1. What has more influence on whether a person will engage in unethical behaviou
ID: 2736319 • Letter: 1
Question
1. What has more influence on whether a person will engage in unethical behaviour?
A)Mood.
B)Situation.
C)Disposition.
2. 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.
3.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.
4. 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 analyst’s analysis.
C)Should use all available and relevant information in support of an investment recommendation.
5. 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.
6. 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.
7. 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%
8. The provision that provides bondholders the right to sell the bond back to the issuer at a predetermined price prior to the bond’s maturity date is referred to as:
A)A put provision.
B)A make-whole call provision.
C)An original issue discount provision.
9.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.
10. 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
11.Suppose a bond’s price is expected to increase by 5% if its market discount rate decreases by 100 basis points. If the bond’s 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%.
12.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.
13. 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%
Explanation / Answer
Note: Question 1 to question 4 don't fall under finance. So, these are not answered. Please re-post them under correct subject area.
5.B. Prohibited from investing in risky projects.
When an issuer is prohibited from investing in risky projects, the issuer’s potential business decisions are restricted. Such restrictions are referred to as “Negative Bond Covenant”.
6.C. Foreign bond.
When a company issues a bond, which is denominated in other country’s currency and sold in that country only, such a bond is known as foreign bond.
7.A. 2.00%
The interest payment is generally paid in “due” and not in “advance”. So, the applicable interest rate will be Libor on 30th March + 65 basis points. (1.55% + 0.65)
8.A. A Put provision.
A “Put Provision” enables investors of the bond to sell the bond back to its issuer at a pre-determined price.
9.B. Credit Quality.
The distinction is drawn by Credit Quality of bonds.
10. Bond Value = C* {[1-(1+(YTM))-2t/(YTM)] + [F / (1+ (YTM))t]
B0 = ?
C = $100 x 3% = $3
F = $100
YTM = 4% (Market discount rate)
t = 2
Bond Value = $3* {[1-(1+(0.04))-4/(0.04)] + [$100 / (1+ (0.04))4] = $98
So, Option B is correct.
11.A. 5%
The bond will move equally in both the directions as the correlation between market discount rate and bond’s price will be same.
12.A. Widen
When the demand is low, it widens the yield spread. The higher level of supply will widen it further.
13.B. 6%
The difference between a one-year loan beginning in one year and one-year spot rate = 6% - 4% = 2%
So, the three-year spot rate = 8% - 2% = 6%
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