Level II - Reading 44 Fixed Income

saboumboum

Hi Guys!

I've got a quite specific question on the reading 44. In the question 4 and 5 in the curriculum, the solution uses (p 381-382), for discounting the Year 1 Cash flows, the par rate instead of the rate in the binomial interest rate tree. It's the first time I see that. Does someone know why? Are there other cases where you use the par rates instead of the binomial interest rate tree? Thank you in advance!

jounin83

Hi saboum,

Here's the response from CFAI :

There was a typo in the node for Year 0 in Exhibit 2 ; the number should be 2.2500% instead of 2.5000%. This error will be addressed when the online Level II Errata is updated.

I hope this helps.