. The recommended procedures for compliance with Research Objectivity Requirement 11, Rating System, states that firms should prohibit covered employees from communicating a rating or recommendation different from the current published rating or recommendation.
because she communicated a rating different from her current published rating contrary to Recommendation 11, which states that firms should prohibit covered employees from communicating a rating or recommendation different from the current published rating or recommendation.
because the statement alone about issuing a new report is not a viola- tion. If she disclosed her new recommendation contrary to Recommendation 8, which recommends that reports and recommendations be issued at least quarterly, with additional updates recommended when there is an announcement of significant news or events by, or that might impact, the subject company.

. A reduced form model requires that one of the company’s liabilities trade; it can be a zero-coupon bond or an estimation of zero-coupon bonds from observable risky coupon bond prices that trade. In addition, the company’s default prospects are dependent on macroeconomic state variables. These explanatory variables can include such inputs as the growth rate of GDP and the level of unemployment. The model also requires a risk-free rate.
because a reduced form model requires that the state of the economy can be described as a vector of macroeconomic state variables. because a reduced form model requires that some of the company’s debt trades, either a zero-coupon or coupon bond.

Research Objectivity Requirement 5, Research Analyst Compensation, rec- ommends that analysts’ compensation be based on the accuracy of recommendations over time. In addition, compensation should not be directly linked to investment banking or other finance activities, which it is not in this case. LeCompte’s bonus is based on the group’s overall performance and is not specific to the research support she provides to various divisions.
The Research Objectivity Standards recommend that analysts’ compensation be based on the accuracy of recommendations over time.

. Betta has taken the correct approach in using actual coupon bonds for Bay Corp and estimating implied zero-coupon bonds. Because the bonds rank equally, there is no need to adjust for differences in priority in case of default. In practice, bond prices will be affected by liquidity, and investors expect additional spread or a liquidity premium to compensate for less liquid corporate bonds relative to sovereign bonds.
because there is a need to convert coupon bonds to implied zero-coupon bonds to infer the spread.
because no adjustment is necessary for differences in priority since all the bonds in this case rank equally.

There is a direct relationship, not an indirect one, between estimated poten- tial GDP growth and credit quality: Higher growth leads to higher quality—that is, an improvement in the likelihood of promised cash flows occurring.
Gillibrand’s statement is accurate. In the long run, the growth rate of GDP dominates. The ratio of earnings to GDP can neither rise nor decline forever, so over the long term it must approximate zero. Similarly, the P/E ratio cannot grow or contract forever, so over the long term it must also approximate zero. Thus, the drivers of potential GDP are ultimately the drivers of stock market performance. Navarro’s statement is accurate. The growth rate of potential GDP is an important determinant of the level of real interest rates, and thus real asset returns in general, in the economy. Faster growth in potential GDP means consumers expect their real income to rise more rapidly. Thus, higher rates of potential GDP growth translate into higher real interest rates and higher expected real asset returns in general.