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CFA Level II Updated
What does ultima measure in higher-order option analysis?
Ultima is the third derivative of option price with respect to volatility, capturing how volga accelerates as vol moves.
How do I detect channel stuffing through inventory analysis?
Channel stuffing shifts inventory from the manufacturer's balance sheet to the distributor's shelves through aggressive end-of-quarter sales.
What is BEPS and how does it affect multinational tax analysis?
BEPS is OECD's framework to prevent profit shifting to low-tax jurisdictions. BEPS 2.0 added Pillar One (taxing rights reallocation) and Pillar Two (15% global minimum). For Hyperion, expect 3-5pp ETR uplift...
How does a year-on-year inflation swap work?
A year-on-year inflation swap pays annual realized CPI against a fixed breakeven, each period settling independently.
When do I use amortized cost versus FVOCI for debt investments?
Amortized cost requires hold-to-collect plus SPPI. FVOCI requires hold-to-collect-and-sell plus SPPI. Everything else is FVPL.
How does continuous-time delta hedging work and why does it break down in practice?
Continuous delta hedging replicates an option by holding Delta shares of the underlying at every instant. Theoretically, the hedged portfolio earns the risk-free rate with zero variance...
What is the forward rate bias and how does the carry trade exploit it?
Forward rate bias means forwards over-predict high-yield currency depreciation. Carry trade borrows low-yield, invests high-yield, captures the differential.
What must a business combinations footnote disclose?
ASC 805 disclosures: consideration breakdown, assets/liabilities recognized, goodwill rationale, pro forma results. Orion Networks' $1.8B PacketForge footnote shown.
What is intraperiod tax allocation and why does it matter for EPS analysis?
Intraperiod allocation splits total tax expense across continuing ops, discontinued ops, OCI, and equity — preserving a clean ETR for the recurring business.
What does the Ramsey RESET test tell me about model misspecification?
The Ramsey RESET test detects omitted variables and incorrect functional forms by checking whether powers of the fitted values add explanatory power.
What triggers impairment testing for finite-lived intangibles?
Finite-lived intangibles tested only when impairment indicators exist. Two-step: undiscounted cash flow recoverability, then fair value measurement.
What are the red flags when inventory grows faster than revenue?
Inventory up 34% vs revenue 6% is a canary signal. Check DIO, composition mix (finished goods is worst), obsolescence reserves, and gross margin.
What is zomma and how does it connect gamma and volatility?
Zomma is the derivative of gamma with respect to volatility, describing how the gamma profile reshapes when implied vol shifts.
When is an inventory build a bullish signal versus a warning?
An inventory build signals confidence only when paired with forward demand indicators. Without them, a buildup is a future writedown waiting to happen.
How do I value net operating loss (NOL) carryforwards and assess the valuation allowance?
NOLs create DTAs equal to NOL × tax rate. Crestvale's $840M NOL × 21% = $176M gross DTA, offset by $210M valuation allowance. For valuation, discount expected tax savings from NOL utilization against forecast income...
How does an OIS work and why has it replaced LIBOR swaps?
An OIS swaps fixed against compounded overnight SOFR and now serves as the risk-free benchmark for swap discounting.
How are step-up coupon bonds accounted for on the issuer's books?
Step-up bonds use the effective interest method with a single YTM applied to accreting carrying value. Early periods accrete, later periods amortize.
How does covered interest parity work and when does it break down?
CIP forward to spot ratio equals interest rate ratio. Held tightly pre-2008 but now deviates persistently due to Basel III balance sheet costs.
What's the accounting difference between qualified and non-qualified ESPPs?
Qualified ESPPs (Section 423) are non-compensatory only if discount ≤5% and no look-back. Halcyon Labs Plan A (look-back) is compensatory at $10/share fair value.
How do I measure the tax benefit for an uncertain tax position using the cumulative probability approach?
Rank possible outcomes from highest to lowest benefit and accumulate probabilities — recognize the largest amount whose cumulative probability exceeds 50%.
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