Can’t believe this… I took the first Sample Exam (the first paid one) and this is what they say: On ethics: the statement is for Research Obj Standards in the question is: ‘the analyst is prohibited directly or indirectly to promise to a subject company or issuer a favorable report or specific price target, or from threatening negative reports’. The question: is this correct. Their answer: because it should be ‘… threatening to change reports, recomandations, or price targets’… … R u…kidding me?!! I don’t see any difference is the meaning of the two statements… On FI: Is the statement ‘Credit spread risk is the risk that the issuer will fail to satisfy the terms of the bond’ correct? Their answer: NO. It should be:’ Credit spread risk is the risk an issuer’s debt obligation will relatively decline due to increase in credit spread’ !!! How about if you are short the bond? This sh… doens’t apply. And you don’t have credit spread risk?? Here’s more… On PI: they ask you on asset liquidity risk and liability liquidity risk?? How can you look at one-sided liquidity!!! What is asset liq risk or liab liq risk? I’ll go back to the books, but their answer is: 'asset liquidity (price risk i.e. wide swings in market value of the portfolio)!!! This means that asset liquidity risk is price movement!!! They must be kidding me!!! Also, they want you to know the definitions of short-term solvency that S&P is using!! I only glanced that section! Doens anyone in CFAI actually read those questions before they put them up!!! If they have fail me because those stupid ideas I DON"T WANT their designation!!! my blood level is high right now…
I am with you on the ethics problem, but the FI makes sense.
I just reviewed sample 2 and I’m with you, I don’t get why the statement about threatening is wrong either. FI: They defined default risk, not credit spread risk. Failing to satisfy the terms has nothing to do with credit spread risk. PI: The assets are heavily invested in illiquid assets, hence significant liquidity risk. On the liability side, he’s going to have to draw a large amount of money relative to his assets in order to keep up his living expenses of 250k a year for 20 years. 5 million isn’t really that much, especially with the other goals of paying off the mortgage, setting up a $1m trust, and buying a second home. By the way, short term solvency was simply the current ratio. This was a rough one, I only got 46. Just learn from it! Hope this helps… if someone can explain the ethics thing that would be great.