1. Willier is the research analyst responsible for following Company X. All the information

he has accumulated and documented suggests that the outlook for the firms new products

is poor, so the stock should be rated a weak hold. During lunch, however, Willier

overhears a financial analyst from another firm whom he respects offer opinions that

conflict with Williers forecasts and expectations. Upon returning to his office, Willier

releases a strong buy recommendation to the public. Willier:

a. Was in full compliance with the Standards.

b. Violated the Standards because he did not seek approval of the change from his

firms compliance department.

c. Violated the Standards because he did not have a reasonable and adequate basis

for his recommendation.

2. What has more influence on whether a person will engage in unethical behaviour?

a. Mood.

b. Situation.

c. Disposition.

3. When developing a framework for ethical decisions, you must ensure:

a. Conflicts of interest are left unresolved.

b. There is a lack of disclosure to clients.

c. Independence and objectivity is maintained.

4. Which of the following is not likely to influence a person to engage in unethical conduct?

a. Obedience to authority.

b. Following group decisions.

c. Lack of confidence in ability.

5. The mosaic theory holds that an analyst:

a. Violates the Code and Standards if the analyst fails to have knowledge of and

comply with applicable laws.

b. Can use material public information or nonmaterial non-public information in the

analysts analysis.

c. Should use all available and relevant information in support of an investment

recommendation.

6. Which of the following best describes a negative bond covenant? The issuer is:

a. Required to pay taxes as they come due.

b. Prohibited from investing in risky projects.

c. Required to maintain its current lines of business.

7. Smith, a research analyst with a brokerage firm, decides to change his recommendation

on the common stock of Green Company, Inc., from a buy to a sell. He mails this change

in investment advice to all the firms clients on Wednesday. The day after the mailing, a

client calls with a buy order for 500 shares of Green Company. In this circumstance,

Smith should:

a. Accept the order.

b. Advise the customer of the change in recommendation before accepting the order.

c. Not accept the order because it is contrary to the firms recommendation.

8. An Australian company issues bonds denominated in pound sterling that are sold to

investors in the United Kingdom. These bonds can be described as:

a. Eurobonds.

b. Global bonds.

c. Foreign bonds.

9. A company has issued a floating-rate note with a coupon rate equal to the three-month

Libor + 65 basis points. Interest payments are made quarterly on 31 March, 30 June, 30

September, and 31 December. On 31 March and 30 June, the three-month Libor is 1.55%

and 1.35%, respectively. The coupon rate for the interest payment made on 30 June is:

a. 2.00%

b. 2.10%

c. 2.20%

10. The provision that provides bondholders the right to sell the bond back to the issuer at a

predetermined price prior to the bonds maturity date is referred to as:

a. A put provision.

b. A make-whole call provision.

c. An original issue discount provision.

11. The distinction between investment grade debt and non-investment grade debt is best

described by differences in:

a. Tax status.

b. Credit quality.

c. Maturity dates.

12. A bond with two years remaining until maturity offers a 3% coupon rate with interest

paid annually. At a market discount rate of 4%, the price of this bond per 100 of par value

is closest to:

a. 95.34

b. 98.00

c. 98.11

13. Suppose a bonds price is expected to increase by 5% if its market discount rate decreases

by 100 basis points. If the bonds market discount rate increases by 100 basis points, the

bond price is most likely to change by:

a. 5%.

b. Less than 5%.

c. More than 5%.

14. Holding all other factors constant, the most likely effect of low demand and heavy new

issue supply on bond yield spreads is that yield spreads will:

a. Widen.

b. Tighten.

c. Not be affected.

15. The one-year spot rate is 4%, the forward rate for a one-year loan beginning in one year is

6%, and the forward rate for a one-year loan beginning in two years is 8%. Which of the

following is closest to the three-year spot rate?

a. 4.0%

b. 6.0%

c. 8.0%

16. Given the yield curve for US Treasury zero-coupon bonds, which spread is most helpful in

pricing a corporate bond? The:

a. Z-spread.

b. TED spread.

c. LIBOR-OIS spread.

17. An option-adjusted spread (OAS) on a callable bond is the Z-spread:

a. Over the benchmark spot curve.

b. Minus the standard swap rate in that currency of the same tenor.

c. Minus the value of the embedded call option expressed in basis points per year.

18. The risk that a bonds creditworthiness declines is best described by:

a. Credit migration risk.

b. Market liquidity risk.

c. Spread-widening risk.

19. Which of the following sources of return is most likely exposed to interest rate risk for an

investor of a fixed-rate bond who holds the bond until maturity?

a. Capital gain or loss.

b. Redemption of principal.

c. Reinvestment of coupon payments.

20. Which of the following statements related to secondary bond markets is most accurate?

a. Newly issued corporate bonds are issued in secondary bond markets.

b. Secondary bond markets are where bonds are traded between investors.

c. The major participants in secondary bond markets globally are retail investors.