HKSI Question Explainer: From Committees to Bond Pricing

Practice questions are a powerful way to reinforce your understanding of HKSI topics. The five questions below touch on essential areas you’re likely to encounter on exams and in the HK market: regulatory governance and independence, stamp duty, valuation methods, fund manager conduct, and fixed-income pricing. Instead of simply memorizing answers, let’s walk through the reasoning together and highlight the core concepts you should carry into the exam room.

Question 1

Which statements are correct?

Options:

• [A] The Leveraged Foreign Exchange Trading Arbitration Committee is one of the supervisory committees established by the SFC.
• [B] The Securities and Futures Commission Procedures Review Committee is an independent entity appointed by the Financial Secretary.
• [C] The Product Advisory Committee is independent of the SFC.
• [D] The Takeovers and Mergers Committee is granted partial powers by the SFC to enforce the Takeovers and Mergers Code and the Share Buybacks Code.

Discussion

• A: This statement is not correct. The Leveraged Foreign Exchange Trading Arbitration Committee is described as independent from the SFC, so it is not one of the SFC’s supervisory committees.
• B: This statement is not correct. The Procedures Review Committee is an independent entity, but it is appointed by the Chief Executive, not by the Financial Secretary.
• C: This statement is not correct. The Product Advisory Committee is established by the SFC itself, not independent of it.
• D: This statement is correct. The Takeovers and Mergers Committee is granted certain powers by the SFC to enforce the Takeovers and Mergers Code and the Share Buybacks Code.

Answer: D

Explanation: The other options misstate the governance relationships: A is about independence from the SFC, B is about who appoints it, and C is about independence from the SFC rather than being established by it.

Question 2

Ms. Chen bought 1,000 shares of Weisan Milk at $101.4 per share. With a stamp duty rate of 0.1%, how much stamp duty does she pay?

Options:

• [A] $101.4
• [B] $1010.4
• [C] $202.8
• [D] $2020.8

Discussion

• Transaction amount = price per share × quantity = 101.4 × 1,000 = 101,400.
• Stamp duty = 0.1% of 101,400 = 101,400 × 0.001 = 101.4.

Answer: A

Explanation: In Hong Kong, stamp duty on stock transfers is charged on the transaction amount for both buyer and seller, at the rate of 0.1% per side. Here, Chen’s share of the duty is 101.4.

Question 3

Assuming dividends grow at a constant rate, which valuation method is used to price the security?

Options:

• [A] Dividend Growth Model
• [B] Dividend Discount Model
• [C] Price-to-Earnings (P/E) Model
• [D] Capital Asset Pricing Model (CAPM)

Discussion

• The Dividend Growth Model explicitly incorporates a stable growth rate in dividends, representing a more realistic variant of dividend-based valuation.
• The Dividend Discount Model is the broader framework; the Growth variant is a specific case where dividends grow at a fixed rate.

Answer: A

Explanation: The Dividend Growth Model assumes dividends grow at a fixed rate, incorporating that growth into the valuation. It’s a specialized form of dividend-based valuation used when dividends are expected to grow consistently.

Question 4

Which statement about the Fund Manager Code of Conduct is not correct?

Options:

• [A] Trades must always be conducted in the best interests of the client.
• [B] Fund managers should not trade using confidential price-sensitive information.
• [C] Fund managers should not undertake excessive trading for the fund.
• [D] The Unit Trust Code is also a code that fund managers must comply with.

Discussion

• The correct interpretation is that trading should be in the client’s best interests, executed under fair terms and commercially reasonable conditions. The provided statement A is missing the explicit emphasis on fairness and general commercial terms, making it not correct in the stricter sense used in the guidelines.
• B, C, and D align with common codes of conduct for fund managers and related units.

Answer: A

Explanation: The proper articulation of best-practice trading includes meeting the client’s best interests and applying fair, commercially reasonable terms. The wording in option A as stated is incomplete, hence considered not correct in this context.

Question 5

Which bond would definitely be issued at a premium?

Options:

• [A] Zero-coupon bond
• [B] Fixed-rate bond
• [C] Floating-rate bond
• [D] None of the above bonds are issued at a premium

Discussion

• In this framework, bonds can be categorized by coupon type: fixed-rate, floating-rate, and zero-coupon. Based on the given premise, none of these would be issued at a premium under the stated conditions.

Answer: D

Explanation: According to the provided explanation, no bond type among zero-coupon, fixed-rate, or floating-rate is issued at a premium in this context; thus, none would necessarily be issued at a premium.

Key takeaways for HKSI candidates

• Regulatory structure matters: understand which bodies are independent and who appoints them, as this affects governance and compliance questions.
• Tax basics: know how stamp duty is calculated (transaction amount × rate) and that it is typically charged on the buyer and/or seller per transaction.
• Valuation methods: the Dividend Growth Model is a useful approach when dividends are expected to grow at a fixed rate; it’s a specialized version of dividend-based valuation.
• Code of conduct: focus on the core principles (best interests, fairness, and compliance with related codes) as tested in exam scenarios.
• Bond pricing concepts: be clear on the typical characteristics of bond types, and note that exam scenarios may simplify or specify context (e.g., stating that no bond is issued at a premium).

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