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FIXED INCOME I: CFA LEVEL I Fixed Income I Problem Solving Session Harvard Extension School MGMT E-2900b CFA Exam Level I March 23, 2010.

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Presentation on theme: "FIXED INCOME I: CFA LEVEL I Fixed Income I Problem Solving Session Harvard Extension School MGMT E-2900b CFA Exam Level I March 23, 2010."— Presentation transcript:

1 FIXED INCOME I: CFA LEVEL I Fixed Income I Problem Solving Session Harvard Extension School MGMT E-2900b CFA Exam Level I March 23, 2010

2 FIXED INCOME I: CFA LEVEL I Rich Gibble Lecturer Tray Spilker Teaching Assistant Fixed Income I Problem Solving Session

3 FIXED INCOME I: CFA LEVEL I Fixed Income Topic Area Weights for the CFA Exam Topic AreaLevel I Ethical and Professional Standards (total)15 Quantitative Methods12 Economics10 Financial Reporting and Analysis20 Corporate Finance8 Investment Tools (total)50 Equity Investments10 Fixed Income12 Derivatives5 Alternative Investments3 Asset Classes (total)30 Portfolio Management and Wealth Planning (total)5 Total100

4 FIXED INCOME I: CFA LEVEL I Features of Debt Securities Overview of Bond Sectors & Instruments Repayment & Prepayment Provisions Fixed Income I Problem Solving Session Study Session 15 Readings 60 & 62

5 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 1.A bond’s indenture: A.outlines interest and principle components B.is the same as a debenture C.contains its covenants

6 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 1.A bond’s indenture: A.outlines interest and principle components B.is the same as a debenture C.contains its covenants

7 FIXED INCOME I: CFA LEVEL I Bond Indenture  A bond indenture specifies all rights and obligations of the issuer and bondholder.  Contains:  negative covenants or restrictions on the borrower/issuer  affirmative covenants, or obligations of the borrower.

8 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 2.A five-year bond, after paying no interest for the first two years, pays $ and $25 semiannually for the remaining three years until maturity. At maturity it pays $1,000. Which of the following bonds types is the closest to the bond described? A.Accrual bond B.Deferred-coupon bond C.Step-up note

9 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 2.A five-year bond, after paying no interest for the first two years, pays $ and $25 semiannually for the remaining three years until maturity. At maturity it pays $1,000. Which of the following bonds types is the closest to the bond described? A.Accrual bond B.Deferred-coupon bond C.Step-up note

10 FIXED INCOME I: CFA LEVEL I Coupon Rate Structures  Accrual Bonds: pay no periodic coupon before maturity, but are sold at par and pay-out par plus accrued at maturity.  Deferred Coupon Bonds: Initial coupon payments are deferred for some period; the accrued coupons are paid at the end of the period, before resuming normal couponing until maturity.  Step-Up Notes: have coupon rates that increase over time at a specified rate.

11 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 3.From the perspective of the bond issuer, which of the following pairs of options would add value to a straight bond? A.Prepayment option, put option B.Call option, accelerated sinking fund provision C.Conversion option, put option

12 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 3.From the perspective of the bond issuer, which of the following pairs of options would add value to a straight bond? A.Prepayment option, put option B.Call option, accelerated sinking fund provision C.Conversion option, put option

13 FIXED INCOME I: CFA LEVEL I Provisions for Bond Retirements  Call options, sinking fund provisions, caps on floaters, and prepayment options favor the issuer.  Put options, conversion options, and floors on floaters favor the bondholder.

14 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 4.A bond with a $2,500 par value and a coupon rate of 7% makes semiannual payments. What is the dollar amount of each semiannual coupon payment? A.$87.50 B.$70.00 C.$175.00

15 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 4.A bond with a $2,500 par value and a coupon rate of 7% makes semiannual payments. What is the dollar amount of each semiannual coupon payment? A.$87.50 B.$70.00 C.$ $2,500 (0.07/2) = $87.50

16 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 5.A $1,000 five-year semiannual 5% coupon bond issued when the market requires a yield of 6% will sell at (a) _______ for a total price of _______? A.Par, $1,000 B.Premium, $1, C.Discount, $957.35

17 FIXED INCOME I: CFA LEVEL I SS 15: Fixed Income - Basic Concepts 5.A $1,000 five-year semiannual 5% coupon bond issued when the market requires a yield of 6% will sell at (a) _______ for a total price of _______? A.Par, $1,000 B.Premium, $1, C.Discount, $957.35

18 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts N=10, I/Y=3%, PMT=$25, FV=$1,000  compute PV = $ Since the bond sells for less than face value, it sells at a discount

19 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 6.A $5 million floating-rate semiannual note is issued with a reference and spread of 6-month LIBOR + 250bps. The rate was most recently reset on January 1 when LIBOR was 6% and the risk free rate was 1.5%. How much will the next semiannual coupon payment be? A.$112,500 B.$425,000 C.$212,500

20 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 6.A $5 million floating-rate semiannual note is issued with a reference and spread of 6-month LIBOR + 250bps. The rate was most recently reset on January 1 when LIBOR was 6% and the risk free rate was 1.5%. How much will the next semiannual coupon payment be? A.$112,500 B.$425,000 C.$212,500 $5 mln [( )/2] = $212,500

21 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 7.Which statement regarding caps and floors on floating rate bonds is least accurate? A.Caps are a disadvantage to the bondholder, while floors are a disadvantage to the issuer B.Floors are a disadvantage to the bondholder, while caps are a disadvantage to the issuer C.Caps are an advantage to issuers, while floors are an advantage to bondholders

22 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 7.Which statement regarding caps and floors on floating rate bonds is least accurate? A.Caps are a disadvantage to the bondholder, while floors are a disadvantage to the issuer B.Floors are a disadvantage to the bondholder, while caps are a disadvantage to the issuer C.Caps combined with floors are called collars

23 FIXED INCOME I: CFA LEVEL I Caps & Floors on Floating-Rate Bonds Caps: if rates move above the cap rate, the issuer only pays the cap rate  advantage issuer Floors: if rates move below the floor rate, the issuer still pays the floor rate  advantage bondholder

24 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 8.A 5% semiannual, $1,000 face value bond is quoted at a 2.7% discount to par. The quote is made mid-way between coupon payment dates. What is the bond’s clean price, dirty price and accrued interest? A.$960.50, $973.00, $12.50 B.$973.00, $985.50, $12.50 C.$950.00, $1,000.00, $50.00

25 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 8.A 5% semiannual, $1,000 face value bond is quoted at a 2.7% discount to par. The quote is made mid-way between coupon payment dates. What is the bond’s clean price, dirty price and accrued interest? A.$960.50, $973.00, $12.50 B.$973.00, $985.50, $12.50 C.$950.00, $1,000.00, $50.00

26 FIXED INCOME I: CFA LEVEL I Bond Quotes and Accrued Interest Full Price = Clean Price + Accrued Interest Full (Dirty) Price = quoted or selling price = $1,000(1 – 0.027) x = $973 Accrued Interest = $1,000(0.05/4) = $12.50 Clean Price = Full Price – Accrued Interest = $973 – $12.50 = $960.50

27 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts Questions 9 – 12: Consider a 15-year, $10 million par value, 7.5% coupon bond issued on Jan 1, The bonds are callable but non-refundable at 105 for the first five years and 103 thereafter until maturity. There is a sinking fund provision requiring redemptions of $666,667 of the principal per year at par. Current market rates for comparable bonds are 7%.

28 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts Questions 9 – 12: 9.Based on the above, investors can conclude: A.they will pay a premium for the call option B.the bonds were issued at a premium C.the bonds do not have call protection

29 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 9.Based on the above, investors can conclude: A.they will pay a premium for the call option B.the bonds were issued at a premium C.the bonds do not have call protection

30 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 9.Based on the above, investors can conclude: A.they will pay a premium for the call option  Benefit of call option accrues to the issuer B.the bonds were issued at a premium  Indeterminable: call option calls for a discount while coupon variance calls for a premium C.the bonds do not have call protection  The call calendar begins from the date of issuance; The bonds are callable but non-refundable at 105 for the first five years and 103 thereafter until maturity.

31 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts Questions 9 – 12 (cont.): 10.Based on the above, which of the following statements is least accurate regarding the sinking fund provision? A.The bonds have an accelerated sinking fund provision. B.An investor would not benefit if their bonds were redeemed under the provision. C.The issuer would benefit if they delivered cash against the provision.

32 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 10.Based on the above, which of the following statements is least accurate regarding the sinking fund provision? A.The bonds have an accelerated sinking fund provision. B.An investor would not benefit if their bonds were redeemed under the provision. C.The issuer would benefit if they delivered cash against the provision.

33 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 10. Explained There was no provision for an accelerated sinking fund. Bond will be trading at a premium because coupon rate > current market rate. Thus, a call at par would not benefit the investor. The issuer would likely deliver cash to the trustee (at par) rather than buying bonds at a premium in the open market to satisfy the call.

34 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts Questions 9 – 12 (cont.): 11.Based on the above, if the bonds were called on July 1, 2015, an investor who purchased the entire issuance would receive? A.$10,300,000 B.$10,500,000 C.$10,000,000

35 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 11.Based on the above, if the bonds were called on July 1, 2016, an investor who purchased the entire issuance would receive? A.$10,300,000 B.$10,500,000 C.$10,000,000 “The bonds are callable but non-refundable at 105 for the first five years and 103 thereafter until maturity.”  Call between 1/1/10 – 12/31/15 = 105 x $10mln = $10.5mln  Call between 1/1/16 – Maturity = 103 x $10mln = $10.3mln

36 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts Questions 9 – 12 (cont.): 12.Based on the above, if the bonds were not callable and had no sinking fund provision, they would have been issued at a ______ for $_______? A.Discount, $9,554,269 B.Premium, $10,455,395 C.Premium, $10,459,801

37 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 12.Based on the above, if the bonds were not callable and had no sinking fund provision, they would have been issued at a ______ for $_______? A.Discount, $9,554,269 B.Premium, $10,455,395 C.Premium, $10,459,801

38 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 12. Explained  N = 30, I/Y = 0.07/2 = 3.5%, PMT = 0.075/2 x $10mln = $375,000, FV = $10mln  Compute PV = $10,459,801  Unless specified otherwise, bonds are assumed to be semiannual pay

39 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 13. An investor buying bonds on margin: A.will pay higher funding costs than they would if using a repurchase agreement (repo) B.pays interest on a loan collateralized by the bonds C.loans the bonds to an institution “overnight”

40 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 13. An investor buying bonds on margin: A.will pay higher funding costs than they would if using a repurchase agreement (repo) B.pays interest on a loan collateralized by the bonds C.loans the bonds to an institution “overnight”

41 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 13. Explained  Margin loans require the payment of interest to the lender and are typically at higher rates than a repurchase agreement.  A Repurchase agreement allows an institution to sell a security with a commitment to buy it back at a later date. Typically lower implied interest due to the fact that the “lender” holds the collateral during the term.

42 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 14. Which of the following is most likely a provision for the early retirement of debt? A.A put option B.A conversion option C.A prepayment option

43 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 14. Which of the following is most likely a provision for the early retirement of debt? A.A put option B.A conversion option C.A prepayment option A prepayment option allows the borrower/issuer the right to prepay the loan balance prior to maturity

44 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 15. A mortgage is most likely: A.an amortizing loan B.characterized by unstable cash flows C.a bullet maturity loan

45 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 15. A mortgage is most likely: A.an amortizing loan B.characterized by unstable cash flows C.a bullet maturity loan  Amortizing securities make periodic principle and interest over the life of the bond, whereas a bullet maturity bond pays periodic interest over the life of the bond and a large principle payment at maturity.  Mortgages often have prepayment options, thus make cash flows unpredictable due to the possibility of prepayment.

46 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 16. A treasury quoted at 95:15 with par value of $100,000 has a dollar equivalent quote of: A.$95, B.$100, C.$95,150.00

47 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 16. A treasury quoted at 95:15 with par value of $100,000 has a dollar equivalent quote of: A.$95, B.$100, C.$95, (15/32)% x $100,000 = x $100,000 = $95,

48 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 17. A $1,000 par value TIPS bond carries a 3% semiannual coupon. If the annual inflation rate is 5%, what is the principal value of the bond and coupon payment after six months. A.$1,030, $15.45 B.$1,025, $15.38 C.$1,050, $15.75

49 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 17. A $1,000 par value TIPS bond carries a 3% semiannual coupon. If the annual inflation rate is 5%, what is the principal value of the bond and coupon payment after six months. A.$1,030, $15.45 B.$1,025, $15.38 C.$1,050, $15.75  Adjusted principle = $1,000(1+0.05/2) = $1,025  Coupon = new principle x coupon rate = $1,025(0.03/2) = $ ≈ $15.38

50 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 18.Ceteris paribus, put the following three equal par value bonds in order from highest to lowest value: (1) a Treasury note (T-note) principal strip that has six months remaining until maturity, (2) a Treasury bond (T-bond) coupon strip with six months remaining until maturity, and (3) a newly issued six- month Treasury bill (T-bill): A.1 < 2 < 3 B.3 < 2 < 1 C.1 = 2 = 3

51 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 18.Ceteris paribus, put the following three equal par value bonds in order from highest to lowest value: (1) a Treasury note (T-note) principal strip that has six months remaining until maturity, (2) a Treasury bond (T-bond) coupon strip with six months remaining until maturity, and (3) a newly issued six- month Treasury bill (T-bill): A.1 < 2 < 3 B.3 < 2 < 1 C.1 = 2 = 3

52 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 18.Explained: Assume 5% yield. = $975.61= $ = $ N=1; I/Y=5/2=2.5; PMT=0; FV=1,000 CPT  PV = $ $1,000 T-Note PO w/ 6-mo to maturity $1,000 T-Bond CI w/ 6-mo to maturity $1,000 6-mo T-Bill

53 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 18.Explained:  “The reason why a distinction is made between coupon strips and the principal strips has to do with the tax treatment by non-U.S. entities…”

54 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 19. Which of the following muni-bonds generally has the lowest risk with subsequently lower yields? A.Revenue bonds B.Unlimited tax general obligation bonds C.Limited tax general obligation bonds

55 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 19. Which of the following muni-bonds generally has the lowest risk with subsequently lower yields? A.Revenue bonds B.Unlimited tax general obligation bonds C.Limited tax general obligation bonds

56 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 20. A bond that is back-stopped by a 3 rd party is referred to as a: A.Prerefunded bond B.Double barreled bond C.Insured bond

57 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 20. A bond that is back-stopped by a 3 rd party is referred to as a: A.Prerefunded bond B.Double barreled bond C.Insured bond

58 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 20. Explained:  Prerefunded bond: serviced by cash flows generated from a pool of Treasury securities  Double barreled: a special class of G.O. bond issued with the full taxing authority of the issuer along with other resources: i.e., fees, grants, and special charges.  Insured bond: bond carrying a 3 rd party guarantee

59 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 21. Which of the following bond types most closely matches a bond issuance where all bonds are sold at one time, with the same coupon rate and maturity? A.Medium-term notes B.Corporate debentures C.Shelf registered, SEC 415 bond

60 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 21. Which of the following bond types most closely matches a bond issuance where all bonds are sold at one time, with the same coupon rate and maturity? A.Medium-term notes B.Corporate debentures C.Shelf registered, SEC 415 bond

61 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 21. Explained  Medium-term notes: registered under SEC Rule 415 (shelf registration), meaning that they need not all be sold at one time, and are “shelved” at the discretion of the issuer to be sold over time.  Corporate debentures: an unsecured corporate bond, typically issued all at once, sold on a firm commitment (guaranteed) by the underwriting syndicate, and comprised of bonds with a single coupon rate and maturity.  Shelf registered, SEC 415 bond: a medium-term note.

62 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 22. Compared to bankers acceptances, negotiable CDs: A.are less likely to default B.are more liquid C.have shorter maturities on average

63 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 22. Compared to bankers acceptances, negotiable CDs: A.are less likely to default B.are more liquid C.have shorter maturities on average Negotiable CDs are typically longer term and pay periodic interest versus shorter term bankers acceptances that pay no periodic interest. Both securities are as good as the credit rating of the issuing bank. CDs can be sold in the secondary market and have more liquidity than BAs.

64 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 23. Primary market activities for debt securities would most likely include: A.a best-efforts offering B.market making C.over-the-counter transactions

65 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 23. Primary market activities for debt securities would most likely include: A.a best-efforts offering B.market making C.over-the-counter transactions Best-efforts offering, firm commitment, auction process are all primary market activities. Market making and OTC transactions are secondary activities.

66 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 24. A CDO will least likely be backed by which of the following security types: A.preferred equities B.student loan receivables C.CDOs

67 FIXED INCOME I: CFA LEVEL I Fixed Income - Basic Concepts 24. A CDO will least likely be backed by which of the following security types: A.preferred equities B.student loan receivables C.CDOs By definition, a CDO is backed by a pool of debt instruments, which may include loans, mortgages, emerging market debt, corporate bonds, and ABS.

68 FIXED INCOME I: CFA LEVEL I Ethics & Professional Standards

69 FIXED INCOME I: CFA LEVEL I Fixed Income Topic Area Weights for the CFA Exam Topic AreaLevel I Ethical and Professional Standards (total)15 Quantitative Methods12 Economics10 Financial Reporting and Analysis20 Corporate Finance8 Investment Tools (total)50 Equity Investments10 Fixed Income12 Derivatives5 Alternative Investments3 Asset Classes (total)30 Portfolio Management and Wealth Planning (total)5 Total100

70 FIXED INCOME I: CFA LEVEL I Ethics Item Set CFA Sample Questions Anthony Buchard, CFA, disclosed a complaint by a former client on his annual professional conduct statement. The CFA Institute Professional Conduct Program sent Buchard a Notice of Inquiry and requested a copy of the client complaint. Buchard provided a copy of the complaint; however, several parts of the complaint were blackened out. Buchard refused to provide a complete copy of the complaint because it contained confidential client information. According to the Standards of Practice Handbook, Buchard should: A.provide a complete copy of the complaint to the Professional Conduct Program. B.maintain all client information as confidential, including the information contained in the client complaint. C.sign a confidentiality agreement with the client that requires Buchard to keep the client complaint confidential.

71 FIXED INCOME I: CFA LEVEL I Ethics Item Set CFA Sample Questions Anthony Buchard, CFA, disclosed a complaint by a former client on his annual professional conduct statement. The CFA Institute Professional Conduct Program sent Buchard a Notice of Inquiry and requested a copy of the client complaint. Buchard provided a copy of the complaint; however, several parts of the complaint were blackened out. Buchard refused to provide a complete copy of the complaint because it contained confidential client information. According to the Standards of Practice Handbook, Buchard should: A.provide a complete copy of the complaint to the Professional Conduct Program. B.maintain all client information as confidential, including the information contained in the client complaint. C.sign a confidentiality agreement with the client that requires Buchard to keep the client complaint confidential.

72 FIXED INCOME I: CFA LEVEL I Ethics Item Set CFA Sample Questions Professional Conduct Investigations by CFA Institute: “The requirements of Standard III(E) [Preservation of Confidentiality] are not intended to prevent members and candidates from cooperating with an investigation by CFA Institute’s Professional Conduct Program (PCP). When permissible under applicable law, members and candidates shall consider the PCP an extension of themselves when requested to provide information about a client in support of a PCP investigation into their own conduct.” - Standards of Practice Handbook, 9 th Ed., Pg. 79

73 FIXED INCOME I: CFA LEVEL I Ethics Item Set CFA Sample Questions Beth Patrick, a fixed income analyst at a brokerage company, assists her company’s traders by developing in- house bond ratings to supplement those of the major bond rating services. The traders use disparities in the ratings to construct profitable investment strategies. Patrick makes inferences from nonmaterial private information and news events, which she reflects in her bond ratings. Patrick’s approach: A.reflects the mosaic theory. B.violates confidentiality rules. C.violates insider trading rules.

74 FIXED INCOME I: CFA LEVEL I Ethics Item Set CFA Sample Questions Beth Patrick, a fixed income analyst at a brokerage company, assists her company’s traders by developing in- house bond ratings to supplement those of the major bond rating services. The traders use disparities in the ratings to construct profitable investment strategies. Patrick makes inferences from nonmaterial private information and news events, which she reflects in her bond ratings. Patrick’s approach: A.reflects the mosaic theory. B.violates confidentiality rules. C.violates insider trading rules.

75 FIXED INCOME I: CFA LEVEL I Ethics Item Set CFA Sample Questions Mosaic Theory: “…The analyst may use significant conclusions derived from the analysis of public and nonmaterial nonpublic information as the basis for investment recommendations and decisions even if those conclusions would have been material inside information had they been communicated directly to the analyst by a company. Under ‘mosaic theory,’ financial analysts are free to act on this collection, or mosaic, of information without risking violation.” - Standards of Practice Handbook, 9 th Ed., Pg. 39


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