V6 Modules 14–16 Errata: Credit Risk and Credit Analysis

1. Module 14 — Expected Exposure Is Defined as Loss After Collateral

Curriculum location: Sources of Credit Risk, Measuring Credit Risk, p. 354.

"This is the amount an investor may expect to lose in the case of default, which is usually equal to the loan or bond face value plus accrued interest less the current market value of available collateral."

The paragraph calls exposure at default the amount lost after collateral. On p. 354, however, Exhibit 4 calls expected exposure the total projected exposure and then applies the recovery rate separately to obtain loss given default. Equation 1 then uses probability of default and loss given default to obtain expected loss. Deducting collateral inside exposure collapses these distinct stages and can apply recovery twice.

Correct reading: Within the module's own expected-loss decomposition, expected exposure or exposure at default is the amount exposed at default. Recovery, including collateral recovery, is applied when determining loss given default; expected loss is then obtained from probability of default and loss given default.

This keeps exposure, recovery, conditional loss, and probability-weighted loss separate in credit-risk calculations.

2. Module 14 — Example 2 Reverses the G-Spread Subtraction

Curriculum location: Sources of Credit Risk, Example 2, p. 355.

"We may calculate VIVU’s five-year credit spread by subtracting its $6.5\%$ coupon from the $2.3\%$ five-year US Treasury to solve for a G-spread of $4.2\%$."

The written direction gives $2.3\%-6.5\%=-4.2\%$, while the displayed positive result uses the opposite order. The risky bond's yield must be reduced by the comparable government yield, not vice versa.

Correct reading: Calculate a G-spread as the corporate bond's yield minus the comparable government bond's yield. If the example intends $6.5\%$ to be VIVU's yield, then $6.5\%-2.3\%=4.2\%$.

Following the printed prose literally would reverse the spread's sign and distort the compensation comparison that follows.

3. Module 14 — Question Set Item 1 Names EAD Instead of LGD as the Second Component of Credit Risk

Curriculum location: Sources of Credit Risk, Question Set item 1 solution, p. 358.

"The two components of credit risk are the probability of default, typically measured over a 12-month horizon, and the exposure at default (or expected exposure), which together with the recovery rate determine the loss given default."

The solution promotes exposure at default to the second top-level component. Earlier in the same module, the two components are probability of default and loss given default; exposure and recovery are the inputs used to calculate loss given default.

Correct reading: The two components are probability of default and loss given default. In the module's notation, $\mathrm{LGD}=\mathrm{EE}\times (1-\mathrm{RR})$, where EE is also called EAD.

This prevents a candidate from substituting EAD for LGD in the expected-loss framework.

4. Module 14 — Credit Spread Risk Is Defined as Greater Expected Loss

Curriculum location: Factors Impacting Yield Spreads, opening definition, p. 365.

"Credit spread risk is the risk of greater expected loss due to changes in credit conditions as a result of macroeconomic, market, and/or issuer-related factors."

The sentence equates credit spread risk with an increase in expected loss. On p. 373, the module defines spread risk through the effect of spread changes on bond prices and returns and shows that liquidity and market conditions can move spreads independently of expected default loss.

Correct reading: Credit spread risk is the risk of loss from changes in credit spreads and the resulting effects on bond prices and returns. Expected credit loss is one possible driver, not the definition of the risk.

This prevents candidates from omitting mark-to-market spread losses when expected default loss is unchanged.

5. Module 14 — Example 6 Quotes $122.25/125.75$ but Prices the Bond at $122.75/125.25$

Curriculum location: Factors Impacting Yield Spreads, Example 6, p. 372.

"Suppose that two years after issuance, the bond was traded at $122.25/125.75$ (bid/offer)."

The narrative gives $122.25/125.75$, but the pricing equations use $122.75/125.25$. The narrative pair implies a yield gap of about $16.68$ bps; only the equation pair reproduces the displayed $11.92$ bps.

Correct reading: Use a bid/offer quote of $122.75/125.25$. It retains the $124.00$ midpoint and produces the displayed bid and offer yields and a liquidity spread of about $11.92$ bps.

A candidate using the stated quote cannot reproduce the worked liquidity-spread result.

6. Module 14 — Practice Problem 6 Treats a Choice as the Exact Root

Curriculum location: Factors Impacting Yield Spreads, Practice Problem 6 solution, p. 381.

$$\Delta \mathrm{Spread}=-0.015=-1.5\%.$$

The displayed quadratic has a negative root of approximately $-0.01352$, or $-1.35\%$. Substituting $-0.015$ gives $0.1107375$, not $0.0993$. Answer A remains the closest choice, but it is not the exact root.

Correct reading: The negative root is approximately $-0.01352$, or $-1.35\%$, which is closest to answer A, $-1.5\%$.

This preserves the distinction between solving an equation and selecting the nearest multiple-choice answer.

7. Module 15 — Exhibit 6 Reverses Real GDP Growth and Uses the Wrong Denominator

Curriculum location: Sovereign Credit Analysis, Exhibit 6, p. 394.

"Average Real GDP Growth: $\frac{{\mathrm{Real}\mathrm{GDP}}_{t-1}-{\mathrm{Real}\mathrm{GDP}}_t}{{\mathrm{Real}\mathrm{GDP}}_t}$"

The displayed expression reverses the change in output and divides by the current-period level. If real GDP rises from $100$ to $105$, it gives $-5/105\approx -4.76\%$, even though output increased. Period growth is $(105-100)/100=5\%$.

Correct reading: For period $t$, real GDP growth is $\frac{{\mathrm{Real}\mathrm{GDP}}_t-{\mathrm{Real}\mathrm{GDP}}_{t-1}}{{\mathrm{Real}\mathrm{GDP}}_{t-1}}$. A multi-period “average” would require an additional aggregation convention.

This correction protects both the sign and the base-period denominator in a standard growth calculation.

8. Module 15 — The Supranational Issuers Section Presents IIF as Another Supranational Entity

Curriculum location: Non-Sovereign Credit Risk, Supranational Issuers transition, p. 401.

"Another example of a supranational entity is provided in Example 11."

The module defines a supranational as an organization established and owned by sovereign governments that join as members. Example 11 instead describes IIF as an Indonesian non-bank infrastructure finance company with a mix of government, multilateral, and commercial-bank shareholders. That ownership structure does not make IIF an intergovernmental supranational.

Correct reading: IIF is a national infrastructure finance company with multilateral shareholders, not a supranational issuer. Example 11 should be presented as a contrast rather than as another supranational example.

This correction preserves the category boundary between national development-finance companies and member-government supranationals.

9. Module 16 — Solvency Is Defined as Assets Exceeding Liabilities and Equity

Curriculum location: Assessing Corporate Creditworthiness, liquidity discussion, p. 420.

"assets in excess of liabilities and equity"

The curriculum's own modeled balance sheet on p. 424 shows $\text{Assets}=\text{Liabilities}+\text{Equity}$. Assets therefore cannot exceed liabilities plus equity in a balanced statement. The useful point that a solvent firm can still be illiquid does not cure the parenthetical definition.

Correct reading: In this balance-sheet sense, solvency means assets exceed liabilities, leaving positive equity; the accounting identity remains $A=L+E$.

This prevents candidates from turning positive equity into an impossible balance-sheet test.

10. Module 16 — Example 4 Labels Gross-Margin and EBITDA Series as Operating-Profit and EBIT Metrics

Curriculum location: Financial Ratios in Corporate Credit Analysis, Example 4 introduction, p. 423.

"$35\%$ operating profit margin"

Curriculum location: Financial Ratios in Corporate Credit Analysis, Example 4 computed-ratio table, profitability row, p. 424.

"EBIT margin"

Curriculum location: Financial Ratios in Corporate Credit Analysis, Example 4 computed-ratio table, coverage row, p. 424.

"EBIT to Interest expense"

Curriculum location: Financial Ratios in Corporate Credit Analysis, scenario interpretation, p. 425.

"declining profitability (as EBIT margin falls), weaker debt coverage (lower EBIT-to-interest expense)"

Curriculum location: Financial Ratios in Corporate Credit Analysis, profitability graph, p. 426.

"EBIT Margin"

Curriculum location: Financial Ratios in Corporate Credit Analysis, coverage graph, p. 426.

"EBIT to Interest Expense"

Although p. 422 notes that ratio components can vary by analyst, p. 424 binds Example 4 to the formulas "in Exhibit 3." The modeled statements identify the introductory $35\%$ as gross profit margin, while the computed-ratio table labels EBITDA-based series as EBIT measures. Year 4 makes the mismatch explicit: EBIT is $-212$, yet the displayed margin is positive $5\%$; EBITDA of $347$ divided by sales of $6,351$ is approximately $5.5\%$. Likewise, $347/(72-12)$ is approximately $5.8\times$, matching the displayed coverage value only when EBITDA and net interest expense are used. The narrative and graphs repeat the same incorrect metric names.

Correct reading: Call $35\%$ the gross profit margin. Label the $25\%$-to-$5\%$ series EBITDA margin and the $51.9\times$-to-$5.2\times$ series EBITDA to net interest expense; the corresponding graph panels use those same EBITDA-based measures.

This keeps candidates from using the wrong numerator and denominator when calculating and interpreting profitability and coverage.

11. Module 16 — The Company X/Y Question Set Labels Post-Dividend Cash Flow as FCF before Dividends

Curriculum location: Financial Ratios in Corporate Credit Analysis, Question Set Company X/Y table, p. 428.

"FCF before dividends"

Curriculum location: Financial Ratios in Corporate Credit Analysis, Question Set Company X/Y solution, p. 428.

"FCF before dividends"

The second-row amounts are lower than the FCF amounts for both companies: $-45$ versus $-20$ for Company X, and $18$ versus $20$ for Company Y. Paying dividends reduces cash flow; it cannot make a before-dividend amount lower than the corresponding FCF amount. Repeating the label in the solution does not cure the reversed sequence.

Correct reading: The $-45$ and $18$ amounts are FCF after dividends, and the solution should identify them that way. The lower-credit-risk conclusion for Company Y remains unchanged.

This preserves the transferable cash-flow waterfall: shareholder distributions reduce, rather than increase, cash retained for creditors.

12. Module 16 — Expected Loss Uses $23\%$ Instead of the Automotive Recovery Rate

Curriculum location: Seniority Rankings, Recovery Rates, and Credit Ratings, Expected Loss knowledge-check stem, p. 433.

"Exhibit 5"

Curriculum location: Seniority Rankings, Recovery Rates, and Credit Ratings, subordinated-bond recovery input, p. 433.

$23\%$

Curriculum location: Seniority Rankings, Recovery Rates, and Credit Ratings, Expected Loss solution, p. 433.

"Subordinated bond: $\mathrm{EL}=0.008\times (1-0.23)=0.00616=0.616\%$"

The stem specifies the automotive industry, whose values appear in Exhibit 6 on p. 432. That row gives $49.46\%$ for subordinated bonds. The knowledge check rounds the other automotive inputs to whole percentages but substitutes $23\%$ for the subordinated value, then carries that wrong input into the worked result.

Correct reading: Refer to Exhibit 6. Under the knowledge check's whole-percent convention, round the automotive subordinated-bond recovery rate to $49\%$ and calculate $\mathrm{EL}=0.008\times (1-0.49)=0.00408=0.408\%$. Using the unrounded Exhibit 6 rate of $49.46\%$ gives $0.40432\%$, or approximately $0.404\%$.

This prevents a candidate from selecting the wrong industry recovery input and propagating it through a worked expected-loss calculation.

13. Module 16 — Notching Says Issuer Ratings Differ Instead of Issue Ratings

Curriculum location: Seniority Rankings, Recovery Rates, and Credit Ratings, issuer-and-issue-ratings discussion, p. 433.

"issuer ratings may differ due to loss given default (LGD) differences"

The same paragraph defines an issuer rating as the entity-wide anchor and an issue rating as obligation-specific. The following discussion on p. 434 says notching moves issue ratings up or down from the issuer rating, and the Practice Problem solution on p. 436 uses the correct issue-rating subject. LGD differences caused by seniority, subordination, collateral, and repayment sources therefore distinguish issue ratings, not multiple issuer ratings for the same obligations.

Correct reading: Issue ratings may differ from the issuer rating because issue-level LGD varies across obligations; notching can move an issue rating up or down from the issuer-rating anchor.

This prevents candidates from reversing the anchor and adjusted object in notching.

Complete Credit Risk and Credit Analysis Errata Index

Scope: Modules 14–16, pp. 345–442 (printed page numbers).

Reviewed modules. Module 14, pp. 345–382; Module 15, pp. 383–410; and Module 16, pp. 411–442.

What this review covers. Errors in the printed curriculum that would change a candidate's answer or understanding: wrong numbers, wrong formulas, reversed logic, and statements that contradict the volume's own data. It does not list spelling mistakes, equation-numbering slips, or wording that is loose but defensible.

The table lists every high-value, objectively confirmed curriculum error admitted for these modules. Repeated instances of the same defect are consolidated into one row. Extraction or import-fidelity problems, disputed readings, and low-value editorial issues are outside the public errata scope.

References

• BIS Basel Framework — Calculation of expected losses
• BIS Basel Framework — Expected exposure definition
• FINRA — What You Need to Know About Bond Spreads
• FINRA — Understanding Bond Yield and Return
• US Bureau of Economic Analysis — Why does BEA publish percent changes in quarterly series at annual rates?
• Indonesia Infrastructure Finance — Overview
• IFRS Foundation — Conceptual Framework for Financial Reporting
• S&P Global Ratings — Credit Ratings

This article is an independent candidate-focused analysis of substantive errors identified in our review of the CFA Level I 2027 Curriculum, Volume 6 Fixed Income, Modules 14–16. It is not an official CFA Institute errata notice, and inclusion here must not be read as CFA Institute confirmation, endorsement, or approval.