Research Analyst Series 87 Part II Exam Questions and Answers
Question 1. Which term best matches the following description: the analytical process of combining public information with immaterial
nonpublic information to develop an investment conclusion without using material nonpublic information?
A. Promise of favorable research
B. Pitch meeting restriction
C. Mosaic theory
D. Research report approval
Correct Answer: C. Mosaic theory
Explanation: Mosaic theory is the correct concept because it is the analytical process of combining public information with immaterial nonpublic
information to develop an investment conclusion without using material nonpublic information. The wording in the question points to the defining
feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts
stated here. Recognizing that defining feature is the most reliable way to identify Mosaic theory.
Question 2. Which statement about Research budget is most accurate?
A. Providing material research conclusions to favored recipients before broad distribution in a manner inconsistent with firm policy or fair
dealing
B. Research disclosure indicating when the member firm makes a market in the subject company's securities where required
C. Trading or tipping based on material nonpublic information in breach of a duty or other applicable legal prohibition
D. The resources allocated to research, which must not be controlled in a manner that allows investment banking to improperly influence
coverage or conclusions
Correct Answer: D. The resources allocated to research, which must not be controlled in a manner that allows investment banking to
improperly influence coverage or conclusions
Explanation: Research budget is correctly described as the resources allocated to research, which must not be controlled in a manner that
allows investment banking to improperly influence coverage or conclusions. That description captures the core characteristic tested by this item.
The remaining descriptions belong to different concepts and would lead to a different regulatory, product, accounting, or operational analysis. On
exam questions, match the term to its defining feature before considering secondary details.
Question 3. Which term best matches the following description: a statement by counsel or accountants that specified review procedures
did not bring certain material misstatements or omissions to their attention?
A. Friendly transaction
B. Negative assurance
C. Private placement
D. Dilution
Correct Answer: B. Negative assurance
Explanation: Negative assurance is the correct concept because it is a statement by counsel or accountants that specified review procedures
did not bring certain material misstatements or omissions to their attention. The wording in the question points to the defining feature rather than
to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Negative assurance.
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,Question 4. Which choice correctly distinguishes Issuer review of research from Comparable-company selection?
A. Issuer review of research: limited prepublication review by a subject company for factual accuracy when permitted, without providing the
research rating, price target, or conclusion in a way that compromises independence; Comparable-company selection: the process of
choosing peer companies based on business model, size, growth, geography, margins, and other relevant factors
B. Issuer review of research: the process of choosing peer companies based on business model, size, growth, geography, margins, and other
relevant factors; Comparable-company selection: limited prepublication review by a subject company for factual accuracy when permitted,
without providing the research rating, price target, or conclusion in a way that compromises independence
C. Issuer review of research: the firm's defined expression of an analyst's investment opinion, such as buy, hold, or sell, interpreted according
to the firm's disclosed rating system; Comparable-company selection: the process of choosing peer companies based on business model,
size, growth, geography, margins, and other relevant factors
D. Issuer review of research: limited prepublication review by a subject company for factual accuracy when permitted, without providing the
research rating, price target, or conclusion in a way that compromises independence; Comparable-company selection: the analyst's
estimate of a security's expected value over a stated period, supported by a reasonable valuation method and disclosed risks
Correct Answer: A. Issuer review of research: limited prepublication review by a subject company for factual accuracy when permitted, without
providing the research rating, price target, or conclusion in a way that compromises independence; Comparable-company selection: the process
of choosing peer companies based on business model, size, growth, geography, margins, and other relevant factors
Explanation: Issuer review of research means limited prepublication review by a subject company for factual accuracy when permitted, without
providing the research rating, price target, or conclusion in a way that compromises independence, whereas Comparable-company selection
means the process of choosing peer companies based on business model, size, growth, geography, margins, and other relevant factors. The
correct choice keeps the two concepts separate and assigns each description to the proper term. The distractors either reverse the concepts or
substitute a feature belonging to another topic. That distinction matters because the two terms can lead to different regulatory, economic, or
operational consequences.
Question 5. A research analyst is reviewing a situation described as follows: permitted factual diligence involving research and
investment banking when structured so that research independence and information controls are maintained. Which concept is most
directly involved?
A. Model consistency
B. Pitch meeting restriction
C. Research dissemination
D. Joint due diligence
Correct Answer: D. Joint due diligence
Explanation: Joint due diligence is the best answer because it is permitted factual diligence involving research and investment banking when
structured so that research independence and information controls are maintained. The scenario gives the research analyst facts that point
directly to that concept. The other choices can arise in related securities situations but do not fit the specific description provided. Applying the
precise definition to the facts is the best way to resolve this type of scenario.
Question 6. Which concept-and-description pairing is correctly matched?
A. Research solicitation - withdrawal of a report or conclusion when an error, conflict, or compliance issue makes continued reliance
inappropriate
B. Research analyst - a financial measure prepared according to generally accepted accounting principles
C. Other material conflict disclosure - disclosure of material conflicts known by the analyst or firm that a reasonable reader would consider
relevant to evaluating the research
D. Research sensitivity table - the group of issuers or securities followed by a research department or analyst
Correct Answer: C. Other material conflict disclosure - disclosure of material conflicts known by the analyst or firm that a reasonable reader
would consider relevant to evaluating the research
Explanation: Only the pairing for Other material conflict disclosure is accurate: it is disclosure of material conflicts known by the analyst or firm
that a reasonable reader would consider relevant to evaluating the research. Each incorrect choice attaches a valid-sounding description to the
wrong concept. Because the distractors are drawn from related exam material, they can appear plausible unless both parts of the pairing are
checked. Verify the term and its defining feature together before selecting a matched pair.
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,Question 7. A candidate says Debt research and Rating distribution disclosure are interchangeable. Which response most accurately
corrects that statement?
A. They are different: Debt research is research analyzing debt securities or issuers and subject to conflict rules that differ in some respects
from equity research, while Rating distribution disclosure is disclosure showing the percentage of securities assigned to each rating category
and specified investment banking relationships as required by research rules.
B. They are identical because both mean research analyzing debt securities or issuers and subject to conflict rules that differ in some respects
from equity research.
C. They are different only because Debt research is the group of issuers or securities followed by a research department or analyst, while
Rating distribution disclosure is disclosure showing the percentage of securities assigned to each rating category and specified investment
banking relationships as required by research rules.
D. They are different only because Debt research is research analyzing debt securities or issuers and subject to conflict rules that differ in
some respects from equity research, while Rating distribution disclosure is a qualified principal responsible for reviewing and approving
research reports and supervising research activities under applicable FINRA rules.
Correct Answer: A. They are different: Debt research is research analyzing debt securities or issuers and subject to conflict rules that differ in
some respects from equity research, while Rating distribution disclosure is disclosure showing the percentage of securities assigned to each
rating category and specified investment banking relationships as required by research rules.
Explanation: Debt research and Rating distribution disclosure are not interchangeable because the first is research analyzing debt securities or
issuers and subject to conflict rules that differ in some respects from equity research and the second is disclosure showing the percentage of
securities assigned to each rating category and specified investment banking relationships as required by research rules. The correct response
identifies the defining feature of each concept without blending them together. The other choices either treat distinct concepts as identical or
assign an unrelated definition to one of them. Comparison questions are best answered by isolating the feature that changes the legal,
economic, or operational result.
Question 8. Which term best matches the following description: a status arising from specified events that can restrict or prevent
association with a broker-dealer unless appropriate regulatory relief is obtained?
A. Order handling supervision
B. Statutory disqualification
C. Unauthorized trading
D. Investment banking supervision
Correct Answer: B. Statutory disqualification
Explanation: Statutory disqualification is the correct concept because it is a status arising from specified events that can restrict or prevent
association with a broker-dealer unless appropriate regulatory relief is obtained. The wording in the question points to the defining feature rather
than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Statutory disqualification.
Question 9. A company has an equity value of $2800 million, total debt of $1550 million, and cash of $600 million. Ignoring other
adjustments, what is enterprise value?
A. $3,750 million
B. $4,950 million
C. $1,850 million
D. $650 million
Correct Answer: A. $3,750 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $2800 million plus
$1550 million minus $600 million equals $3,750 million. Cash is subtracted because enterprise value is intended to reflect the value attributable
to operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred
stock, noncontrolling interests, leases, or nonoperating assets.
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, Question 10. Which answer correctly matches both Promissory statement and Third-party research to their respective meanings?
A. Promissory statement -> research produced by a person other than the distributing member firm and subject to review, disclosure, and
distribution requirements depending on the arrangement; Third-party research -> a statement implying certainty about future investment
results, which can be misleading when the outcome is inherently uncertain
B. Promissory statement -> the prohibition on retaliating against a research analyst because of an unfavorable research report or public
appearance; Third-party research -> research produced by a person other than the distributing member firm and subject to review,
disclosure, and distribution requirements depending on the arrangement
C. Promissory statement -> a statement implying certainty about future investment results, which can be misleading when the outcome is
inherently uncertain; Third-party research -> research produced by a person other than the distributing member firm and subject to review,
disclosure, and distribution requirements depending on the arrangement
D. Promissory statement -> a statement implying certainty about future investment results, which can be misleading when the outcome is
inherently uncertain; Third-party research -> the FINRA rule addressing conflicts of interest in equity research, including analyst
independence, disclosures, supervision, and interactions with investment banking
Correct Answer: C. Promissory statement -> a statement implying certainty about future investment results, which can be misleading when the
outcome is inherently uncertain; Third-party research -> research produced by a person other than the distributing member firm and subject to
review, disclosure, and distribution requirements depending on the arrangement
Explanation: The correct match identifies Promissory statement as a statement implying certainty about future investment results, which can be
misleading when the outcome is inherently uncertain and Third-party research as research produced by a person other than the distributing
member firm and subject to review, disclosure, and distribution requirements depending on the arrangement. Both halves of the selected option
are therefore accurate. Each distractor contains at least one mismatched definition even though the language is drawn from a related topic.
When an answer choice contains two propositions, verify each proposition independently before selecting it.
Question 11. Which term best matches the following description: a service connecting analysts or investors with industry experts,
requiring controls to prevent receipt or misuse of confidential or material nonpublic information?
A. Research rating
B. Research analyst
C. Promise of favorable research
D. Expert network
Correct Answer: D. Expert network
Explanation: Expert network is the correct concept because it is a service connecting analysts or investors with industry experts, requiring
controls to prevent receipt or misuse of confidential or material nonpublic information. The wording in the question points to the defining feature
rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Expert network.
Question 12. Which statement about Pitch meeting restriction is most accurate?
A. The period over which an analyst explicitly projects financial statements or operating results
B. Limits on research analyst participation in investment banking pitches or other solicitation activity where participation would compromise
research independence
C. A firm restriction preventing release or discussion of research before an authorized dissemination time
D. Review and preservation of emails, chats, and other electronic communications involving research activities under applicable
recordkeeping and supervisory rules
Correct Answer: B. Limits on research analyst participation in investment banking pitches or other solicitation activity where participation would
compromise research independence
Explanation: Pitch meeting restriction is correctly described as limits on research analyst participation in investment banking pitches or other
solicitation activity where participation would compromise research independence. That description captures the core characteristic tested by this
item. The remaining descriptions belong to different concepts and would lead to a different regulatory, product, accounting, or operational
analysis. On exam questions, match the term to its defining feature before considering secondary details.
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Question 1. Which term best matches the following description: the analytical process of combining public information with immaterial
nonpublic information to develop an investment conclusion without using material nonpublic information?
A. Promise of favorable research
B. Pitch meeting restriction
C. Mosaic theory
D. Research report approval
Correct Answer: C. Mosaic theory
Explanation: Mosaic theory is the correct concept because it is the analytical process of combining public information with immaterial nonpublic
information to develop an investment conclusion without using material nonpublic information. The wording in the question points to the defining
feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts
stated here. Recognizing that defining feature is the most reliable way to identify Mosaic theory.
Question 2. Which statement about Research budget is most accurate?
A. Providing material research conclusions to favored recipients before broad distribution in a manner inconsistent with firm policy or fair
dealing
B. Research disclosure indicating when the member firm makes a market in the subject company's securities where required
C. Trading or tipping based on material nonpublic information in breach of a duty or other applicable legal prohibition
D. The resources allocated to research, which must not be controlled in a manner that allows investment banking to improperly influence
coverage or conclusions
Correct Answer: D. The resources allocated to research, which must not be controlled in a manner that allows investment banking to
improperly influence coverage or conclusions
Explanation: Research budget is correctly described as the resources allocated to research, which must not be controlled in a manner that
allows investment banking to improperly influence coverage or conclusions. That description captures the core characteristic tested by this item.
The remaining descriptions belong to different concepts and would lead to a different regulatory, product, accounting, or operational analysis. On
exam questions, match the term to its defining feature before considering secondary details.
Question 3. Which term best matches the following description: a statement by counsel or accountants that specified review procedures
did not bring certain material misstatements or omissions to their attention?
A. Friendly transaction
B. Negative assurance
C. Private placement
D. Dilution
Correct Answer: B. Negative assurance
Explanation: Negative assurance is the correct concept because it is a statement by counsel or accountants that specified review procedures
did not bring certain material misstatements or omissions to their attention. The wording in the question points to the defining feature rather than
to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Negative assurance.
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,Question 4. Which choice correctly distinguishes Issuer review of research from Comparable-company selection?
A. Issuer review of research: limited prepublication review by a subject company for factual accuracy when permitted, without providing the
research rating, price target, or conclusion in a way that compromises independence; Comparable-company selection: the process of
choosing peer companies based on business model, size, growth, geography, margins, and other relevant factors
B. Issuer review of research: the process of choosing peer companies based on business model, size, growth, geography, margins, and other
relevant factors; Comparable-company selection: limited prepublication review by a subject company for factual accuracy when permitted,
without providing the research rating, price target, or conclusion in a way that compromises independence
C. Issuer review of research: the firm's defined expression of an analyst's investment opinion, such as buy, hold, or sell, interpreted according
to the firm's disclosed rating system; Comparable-company selection: the process of choosing peer companies based on business model,
size, growth, geography, margins, and other relevant factors
D. Issuer review of research: limited prepublication review by a subject company for factual accuracy when permitted, without providing the
research rating, price target, or conclusion in a way that compromises independence; Comparable-company selection: the analyst's
estimate of a security's expected value over a stated period, supported by a reasonable valuation method and disclosed risks
Correct Answer: A. Issuer review of research: limited prepublication review by a subject company for factual accuracy when permitted, without
providing the research rating, price target, or conclusion in a way that compromises independence; Comparable-company selection: the process
of choosing peer companies based on business model, size, growth, geography, margins, and other relevant factors
Explanation: Issuer review of research means limited prepublication review by a subject company for factual accuracy when permitted, without
providing the research rating, price target, or conclusion in a way that compromises independence, whereas Comparable-company selection
means the process of choosing peer companies based on business model, size, growth, geography, margins, and other relevant factors. The
correct choice keeps the two concepts separate and assigns each description to the proper term. The distractors either reverse the concepts or
substitute a feature belonging to another topic. That distinction matters because the two terms can lead to different regulatory, economic, or
operational consequences.
Question 5. A research analyst is reviewing a situation described as follows: permitted factual diligence involving research and
investment banking when structured so that research independence and information controls are maintained. Which concept is most
directly involved?
A. Model consistency
B. Pitch meeting restriction
C. Research dissemination
D. Joint due diligence
Correct Answer: D. Joint due diligence
Explanation: Joint due diligence is the best answer because it is permitted factual diligence involving research and investment banking when
structured so that research independence and information controls are maintained. The scenario gives the research analyst facts that point
directly to that concept. The other choices can arise in related securities situations but do not fit the specific description provided. Applying the
precise definition to the facts is the best way to resolve this type of scenario.
Question 6. Which concept-and-description pairing is correctly matched?
A. Research solicitation - withdrawal of a report or conclusion when an error, conflict, or compliance issue makes continued reliance
inappropriate
B. Research analyst - a financial measure prepared according to generally accepted accounting principles
C. Other material conflict disclosure - disclosure of material conflicts known by the analyst or firm that a reasonable reader would consider
relevant to evaluating the research
D. Research sensitivity table - the group of issuers or securities followed by a research department or analyst
Correct Answer: C. Other material conflict disclosure - disclosure of material conflicts known by the analyst or firm that a reasonable reader
would consider relevant to evaluating the research
Explanation: Only the pairing for Other material conflict disclosure is accurate: it is disclosure of material conflicts known by the analyst or firm
that a reasonable reader would consider relevant to evaluating the research. Each incorrect choice attaches a valid-sounding description to the
wrong concept. Because the distractors are drawn from related exam material, they can appear plausible unless both parts of the pairing are
checked. Verify the term and its defining feature together before selecting a matched pair.
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,Question 7. A candidate says Debt research and Rating distribution disclosure are interchangeable. Which response most accurately
corrects that statement?
A. They are different: Debt research is research analyzing debt securities or issuers and subject to conflict rules that differ in some respects
from equity research, while Rating distribution disclosure is disclosure showing the percentage of securities assigned to each rating category
and specified investment banking relationships as required by research rules.
B. They are identical because both mean research analyzing debt securities or issuers and subject to conflict rules that differ in some respects
from equity research.
C. They are different only because Debt research is the group of issuers or securities followed by a research department or analyst, while
Rating distribution disclosure is disclosure showing the percentage of securities assigned to each rating category and specified investment
banking relationships as required by research rules.
D. They are different only because Debt research is research analyzing debt securities or issuers and subject to conflict rules that differ in
some respects from equity research, while Rating distribution disclosure is a qualified principal responsible for reviewing and approving
research reports and supervising research activities under applicable FINRA rules.
Correct Answer: A. They are different: Debt research is research analyzing debt securities or issuers and subject to conflict rules that differ in
some respects from equity research, while Rating distribution disclosure is disclosure showing the percentage of securities assigned to each
rating category and specified investment banking relationships as required by research rules.
Explanation: Debt research and Rating distribution disclosure are not interchangeable because the first is research analyzing debt securities or
issuers and subject to conflict rules that differ in some respects from equity research and the second is disclosure showing the percentage of
securities assigned to each rating category and specified investment banking relationships as required by research rules. The correct response
identifies the defining feature of each concept without blending them together. The other choices either treat distinct concepts as identical or
assign an unrelated definition to one of them. Comparison questions are best answered by isolating the feature that changes the legal,
economic, or operational result.
Question 8. Which term best matches the following description: a status arising from specified events that can restrict or prevent
association with a broker-dealer unless appropriate regulatory relief is obtained?
A. Order handling supervision
B. Statutory disqualification
C. Unauthorized trading
D. Investment banking supervision
Correct Answer: B. Statutory disqualification
Explanation: Statutory disqualification is the correct concept because it is a status arising from specified events that can restrict or prevent
association with a broker-dealer unless appropriate regulatory relief is obtained. The wording in the question points to the defining feature rather
than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Statutory disqualification.
Question 9. A company has an equity value of $2800 million, total debt of $1550 million, and cash of $600 million. Ignoring other
adjustments, what is enterprise value?
A. $3,750 million
B. $4,950 million
C. $1,850 million
D. $650 million
Correct Answer: A. $3,750 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $2800 million plus
$1550 million minus $600 million equals $3,750 million. Cash is subtracted because enterprise value is intended to reflect the value attributable
to operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred
stock, noncontrolling interests, leases, or nonoperating assets.
3
, Question 10. Which answer correctly matches both Promissory statement and Third-party research to their respective meanings?
A. Promissory statement -> research produced by a person other than the distributing member firm and subject to review, disclosure, and
distribution requirements depending on the arrangement; Third-party research -> a statement implying certainty about future investment
results, which can be misleading when the outcome is inherently uncertain
B. Promissory statement -> the prohibition on retaliating against a research analyst because of an unfavorable research report or public
appearance; Third-party research -> research produced by a person other than the distributing member firm and subject to review,
disclosure, and distribution requirements depending on the arrangement
C. Promissory statement -> a statement implying certainty about future investment results, which can be misleading when the outcome is
inherently uncertain; Third-party research -> research produced by a person other than the distributing member firm and subject to review,
disclosure, and distribution requirements depending on the arrangement
D. Promissory statement -> a statement implying certainty about future investment results, which can be misleading when the outcome is
inherently uncertain; Third-party research -> the FINRA rule addressing conflicts of interest in equity research, including analyst
independence, disclosures, supervision, and interactions with investment banking
Correct Answer: C. Promissory statement -> a statement implying certainty about future investment results, which can be misleading when the
outcome is inherently uncertain; Third-party research -> research produced by a person other than the distributing member firm and subject to
review, disclosure, and distribution requirements depending on the arrangement
Explanation: The correct match identifies Promissory statement as a statement implying certainty about future investment results, which can be
misleading when the outcome is inherently uncertain and Third-party research as research produced by a person other than the distributing
member firm and subject to review, disclosure, and distribution requirements depending on the arrangement. Both halves of the selected option
are therefore accurate. Each distractor contains at least one mismatched definition even though the language is drawn from a related topic.
When an answer choice contains two propositions, verify each proposition independently before selecting it.
Question 11. Which term best matches the following description: a service connecting analysts or investors with industry experts,
requiring controls to prevent receipt or misuse of confidential or material nonpublic information?
A. Research rating
B. Research analyst
C. Promise of favorable research
D. Expert network
Correct Answer: D. Expert network
Explanation: Expert network is the correct concept because it is a service connecting analysts or investors with industry experts, requiring
controls to prevent receipt or misuse of confidential or material nonpublic information. The wording in the question points to the defining feature
rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the facts stated here.
Recognizing that defining feature is the most reliable way to identify Expert network.
Question 12. Which statement about Pitch meeting restriction is most accurate?
A. The period over which an analyst explicitly projects financial statements or operating results
B. Limits on research analyst participation in investment banking pitches or other solicitation activity where participation would compromise
research independence
C. A firm restriction preventing release or discussion of research before an authorized dissemination time
D. Review and preservation of emails, chats, and other electronic communications involving research activities under applicable
recordkeeping and supervisory rules
Correct Answer: B. Limits on research analyst participation in investment banking pitches or other solicitation activity where participation would
compromise research independence
Explanation: Pitch meeting restriction is correctly described as limits on research analyst participation in investment banking pitches or other
solicitation activity where participation would compromise research independence. That description captures the core characteristic tested by this
item. The remaining descriptions belong to different concepts and would lead to a different regulatory, product, accounting, or operational
analysis. On exam questions, match the term to its defining feature before considering secondary details.
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