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Part II: Bonds

1. Municipal Bonds - Municipal bonds are haircut per Exhibit 1 based on both their time to maturity and scheduled maturity at date of issue. The bond details can be found on the Bonds & Ratings Information tab in the spreadsheet.

2. Corporate Bonds - Corporate bonds are haircut based on both their time to maturity and whether they are rated as investment grade (defined by S&P and Fitch as BBB- and above and by Moody's as Baa3 and above)[1] by at least two of the nationally recognized statistical rating organizations. If the bonds qualify as investment grade, use Exhibit 2 to determine the haircut of the bonds. If they do not qualify as investment grade, then they are considered non-marketable and follow the haircut rules as stated in Exhibit 3.

It is important to note that the haircut is calculated using the absolute value of the market value of the relevant bond.

What is the total haircut in USD on the positions in the accompanying spreadsheet as of 2017-12-31?

Note: For purposes of this exercise you can assume the firm you are calculating the net capital requirements for has Net Capital of $1 billion.

[1] In Exhibit 2, the text references "one of the four highest ratings categories". The four highest ratings categories for S&P and Fitch are AAA, AA, A, and BBB. The four highest ratings categories for Moody's are Aaa, Aa, A, and Baa. The plus/minus signs and numbers next to the ratings are used for increased specificity within the ratings categories.

Clipboard Font KI Alignment E14 X fx F A B D E 1 Please assume that the tentative net capital of the firm is USD 1,000,000,000 2 3 Position Symbol Currency Quantity Price (USD) Market Value (USD) 4 073902PP7 Corp USD 185,000 0.99 182,225.00 5 38144LAB6 Corp USD 465,000 1.04 481,275.00 6 605360QF6 Muni USD 1,500,000 1.00 1,500,000.00 7 794458CM9 Muni USD 915,000 1.00 915,000.00 8 929903CF7 Corp USD 543,000 1.04 564,720.00 9 007903AS6 Corp USD (1,500,000) 1.04 (1,552,500.00) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Bond Positions Bond & Ratings Information B D E G S&P Maturity 9/15/2019 2/1/2020 9/1/2022 8/15/2026 8/15/2041 8/1/2025 Moody's Aa3 Baa3 Aa3 AA- BB+ AA- Fitch Issue Size AA- $ 800,000,000 BBB- $ 2,500,000,000 AA- $ 3,350,000,000 A+ $ 34,500,000 $ 120,000,000 BBB- $ 90,000,000 A1 A+ A1 A+ Ba 2 BB+ Fitch Moody's Aa1 AAA AA+ AA AA- A+ A 1 Bond & Ratings Information 2 3 Symbol 4929903CF7 Corp 5073902PP7 Corp 6 38144LAB6 Corp 7 794458CM9 Muni 8 605360QF6 Muni 9 007903AS6 Corp 10 11 Ratings scale 12 S&P 13 AAA 14 AA+ 15 AA 16 AA- 17 A+ 18 A 19 A- 20 BBB+ 21 BBB 22 BBB- 23 BB+ 24 BB 25 BB- 26 B+ 27 B 28 B- 29 CCC+ 30 CCC 31 CCC- 32 CC 33 C 34 D 35 A Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 A- BBB+ BBB BBB- Investment grade Speculative grade ("junk") Ba1 BB+ BB Ba2 Ba3 BB- B1 B+ B2 B B3 B- Caa1 Caa2 CCC DDD DD D Ca Clipboard Font KI Alignment E14 X fx F A B D E 1 Please assume that the tentative net capital of the firm is USD 1,000,000,000 2 3 Position Symbol Currency Quantity Price (USD) Market Value (USD) 4 073902PP7 Corp USD 185,000 0.99 182,225.00 5 38144LAB6 Corp USD 465,000 1.04 481,275.00 6 605360QF6 Muni USD 1,500,000 1.00 1,500,000.00 7 794458CM9 Muni USD 915,000 1.00 915,000.00 8 929903CF7 Corp USD 543,000 1.04 564,720.00 9 007903AS6 Corp USD (1,500,000) 1.04 (1,552,500.00) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Bond Positions Bond & Ratings Information B D E G S&P Maturity 9/15/2019 2/1/2020 9/1/2022 8/15/2026 8/15/2041 8/1/2025 Moody's Aa3 Baa3 Aa3 AA- BB+ AA- Fitch Issue Size AA- $ 800,000,000 BBB- $ 2,500,000,000 AA- $ 3,350,000,000 A+ $ 34,500,000 $ 120,000,000 BBB- $ 90,000,000 A1 A+ A1 A+ Ba 2 BB+ Fitch Moody's Aa1 AAA AA+ AA AA- A+ A 1 Bond & Ratings Information 2 3 Symbol 4929903CF7 Corp 5073902PP7 Corp 6 38144LAB6 Corp 7 794458CM9 Muni 8 605360QF6 Muni 9 007903AS6 Corp 10 11 Ratings scale 12 S&P 13 AAA 14 AA+ 15 AA 16 AA- 17 A+ 18 A 19 A- 20 BBB+ 21 BBB 22 BBB- 23 BB+ 24 BB 25 BB- 26 B+ 27 B 28 B- 29 CCC+ 30 CCC 31 CCC- 32 CC 33 C 34 D 35 A Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 A- BBB+ BBB BBB- Investment grade Speculative grade ("junk") Ba1 BB+ BB Ba2 Ba3 BB- B1 B+ B2 B B3 B- Caa1 Caa2 CCC DDD DD D Ca

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