Reading 14 example 29

CFA Level III Fixed Income
#1

Do we always assuming 1% coupon per year corresponding to the maturity of CDX? In this example, we long IG and short HY, both are 5-year maturity CDX, wouldn’t that be 5% for each so the net = 0% ?

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Also, for protection buyer, the buyer pays premium in exchange for credit events. Does the buyer also receive the coupon or it’s the protection seller that receives the coupon?

For Q#2 - I’m really confused to what the solution says - it states it’s opposite strategy than Q#1 (ie. long HY, short IG), but the final paragraph states “$1,306,000 gain from the short CDX HY position”, so which one is it exactly ?

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Thanks.

#2

CFA Institute has released an erratum on Example 29

CFA Level 3 Errata 2022 (23 March 2022)

#3

This is (at least) the second go round on errata for example 29, and it still has errors in it.

CFA Institute has really bollixed the CDS material in this reading. To the point that, frankly, I’d be very surprised to see a question about it on the real exam. It’s a mess.

#4

No.

The standard coupon is 1% per year for IG and 5% per year for HY.

#5

Thanks.

#7

My pleasure.