibit 1 (ROE) should
read: 24.7%, 21.5%, 21.4%, 18.1%, 28.2%, 21.8%, and 22.4%.
o In the paragraph immediately following Example 11 (p. 399 of print), make the following
edits to the last sentence: Given its above-average similar growth and similar lower
risk, T should trade at a premium
o In the first paragraph of text under Exhibit 11 (p. 415 of print), the P/B should be 0.49
instead of 0.52. In the second paragraph, the P/B based on tangible book value per share
is 0.56 (= 2.4239/4.3636).
o In Example 36 (p. 441 of print), the total market value of the companys equity should be
5,299.4 million (instead of 5,299.3). The solution should now read: Enterprise value =
5,299.4 million + 4,522.3 million + 91.5 million 1,849.9 million = 8,063.3
million. So, EV/S = 8,063.3 million/10,814.8 million = 0.75.

o In question 2 of Example 39 (p. 450 of print), change in the month of December 2012
to for the period ending December 3 2012.
Reading 37: In the third line of Solution 4.A (p. 590 of print), change intangible assets to
fixed assets: less the $540,000 required return for working capital and fixed assets).

Volume 5
Reading 38: In the top row of Exhibit 2 of the Practice Problems (p. 68 of print), change NOI
for Year 2 to $2,859,119.
Reading 42: There are a number of corrections in this reading:
o LOS (f) should read as follows: calculate and interpret the swap spread for a default-free
bond given maturity;
o In Solution to 4 of Example 1 (p. 222 of print), the last sentence should read threeyear discount factor divided by the one-year discount factor (instead of spot rate).
o In the second equation of the box What is Bootstrapping (p. 228 of print) the numerator
of the second term on the right hand side should be 0.0691 instead of 1 + 0.0691.
o In the equation following the paragraph If the trader predicts a flat yield curve of 7%
(bottom of p. 235 of print), the calculation of 9.81% is missing 1 before the equal sign.
o In Equation 12 (p. 240 of print), the superscript T in the denominator should appear
outside the square bracket.
o In the equation immediately below Exhibit 16 (p. 264 of print), the first number should
be 0.1015 (instead of 0.1025). The final solution is correct as given.
o In the solution to Practice Problem 5 (p. 272 of print), the market price of the bond will
be lower than the intrinsic value (instead of higher).
Reading 43: There are a number of revisions in this reading:
o The spot rates of 2%, 3.015%, and 4.055% given in the solution to Example 2 are found
by bootstrapping, which is introduced in Section 2.1 of Reading 42. Detailed calculations
are attached at the end of this Errata listing.
o In the Solution to Example 4 (page 293 of print), change eight occurrences of F1,2 to F1,1
in Time 1, and in Time 2 (p. 294 of print) change F2,3 to F2,1. The solutions are correct;
only notation changes.
o In Exhibit 27 (p. 299 of print), the Discount Rates for Time 1 should be 4.646% (Paths
14) and 3.442% (Paths 58).
Reading 44: In Example 7, Solution to 2 (p. 353 of print), the number in the numerator
should be 100.924 (instead of 100.294). In Exhibit 2 of Practice Problems 110 (p. 375 of
print), the Year 0 par rate should be 2.2500% (instead of 2.5000).
Reading 45: There are a number of revisions in this reading:
o In the paragraph immediately below the Solution table for Example 1 (p. 392 of print),
change the second and third sentences to read as follows: By measures of expected loss,
Green Company ranks as less risky than Sleepy Company. Given the higher probability of default
for Green Company than Sleepy Company, Green Companys loss given default must be smaller
than it is for Sleepy Company.

o In the second paragraph above Section 5.1 (p. 408 of print), in the discussion of the sixth
assumption, the notation should use the Greek iota (Xt) instead of the letter t.

Volume 6
Reading 48: In the formula for valuing a futures contract immediately above Section 7.1.4 (p.
87 of print), the first expression should be vT(T) i.e., the v should be lower case.
Reading 49: In the paragraph immediately above Equation 16 (p. 175 of print), the first c
should be c+: We know that H+ = nS+ c+ ...
Reading 53: In the paragraph beginning Using the two equations in Example 13 (p. 429
in print), 2 = 0.06 (equals, instead of minus).

Volume 5, Reading 43, Example 2: Calculation of Spot Rates

The spot rates may be determined using bootstrapping, which is an iterative process. Using the
bond valuation equation below, one can solve iteratively for the spot rates, zt (rate on a zerocoupon bond of maturity t) given the periodic payment , PMT on the relevant benchmark bond.
PMT
PMT
PMT 100
100

...
1
2
1 z1
1 z2
1 zN N
A revised equation, which uses the par rate rather than PMT, may also be used to calculate the
spot rates. The revised equation is:
Par rate
Par rate
Par rate 1
1

...
1
2
1 r (1)
1 r (2)
1 r ( N ) N
where par rate is PMT divided by 100 and represents the par rate on the benchmark bond and r(t)
is the t-period zero-coupon rate.
In this example, the one-year spot rate, r(1) is 2%, which is the same as the one-year par rate. To
solve for r(2):
0.03
0.03 1
0.03
0.03 1
1

1 r (1) 1 1 r (2) 2 1 0.02 1 1 r (2) 2

r(2) = 3.015%
To solve for r(3):
0.04
0.04
1

1
2
1 0.02
1 0.03015
r(3) = 4.055%

0.04 1

1 r (3) 3