https://gdpark.blog/series/cfa-level-2-notes/Recent content in CFA Level 2 Notes on gdpark.blogHugoenTue, 28 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-01-level-1-content-review/Sun, 22 Sep 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-01-level-1-content-review/We rebuild arithmetic vs geometric mean from scratch — and why using the wrong average on stock returns will quietly wreck your portfolio lol.https://gdpark.blog/posts/cfa-l2-02-forward-pricing/Sun, 10 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-02-forward-pricing/A casual walkthrough of forward pricing for zero coupon bonds — showing how today’s spot rates imply a locked-in future price, and why realized rates rarely match what we expected.https://gdpark.blog/posts/cfa-l2-03-par-rate/Mon, 11 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-03-par-rate/Par rate is just the YTM of a bond trading at face value — and once you get that, bootstrapping spot rates from the par curve is honestly just arithmetic.https://gdpark.blog/posts/cfa-l2-04-rolling-down-the-yield-curve/Wed, 13 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-04-rolling-down-the-yield-curve/A casual breakdown of how buying longer-maturity bonds and selling early lets you squeeze out extra return by rolling down an upward-sloping yield curve.https://gdpark.blog/posts/cfa-l2-05-swap-rate-curve/Fri, 15 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-05-swap-rate-curve/Breaking down what swap rates actually are, why the swap curve matters as a benchmark, and how it stacks up against government bond yield curves.https://gdpark.blog/posts/cfa-l2-06-spread-measures/Sat, 16 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-06-spread-measures/A been-here-done-this rundown of swap spread, I-spread (yes, with that annoying linear interpolation), and Z-spread — basically Level 1 déjà vu, but let’s power through it.https://gdpark.blog/posts/cfa-l2-07-term-structure-theory/Sun, 17 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-07-term-structure-theory/A quick rundown of the theories that explain why the yield curve slopes the way it does — and the sneaky exam traps hiding in each one.https://gdpark.blog/posts/cfa-l2-08-yield-curve-risks-and-economic-factors-nelson-siegel-model/Mon, 18 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-08-yield-curve-risks-and-economic-factors-nelson-siegel-model/Why effective duration falls flat for non-parallel yield curve shifts — and how key rate duration and the Nelson-Siegel model actually fix that.https://gdpark.blog/posts/cfa-l2-09-yield-curve-volatility-and-term-premium/Wed, 20 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-09-yield-curve-volatility-and-term-premium/Finally wrapping up Chapter 1 — yield curve volatility, term premium, and how the curve twists with expansions, recessions, and flight-to-quality~https://gdpark.blog/posts/cfa-l2-10-the-arbitrage-free-valuation-framework/Wed, 27 Nov 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-10-the-arbitrage-free-valuation-framework/Chapter 2 kicks off with arbitrage-free bond valuation — value additivity, dominance, and the binomial interest rate tree where volatility is the secret sauce!https://gdpark.blog/posts/cfa-l2-11-binomial-trees-part-2/Mon, 16 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-11-binomial-trees-part-2/This time we build the interest rate tree from scratch — calibration, e^{2σ} forward-rate spacing, and all — then value it via backward induction or pathwise.https://gdpark.blog/posts/cfa-l2-11-valuing-option-free-bonds-with-the-binomial-model/Sat, 14 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-11-valuing-option-free-bonds-with-the-binomial-model/A quick walkthrough of valuing option-free bonds using backward induction on a binomial tree, plus why pathwise valuation matters when cash flows are path-dependent.https://gdpark.blog/posts/cfa-l2-12-term-structure-models-cir-vasicek-ho-lee-and-kwk/Mon, 16 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-12-term-structure-models-cir-vasicek-ho-lee-and-kwk/A rundown of CIR, Vasicek, Ho-Lee, and KWK — what makes each term structure model tick and the key characteristics you actually need to nail for the exam.https://gdpark.blog/posts/cfa-l2-13-bonds-with-embedded-options/Wed, 25 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-13-bonds-with-embedded-options/A quick rundown of callable vs. putable bonds — who holds the option, why callables are cheaper, and how to back out the embedded option value from the straight bond price.https://gdpark.blog/posts/cfa-l2-14-valuing-bonds-with-embedded-options-part-1/Wed, 25 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-14-valuing-bonds-with-embedded-options-part-1/We finally put the Binomial Tree Framework to work pricing callable and putable bonds, walking through how cash flows shift at every node as rates move.https://gdpark.blog/posts/cfa-l2-15-interest-rate-volatility-rate-level-and-yield-curve-changes/Wed, 25 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-15-interest-rate-volatility-rate-level-and-yield-curve-changes/Here’s the breakdown on how volatility, rate levels, and yield curve shape each hit the value of embedded options in callable and putable bonds — exam staples, all three.https://gdpark.blog/posts/cfa-l2-16-option-adjusted-spread-oas/Fri, 27 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-16-option-adjusted-spread-oas/OAS is the constant spread you add to every node of a risk-free binomial tree until your callable bond price matches the market — and spoiler: it has nothing to do with options.https://gdpark.blog/posts/cfa-l2-17-key-rate-duration-partial-duration/Sat, 28 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-17-key-rate-duration-partial-duration/A casual walkthrough of duration — modified, effective, and key rate — and why assuming a parallel yield curve shift doesn’t always cut it.https://gdpark.blog/posts/cfa-l2-18-capped-and-floored-floaters/Sun, 29 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-18-capped-and-floored-floaters/Capped floaters put a ceiling on the coupon (great for the issuer), floored floaters set a minimum (great for you), and you value both by tweaking a binomial tree and working backward.https://gdpark.blog/posts/cfa-l2-19-convertible-bonds/Sun, 29 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-19-convertible-bonds/A casual breakdown of convertible bond terminology — conversion ratio, conversion price, conversion value, straight value, and why CBs trade above their theoretical floor.https://gdpark.blog/posts/cfa-l2-20-credit-valuation-adjustment-cva/Sun, 29 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-20-credit-valuation-adjustment-cva/Diving into CVA — that shave-off amount on OTC derivative valuations that accounts for counterparty default risk, because zero-risk counterparties just don’t exist.https://gdpark.blog/posts/cfa-l2-21-risk-neutral-probability-of-default/Sun, 29 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-21-risk-neutral-probability-of-default/Risk-neutral (aka implied) default probability is just the PD that calibrates you to market prices — so you can discount everything at the risk-free rate, no guesswork needed.https://gdpark.blog/posts/cfa-l2-22-credit-scores-and-credit-ratings/Mon, 30 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-22-credit-scores-and-credit-ratings/A quick breakdown of how credit scores differ from credit ratings, why subordinated bonds get notched down, and what credit migration does to bond prices.https://gdpark.blog/posts/cfa-l2-23-structural-and-reduced-form-credit-models/Mon, 30 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-23-structural-and-reduced-form-credit-models/A casual walkthrough of structural vs. reduced-form credit models — just enough to nail the pros and cons without drowning in the math.https://gdpark.blog/posts/cfa-l2-24-credit-spread-analysis-and-term-structure-of-credit-spreads/Mon, 30 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-24-credit-spread-analysis-and-term-structure-of-credit-spreads/VND, CVA, and why credit spreads have their own term structure — plus what credit quality, the economy, liquidity, and equity vol do to the curve shape.https://gdpark.blog/posts/cfa-l2-25-credit-default-swaps-cds-and-cds-premium/Mon, 30 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-25-credit-default-swaps-cds-and-cds-premium/CDS isn’t your typical derivative — it’s basically bond insurance, and this post breaks down the structure, settlement types, and why you don’t even need to own the bond.https://gdpark.blog/posts/cfa-l2-26-credit-default-swaps-cds-part-2/Tue, 31 Dec 2024 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-26-credit-default-swaps-cds-part-2/A casual breakdown of single-name vs. index CDS, how credit correlation drives pricing, and why expected loss is the number that really matters.https://gdpark.blog/posts/cfa-l2-27-fra-orientation-and-overview/Sun, 05 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-27-fra-orientation-and-overview/A quick orientation on CFA Level 2 FRA — ditching the shallow-but-wide Level 1 style to go deeper on 5 big themes, kicking off with intercorporate investments.https://gdpark.blog/posts/cfa-l2-28-investments-in-financial-assets/Sun, 05 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-28-investments-in-financial-assets/A casual breakdown of the three types of intercorporate investments — financial assets, associates, and subsidiaries — and how to tell them apart on exams and in real life.https://gdpark.blog/posts/cfa-l2-29-equity-method-accounting-fundamentals/Mon, 06 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-29-equity-method-accounting-fundamentals/A breakdown of why associate stocks skip fair-value measurement and how the equity method pipes B’s net income straight into A’s books to close the dividend-manipulation loophole.https://gdpark.blog/posts/cfa-l2-30-equity-method-accounting-advanced-topics/Tue, 07 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-30-equity-method-accounting-advanced-topics/Real-life equity-method: BV ≠ FV, a control premium gets stapled on top, and you’ve gotta reconstruct income from an FV lens — exactly what the CFA exam tests.https://gdpark.blog/posts/cfa-l2-31-equity-method-accounting-intercompany-transactions-and-impai/Wed, 08 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-31-equity-method-accounting-intercompany-transactions-and-impai/A casual breakdown of how intercompany transactions mess with your equity-method income — upstream, downstream, unrealized profits, and when impairment comes knocking.https://gdpark.blog/posts/cfa-l2-32-proportionate-consolidation/Thu, 09 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-32-proportionate-consolidation/A quick breakdown of proportionate consolidation — folding in assets, liabilities, revenues, and expenses at your exact ownership %, and why accounting standards don’t actually use it.https://gdpark.blog/posts/cfa-l2-33-full-consolidation-the-acquisition-method/Fri, 10 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-33-full-consolidation-the-acquisition-method/A casual breakdown of why full consolidation wins over proportionate consolidation, how NCI keeps the balance sheet balanced, and what it does to your ROE and ROA.https://gdpark.blog/posts/cfa-l2-34-goodwill-full-and-partial-and-bargain-purchases/Sat, 11 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-34-goodwill-full-and-partial-and-bargain-purchases/Breaking down how goodwill pops out of consolidation accounting, how NCI gets booked, and what happens with partial goodwill and bargain purchases — CFA-style.https://gdpark.blog/posts/cfa-l2-35-special-purpose-entities-spe-and-variable-interest-entities/Sun, 12 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-35-special-purpose-entities-spe-and-variable-interest-entities/VIEs always get consolidated — no exceptions — and here’s the wild history of how Korea’s IMF crisis, ABS, and IFRS killed off-balance-sheet SPC financing for good.https://gdpark.blog/posts/cfa-l2-36-defined-benefit-pension-plans-accounting-treatment/Sat, 25 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-36-defined-benefit-pension-plans-accounting-treatment/A breakdown of how severance pay and DB/DC pension plans hit the financial statements — and why stashing money outside the company matters when things go south.https://gdpark.blog/posts/cfa-l2-37-defined-benefit-pension-plans-analytical-perspective/Sun, 26 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-37-defined-benefit-pension-plans-analytical-perspective/Even though it got yanked from the 2024 CFA L2 curriculum, here’s how analysts reclassify pension F/S and compute TPPC — both ways — from an economic lens.https://gdpark.blog/posts/cfa-l2-38-share-based-compensation/Sun, 26 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-38-share-based-compensation/Picking up with post-employment benefits and share-based comp — breaking down the actuarial stuff, stock options, SARs, and the vesting quirks you actually need to know.https://gdpark.blog/posts/cfa-l2-39-multinational-operations/Mon, 27 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-39-multinational-operations/A quick breakdown of transaction exposure — how FX rate changes hit your AR and what counts as realized vs. unrealized in multinational accounting.https://gdpark.blog/posts/cfa-l2-40-foreign-currency-translation-types-of-currency/Mon, 27 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-40-foreign-currency-translation-types-of-currency/A quick breakdown of the three currency types you need for translation — local, functional, and presentation — using Samsung as the running example.https://gdpark.blog/posts/cfa-l2-41-the-current-rate-method/Tue, 28 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-41-the-current-rate-method/A quick rundown of the Current Rate Method — when to use it, how to translate I/S before B/S, and how to make sense of AOCI without overcomplicating it!!https://gdpark.blog/posts/cfa-l2-42-the-temporal-method/Tue, 28 Jan 2025 00:00:00 +0000https://gdpark.blog/posts/cfa-l2-42-the-temporal-method/Breaking down the Temporal Method — when to use it, which assets get translated at what rate, and how to snap to a gain/loss answer fast on the CFA.