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JUMP TO: LEVEL 1 LEVEL 2 [Updates to the CAIA® Study Guide can be found at www.caia.org]

LEVEL 1

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LEVEL 2

Topic 3, Learning Objective 12
(1) In all 3 formulas for Credit Discount Rate, (1q) should be replaced by (1-q).

The correct formulas are:

(1+Credit Discount Rate) = (q(1+rf ))+((1-q)(1+k))

Credit Discount Rate = (q*rf ) + ((1-q)*k)

Credit Discount Rate (cdr) = (q*rf ) + ((1-q)*k) = (.5623*8%) + (.4377*11%) = 9.313%

(2) In the calculation for Convertible Value in the last shaded box, the number 1.09131 should be changed to 1.09313. Also, the final Convertible value number should be changed from 1,061.413 to 1059.696.

The correct calculations are given here:

Convertible Value = (.5623*$1,200/(1.09313) + (.4377*$1,030/1.09313) + $30
Convertible Value = 1059.696

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