To regurgitate a post on a different site:
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Program Errata
Message 42
From: Canadian Academics (EXAMPREP) To: ALL 1 of 2
Posted: 12/4/98 11:37 AM Reply to: New Thread Next
For your interest I have posted the following from the AIMR site
1999 CFA Program Errata
The CFA Program curriculum is drawn from many sources, including textbooks, professional journal articles, an AIMR-produced materials. Unfortunately, some of these sources contain errors or inconsistencies. In order to ensure that candidates have the best opportunity to assimilate correct material, we provide the following errata. We apologize for any inconvenience caused by these errors.
Level I
In Study Session 3, in Reading 1B, entitled "Describing Data - Measures of Central Tendency," please omit the discussion of geometric mean on pages 86-89. Please substitute pages 6-11 of Reilly-Brown, Investment Analysis and Portfolio Management, fifth edition. The portions of LOS (d) and (e) that refer to geometric mean may be accomplished by reference to the Reilly-Brown reading.
In Study Session 3, in Reading 1F, entitled "The Normal Probability Distribution", please add pages 271-275.
In Study Session 3, in Reading 1C, entitled "Measures of Dispersion and Skewness," the first equation on page 123, Sample variance - ungrouped data, should read as follows:
_
s2 = E (x-x)2
n-1
In Study Session 15, in Reading 1C, entitled "The Options Market" please delete LOS j: define and calculate open interest.
In Study Session 15, in reading 2 entitled "A Financial Engineering Case Study," there are several errors. Please note: all of these errors are in terms of scale. Candidates should focus on the intuition behind the reading. Please make the following corrections:
On page 169 of the 1999 CFA Candidate Readings, line 5 should read: "the firm changes by $100 million for every $0.01 change in the…"
On page 169, line 5 should read "ket value of NA's stock is $4.5 billion or $500 million less (which is $5 billion - [($0.55-$0.60) x 100] x $100 million) than ini-…"
On page 171, the presentation is correct if National buys 100 contracts. Each contract covers 2 million barrels of oil. In Figure 9.4 on page 171, if oil rises from $15 to $20 per barrel, then the 100 contracts will be worth $1 billion (which is [$20-$15] x 2,000,000 barrels/contract x 100 contracts) to NA. Figure 9.4 shows the profit diagram for 100 contract long positions to buy oil.
On pages 173 and 174, "Buying a Call": National could purchase 100 call options, each covering the right to buy 2,000,000 barrels of oil at a strike price of $15/barrel. This would give NA the right but not the obligation to purchase a total of 200 million barrels at $15/barrel. Suppose that the price of the option is $1/barrel, then if the price of oil at expiration is $15 or less, the calls will expire worthless, and National will lose a total of $200 million. For every dollar increase in the price of oil above $16, National will net $200 million (which is $1 per barrel x 100 contracts x 2 million barrels per contract). Figure 9.6 is on a per-call basis. It shows that if the quantity underlying each call is 2 million barrels, and if the expiration day price of oil is less than or equal to $15, then National will lose $2,000,000 per call. If 100 calls were purchased, National loses a total of $200 million.
On page 175, lines 1 through 5 should read: "…this it would buy puts on the Deutschemark. National could buy 1000 options to sell DM10,000,000 each, at a strike price of $0.60. Let's say that the cost of each option is $0.01 per mark, or $100,000 per put. The value of each option to National will increase by $100,000 for every one-cent decline in the value of the mark below $0.60 (for a total increase of $0.01 x DM10 million per contract x 1000 contracts, which equals the $100 million for each $0.01 change in the DM that they expect to lose due to their exchange rate exposure).
On page 175, Figure 9.7 illustrates the profit diagram of the option position on a per-put basis.
On page 176, in Figure 9.8, the profit if the price of oil is less than or equal to $15 should be $2 million per call (not $200,000).
The x-axis in Figures 9-2, 9-7, and 9-9 should be labeled $/DM, not DM/$.
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