2014 CFA Program: Level III Errata

7 May 2014

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. Corrections below are in bold and
new corrections will be in red.
The short scale method of numeration is used in the CFA Program curriculum. A billion
is 109 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.
Volume 2
Reading 7: In the last sentence of the first paragraph on p. 27, delete the word unique:
Reference dependence is a unique feature of prospect theory
Reading 10: Practice problems 18 (p. 203) deal with the Inger family. To answer the
questions, additional relevant information on the Ingers may be found in the reading.
Reading 11: There are a number of corrections in this reading:
o Make the following edit in the paragraph immediately above Section 3.3.2 (p. 246): It
approaches the pretax return annual return after realized taxes, however, as the time
horizon increases.
o In Exhibit 7 (p. 252), standard deviation of pretax returns should be 12.25% (instead of
15%) and after-tax should be 7.35% (instead of 9%). These corrections carry over to the
paragraph immediately above Exhibit 7 and immediately following, on p. 253.
Volume 3
Reading 17: In the last paragraph of Section 3.1.1.2 (bottom of p. 26), change the two
instances of sample mean to historical mean. The calculations for the shrinkage
estimate become 0.8(4%) + 0.2(7%) = 4.6%. In Exhibit 17 (p. 58), delete the note below
the graph. It does not apply to this forecast.
Reading 18: In Example 3, Solution to 1 (p. 142), change 10% to 1.0% in the computation
of the GDP growth rate. The final solution is correct as given. In the Solution calculations for
Example 15 (top of p. 161), change two instances of 12,877.51 to 12,887.51. The ending
solutions are correct as shown.
Volume 5
Reading 28: There are a number of corrections in this reading:
o In the last paragraph on p. 222, Assume that the current USD/EUR spot rate is 1.3510
(meaning that the EUR/USD rate is 0.7402). The EUR/USD was transposed in the
original.
o In the Solution to 3 on p. 226, calculation of the relevant data should equal 0.0019.
o In the first equation on p. 228, the right side of the equation should refer to the return on
n

foreign currency instead of domestic:

(1 R
i 1

FC ,i

)(1 RFX ,i ) 1

o In Example 5 (p. 257), in the first line under the table, insert (actual/360) after iB and iP in
the formula: [1 + iB(actual/360)] and [1 + iP(actual/360)]. This insert should be carried into
the formula for Solution to 1 at the bottom of the page, also.
o In Solution to 2 (p. 258), edit the first line as follows: A is correct. When buying the base
currency forward to implement the currency hedge, the implied roll yield cost
(unannualized) of the hedge is: In the first paragraph under the formula: This
would indicate a negative roll cost or a positive roll yield
o In the last paragraph of Solution to 3 (p. 258), not hedging would assume a risk-neutral
(instead of risk-averse) investor; or at least, an investor with a very high risk tolerance.
o In Example 8 (p. 270), next to last paragraph on the page, insert of before RFX: the
currency risk of RFX needs to be multiplied
o In the first formula in section 6.4.2 (p. 272), the first subscript should be t instead of 1.
Reading 30: In the second paragraph of text on p. 385, the first premium should be p1 =
56.01 (equals instead of minus). In Example 15 (p. 421), the line above the table should read
the caplet payoff plus minus the floorlet payoff.

Volume 6
Reading 33: There are a number of edits to the practice problems:
o On p. 104, in the second paragraph above Exhibit 1, postretirement spending rate will
be approximately 6 to 7 percent annually before tax.
o On p. 107, in the second paragraph of Return Requirement, living expenses represent a
2.6 percent spending rate in real, after tax terms.
o In the table for Solution 3.A (p. 113), delete the entire line Retirement spending (after
tax) $280,000 and delete (before tax) on the next two lines.
Glossary Correction:
Put Spread: A strategy used to reduce the upfront cost of buying a protective put, it involves
buying a put option and writing a call another put option.