Level II

The idea of roll yield – or roll return, same thing – is relatively straightforward: it’s part of the increase or decrease in the value of your portfolio that arises specifically when you roll over an expiring futures or forward contract into a new contract.  The other part of that increase or decrease is the […]

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Defined benefit pension cost and pension expense – not the same as each other, by the way – are two topics that traditionally vex Level II candidates, and with good reason: They’re fairly complicated They’re usually explained poorly I cannot make them less complicated than they are, but I can do two things: I can make sure not […]

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As a mathematician, I’ve been trained to write and speak (and, consequently, to think) using precise, accurate terminology.  There are, of course, occasions when even mathematicians abbreviate the things that they write or say, but on those occasions: We know that we’re abbreviating, and All mathematicians have agreed to the abbreviations used. As an educator, […]

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If the Level II CFA exam were given as an oral exam, 95% of the candidates would fail. Why? Because they cannot pronounce heteroscedasticity correctly (<het-ter-row-ski-das-tis-sit-ee>, eight syllables), and they cannot pronounce Modigliani correctly (moe-dill-yaw-nee>, four syllables). Fortunately for most Level II candidates, it’s a written exam. Messrs. Modigliani and Miller (M&M) studied corporate capital structure, for […]

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No discussion of conservative methods vs. aggressive methods would be complete without a clear definition of what we mean by these two categories of methods.  Therefore, let’s start there: Conservative accounting methods are those that report lower net income in the current period, and (potentially) higher net income in future periods. Aggressive accounting methods are […]

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Various interest rate derivatives are, in fact, equivalent to each other; i.e., they can be structured to generate equivalent (though not necessarily identical) cash flows.  This article will explain how these derivatives can be structured to be equivalent to each other. First note that you will not be asked on an exam to create equivalent […]

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After reading a number of posts on AnalystForum in which candidates have had difficulty with linear interpolation or extrapolation, I figured it was time to write an article on the subject.  At Level I it applies to binomial trees for calculating the weights for equity options, and for combining risky portfolios with the risk-free asset […]

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If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

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If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

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If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.