Schweser Printable Exams - SchweserPro 2008 CFA Level 1
Question 1 - 312
Brian Williams is a portfolio manager with Santo Capital and works on the Banks Company's account. Santo has a policy against accepting gifts over $500 from clients. The Banks' portfolio has a fantastic year, and in appreciation, the pension fund manager sent Williams a rare bottle of wine that he estimates is worth $300. Williams must:
A)report the pension fund manager to the CFA Institute Professional Conduct Program.
B)inform his supervisor in writing that he received additional compensation in the form of the wine.C)return the bottle to the client.D)donate the wine to charity.
Question 2 - 39148
Robert Hamilton, a CFA candidate, is preparing a research report on Pets-R-Us for public distribution.
Hamilton's preliminary report contains unfavorable earnings forecasts for the next four quarters. As part of his analysis, Hamilton met with Linda Brisson, the president of Pets-R-Us, and asked her to review the
preliminary report for factual inaccuracies. Brisson revised Hamilton's earnings forecasts so that the quarterly earnings showed an upward trend and resulted in positive earnings by the fourth quarter. Hamilton included the revised earnings figures in his report without further review. Although the final report included the basic characteristics of Pets-R-Us, it emphasized certain areas such as projected quarterly earnings but only briefly touched on others. According to CFA Institute Standards of Professional Conduct on research reports, Hamilton:
A)did not violate the Standard.
B)violated the Standard because he asked Brisson to review the report for factual inaccuracies.
violated the Standard because he did not thoroughly review and analyze any information provided C)
by Brisson.
violated the Standard because the report did not give similar attention to all areas but instead D)
emphasized quarterly earnings at the expense of other areas.
Question 3 - 39307
Jack Harris, a CFA candidate, is a telecommunications analyst at Hasten Securities. Based upon his analysis of Midwest Telecom, he changes his recommendation of the company’s common stock from “hold” to “sell.” Before disseminating his recommendation and the reason for the change to Hasten’s clients, Harris informs several portfolio managers at Hasten, whom he knows personally own Midwest stock, of the changed
recommendation. Several days later, Hasten communicates the change in investment recommendation on Midwest to clients known to have bought Midwest and those who currently hold the stock.
Jane White, CFA, is a broker at Hasten Securities. One of her clients places a buy order contrary to the current recommendation on Midwest. After advising her client of the recommendation, she executes the transaction.
According to Standard III(B), Fair Dealing, which of the following statements about Harris and White’s actions is TRUE?
A)Both Harris and White violated Standard III(B).
B)Harris violated Standard III(B), but White did not violate Standard III(B).C)Neither Harris nor White violated Standard III(B).
D)White violated Standard III(B), but Harris did not violate Standard III(B)
Question 4 - 39184
A money management firm has created a new junk-bond fund. When the firm advertised the new fund at its issuance, they used care to accurately compute the returns from the past 10 years for all assets in the fund. The firm used the current portfolio weights to determine an average annual historical return equal to 18% and claim an 18% annual historical return in their advertising literature. With respect to Standard III(D), Performance Presentation, this is:
A)in compliance.
a violation because the Standard prohibits computing historical returns on risky assets like junk B)
bonds.
C)a violation because the advertisement implies the firm generated this return.D)a violation because the firm should have used 12 years of data.
Question 5 - 303
Scott LaRue is a portfolio manager for Washington Advisors. Washington has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Washington model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research—an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as \"buys\" by the model. La Rue feels the model would be
improved by adding some factors but he has not fully tested this new version of the model. LaRue discloses his model to his own clients but not to his supervisor. LaRue is:
violating the Standards by not having a reasonable and adequate basis for his investment recommendation.
B)violating the Standards by not considering the appropriateness of the recommendations to clients.C)violating the Standards by not being objective.D)not violating the Standards.A)
Question 6 - 39296
Rachel Young, CFA, is making preparations to start a competitive business before terminating her relationship with her employer, a large money management company. Young asks Dot Wiggins, CFA, to consider joining her. In subsequent discussions with Young, Wiggins learns that Young has not disclosed to her employer ownership of stocks that Young recommended. She also learns that Young has used excerpts from research reports by others with only a slight change in wording without acknowledging the source. Wiggins declines Young’s offer to join the new business but does not dissociate herself from the violations. According to CFA Institute Standards of Professional Conduct, which of the following statements is FALSE?
Young violated Standard I(C) Misrepresentation, because she did not acknowledge the source of excepts that she used in research reports.
Young violated Standard VI(A) Disclosure of Conflicts, because she did not disclose to her B)
employer ownership of stocks that she has recommended.A)
Wiggins violated Standard I(A) Knowledge of the Law, because she did not dissociate herself from the violations.
Young violated Standard IV(A) Loyalty to Employer, because she was making preparations to start D)
a competitive business before terminating her relationship with her employer.C)
Question 7 - 39355
Sallie Reid, CFA, is asked by her boss, also a CFA charterholder, to use a research report of a competing firm, change a few details, sign it and send it to a large client. He says their firm’s researchers will draw the same conclusions but haven’t gotten to them yet. If she complies, she is doing all of the following EXCEPT:
A)violating CFA Institute standards dealing with plagiarism.
B)violating CFA Institute standards regarding misrepresentation.
C)complying with CFA Institute standards because she cannot disobey her boss.
obeying her boss, a CFA charterholder, but violating several of the CFA Institute Code and D)
Standards.
Question 8 - 305
Nancy Westfall is an individual investment advisor who uses mutual funds for her clients. She typically
chooses funds from a list of 40 funds that she has thoroughly researched. The Craigs, a married couple that is a client, asked her to consider the Eligis fund for their portfolio. Westfall had not previously considered the fund because when she first conducted her research three years ago, Eligis was too small to be considered. However, the fund has now grown in value, and after doing thorough research on the fund, she finds the fund has suitable characteristics to be included in her acceptable list of funds. She puts the fund in the Craigs' portfolio but not in any of her other clients' portfolios. The fund ends up being the poorest performing fund in the Craigs' portfolio. Has Westfall violated any Standards? Westfall has:
violated the Standards by not having a reasonable and adequate basis for making the recommendation.
B)not violated the Standards.
C)violated the Standards by not maintaining independence and objectivity.D)violated the Standards by not dealing fairly with clients.A)
Question 9 - 14
CFA Institute members should encourage their employers to do all of the following EXCEPT:
A)make clear that dishonest personal behavior reflects poorly on the profession.B)adopt a code of ethics to which every employee must subscribe.
conduct background checks on potential employees to ensure that they are of good character and C)
eligible to work in the investment industry.
D)require employees to write personal ethics statements.
Question 10 - 51
Which of the following statements is a key characteristic of Global Investment Performance Standards (GIPS)?
GIPS exist as a minimum worldwide standard where local or country-specific law, regulation, or industry standards may not exist for investment performance measurement and/or presentation.GIPS require managers to include all actual fee-paying and non-fee-paying discretionary portfolios B)
in composites defined according to similar strategy and/or investment objective.
GIPS require firms to show GIPS-compliant history for a minimum of ten years, or since inception C)
of the firm or composite if in existence less than ten years.
In cases in which applicable local or country-specific law or regulation conflicts with GIPS, the D)
standards require firms to comply with GIPS in order to claim compliance.A)
Question 11 - 39301
While on a business trip, John Hayes, CFA, found a notebook that had apparently been left in the waiting area of an airport. Hayes opened the notebook and read the title: Confidential: Level II CFA Examination. Before returning the notebook to CFA Institute, he made a copy and gave it to Linda Sacket, one of his firm's
analysts, who was a candidate for Level II of the CFA examination. Hayes reasoned that CFA Institute would not use these questions and that Sacket would benefit from reviewing these questions. Sacket read the questions and guideline answers before taking the Level II examination. According to the CFA Institute Standards of Professional Conduct:
A)Hayes violated the Standards, but Sacket did not.B)Sacket violated the Standards, but Hayes did not.C)neither Hayes nor Sacket violated the Standards.D)both Hayes and Sacket violated the Standards.
Question 12 - 39231
Standard VI(B), Priority of Transactions, applies to transactions an analyst takes on behalf of:
A)all of these.B)his employer.C)his clients.
D)personal accounts.
Question 13 - 39223
The following scenarios involve two analysts at Dupree Asset Management, a small New York-based
company with about $150 million in assets under management. Dupree restricts personal trading of stocks analyzed, corporate directorships, trustee positions, and other special relationships that could reasonably be considered a conflict of interest with their responsibilities to their employer.
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Ray Bolt, CFA, is a senior investment analyst. Bolt was recently elected to the board of trustees of his alma mater, Midwest University, and was appointed as the chairman of the University's endowment committee. Midwest has more than $2 billion in its endowment. Bolt must travel from New York to
Chicago eight times a year to attend meetings of the board of trustees and endowment committee. Bolt did not inform Dupree of his involvement with Midwest University.
Wanda Delvecco, a candidate in the CFA Program, is a junior investment analyst. She recently wrote a research report on Aveco Communications and recommended the stock for Dupree's \"buy\" list.
Delvecco bought 200 shares of Aveco stock for her personal account 12 months before she wrote her research report. Over the past 12 months, the stock's price has been in the $20-42 price range. Delvecco has not informed Dupree of her ownership of Aveco stock.
According to CFA Institute Standards of Professional Conduct, which the following statements about Bolt and
Delvecco's actions is TRUE?
A)Neither Bolt nor Delvecco violated the Standards.B)Bolt violated the Standards, but Delvecco did not.C)Both Bolt and Delvecco violated the Standards.D)Delvecco violated the Standards, but Bolt did not.
Question 14 - 363
The term \"material\" in the phrase \"material nonpublic information\" refers to information that is likely to affect significantly the market price of the issuing company's securities or that:
is derived by the financial analyst from direct communication with an issuing company's management.
is likely to preclude the financial analyst or analyst's firm from rendering unbiased or objective B)
advice.
is likely to be considered important by reasonable investors in determining whether to trade a C)
particular security.
is acquired by the financial analyst from a special or confidential relationship with the issuing D)
company.A)
Question 15 - 42
In 1995, the CFA Institute sponsored and funded the Global Investment Performance Standards (GIPS) in response to:
A)an increase in insider trading.
B)a need to address issues, such as portability of investment results.C)new regulation passed by the SEC.D)all of the reasons listed here.
Question 16 - 8239
According to the CFA Institute Standards of Professional Conduct, which of the following statements about members with supervisory responsibility is FALSE? Members with supervisory responsibility:
must make reasonable efforts to detect violation of laws, rules, regulations, and the Code and Standards.
are relieved of their supervisory responsibility if they delegate their supervisory duties to other B)
members of CFA Institute.
are expected to have in-depth knowledge of the Code and Standards and to apply this knowledge C)
in discharging their supervisory responsibilities.
should bring an inadequate compliance system to the attention of the firm's senior managers and D)
recommend corrective action.A)
Question 17 - 39322
An analyst notices that for most years that a given class of assets has an abnormally high rate of return, the
asset class often has an abnormally low rate of return the next year. Based upon this information, according to Standard V(A), Diligence and Reasonable Basis, the analyst can recommend:
A)short selling assets that have had a good previous year to all clients.
B)short selling assets that have had a good previous year to clients with a low tolerance for risk. an increased allocation of Treasury bills (T-bills) for all portfolios of assets that have increased C)
dramatically in the previous year. D)none of these choices.
Question 18 - 39188
Albert Long, CFA, manages portfolios of high net worth individuals for HKB Corp. Alice Thurmont, one of his close friends, heads a local charity for homeless children that depends on donations to operate. Because donations have declined during the past year, the charity is experiencing financial difficulty. Thurmont asks Long to give her a partial list of his clients so that she can contact them to make tax-deductible donations. Because Long knows that the charity provides much benefit to the community, he provides Thurmont with the requested list.
Betty Short, CFA, also works for HKB Corp. She receives a letter from CFA Institute's Professional Conduct Program (PCP) requesting that she provide information about one of HKB’s clients who is being investigated. Short complies with the request despite the confidential nature of the information requested by the PCP. Based on Standard III(E), Preservation of Confidentiality, which of the following statements about Long and Short’s actions is TRUE?
A)Both Long and Short violated Standard III(E).B)Neither Long nor Short violated Standard III(E).
C)Long violated Standard III(E) but Short did not violate Standard III(E).D)Short violated Standard III(E) but Long did not violate Standard III(E).
Question 19 - 39221
Greg Stiles, CFA, may withhold from CFA Institute information about a client acquired in the regular performance of his duties:
A)only if Stiles is a relative of the client.B)for none of the reasons listed.
C)only if Stiles has a special confidentiality agreement with the client.
D)if Stiles either has special confidentiality agreement with the client or the client is a relative.
Question 20 - 39508
Mark Williamson is “bearish” on ABC Manufacturing Company. Williamson is so convinced that ABC is overpriced, two weeks ago, he shorted 100,000 shares. Today, Williamson is “surfing” several popular investment bulletin boards on the internet and posting false derogatory comments about company management. According to Standard II(B), Market Manipulation, Williamson has engaged in:
A)transaction-based manipulation, but not information-based manipulation.B)both transaction-based manipulation and information-based manipulation.C)information-based manipulation, but not transaction-based manipulation.
D)neither transaction-based manipulation nor information-based manipulation.
Question 21 - 39252
An analyst meets with a new client. During the meeting, the analyst sees that the new client’s portfolio is heavily invested in one over-the-counter stock. The analyst has been following the stock and thinks it will perform well in the long run. The analyst arranges through a brokerage firm to simultaneously sell a large number of shares of the stock via a series of cross trades from the new client’s portfolio to various existing clients. He arranges the trades to be executed at a price that approximates the current market price. This action is:
A)a violation of Standard III(A), Loyalty, Prudence, and Care.B)not in violation of the Standards.
C)a violation of Standard III(B), Fair Dealing.
D)a violation of Standard V(A), Diligence and Reasonable Basis.
Question 22 - 12501
Janet Olson, CFA, is an analyst at Quantech Associates. Olson attended a conference at which Brian Wright presented several proprietary computerized spreadsheets that he had developed to value high-tech stocks. While at the conference, Olson copied the spreadsheets without Wright’s knowledge. Later, Olson made
several minor changes to Wright’s initial model. After testing the revised model, Olson was impressed with the results. As inputs for the model, she used factual materials supplied by Moody’s Investors Service, a
recognized financial and statistical reporting service. Olson wrote a research report describing the revised model and its results and distributed the report to Quantech’s clients. According to CFA Institute Standards of Professional Conduct, which of the following actions is Olson required to take? Olson is:
required to seek authorization from Wright to copy the spreadsheets and acknowledge Wright for developing the initial model and Moody's Investors Service as the source of the data.
required to acknowledge Moody's Investors Service as the source of the data but is not required to B)seek authorization from Wright to copy the spreadsheets or to acknowledge Wright for developing the initial model.
not required to seek authorization from Wright to copy the spreadsheets or to acknowledge either C)
Wright for developing the initial model or Moody's Investors Service as the source of the data. required to seek the authorization from Wright to copy the spreadsheets, acknowledge Wright for D)developing the initial model but is not required to acknowledge Moody's Investors Service as the source of the data. A)
Question 23 - 39317
Cynthia Abbott, a CFA charterholder, is preparing a research report on Boswell Company for her employer, Capital Asset Management. Bob Carter, president of Boswell, invites Cummings and several other analysts to visit his company and offers to pay her transportation and lodging. Abbott declines Carter’s offer but, while visiting the company, accepts a gift from Carter valued at $75. Abbott fails to disclose the gift to her supervisor at Capital when she returns. In the course of the company visit, Abbott overhears a conversation between
Carter and his chief financial officer that the company’s earnings per share (EPS) are expected to be $1.10 for the next quarter. Abbott was surprised that this EPS is substantially above her initial earnings estimate of $0.70 per share. Without further investigation, Abbott decides to include the $1.10 EPS in her research report on Boswell. Using the high EPS positively affects her recommendation of Boswell.
Which of the following statements about whether Abbott violated Standard V(A), Diligence and Reasonable Basis and Standard I(B), Independence and Objectivity is TRUE? Abbott:
A)violated both Standard V(A) and Standard I(B).
B)did not violate either Standard V(A) or Standard I(B).
C)did not violate Standard V(A) but she violated Standard I(B).D)violated Standard V(A) but she did not violate Standard I(B).
Question 24 - 39310
Lucy Ackert and Chris Brown prepared the following information to be included in the promotional materials of their employer, Lofton Securities.
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Lucy Ackert is one of five CFAs at Lofton Securities. She satisfied all requirements for the CFA designation in 1998.
Chris Brown holds a CFA Level I designation, which he passed in 2001. He is registered to take the next scheduled Level II examination.
Are the promotional materials prepared by Ackert and Brown fully consistent with the Standards of Professional Conduct?
A)Ackert: No. Brown: Yes. B)Ackert: No. Brown: No. C)Ackert: Yes. Brown: No. D)Ackert: Yes. Brown: Yes.
Question 25 - 346
A covered person who rejects a stipulation agreement:
A)may request an appeal to a hearing panel.
B)will typically not be subject to further disciplinary procedure unless a new investigation is initiated.C)may request an appeal to a summary suspension review panel.D)may request an appeal after waiting until two years have passed.
Question 26 - 39162
Wes Smith, CFA, has been working toward the completion of a Master of Science in Finance. He has passed all the necessary courses and written the necessary thesis. He still must defend the thesis in one month.
Smith’s thesis advisor assures him that he will pass the thesis defense. Smith has new business cards printed with “M.S. in Finance” after his name. This is a violation of:
A)Standard I(C), Misrepresentation.
none of the Standards if Smith does not make the cards public until after he defends his thesis and B)
receives his degree.
C)Standard II(B), Market Manipulation.
D)Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program.
Question 27 - 213
The Code of Ethics does NOT explicitly say that a CFA Institute member shall do which of the following?
A)Act with integrity.
B)Reflect credit on the profession.
C)Exercise independent professional judgment.D)Actively lobby for new laws to protect the public.
Question 28 - 12604
Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman is well-known in the high tech community in Boise, and Dragon.com has asked if he will help them organize their investor relations function on a consulting basis. They offer him an all-expenses-paid two-week holiday for two on Australia's Gold Coast in payment. Regarding this offer as a CFA Institute member Feldman is:
A)allowed to accept the offer only with written approval from zippy.
B)not allowed to accept such an offer since it effectively places him in competition with his employer.C)allowed to accept the offer only with written approval from zippy and from Dragon.
not allowed to accept such an offer since the compensation is non-cash and, therefore, is hard to D)
quantify for the purpose of adhering to the Code and Standards.
Question 29 - 12
An analyst, who is a CFA charterholder, is working in a foreign country. Which of the following statements is TRUE? The analyst is:
covered by the strictest of the following laws and rules: his own country's, the foreign country's or CFA Institute's Code and Standards.
B)governed by CFA Institute's Code and Standards.
C)governed by the laws and standards of the country in which he is living and working.D)covered by U.S. securities laws.A)
Question 30 - 25
Bob Smith, CFA, is an outside board member of Atlantic Technologies, but is not paid by the firm for his
services. An employee at Atlantic informs Smith that Atlantic has improperly timed the booking of contracts to achieve the desired quarterly financial results. The misleading financial statements would turn losses into profits. Smith confers with the firm's legal counsel who indicates that this conduct is, in fact, illegal. Smith urges Sharon White, Atlantic's chief operating executive, to change the financial statements, but she refuses to do so. According to CFA Institute Standards of Professional Conduct, which of the following statements best describes what Smith should do in this situation?
A)Smith should immediately make CFA Institute aware of the situation at Atlantic.
Smith should promptly disassociate himself from Atlantic's actions by resigning as a director or by B)
reporting the activities to the appropriate authorities.
Smith should wait until the next board meeting, which is scheduled in two weeks, to make other C)
board members aware of the situation.
Smith does not have to take any additional action because he is not one of the firm's paid D)
employees.
Question 31 - 39426
Rhonda Meyer, CFA, is preparing a research report on Moon Ventures, Inc. In the course of her research she learns the following:
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Moon had its credit rating downgraded by a prominent rating agency 3 years ago due to sales pressure in the industry. The rating was restored 3 months later when the pressure resolved.
Moon’s insider trading has been substantial over the last 3 months. Holdings of Moon shares by officers, directors, and key employees were reduced by 50% during that period.
In Meyer’s detailed report making a buy recommendation for Moon, both the credit rating downgrade and the insider trading were omitted from the report. Meyer has:
A)violated the Code and Standards by not including the insider trading information in her report.violated the Code and Standards by not including the insider trading information and by not B)
including the credit rating downgrade in her report.
C)violated the Code and Standards by not including the credit rating downgrade in her report. D)not violated the Code and Standards in her report.
Question 32 - 30
Allen Parsons, a CFA candidate, suspects a colleague at his firm of engaging in an illegal activity. Which of the following statements about procedures for compliance involving Standard I(A), Knowledge of the law is FALSE? Parsons:
A)should consult counsel to determine whether the conduct is, in fact, illegal.
B)is required to report this legal violation to the appropriate governmental or regulatory organizations.C)should disassociate from any illegal activity.
D)should urge his firm to attempt to persuade the perpetrator to cease such conduct.
Question 33 - 39155
An analyst goes straight from a research seminar to a meeting with a prospective new client with whom she has never been in contact. The analyst is very excited about the information she just received in the seminar and begins showing the prospect the new ideas her firm is coming up with. This is most likely a violation of:
A)Standard III(B), Fair Dealing.
B)Standard I(B), Independence and Objectivity. C)all of these.
D)Standard III(C), Suitability.
Question 34 - 39236
Dwight Dawson, a CFA charterholder and portfolio manager at Ascott Investments, was recently appointed to the investments committee at Brightwood College. He will receive no compensation from Brightwood for
serving on this committee. Another person at Ascott manages part of Brightwood’s endowment. Dawson does not inform Ascott’s compliance office of his involvement with Brightwood, because he does not believe doing
so is necessary.
Brenda Hamilton, a CFA candidate, also works for Ascott as an investment analyst. Procedures established at Ascott prohibit personal trading in securities analyzed or recommended by Ascott. One of these securities is Horizon, a telecommunications firm. Hamilton buys 10 shares of Horizon for her infant son’s trust account. She believes that reporting this purchase to Ascott’s compliance officer is unnecessary because the amount of the transaction is small and is not for her own personal account.
Did Dawson or Hamilton’s actions violate CFA Institute Standards of Professional Conduct?
A)Dawson: No, Hamilton: No. B)Dawson: Yes, Hamilton: Yes. C)Dawson: Yes, Hamilton: No. D)Dawson: No, Hamilton: Yes.
Question 35 - 39175
Andrew Mader, CFA, is an analyst with Metro Investment Services. During lunch with some of Metro's managers, Mader is told, \"There are going to be major problems at Gebco (a firm that Metro had brought public last year). I was just over there and the place is just crawling with government inspectors.” Mader had just issued a report with a \"buy\" recommendation on Gebco last week. Mader should:
A)without further research, immediately issue a new report reversing his previous recommendation.B)immediately issue a new report, but only after stopping by Gebco himself to corroborate the story.C)not do anything to avoid a violation of fair dealing.
D)not do anything because to do so would violate his obligation to preserve confidentiality.
Question 36 - 8056
Scott Andrews, CFA, is a stockbroker selling an oversubscribed stock issue. Which of the following best describes Andrews' actions regarding this sale? Andrews:
A)can offer this security on a prorated basis to all clients for which the security is appropriate.B)can offer this security to all clients on a first come first serve basis.
C)can only offer this security to clients for which it is appropriate on a first come first serve basis.D)cannot offer an oversubscribed issue of stock to any clients.
Question 37 - 348
With respect to filing complaints concerning the professional conduct of a CFA Institute member, which of the following is TRUE?
Anyone can write the Standards and Policy Committee staff with a complaint concerning the conduct of any member.
Only other members can write the Professional Conduct Program staff with a complaint concerning B)
the conduct of another member.
Only other members can write the Standards and Policy Committee staff with a complaint C)
concerning the conduct of another member.
Anyone can write the Professional Conduct Program staff with a complaint concerning the conduct D)
of any member.A)
Question 38 - 12278
The mosaic theory is the idea that an analyst can:
make investment recommendations on the basis of several pieces of nonpublic information as long as the aggregate information remains nonmaterial.
make recommendations or trade based on several pieces of public or nonpublic information, each B)
piece by itself being nonmaterial, but when compiled the information becomes material.
base his recommendations on nonpublic material information only for the clients of the company, C)
but not for the general public.
use nonpublic material information only for the company's clients, after he informs his supervisor D)
about it. A)
Question 39 - 39428
Marion Klatt, CFA, is a representative for Thiel Financial Network. Klatt received a phone call at home from William Kind, a junior executive at Westtown Development Company, asking whether Klatt had heard that Westtown had just reached an agreement to acquire a major shopping mall chain at a very favorable price. (Klatt had not heard this news, and Klatt was able to confirm that the information had not yet been made public.) Kind requested that Klatt acquire 10,000 shares of Westtown for Kind’s personal account. Klatt should:
not acquire the shares until he has contacted Westtown's management and encouraged them to publicly announce the merger discussion.
B)not acquire the shares until the information is made public.C)proceed to acquire the shares.D)not acquire the shares.A)
Question 40 - 308
Maggie McCarthy is an individual investment advisor who uses mutual funds for her clients. She typically chooses from a list of 40 funds that she has thoroughly researched. The Figgs, a married couple that are a client, asked her to consider the Boilermaker fund for their portfolio. McCarthy had not previously considered the fund because when she first conducted her research three years ago, Boilermaker was too small to be considered. However, the fund has now grown in value, and after doing thorough research on Boilermaker, she found the fund was by far the most outstanding large company value fund in her list of funds. She puts the fund in the Figgs' portfolio, and in all new clients portfolios, but not in any of her other clients' portfolios. Her reasoning is that her existing clients were comfortable with their current holdings, and she did not want to risk disturbing their comfort. Has McCarthy violated any Standards? McCarthy has:
A)not violated the Standards.
B)violated the Standards by not maintaining independence and objectivity.
violated the Standards by not having a reasonable and adequate basis for making the C)
recommendation.
D)violated the Standards by not dealing fairly with clients.
Question 41 - 39186
Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Worldwide Brokerage. Worldwide suggests to Calaveccio that they are willing to provide him with additional compensation for order flow. Is this permissible under the Code and Standards?
A)Yes, if he discloses the arrangement in writing to TrustCo.
B)Yes, if he obtains written permission from Trustco and his clients and prospects.C)No, such an arrangement is in violation of the Code and Standards.
Yes, if he receives written consent from TrustCo and discloses the arrangement to his clients and D)
prospects.
Question 42 - 12274
The Konkol Company implements a new methodology for portfolio valuation that is licensed to them by ABC Statistics. Konkol complies with the CFA Institute Code and Standards by:
discussing the new methodology with clients only when in a change in the security selection process is involved.
not discussing the new methodology with clients because it is the property of ABC, which controls B)
all user rights.
C)discussing the new methodology with the clients, in its entirety.
not discussing the new methodology with clients because there is no need to, as it will not change D)
their risk and yield preferences. A)
Question 43 - 39268
John Hill, CFA, has been working for Advisors, Inc., for eight years. Hill is about to start his own money
management business and has given his two-week notice of his resignation from Advisors. A few days before his resignation takes effect, on his lunch hour, he takes out a loan from a bank on behalf of his new business and uses the money to buy some office equipment for his new business. Since he engaged in these transactions while still an employee of Advisors, Hill violated Standard IV(A), Loyalty to Employer, by:
A)engaging in a financial transaction, like taking out a loan, only.B)purchasing office equipment, only.
C)both taking out the loan and purchasing the office equipment.D)none of these actions.
Question 44 - 313
Ken James has been an independent financial advisor for 15 years. He received his CFA Charter in 1993, but did not feel it helped his business, so he let his dues lapse this year. He still has several hundred business cards with the CFA designation printed on them. His promotional materials state that he received his CFA designation in 1993. James:
must cease distributing the cards with the CFA designation, but can continue to use the existing promotional materials.
B)must cease distributing the cards with the CFA designation and the existing promotional materials.can continue to use the existing promotional materials, and can use the cards until his supply runs C)
out—his new cards cannot have the designation.
must cease using the existing promotional materials, but can use the cards until his supply runs D)
out—his new cards cannot have the designation.A)
Question 45 - 29
Bob Blanford, CFA, is an investment analyst for a large global brokerage firm. He recently moved to Ragatan, a developing country with few securities laws and regulations. As part of conducting a company analysis, Blanford interviews Ravi Shanti, vice-president of finance at Starr Industries. Starr is a major industrial firm in Ragatan and a client at Blanford’s firm. Based on his analysis, Blanford suspects that Shanti may have deliberately overstated Starr’s current earnings and its earnings for the past several quarters. If this information becomes public, Blanford believes that Starr’s stock price will drop substantially. Blanford
suspects that Shanti may have violated Ragatan’s securities laws. Which of the following statements is least likely to comply with Standard I, Professionalism? Blanford should:
A)determine the legality of the activity, possibly by consulting counsel. B)disassociate himself from the client, if the activity is illegal or unethical.
C)urge his firm to attempt to persuade Shanti to cease such conduct, if the activity is illegal.D)take no action.
Question 46 - 39475
Which of the following statements regarding the Global Investment Performance Standards (GIPS) is TRUE? The GIPS standards:
A)are considered to be the minimum global standard for historical performance presentation. are designed to supplement local standards of historical performance presentation in countries B)
around the world.
are designed to be adapted to each country’s well-established practices, utilizing the “Country C)
Version of GIPS” (CVG) approach.
D)represent the highest performance measurement and presentation practice worldwide.
Question 47 - 7936
Patricia Spraetz is the chief financial officer and compliance officer at Super Selection Investment Advisors. Super Selection is a medium-sized money management firm which has incorporated the CFA Institute Code of Ethics and Standards of Practice into the firm's compliance manual.
Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is friendly with David James, president of AMD, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson has also served on AMD's board of directors but has never notified Super Selection of this fact. She has received options and fees as compensation.
Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase AMD for her clients' portfolios.
Which of the following statements is FALSE?
A)
Jackson violated Standard VI(A) regarding Conflicts of interest by not disclosing her board membership and ownership of stock options to her employer.
Jackson violated Standard IV(B) regarding Disclosure of Additional Compensation by not
B)disclosing additional compensation in the form of cash and stock options received from AMD, as its board member to her employer.
Jackson has in the past violated Standard VI(B) on Priority of Transactions by trading ahead of her C)
clients' accounts when she purchased the same shares for her personal account.
Jackson did not violate Standard III(A) on Fiduciary Duty to clients because she was bound by her fiduciary duty to AMD and its stockholders as a board member. Therefore, when she reversed her D)
decision to buy AMD shares for Super Selection's clients, portfolios on James' request, her obligation to AMD took precedence.
Question 48 - 39159
All of the following are components of the Code of Ethics EXCEPT:
A)striving to maintain and improve their competence and the competence of others in the profession.B)acting with integrity, competence, respect, and in an ethical manner when dealing with others.C)demonstrating diligence, independence, and thoroughness when preparing investment reports.D)using reasonable care and exercising independent professional judgment.
Question 49 - 39193
In dealing with the public and others, the CFA Institute Code of Ethics indicates that CFA Institute members will act with:
A)honesty, professionalism, and goodwill.B)conviction, skill, and ethical awareness.
C)confidence, knowledge, and high ethical standards.D)integrity, competence, and respect.
Question 50 - 286
While visiting the CSI Company, Mark Ramsey, CFA, overheard management make comments that were not public information, but were not really meaningful by themselves. However, when this information is combined with his own analysis and other outside sources, Ramsey decides to change his recommendation on CSI from buy to sell. According to CFA Institute Standards of Professional Conduct, Ramsey should:
issue his sell report because the facts are nonmaterial, but maintain a file of the facts and documents leading to this conclusion.
report these events to his immediate supervisor and legal counsel, since they have become B)
material in combination with his analysis.
C)not issue his report until these comments are made public.
D)contact CSI's managers and have them publicly announce their statements.A)
Question 51 - 39306
Lynne Jennings is a research analyst for a large brokerage company following the chemical industry. While flying through Chicago, Jennings visited her sister who works in the airport hospitality center for an airline. Many meetings take place at the center on any given day. At the center Jennings saw several senior officers
who she knows are from the largest and fourth largest chemical companies walk into a conference room. She concluded that negotiations for an acquisition might be taking place. She told her sister this, and her sister asked her not to disclose how she got the information. Jennings should:
write a research report describing that she witnessed the senior officers together in the hospitality center, and must mention in the report that her sister is an employee of the center.
write a research report mentioning the meeting but not disclose how she knew that the meeting B)
occurred.
C)not write a research report disclosing the meeting.
write a research report describing that she witnessed the senior officers together in the hospitality D)
center, but need not mention in the report that her sister is an employee of the center.A)
Question 52 - 8035
Denise Weaver is a portfolio manager who manages a mutual fund and has pension clients. When Weaver receives a proxy for stock in the mutual fund, she gives it to Susan Griffith, her administrative assistant, to complete. When the proxy is for a stock owned in a pension plan, she asks Griffith to send the proxy on to the director of the pension fund. Weaver has:
violated the Standards by her policy on pension fund proxies, but not her policy on mutual fund proxies.
violated the Standards by her policy on mutual fund proxies, but not her policy on pension fund B)
proxies.
C)not violated the Standards.
D)violated the Standards by her policy on mutual fund and pension fund proxies.A)
Question 53 - 60
With respect to reporting investment results, Global Investment Performance Standards (GIPS) require a minimum of:
A)five years of historical performance.B)three years of historical performance.C)ten years of historical performance.D)twelve years of historical performance.
Question 54 - 39260
Susan Plumb is the supervisor of her firm’s research department. Her firm has been seeking the mandate to underwrite Wings Industries’ proposed secondary stock offering. Without mentioning that the firm is seeking the mandate, she asks Jack Dawson to analyze Wings common stock and prepare a research report. After reasonable effort, Dawson produces a favorable report on Wings stock. Plumb then adds a footnote
describing the underwriting relationship with Wings and disseminates the report to the firm’s clients. According to CFA Institute Standards of Professional Conduct, these actions are:
A)a violation of Standard V(A), Diligence and Reasonable Basis.B)not a violation of any Standard.
C)a violation of Standard VI(A), Disclosure of Conflicts. D)a violation of Standard IV(A), Loyalty to Employer.
Question 55 - 128
Bob Douglas, CFA, is considering leaving his current employer to compete in the same field. He did not sign a non-compete clause when he was hired. He may:
plan and prepare to compete with his current employer, but not begin competing until his resignation is effective.
begin competing with his current employer as long as the employer has been informed of Douglas' B)
future intentions.
may not prepare to compete, begin competing, or anything related to competing with his current C)
employer.
engage in any competitive activities that do not directly result in stealing the current employer's D)
clients.A)
Question 56 - 337
Anna Nichols is a research analyst preparing a report on Enterprise Company. In order to ensure accuracy in her report, she sends the report to the Chief Financial Officer (CFO) of Enterprise to allow him to point out some factual errors. The CFO makes some corrections, which Nichols checks and agrees with. The CFO also sends Nichols several pages of market analyses that appear favorable for Enterprise. Nichols checks the analyses for accuracy and includes a summary of them in her report, pointing out that the data came from Enterprise. Nichols has:
violated the Standards of Professional Conduct by sending the report to the CFO before sending it to her clients.
B)not violated the Standards of Professional Conduct.
violated the Standards of Professional Conduct by not including all of the data the CFO provided to C)
her.
D)violated the Standards of Professional Conduct by including the data from the CFO in the report.A)
Question 57 - 16
Benito Salvatore, CFA, is licensed in the established country of Oldworld but has clients and makes
investments in the emerging county of Newworld. The regulations of Oldworld prohibit licensed investment professionals from taking gifts or gratuities in any amount from vendors or persons connected with potential investments. The laws of Newworld are silent on this issue. Unsolicited, Salvatore is offered a vase worth US $75 by a Newworld trust company and a bronze statue worth US $200 by a Newworld company that Salvatore is considering as a potential investment. Salvatore is:
A)permitted to accept the vase but not the statue.B)permitted to accept the statue but not the vase.C)not permitted to accept either gift.D)permitted to accept both gifts.
Question 58 - 12277
John McNeal, CFA, has a friend named Stan Green, a journalist at Investment News, a weekly magazine. In
one of their conversations, Green tells McNeal about material nonpublic problems at Brightstar.com, a heavily traded firm. Green has written a special article about Brightstar.com’s problems that will appear in the next issue of Investment News. According to the Standards, can McNeal act on the information Green has shared with him?
A)No, McNeal cannot trade on the information.
B)Yes, McNeal can trade on the information, because it is already public.
Yes, McNeal can trade on the information but should ask Green to disseminate the information C)
immediately.
Yes, McNeal can trade on the information, because he received it from Green, who has no D)
fiduciary duties.
Question 59 - 39189
Which of the following statements about Standard IV(C), Responsibilities of Supervisors, is FALSE? CFA Institute members with supervisory authority:
A)
are expected to bring an inadequate compliance system to the attention of the firm's senior managers and recommend corrective action.
B)may delegate supervisory duties, which relieves them of their supervisory authority.
are expected to have in-depth knowledge of the Code and Standards and to apply this knowledge C)
in discharging their supervisory responsibilities.
must make reasonable efforts to detect violations of laws, rules, regulations, and the Code and D)
Standards.
Question 60 - 39299
An analyst finds a stock with historical returns that are not correlated with interest rate changes. The analyst writes a report for his clients that have large allocations in fixed-income instruments and emphasizes the observed lack of correlation. The clients with allocations of fixed income instruments are the only clients to see the report. According to Standard V(B), Communication with Clients and Prospective Clients, the analyst has:
A)violated the Standard concerning fair dealings with all clients.
B)violated the Standard by emphasizing the information concerning the correlation. C)not violated the Standard.
D)violated the article in the Standard concerning facts and opinions.
Question 61 - 39274
Michel Marchant, CFA, recently became an independent money manager. After six months, he has only ten clients, who are family and friends. To supplement his income, Marchant accepted part-time employment as an advisor at Middleton Financial Advisors. According to CFA Institute Standards of Professional Conduct, which of the following statements about Marchant's duty to his new employer is TRUE?
Marchant must inform Middleton about his existing clients but need not inform his existing clients about his new part-time employment with Middleton.
Marchant need not inform Middleton about his existing clients but must inform his existing clients B)
about his new part-time employment at Middleton.
Marchant need not inform Middleton about his existing clients or his existing clients about his new C)
part-time employment at Middleton.A)
D)
Marchant must inform Middleton to keep his existing clients and must inform his existing clients of his new part-time employment at Middleton.
Question 62 - 39256
Victor Logan is a portfolio manager for McCoy Advisors, and Jack Brisco is the Director of Research for McCoy. Brisco has developed a proprietary model that has been thoroughly researched and is known
throughout the industry as the McCoy model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. Brisco
frequently alters the model based on rigorous research—an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as \"buys\" by the model. Logan has conducted very thorough research on his own, using the same process that Brisco uses to validate his
findings. Logan feels the model is missing some key elements that would further reduce the list of acceptable securities to purchase, however, Brisco has refused to look at Logan's research. Frustrated by this, Logan applies his own version of the model, with the justification that he is still only purchasing securities on the buy list. Because of the conflict with Brisco, he does not disclose the use of the model to anyone at McCoy or to clients. Which of the following statements regarding Logan and Brisco is TRUE? Logan is:
violating the Standards by applying his version of the model and by not disclosing it to clients. Brisco is not violating the Standards.
not violating the Standards by applying his version of the model, but is violating the Standards by B)
not disclosing it to clients. Brisco is not violating the Standards.
violating the Standards by applying his version of the model, but not by failing to disclose it to C)
clients. Brisco is not violating the Standards.
violating the Standards by applying his version of the model and by not disclosing it to clients. D)
Brisco is violating the Standards by failing to consider Logan's research.A)
Question 63 - 39232
Luis Rodriguez, CFA, is an analyst at XYZ Investments. He covers a company that is located in a region that is not easily accessible. The company invites analysts for their annual analyst meeting and pays for the transportation to the remote location. Rodriguez is:
not allowed to accept the payment for transportation because this is a considered a “perk” and may influence his independent judgment.
allowed to accept the payment for transportation because the trip was all business and was out of B)
the way.
C)allowed to accept the payment for transportation as long as it does not exceed $100. D)allowed to accept the payment for transportation because everyone else did. A)
Question 64 - 158
Sharon West is a CFA charterholder and trust officer for REO Trust Company. Soon after beginning work for REO, West finds that REO has been conducting all its securities transactions through her brother who is a registered representative. West's brother charges REO commissions that are equal to the lowest available from another broker. West's brother tells her that if she continues doing business with him, he will give her a substantial discount on all personal transactions she conducts through him. West:
A)
must inform her employer of the arrangement because it provides her with additional compensation.
B)must inform her employer of the arrangement because she is doing business with a member of her
immediate family.
does not need to inform her employer of the arrangement because REO has been doing business C)
with her brother before she was hired.
does not need to inform her employer of the arrangement because the commissions her brother D)
charges the firm are the lowest possible.
Question 65 - 44795
Liam McCoy, CFA, has lunch with a wealthy client whose portfolio he manages. McCoy advises the client to double his current position in the JKM Corporation due to an anticipated increase in sales. In accordance with Standard (V) Investment Analysis, Recommendations and Actions, when McCoy returns to his office he should:
identify other clients for whom JKM may be a suitable investment and notify them immediately of his recommendation.
execute his client’s order, and then consider whether or not JKM might be a suitable investment for B)
McCoy’s personal portfolio.
C)verify the suitability of the investment recommendation before placing the client’s order. document the details of the conversation with the client with regard to his investment D)
recommendation.A)
Question 66 - 49
Which of the following is NOT an objective of the Global Investment Performance Standards (GIPS)?
To ensure accurate and consistent investment performance data for reporting, record keeping, marketing, and presentation.
To obtain worldwide recognition by securities regulators of a standard for the calculation and B)
presentation of investment performance in a fair, comparable format that provides full disclosure.To promote fair, global competition among investment firms for all markets without creating barriers C)
to entry for new firms.
D)To foster the notion of industry self-regulation on a global basis.A)
Question 67 - 39222
A stockbroker who is a member of CFA Institute has a part-time housekeeper who also works for the CEO of Festival, Inc. One day the housekeeper mentions to the broker that she saw the CEO of Festival having a conversation at his home with John Tater, who is a nationally known corporate lawyer and consultant. The stockbroker is restricted from trading on this information:
A)only if the broker knows that the meeting is non-public information.B)if the broker is friends with the CEO of Festival.C)for all of the reasons listed here.
if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-D)
public information.
Question 68 - 39178
Janine Turner, a CFA candidate, is an analyst for Lansing Asset Management. She just completed an
investment report in which she recommends changing a “buy” to a “sell” for Gallup Company. Her supervisor at Lansing approves of the change in recommendation. She wonders about whether she needs to
disseminate this investment recommendation to Lansing’s clients and if so, how to distribute this information. According to CFA Institute Standards of Professional Conduct, Turner is:
required to design an equitable system to disseminate the change in a prior investment recommendation.
not required to disseminate the change of recommendation from a buy to a sell because the B)
change is not material.
required to disseminate the change in a prior investment recommendation to all clients and C)
customers on a uniform basis.
required to design a system to disseminate the change in a prior investment recommendation that D)
gives priority to Lansing's largest clients. A)
Question 69 - 12586
In order to comply with the CFA Institute Standards, an analyst should:
A)use outside research only after verifying its accuracy.
use only his own research in making investment recommendations, because anything else would B)
violate Standard I(B), Independence and Objectivity.
use only his company's research when making investment recommendations and use outside C)
research for reports and analysis on stocks.
D)use only statistical data from outside sources when issuing investment recommendations.
Question 70 - 39161
All of the following violate Standard I(C), Misrepresentation, EXCEPT:
A)copying a proprietary computerized spreadsheet without seeking authorization from their creators. B)citing quotes attributable to \"investment experts\" without specific references.
C)using excerpts from reports prepared by others with minor word changes without acknowledgment. presenting factual information published by recognized statistical reporting services without D)
acknowledgment.
Question 71 - 39305
For many years, John Berger, CFA, has been a mentor of Bob Chennings, a family friend, who just earned the CFA designation. Berger is the CEO of a firm that just hired Chennings, but the hiring was done at a lower level so Berger and Chennings have no direct contact in the daily operation of the firm. With respect to Standard IV(C), Responsibilities of Supervisors, Berger:
A)assumes no extra responsibility with the hiring of Chennings.
must develop a set of written procedures to prevent violations derived from his mentoring B)
Chennings.
C)must routinely evaluate Chennings' performance.
must both develop written procedures concerning Chennings and routinely evaluate his D)
performance.
Question 72 - 464
Janet Reilly has just approached Betty Miller, CFA, about purchasing 10,000 shares of Brookshire Co., a newly incorporated real estate development firm. Reilly is a retired schoolteacher living off the income from her late husband's life insurance policy. This investment will represent a significant shift in her investment portfolio. Brookshire Co. is a local firm that has recently received a lot of press concerning some exciting, but speculative projects that they have undertaken in the region. Consistent with the Standards, Miller should:
A)accept Reilly's order, but have her sign a disclaimer absolving Miller of any potential losses.accept Reilly's order after she acquaints Reilly with the downside risks associated with a risky B)
investment of this type.
C)not accept the order, because it is not a suitable investment for Reilly.
not accept the order until Miller has explained to Reilly her education, training, and investing D)
experience.
Question 73 - 56
Which of the following is NOT an important characteristic of how a firm defines itself? The firm definition establishes the:
A)entity to which local securities laws apply when they exceed the GIPS requirements.B)boundaries for what is included when measuring the total firm's assets.C)set of portfolios that must be included in at least one of a firm's composites.D)entity to which the GIPS standards apply when a claim of compliance is made.
Question 74 - 39263
In the process of recommending an investment, in order to comply with Standard V(A), Diligence and Reasonable Basis, a CFA Institute member must:
A)have a reasonable and adequate basis for the recommendation.
B)support a recommendation with appropriate research and investigation.C)do all of these.
D)exercise independence and thoroughness.
Question 75 - 39510
Standard VI(C), Referral Fees, is applicable to:
A)all consideration received or paid for the recommendation of products or services.B)only cash consideration received for the recommendation of products or services.C)only cash consideration paid for the recommendation of products or services.
D)only consideration paid in soft dollars for the recommendation of products or services.
Question 76 - 437
An analyst has found an investment with what appears to be a great return-to-risk ratio. The analyst double-checks the data for accuracy, keeps careful records, and is careful to not make any misrepresentations as he simultaneously sends an e-mail to all his clients with a “buy” recommendation. According to Standard V(A), Diligence and Reasonable Basis, the analyst has:
A)violated the Standard if he does not verify whether the investment is appropriate for all the clients.B)fulfilled all obligations.
C)violated the Standard by communicating the recommendation via e-mail.D)violated the Standard if he does not file a report with the SEC.
Question 77 - 12611
Stephen Rangen, a broker, has three accounts consisting of unsophisticated, inexperienced individual
investors with limited means. One of these accounts is an elderly couple. The clients want to invest in safe, income-producing investments. They rely heavily on Rangen’s advice and expect him to initiate most transactions in their respective accounts. In managing their accounts, Rangen pursues the following strategies: (1) buys U.S. treasury strips and non-dividend paying over-the-counter (OTC) stocks
recommended by his firm's research department, (2) uses margin accounts, and (3) concentrates the equity portion of their portfolio in one or two stocks. Rangen’s approach leads to extremely high turnover rates in all three accounts.
Part 1)
Which of the following statements about Rangen is FALSE?
A)Rangen has a fiduciary duty to each client.
B)Rangen's conduct violates Standard III(C), Suitability.
C)Rangen places his own interests above those of his clients by excessively trading in the accounts. D)Rangen's conduct violates Standard IV(B), Additional Compensation Arrangements.
Part 2)
Which of the following statements about Rangen's conduct is TRUE? Rangen's conduct:
meets the requirements of the Code and Standards because his clients are aware of the risks that he is taking in managing their accounts.
meets the requirements of the Code and Standards because he does not have complete control B)
over his clients' accounts.
meets the requirements of the Code and Standards because his firm's research department C)
recommended the U.S. Treasury strips and non-dividend paying stocks.
does not meet the requirements of the Code and Standards because his investment strategy is D)
inconsistent with his clients' objectives. A)
Question 78 - 39249
A firm recently hired Jill Taylor, CFA, to be a managing supervisor in the firm. Taylor knows that all of her subordinate supervisors are members of CFA Institute and that they have a compliance system in place with respect to the Code and Standards. Under these conditions Taylor needs to:
A)immediately implement a new compliance system.
rely on the current compliance system since the subordinate supervisors are subject to the Code B)
and Standards.
C)none of these choices.
D)review the compliance system for its adequacy.
Question 79 - 39254
Which of the following does NOT violate Standard I(D), Misconduct? Roland Lawson, a CFA charterholder and a financial analyst:
A)committed perjury in connection with a lawsuit against his firm.
drinks excessively during business meetings with clients and returns to work under the influence of B)
alcohol.
C)falsifies expense reports resulting from company visits needed to develop investment reports.D)is arrested for participating in a nonviolent protest.
Question 80 - 12607
While copying some of her research materials at work, Mary Jones comes across a few incomplete research notes written by one of her colleagues. As a result of reading the notes, and without further review, Jones immediately changes one of her stock recommendations from sell to buy. Which of the following CFA Institute Standards has Jones violated?
A)Standard I(B), Independence and Objectivity.B)Standard V(A), Diligence and Reasonable Basis.C)Standard III(A), Loyalty, Prudence, and Care.D)Standard III(B), Fair Dealing.
Question 81 - 39505
Which of the following is a violation of Standard II(B), Market Manipulation?
A)Overstating an earnings projection in order to increase the price of a stock.
B)Implementing a trading strategy to exploit differences in market power and information.
Selling a security and immediately purchasing a similar security in order to minimize income tax C)
liability.
D)Engaging in a block trade to limit the effect on the price of a thinly traded security.
Question 82 - 416
A portfolio manager must determine the client’s constraints, which may include all of the following EXCEPT the client’s:
A)liquidity needs.
B)mortgage payment.C)time horizon.
D)tax considerations.
Question 83 - 12600
Kenny Barrett, CFA, is working in the Australian office of American Investments Co. From an informal
conversation, Barrett learns that the company’s most recent investment report was based on misappropriated information. No one at the Australian office expresses concern, however, because there has been no breach of Australian law. Barrett should:
A)seek advice from company counsel to determine appropriate action. B)do nothing because the branch is outside of U.S. jurisdiction. C)make public statements about the source of the information.
D)disassociate himself from the case with a written report to his supervisor.
Question 84 - 39217
Chuck Thomas is the trustee of a trust of which Jill Wyatt is the main beneficiary. Wyatt's husband is the president of a company. In emptying the recycling bin at home, Wyatt finds some papers that lead her to believe that her husband’s company will make a tender offer to acquire another firm. Wyatt takes the information to Thomas, who uses it to purchase shares of the company for the trust, but does not further disclose the information. Thomas has:
A)violated the Standards concerning loyalty, prudence, and care.B)violated the Standards concerning preservation of confidentiality.C)not violated any Standards.
D)violated the Standards concerning material nonpublic information.
Question 85 - 327
Steve Phillips is the new director of equity research for a brokerage company. He receives a call from a reporter at the Financial News, a weekly publication that comes out on Mondays. The reporter explains the relationship she had with his predecessor. They would share information that they both learned on stocks—the former director would benefit the company's clients by news he obtained from the reporter in exchange for information he gave to her. The former director could ask her not to publish any information he gave her until after a certain date, ensuring that the brokerage clients would be informed before the publication date. After the conversation, Phillips called the former director, who confirmed that the reporter was trustworthy with respect to honoring the agreement for delaying publication until clients have been informed. Philips should:
disclose research not yet disclosed to clients, as long as the reporter promises not to publish the A)information until after all clients have received the research, and the reporter provides valuable information of her own.
only disclose research that has already been disseminated to clients, as long as the reporter is B)
providing valuable information of her own.
disclose only research that he is sure will be disseminated to clients before the next publication C)
date of the Financial News in exchange for the reporter providing valuable information of her own.not disclose any research even after it has been disseminated to clients regardless of the value of D)
the information that the reporter may have.
Question 86 - 39142
Jim Crockett is a portfolio manager for Miami Advisors and reports to Vicki Tubbs, the Chief Investment Officer. Miami has developed a proprietary model that has been thoroughly researched and is known
throughout the industry as the Miami model. The model is purely quantitative and takes a given set of client characteristics and universe of potential securities and forms a portfolio for the investor. Individual portfolio managers are responsible for selecting securities to fit into the model based on recommendations from the firm's research department and the managers' own judgment. Because of the specific nature of the inputs to
the model, each manager is responsible for applying the model on his or her own computer. The basic
philosophy of the process is thoroughly explained to clients. Crockett does not understand the basics of the model, but feels that since it provides pure quantitative output, he does not need to understand it. However, he misapplies the model for several of his clients. In reviewing some of Crockett's portfolios, Tubbs finds the errors and points them out to Crockett. Which of the following statements regarding Tubbs and Crockett are TRUE?
Crockett has violated the Standards by not distinguishing between facts and opinion in presenting an investment recommendation.
Crockett has violated the Standards by not considering the appropriateness and suitability of the B)
investment for his clients.
Crockett has violated the Standards by not exercising diligence and thoroughness in making C)
investment recommendations.
D)Tubbs has violated the Standards by failing to supervise adequately.A)
Question 87 - 39204
David Saul, CFA, heads the trust department at Savage National Bank. Fairway Enterprises invites Saul to sit on its Board of Directors. In return for his services on the Board, Fairway offers to provide Saul and his family with access to the facilities at Wilmont Country Club at no cost. Saul will not receive any monetary
compensation for his services on the Board. According to CFA Institute Standards of Professional Conduct, which of the following actions must Saul take?
A)Saul must reject the offer to serve on the Board of Directors.
Saul need not disclose to Savage Bank his acceptance of the offer, because the offer involves no B)
monetary compensation.
Saul must disclose in writing to Savage Bank the terms of the offer whether or not he accepts the C)
offer to serve on the Board of Directors.
Saul must obtain written consent from all parties to only if he decides to accept the offer to serve D)
on the Board of Directors.
Question 88 - 403
The following scenarios refer to recommendations made by two analysts.
z
z
Jean King, CFA, is a quantitative analyst at Quantlogic, Inc. King uses computer-generated screens to differentiate value and growth stocks based on accounting numbers such as sales, cash flow, earnings, and book value. Based on her analysis of all domestically traded stocks in the U.S. over the past year, King concludes that value stocks as a class have underperformed growth stocks over that period. Using only this analysis, she recommends that account executives at Quantlogic sell all value stocks from the portfolios for which they have discretionary authority to trade and replace these stocks with growth stocks.
James Capelli, CFA, is a fundamental analyst at Wheaton Capital Management, which focuses on regional stocks. His analysis of Branson Wireless includes the investment's basic characteristics such as information about historical earnings, ownership of assets, outstanding contracts, and other
business factors. In addition to conducting both a general industry analysis and a company financial analysis, Capelli interviews key executives at Branson. Based on his analysis, he concludes that the company's future prospects are strong and issues a \"buy\" recommendation.
According to CFA Institute Standards of Professional Conduct, did King and Capelli have a reasonable and adequate basis for making their recommendations?
A)Capelli has a reasonable basis for his recommendation, but King does not.B)Both King and Capelli have a reasonable basis for their recommendations.C)Neither King nor Capelli has a reasonable basis for their recommendations.
D)King has a reasonable basis for his recommendation, but Capelli does not.
Question 89 - 39234
Will Lambert, CFA, is a financial analyst for Offshore Investments. He is preparing a purchase
recommendation on Burch Corporation for internal use. According to the CFA Institute Standards of
Professional Conduct, which of the following statements about disclosure of conflicts is not required? Lambert would not need to disclose to his employer:
A)his wife owns 2,000 shares of Burch Corporation.
B)Offshore is an OTC market maker for Burch Corporation's stock.
he is a beneficiary of a pension plan of his former employer that owns a large number of shares of C)
Burch's stock.
D)he has a material beneficial ownership of Burch Corporation through a family trust.
Question 90 - 39304
An analyst routinely has the opportunity to offer his clients the opportunity to purchase “hot new issues.” He tells his clients that he will distribute each issue equally among those interested, with himself included in the distribution. The clients do not object to this. With respect to Standard VI(B), Priority of Transactions, this:
A)cannot be a violation because the clients know of the practice and agree.
B)may be a violation because it is impossible to distribute hot new issues equally.C)may be a violation because clients should not be offered \"hot\" securities.D)may be a violation despite the clients' approval.
Question 91 - 39154
According to Standard II(A), prohibition against the use of material nonpublic information, which of the
following statements is least accurate? Members who possess material nonpublic information related to the value of a security are expected to:
make reasonable efforts to insure the information's accuracy before recommending that others trade on the information. B)not trade on the information.
C)not trade on the information unless it was arrived at through the \"mosaic theory.\" D)make reasonable efforts to achieve public dissemination of the information. A)
Question 92 - 39230
Wes Smith, CFA, refers many of his clients to Bill Towers, CPA, for accounting services. In return, Towers performs routine services for Smith, such as his tax returns, for no charge. Towers has just become a member of CFA Institute. With this development, Towers must:
A)only reveal to the prospects referred by Smith that he performs services for Smith.
reveal to the prospects referred by Smith that he performs services for Smith, along with the B)
estimated value of those services.
C)reveal nothing about his relationship with Smith since they are now both members of CFA Institute.D)discontinue his services for Smith.
Question 93 - 8103
An analyst has not paid her CFA Institute dues for several years but has filed a professional conduct
statement annually. Which of the following statements is TRUE regarding her status with CFA Institute? The analyst’s membership is:
A)considered \"inactive.\"
B)temporarily suspended until she pays her dues.
C)suspended and she is not considered a CFA charterholder.
D)active, but she cannot use the CFA designation until her dues are paid in full.
Question 94 - 330
Randal Brooks is the chief economist for a large brokerage firm. In the aftermath of a national tragedy, Brooks feels that it is very possible that the stock market will drop significantly and not recover for several years. However, he does not believe that this is the most likely scenario but merely that the risk of investing in
equities has increased. He decides to write a market commentary to the brokerage clients that discusses the reasons why the market will remain stable and talks about why he, as a private citizen, feels patriotic. He does not mention the increase risk in equities. Brooks has:
violated the Standards by not including all of the relevant factors in the research report, but not by making patriotic statements.
violated the Standards by not including all of the relevant factors in the research report and making B)
patriotic statements.
violated the Standards by making patriotic statements, but not by failing to include all of the C)
relevant factors in the research report.D)not violated the Standards.A)
Question 95 - 39374
Georgia Jones, CFA, is an analyst for Johnson, Thomas & Co. She also serves as an outside director for Dewey Manufacturing, Inc. In the course of her duties, she begins to believe that Dewey’s income statement for the most recent period may have been misstated. Georgia should do all of the following EXCEPT:
A)consult with Johnson, Thomas' legal counsel. B)inform the Securities and Exchange Commission.
refrain from voting to approve any of Dewey's financial statements that include the element in C)
question.
D)consult with Dewey Manufacturing's legal counsel.
Question 96 - 10 CFA Institute believes:
that a maximum level of professional responsibility and conduct dictates that members be aware of
A)and comply with laws, rules, and regulations governing their conduct.
companies should set standards based on the ethics of upper management and the board of B)
directors.
that firms should comply with all domestic laws and regulations and that these laws also govern C)
behavior in foreign markets, regardless of foreign laws and requirements.
that a minimum level of professional responsibility and conduct dictates that members be aware of D)
and comply with laws, rules, and regulations governing their conduct.
Question 97 - 307
Patricia Hoolihan is an individual investment advisor who uses mutual funds for her clients. She typically chooses funds from a list of 40 funds that she has thoroughly researched. The Burns, a married couple that are a client, asked her to consider the Hawkeye fund for their portfolio. Hoolihan had not previously
considered the fund because when she first conducted her research three years ago, Hawkeye was too small to be considered. However, the fund has now grown in value, and cursory research uncovers no fundamental flaws with the fund. She puts the fund in the Burns' portfolio but not in any of her other clients' portfolios. The fund ends up being the best performing fund on her list. Hoolihan has:
A)not violated the Standards.
violated the Standards by not having a reasonable and adequate basis for making the B)
recommendation.
C)violated the Standards by not maintaining independence and objectivity.D)violated the Standards by not dealing fairly with clients.
Question 98 - 39210
The first component of the Code of Ethics does NOT explicitly say that a CFA Institute member will act with which of the following?
A)Integrity.B)Diligence.C)Solemnity.D)Competence.
Question 99 - 39220
Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients are equal in value. One of the clients gets married and the assets of the new spouse and the client are combined. With the larger portfolio of the now married client, Hatfield determines that they can assume a higher level of risk and begins a change in the policy concerning that portfolio. Which of the following would violate Standard III(C), Suitability?
A)Assess the time horizon of the newly married client and his spouse.
B)Assess the return objectives of the newly married client and his spouse. C)Implement a similar policy for the other client who did not just get married. D)Notify the client of the change in policy and why he is enacting it.
Question 100 - 39298
John Johnson, portfolio manager at Sunshine Investments, has passed all three levels of the CFA® Program and has completed his work experience requirements. He expects to receive his charter in the near future. He includes the following statement in his firm’s brochure: “Johnson has passed all three levels of the exam and has completed the required work experience for the CFA Charter. He is eligible for the CFA Charter and
expects to receive the charter in the near future. Over the years, he has demonstrated a superior performance and his CFA Charter will be rightfully awarded.” Johnson has:
A)violated CFA Institute Standards of Professional Conduct because he implied partial designation. violated CFA Institute Standards of Professional Conduct because he implied superior B)
performance that would be linked to the CFA Charter.
violated CFA Institute Standards of Professional Conduct because he advertised the CFA Charter C)
before actually obtaining it.
not violated CFA Institute Standards of Professional Conduct because he met all disclosure D)
requirements.
Question 101 - 384
While it would be customary to report both five-year and ten-year performance data, Seminole Equity Partners has been in existence for only eight years. Because of this, Kurt Dambach does not report ten-year data but reports for both five years and since the inception of the fund. This he notes in a footnote at the bottom of the information sheet. This action is:
A)a violation of the Standard concerning prohibition against misrepresentation.B)a violation of the Standard concerning performance presentation.C)a violation of the Standard concerning professional misconduct.
D)in accordance with the Code and Standards since he has indicated the basis in a footnote.
Question 102 - 39443
All of the following activities might constitute a violation of Standard IV(A), Loyalty to Employer, EXCEPT:
A)solicitation of the employer's clients following termination of employment.B)solicitation of the employer's clients prior to termination of employment.C)misappropriation of client lists.D)misuse of confidential information.
Question 103 - 8031
David Loy, an analyst, in the course of reviewing the Corn Co., has received comments from management that, while not meaningful by themselves, when pieced together with data he has accumulated from outside sources, lead him to recommend placing Corn Co. on his firm's sell list. What should David do?
The comments are non material and the report can be issued as long as he maintains a file of the facts as supplied by management.
B)Contact the managers and have them publicly announce their comments.
Show his report to his own manager and counsel for their review since this information has become C)
material once it was combined with his analysis.
D)Not issue the report until the comments are publicly announced.A)
Question 104 - 208
Which of the following is a component of the Code of Ethics? CFA Institute members shall:
disclose to their employer all matters that reasonably could be expected to interfere with their duty to their employer or ability to make unbiased and objective recommendations. B)act for the benefit of their clients and place their clients' interests before their own.
consider the appropriateness and suitability of investment recommendations or actions for each C)
portfolio or client.
D)strive to maintain and improve their competence and the competence of others in the profession. A)
Question 105 - 203
Which of the following is a component of the Code of Ethics?
A)Members shall use reasonable care and exercise independent professional judgment.Members shall not knowingly participate or assist in any violation of such laws, rules, or B)
regulations.
Candidates in the CFA Program, as defined in the CFA Institute Bylaws, may reference their participation in the CFA Program, but the reference must clearly state that an individual is a C)
candidate in the CFA Program and cannot imply that the candidate has achieved any type of partial designation.
Members shall not engage in any professional conduct involving dishonesty, fraud, deceit, or D)misrepresentation or commit any act that reflects adversely on their honesty, trustworthiness, or professional competence.
Question 106 - 39152
Jill Marsh, CFA, works for Advisors where she manages various portfolios. Marsh’s godfather is an
accountant and has done Marsh’s tax returns every year as a birthday gift. Marsh’s godfather has recently become a client of Advisors and asked specifically for Marsh to manage his account. In order to comply Standard IV(B), Disclosure of Additional Compensation Arrangements, she needs to:
liquidate from her personal portfolio any stocks her godfather owns and verbally tell her supervisor about the tax services.
B)liquidate from her personal portfolio any stocks her godfather owns.C)do none of the actions listed here.
D)have her godfather cease doing her taxes.A)
Question 107 - 61
Which of the following was NOT a motivation for creating the Global Investment Performance Standards (GIPS)?
A)Achieve greater uniformity and comparability among presentations of performance.B)Increase the role of government agencies in the investment industry.C)Improve the service offered to investment management clients.D)Enhance the professionalism of the investment industry.
Question 108 - 8036
Sharon Pope has been asked by the Chief Investment Officer to develop a firm-wide policy for proxy voting. Which of the following would NOT be acceptable to include in the policy statement?
A)Voting proxies may not be necessary in all instances.
Portfolio managers of active funds must vote in all proxies; portfolio managers of index funds B)
should vote only when they have a definitive opinion.C)The value of proxy voting must me maximized.
D)Proxy voting procedures should always be disclosed to clients.
Question 109 - 8292
Hillary Jones, CFA, sometimes promises clients that she will allocate more shares from oversubscribed initial public offerings (IPOs) than she knows she will actually be able to deliver. Her employer has reprimanded her in the past for similar behavior. Which of the following statements is least accurateregarding Jones' behavior?
Her actions are a violation of the Code of Ethics because she did not act in an ethical manner with the investing public.
B)Her actions are a violation of the Standards only if prosecution results in a felony conviction. Her actions are a violation of the standard concerning misrepresentation, because she promised C)
something she knew the firm could not deliver.
Her actions are a violation of the standard concerning professional misconduct because she D)
deceived her clients.A)
Question 110 - 47793
Ethyl Redd, CFA, recently joined Bloomington Investments as a research analyst. After spending an afternoon looking through the research team’s archives, Redd is not sure Bloomington maintains the records that
support the team’s analysis and recommendations for the minimum 7-year period called for by Standard V(C), Record Retention. What is Redd’s most appropriate course of action?
Keep her own copies of the relevant records and maintain them at home for a minimum 7-year holding period.
Decline to participate in any new research until she can verify that the firm is in compliance with the B)
Standard.
Review the firm’s record retention procedures with her supervisor or compliance officer to ensure C)
that they comply with the Standard, or suggest ways to bring them into compliance.
Document her opinions about the firm’s record keeping procedures for her own records in case any D)
enforcement action arises.A)
Question 111 - 119
Nick O'Donnell, CFA, unsuspectingly joins the research team at Wickett & Co., an investment banking firm controlled by organized crime. None of the managers at Wickett are CFA Institute members. Because of his tenuous situation at Wickett, O'Donnell begins making preparations for independent practice. He knows he will be terminated if he informs management at Wickett that he is preparing to leave. Consequently, he
determines that \"if he can just hang on for one year, he will likely have a client base sufficient for him to strike out on his own.\" This action is:
A)a violation of his duty to disclose conflicts to his employer.
B)a violation of his fiduciary duties.
not in violation of the Code and Standards as the employer's violations of the law absolve him from C)
his ordinary duties to this employer under the Code and Standards.D)not a violation of his duty to employer.
Question 112 - 12581
Amanda Brad, CFA, is a security analyst at UpTrend, Inc. During a routine visit to a beauty salon, she learns that a major cosmetic company, Lorean, is expected to present a revolutionary formula for facial cream. Brad buys Lorean stock for her portfolio and prepares a special report on the company. Brad also makes a call to Hillary Lang, another security analyst at UpTrend, to inform her about the news. Lang starts trading on her clients’ portfolios. Brad’s report states that given the on-going research activity at Lorean within the last months, investors can expect some successful new products and a sharp increase in the price of the stock. Lang’s actions:
A)
do not violate any Standards because she does not participate in the report preparation and does not know about the source of the info.
B)violate the Standards because she trades on inside information. C)violate the Standard of Fair Dealing.
D)violate the Standard of Objectivity and Independence.
Question 113 - 12279
Which of the following statements about the limitations that the Fair Dealing standard imposes is TRUE?
A)Referral fees may be disclosed after proceeding with an agreement for service.
The selection of a broker should be based solely on the principles of best price and results B)
achieved.
Before trading on her own portfolio, a CFA charterholder must wait for employer and client deals to C)
be executed.
D)Clients should not be discriminated against when disseminating investment recommendations.
Question 114 - 204
Which of the following is a component of the Code of Ethics?
CFA Institute members may reference their membership only in a dignified and judicious manner. A)The use of the reference may be accompanied by an accurate explanation of the requirements that have been met to obtain membership in these organizations.
Members and candidates shall not engage in any conduct or commit any act that compromises the B)integrity of the CFA designation or the integrity or validity of the examinations leading to the award of the right to use the CFA designation.
Practice and encourage others to practice in a professional and ethical manner that will reflect C)
credit on members and their profession.
Members shall not copy or use, in substantially the same form as the original, material prepared by another without acknowledging and identifying the name of the author, publisher, or source of such D)
material. Members may use, without acknowledgment, factual information published by recognized financial and statistical reporting services or similar sources.
Question 115 - 2
Mega Securities, a multinational investment advisor based in the United States, employs the following analysts who practice in multiple jurisdictions.
z
z
Melissa Black, CFA, resides in Country N, which has no securities laws or regulations, but does
business in Country L, which has securities laws and regulations that are less strict than the Code and Standards.
Tom White, a CFA Institute member, resides in Country L, but does business in Country S, which has securities laws and regulations that are stricter than the Code and Standards.
According to the CFA Institute Code and Standards, which of the following statements about Black and White is TRUE?
Black must adhere to the:A)B)C)D)
law of Country Nlaw of Country LCode and Standardslaw of Country L
White must adhere to thelaw of Country Llaw of Country Slaw of Country SCode and Standards
Question 116 - 39187
Will Lambert, CFA, is a financial analyst for Offshore Investments. He is preparing a purchase
recommendation on Burch Corporation. According to CFA Institute Standards of Professional Conduct, which of the following statements about disclosure of conflicts is most correct? Lambert would have to disclose that:
A)his wife owns 2,000 shares of Burch Corporation.B)All of these choices require disclosure.
C)Offshore is an OTC market maker for Burch Corporation’s stock.
D)he has a material beneficial ownership of Burch Corporation through a family trust.
Question 117 - 39380
All of the following are violations of Standard III(B), Fair Dealing, EXCEPT a member:
telephones clients in distant cities the day after a buy recommendation is mailed to all clients because their mail service is later than the member's local clients.
places a trade for her discretionary accounts before placing a trade for her non-discretionary B)
accounts.
C)places a trade for the firm account before issuing a buy recommendation.
alerts his best customers by fax so they can get the word on recommendation changes before the D)
firm's regular customers.A)
Question 118 - 39255
Brian Bellow, a CFA Institute member, is a portfolio manager for Progressive Trust Company. Several friends asked Bellow to review their investment portfolios. On his own time, Bellow examined their portfolios and made several recommendations. He received no monetary compensation from his friends for his investment advice and provided no future investment counsel to them. According to CFA Institute Standards of Professional Conduct, did Bellow violate his duty to Progressive Trust?
A)No, because Bellow provided no ongoing investment advice.B)No, because Bellow provided investment advice to his friends.
Yes, because he undertook an independent practice that could result in compensation or other C)
benefit to him.
D)No, because Bellow received no monetary compensation for his services.
Question 119 - 38
Sometimes a CFA Institute member simply feels a law has been violated by his firm, and sometimes the
member knows a law has been violated. Which of the following pairs of guidelines is CORRECT with respect to the first step a member should take in each case? The member should first contact:
his supervisor in the firm if he feels a law has been violated and contact the firm's counsel if he knows a law has been violated.
the firm's counsel if he feels a law has been violated and contact his supervisor if he knows a law B)
has been violated.
the SEC if he feels a law has been violated and contact the firm's counsel if he knows a law has C)
been violated.
the firm's counsel if he feels a law has been violated and the SEC if he knows a law has been D)
violated.A)
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© 2008 Schweser
Schweser Printable Answers - Test Management Exam 2
Test ID#: 3
Back to Test ReviewQuestion 1 - #312
Your answer: B was correct!
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The Standards require that he inform his supervisor in writing about the gift.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 2 - #39148
Your answer: C was correct!
Standard V(B) permits Hamilton to ask company management to review his report for factual inaccuracies, but Hamilton should have taken care to thoroughly review and analyze any information provided by the company. The research report should have remained the product of Hamilton's own independent and objective analysis. Hamilton is not required to give equal emphasis to all areas but can emphasize certain areas, touch briefly on others, and omit certain aspects deemed unimportant.
This question tested from Session 1, Reading 2-V, LOS B..
Question 3 - #39307
Your answer: C was incorrect. The correct answer was B)
Harris violated Standard III(B), but White did not violate Standard III(B).
Harris violated Standard III(B), Fair Dealing by not treating all customers fairly. Instead, he disclosed the
information selectively to some of his firm’s portfolio managers. White did not violate Standard III(B) because she communicated to the person placing a buy order on Midwest that the order was contrary to the current recommendation before executing the order.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 4 - #39184
Your answer: C was correct!
Reporting the historical returns of all assets now in the fund introduces a survivorship bias. Also, the
advertisement is misleading because the fund just came into existence and has no historical record. Thus, the firm has misled the public as to their performance history.
This question tested from Session 1, Reading 2-III, LOS D..
Question 5 - #303
Your answer: C was incorrect. The correct answer was A) violating the Standards by not having a reasonable and adequate basis for his investment recommendation.
The ad hoc model is not part of the formal research process and does not formulate an adequate basis for a recommendation.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 6 - #39296
Your answer: C was incorrect. The correct answer was D) Young violated Standard IV(A) Loyalty to Employer, because she was making preparations to start a competitive business before terminating her relationship with her employer.
Young did not violate Standard IV(A) Loyalty to Employer because such preparations are permitted provided that they do not breach Young’s duty of loyalty to her employer. Breaches that would violate Standard IV(A) include soliciting clients or taking records or files while still working for the current employer.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 7 - #39355
Your answer: C was correct!
If Sallie complies, she is violating Standard I(C) Misrepresentation, because copying the report is plagiarism. Sallie should attempt to disassociate from any activity that she knows is in violation of the standards.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 8 - #305
Your answer: B was correct!
Because Westfall performed the same degree of research as she did for the other funds on her list, she provided a reasonable and adequate basis for her recommendation. There is no evidence that she did not maintain independence or objectivity. There is not enough information given about the Eligis fund and how it fits in with the other funds on Westfall's list to determine whether or not the standard on Fair Dealing was
broken. It was the Craigs who wanted the Eligis fund and Westfall found it to be acceptable for them and thus added it to her list of acceptable funds. If the Eligis fund was found to possess unique characteristics that were not found in any of the other funds on Westfall's list and the Eligis fund was suitable for some of Westfall's other clients and Westfall hadn't added it to their portfolios after their periodic review then a violation of fair dealing would have occurred.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 9 - #14
Your answer: C was incorrect. The correct answer was D) require employees to write personal ethics statements.
There is no reason to have employees write personal ethics statements. CFA Institute encourages all of the other actions.
This question tested from Session 1, Reading 2-I, LOS A..
Question 10 - #51
Your answer: C was incorrect. The correct answer was A) GIPS exist as a minimum worldwide standard where local or country-specific law, regulation, or industry standards may not exist for investment performance measurement and/or presentation.
The GIPS standards: (1) do not require managers to include non-fee-paying accounts in composites, (2)
require five years of GIPS compliant history, and (3) require compliance with local laws when they conflict with GIPS and disclosure of the conflict.
This question tested from Session 1, Reading 4, LOS a, (Part 1).
Question 11 - #39301
Your answer: B was incorrect. The correct answer was D) both Hayes and Sacket violated the Standards. Both violated Standard VII(A) because they committed an act that compromised the validity of the examinations leading to the award of the right to use the CFA designation.
This question tested from Session 1, Reading 2-VII, LOS A..
Question 12 - #39231
Your answer: C was incorrect. The correct answer was A) all of these.
Standard VI(B) addresses the treatment of all these accounts. The accounts of clients and employers have priority over personal accounts.
This question tested from Session 1, Reading 2-VI, LOS B..
Question 13 - #39223
Your answer: B was incorrect. The correct answer was C) Both Bolt and Delvecco violated the Standards. Standard VI(A), Disclosure of Conflicts, requires that Bolt inform Dupree of his involvement with Midwest University given that Bolt's new role can be expected to be time consuming and possibly affect his
responsibilities at Dupree. Delvecco is required to disclose her ownership of Aveco stock before conducting the research report because such ownership could bias her objectivity in making a recommendation. She should have discussed owning the stock with her supervisor before beginning to write the research report on Aveco.
This question tested from Session 1, Reading 2-VI, LOS A..
Question 14 - #363
Your answer: C was correct!
An item of information is material if its disclosure would be likely to have an impact on the price of a security, or if reasonable investors would want to know the information before investing.
This question tested from Session 1, Reading 2-II, LOS A..
Question 15 - #42
Your answer: C was incorrect. The correct answer was B) a need to address issues, such as portability of investment results.
The GIPS were created to address the portability of investment results, varying time periods, and survivorship biases. Government regulation was not an issue nor was insider trading.
This question tested from Session 1, Reading 3, LOS a, (Part 1).
Question 16 - #8239
Your answer: C was incorrect. The correct answer was B) are relieved of their supervisory responsibility if they delegate their supervisory duties to other members of CFA Institute.
Although members who supervise large numbers of employees may delegate supervisory duties, such delegation does not relieve them of their supervisory responsibility.
This question tested from Session 1, Reading 2-IV, LOS C..
Question 17 - #39322
Your answer: B was incorrect. The correct answer was D) none of these choices.
An analyst should not make a recommendation based only upon a statistical anomaly. Furthermore, none of the other choices would be appropriate. Clients with low risk tolerance should not short sell assets. The analyst cannot make a recommendation to all clients because each client has different characteristics and portfolios. The one answer that may have some merit is to increase the allocation of T-bills in portfolios that have had recent, dramatic increases. This would be for the purposes of maintaining a balanced portfolio. But the decision to rebalance must be made on a case-by-case basis and not for all portfolios.
This question tested from Session 1, Reading 2-V, LOS A..
Question 18 - #39188
Your answer: C was correct!
Long violated Standard III(E) because he did not preserve the confidentiality of information communicated by clients. Short did not violate Standard III(E) because this standard does not prevent members from cooperating with an investigation by CFA Institute’s Professional Conduct Program. Thus, Short can forward confidential information to the PCP.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 19 - #39221
Your answer: C was incorrect. The correct answer was B) for none of the reasons listed.
According to Standard III(E), Preservation of Confidentiality, Stiles may not withhold information under any of the listed reasons. The reason is that CFA Institute will keep the information confidential.
This question tested from Session 1, Reading 2-III, LOS E..
Question 20 - #39508
Your answer: C was correct!
Williamson is in violation of Standard II(B), Market Manipulation, by engaging in information-based
manipulation. Information-based manipulation includes, but is not limited to, spreading false rumors about a firm in order to induce others to trade.
This question tested from Session 1, Reading 2-II, LOS B..
Question 21 - #39252
Your answer: B was correct!
There is no violation. It is in the best interest of the client to be diversified and selling via a series of cross trades will likely reduce price impact costs when compared to selling directly into the market. The analyst appears to have reasonable basis for putting the securities in the accounts of other clients.
This question tested from Session 1, Reading 2-III, LOS B..
Question 22 - #12501
Your answer: C was incorrect. The correct answer was D)
required to seek the authorization from Wright to copy the spreadsheets, acknowledge Wright for developing the initial model but is not required to acknowledge Moody's Investors Service as the source of the data. To comply with Standard I(C) Misrepresentation, Olson should have gotten the authorization from Wright to copy the spreadsheets. The prohibition against plagiarism requires that Olson identify Wright as the source of the initial model. However, the Standard permits publishing factual information from Moody's Investors Service without acknowledgment because Moody's is recognized as a source of factual materials.
This question tested from Session 1, Reading 2-VII, LOS B..
Question 23 - #39317
Your answer: B was incorrect. The correct answer was D) violated Standard V(A) but she did not violate Standard I(B).
Abbott violated Standard V(A), Diligence and Reasonable Basis, because she did not have a reasonable and adequate basis to support the $1.10 EPS without further investigation. By including the $1.10 EPS in her
report, she did not exercise diligence and thoroughness to ensure that any research report finding is accurate. If Abbott suspects that any information in a source is not accurate, she should refrain from relying on that information. Abbott did not violate Standard I(B), Independence and Objectivity, because the gift from Carter was merely a token item.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 24 - #39310
Your answer: C was incorrect. The correct answer was B) Ackert: No. Brown: No.
Neither statement is fully consistent with Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program. The CFA designation must always be used as an adjective and never as a noun as Ackert used in her promotional description. Correct use of the CFA designation would be: “Lucy Ackert is one of five CFA charterholders at Lofton Securities.” No designation exists for someone who has passed Level I of the CFA examination. Thus, Brown’s statement saying that he “holds a CFA Level I designation” represents incorrect use. A correct statement would be: “Chris Brown passed Level I of the CFA examination in 2001.”
This question tested from Session 1, Reading 2-VII, LOS B..
Question 25 - #346
Your answer: C was incorrect. The correct answer was A) may request an appeal to a hearing panel. A covered person who rejects a proposed stipulation agreement may request an appeal to a hearing panel.
This must be done in 30 days, or the matter will be referred automatically if no action is taken. A stipulation agreement is not relevant to a case warranting a summary suspension.
This question tested from Session 1, Reading 1, LOS a.
Question 26 - #39162
Your answer: C was incorrect. The correct answer was B) none of the Standards if Smith does not make the cards public until after he defends his thesis and receives his degree.
If the cards were distributed today he would be in violation of Standard I(C), Misrepresentation. However, if Smith does not make the cards public until after he receives the degree, there is no violation.
This question tested from Session 1, Reading 2-I, LOS C..
Question 27 - #213
Your answer: C was incorrect. The correct answer was D) Actively lobby for new laws to protect the public. The Code of Ethics says nothing about a CFA Institute member lobbying for new laws. In fact, legal issues are not a part of the Code. The Standards of Professional Conduct say that the member shall obey laws.
This question tested from Session 1, Reading 1, LOS b, (Part 1).
Question 28 - #12604
Your answer: C was correct!
Under Standard IV(A) Loyalty to Employer, and Standard V(B) Additional Compensation Arrangements, Feldman is allowed to accept the offer, but only with written permission from both zippy and Dragon.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 29 - #12
Your answer: C was incorrect. The correct answer was A) covered by the strictest of the following laws and rules: his own country's, the foreign country's or CFA Institute's Code and Standards.
The analyst is covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards.
This question tested from Session 1, Reading 2-I, LOS A..
Question 30 - #25
Your answer: C was incorrect. The correct answer was B) Smith should promptly disassociate himself from Atlantic's actions by resigning as a director or by reporting the activities to the appropriate authorities. Smith should disassociate from any illegal activity by resigning as a director or by reporting the activities to appropriate authorities. Inaction combined with continuing association with Atlantic's illegal conduct may be construed as participation, or assistance, in the illegal conduct.
This question tested from Session 1, Reading 2-I, LOS A..
Question 31 - #39426
Your answer: B was incorrect. The correct answer was A) violated the Code and Standards by not including the insider trading information in her report.
Standard V(B), Communication with Clients and Prospective Clients, requires analysts to use reasonable judgment regarding the inclusion or exclusion of relevant factors in their research reports. It would not be unreasonable to exclude the temporary credit downgrade from 3 years earlier.
This question tested from Session 1, Reading 2-V, LOS B..
Question 32 - #30
Your answer: C was incorrect. The correct answer was B)
is required to report this legal violation to the appropriate governmental or regulatory organizations. Standard I(A), Knowledge of the law, does not require that Parsons report legal violations to the appropriate governmental or regulatory organizations, but such disclosures may be appropriate under certain circumstances.
This question tested from Session 1, Reading 2-I, LOS A..
Question 33 - #39155
Your answer: B was incorrect. The correct answer was C) all of these.
It is a violation of Standard III(B) because the analyst should act first on behalf of existing clients whose needs and characteristics she already knows. It is a violation of Standard III(C) because she has never met the prospect and does not know if the new ideas are appropriate for the prospect. It is very likely a violation of Standard I(B) because she is excited about the ideas from the research seminar. She may not be looking at them objectively as she discusses them with the prospect. Thus, “all of these” is the best response.
This question tested from Session 1, Reading 2-III, LOS B..
Question 34 - #39236
Your answer: C was incorrect. The correct answer was B) Dawson: Yes, Hamilton: Yes.
Dawson violated Standard VI(A), Disclosure of Conflicts, by failing to inform Ascott of her involvement with Brightwood College. Dawson could reasonably be expected to be involved with investment policy decisions at Brightwood that could affect Ascott because Ascott manages a portion of Brightwood’s endowment. Hamilton also violated Standard VI(A), because she ignored a directive of her employer. Her purchase of Horizon stock has an appearance of impropriety. Hamilton could discuss the purchase of Horizon stock with her firm’s
compliance officer and request an exception to the prohibition against personal trading in securities analyzed or recommended by Ascott.
This question tested from Session 1, Reading 2-VI, LOS A..
Question 35 - #39175
Your answer: C was incorrect. The correct answer was D) not do anything because to do so would violate his obligation to preserve confidentiality.
Under Standard III(E), members are bound to preserve the confidentiality of information that they receive in the scope of their employment. There is nothing in the information to suggest that any illegal act had occurred. He is, therefore, obligated not to disclose the information to others until it becomes public.
This question tested from Session 1, Reading 2-III, LOS E..
Question 36 - #8056
Your answer: C was incorrect. The correct answer was A) can offer this security on a prorated basis to all clients for which the security is appropriate.
Standard III(B), Fair Dealing, applies. When new issues or secondary offerings are available or are being
offered by the firm or if the firm is part of a selling syndicate, all clients for whom the security is appropriate are to be offered a chance to take part in the issue. If the issue is oversubscribed, then the issue is to be prorated to all subscribers.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 37 - #348
Your answer: C was incorrect. The correct answer was D) Anyone can write the Professional Conduct Program staff with a complaint concerning the conduct of any member.
This is from page ix of the Standards of Practice Handbook. Complaints may be filed by anyone and are to be written to the Professional Conduct Program staff.
This question tested from Session 1, Reading 1, LOS a.
Question 38 - #12278 Your answer: B was correct!
The mosaic theory permits an analyst to make recommendations based upon several pieces of public or nonmaterial information, even though the complied result is both material and nonpublic.
This question tested from Session 1, Reading 2-II, LOS A..
Question 39 - #39428
Your answer: C was incorrect. The correct answer was B) not acquire the shares until the information is made public.
Standard II(A) prohibits members from taking investment action if they possess material nonpublic information. Kind has a duty to keep information confidential that he acquired in the course of his duties at Westtown. The information is clearly material, so Klatt is not permitted to trade on it. Klatt should make reasonable efforts to achieve public dissemination of the information by contacting management and encouraging them to make the information public. Klatt may not trade on the information until it is made public.
This question tested from Session 1, Reading 2-II, LOS A..
Question 40 - #308
Your answer: B was incorrect. The correct answer was D) violated the Standards by not dealing fairly with clients.
The fund should have been considered for the existing clients' portfolios. There may have been reasons not to add the fund to their portfolios, such as tax consequences or a lack of suitability, but disturbing their comfort is not sufficient.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 41 - #39186
Your answer: B was incorrect. The correct answer was D) Yes, if he receives written consent from TrustCo and discloses the arrangement to his clients and prospects.
In conformance with Standard IV(B), Calaveccio is required to obtain written consent from TrustCo. In
conformance with Standard VI(C), he is also required to disclose the additional compensation to clients and prospects. Written permission from his clients and prospects is unnecessary.
This question tested from Session 1, Reading 2-IV, LOS B..
Question 42 - #12274
Your answer: C was correct!
Standard V(B), Communication with Clients and Prospects, requires any change in the scope, valuation methodology, or focus of the portfolio to be discussed with clients.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 43 - #39268
Your answer: C was incorrect. The correct answer was D) none of these actions.
The Standards of Practice under IV(A) expressly says that a departing employee is “generally free to make arrangements or preparations to go into a competitive business before terminating the relationship with the employee’s employer provided that such preparations do not breach the employee’s duty of loyalty.” None of these actions are in conflict with the interests of Advisors, and Hill performed them on his own time.
This question tested from Session 1, Reading 2-IV, LOS A..
Question 44 - #313
Your answer: C was incorrect. The correct answer was A) must cease distributing the cards with the CFA designation, but can continue to use the existing promotional materials.
Use of the CFA designation must be stopped immediately, however, the receipt of the Charter is a matter of fact.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 45 - #29
Your answer: B was incorrect. The correct answer was D) take no action.
Because Blanford suspects Shanti of engaging in ongoing illegal activities, Blanford should take action by
determining the legality of the suspected action, disassociating from any illegal activity, and urging his firm to attempt to persuade Shanti to cease such conduct if such an activity is illegal or unethical.
This question tested from Session 1, Reading 2-I, LOS A..
Question 46 - #39475
Your answer: C was incorrect. The correct answer was D) represent the highest performance measurement and presentation practice worldwide.
GIPS are envisioned as being “the” standard worldwide, and would eliminate the need for separate local standards. The CVG approach is currently utilized, but the goal is to converge all standards globally and eliminate the need for CVGs.
This question tested from Session 1, Reading 3, LOS a, (Part 1).
Question 47 - #7936
Your answer: C was incorrect. The correct answer was D) Jackson did not violate Standard III(A) on Fiduciary Duty to clients because she was bound by her fiduciary duty to AMD and its stockholders as a board member. Therefore, when she reversed her decision to buy AMD shares for Super Selection's clients, portfolios on James' request, her obligation to AMD took precedence.
Jackson has violated Standard III(A) because her first obligation is to her firm's clients. Standard VI(A) addresses precisely these kinds of situations regarding potential conflict of interest. Given this conflict of
interest, Jackson also compromised her objectivity in violation of Standard I(B). Her fiduciary duty to her clients takes precedence over her fiduciary duty to AMD's stockholders under the CFA Institute Code and Standards. By not disclosing her relationship with AMD, she also violated Standard IV(B). Making past personal security transactions ahead of purchase of the same securities for her clients has put Jackson in violation of Standard VI(B). This standard clearly prohibits such actions.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 48 - #39159
Your answer: B was incorrect. The correct answer was C) demonstrating diligence, independence, and thoroughness when preparing investment reports.
Demonstrating diligence, independence, and thoroughness when preparing investment reports is found in the Standards of Professional Conduct.
This question tested from Session 1, Reading 1, LOS b, (Part 1).
Question 49 - #39193
Your answer: C was incorrect. The correct answer was D) integrity, competence, and respect. Integrity, competence, and respect are included in the first component of the Code of Ethics.
This question tested from Session 1, Reading 1, LOS b, (Part 1).
Question 50 - #286
Your answer: C was incorrect. The correct answer was A) issue his sell report because the facts are nonmaterial, but maintain a file of the facts and documents leading to this conclusion.
The use of security analysis combined with nonmaterial nonpublic information to arrive at significant conclusions is legal and is called the mosaic theory.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 51 - #39306
Your answer: B was incorrect. The correct answer was C) not write a research report disclosing the meeting. The information is material and nonpublic, therefore, Jennings cannot trade or cause others to trade.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 52 - #8035
Your answer: C was incorrect. The correct answer was D) violated the Standards by her policy on mutual fund and pension fund proxies.
Proxies should be taken seriously, and although it is likely that Griffith can understand some of the issues, it is likely that she is not capable of making responsible decisions on all potential proxy issues. Proxies for a pension plan should be voted in the best interests of the beneficiaries, not the plan sponsor. The sponsor's interests will not always be the same as the beneficiary's interest.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 53 - #60
Your answer: C was incorrect. The correct answer was A) five years of historical performance. GIPS require a minimum of five years of conforming historical performance results.
This question tested from Session 1, Reading 4, LOS b.
Question 54 - #39260
Your answer: C was incorrect. The correct answer was B) not a violation of any Standard.
The fact that the firm is seeking the mandate does not preclude the research department from performing analytical work on the security. As long as the final recommendation is based upon reasonable facts, not the desire to obtain the mandate, there is no violation.
This question tested from Session 1, Reading 2-V, LOS A..
Question 55 - #128
Your answer: C was incorrect. The correct answer was A) plan and prepare to compete with his current employer, but not begin competing until his resignation is effective.
Douglas may plan and prepare to compete with his current employer, but may not begin competing until his resignation is effective or he gets permission from his employer. Members must provide notification to their employer describing the types of services to be rendered, the expected duration, and compensation for the services.
This question tested from Session 1, Reading 2-IV, LOS A..
Question 56 - #337
Your answer: C was incorrect. The correct answer was B) not violated the Standards of Professional Conduct. It is perfectly acceptable to send the report to management to check for factual errors and to use judgment in editing the data provided in the report.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 57 - #16
Your answer: C was correct!
Under Standard I(A), Salvatore must, as a CFA charterholder, apply the CFA Institute Code and Standards or the controlling law, whichever is stricter. In this instance the stricter laws of Oldworld, where Salvatore is licensed, apply to prohibit the gifts, even though the gifts are offered in Newworld.
This question tested from Session 1, Reading 2-I, LOS A..
Question 58 - #12277
Your answer: C was incorrect. The correct answer was A) No, McNeal cannot trade on the information. McNeal cannot trade on the information before the article is published. Trading on the information received from the journalist before the magazine is published is trading on material nonpublic information, a breach of Standard II(A).
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 59 - #39189
Your answer: C was incorrect. The correct answer was B) may delegate supervisory duties, which relieves them of their supervisory authority.
Standard IV(C) permits members to delegate supervisory duties but such delegation does not relieve members of their supervisory responsibility.
This question tested from Session 1, Reading 2-IV, LOS C..
Question 60 - #39299
Your answer: C was correct!
Recommending a stock whose return is uncorrelated with interest rate changes is appropriate for the clients described in the problem. Emphasizing the lack of correlation is appropriate as long as the analyst makes no guarantees concerning the relationship in the future. Reporting historical correlation is a presentation of fact, and is not in violation. The analyst is free to show the report only to investors for whom the investment is appropriate.
This question tested from Session 1, Reading 2-V, LOS B..
Question 61 - #39274
Your answer: C was incorrect. The correct answer was D) Marchant must inform Middleton to keep his existing clients and must inform his existing clients of his new part-time employment at Middleton. Standard IV(A) and IV(B) requires that Marchant inform both Middleton and his existing clients.
This question tested from Session 1, Reading 2-IV, LOS A..
Question 62 - #39256
Your answer: C was incorrect. The correct answer was B) not violating the Standards by applying his version of the model, but is violating the Standards by not disclosing it to clients. Brisco is not violating the Standards. Because the research is thoroughly conducted, and Logan has authority to make individual security selection decisions, Logan is not violating the Standards by applying his model. However, Logan is violating the
Standard on communication with clients and prospective clients by excluding relevant factors of the investment process. The use of his model is an important aspect of the investment process and should be disclosed to clients. Brisco is not violating the Standards by not considering Logan’s research.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 63 - #39232
Your answer: C was incorrect. The correct answer was B) allowed to accept the payment for transportation because the trip was all business and was out of the way.
Standard I(B) Independence and Objectivity. Analysts should pay for their own travel accommodations if the location is accessible by normal means. In this situation payment is acceptable because the location is out of the way and the purpose of the trip is all business.
This question tested from Session 1, Reading 2-I, LOS B..
Question 64 - #158
Your answer: B was incorrect. The correct answer was A) must inform her employer of the arrangement because it provides her with additional compensation.
Members are required to disclose to their employer in writing all monetary compensation or other benefit they receive in addition to the employer’s compensation. The discounting of West’s commissions is a benefit that must be disclosed.
This question tested from Session 1, Reading 2-IV, LOS B..
Question 65 - #44795
Your answer: B was incorrect. The correct answer was D) document the details of the conversation with the client with regard to his investment recommendation.
Standard V(C) Record Retention requires that Members and Candidates document all recommendation and communications with clients. McCoy should document the details of the conversation, including any resulting investment decisions and/or actions. The suitability of the investment should have already been considered before the recommendation and McCoy should not execute the order until the the client instructs him to. Identifying other clients for this investment would fall under Standard III(B) Fair Dealing.
This question tested from Session 1, Reading 1, LOS c.
Question 66 - #49
Your answer: B was correct!
GIPS applies to investment management firms and is intended to serve the existing and prospective clients of investment management firms, not regulators.
This question tested from Session 1, Reading 4, LOS a, (Part 1).
Question 67 - #39222
Your answer: B was incorrect. The correct answer was D) if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-public information.
Standard II(A), Material Nonpublic Information, states “a member cannot trade or cause others to trade in a security while the member possesses material nonpublic information” A tender offer would certainly be material nonpublic information. Knowing that the meeting took place, and nothing else, does not restrict the broker. A reasonable investor would need to know more to determine if the information was material. Certainly being friends with the CEO is not an issue, so the answer “all of the reasons” is not correct.
This question tested from Session 1, Reading 2-II, LOS A..
Question 68 - #39178
Your answer: B was incorrect. The correct answer was A)
required to design an equitable system to disseminate the change in a prior investment recommendation. Standard III(B) – Fair Dealing requires dealing fairly and objectively with all clients and prospects when disseminating material changes in prior investment recommendations. Note that the standard requires the dissemination be fair, but not necessarily equal due to the impossibility of contacting all clients simultaneously. A change of recommendation from “buy” to “sell” is generally material.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 69 - #12586
Your answer: C was incorrect. The correct answer was A) use outside research only after verifying its accuracy.
Standard I(B), Independence and Objectivity: the analyst is allowed to use outside research only after an insightful review. There are no restrictions regarding the exclusive use of outside information or in-house information.
This question tested from Session 1, Reading 2-I, LOS B..
Question 70 - #39161
Your answer: C was incorrect. The correct answer was D) presenting factual information published by recognized statistical reporting services without acknowledgment.
Standard I(C), Misrepresentation, permits using recognized sources of factual information such as Standard & Poor’s Corporation and Moody’s Investors Service without acknowledgment.
This question tested from Session 1, Reading 2-I, LOS C..
Question 71 - #39305
Your answer: B was incorrect. The correct answer was A) assumes no extra responsibility with the hiring of Chennings.
As a CEO, Berger is responsible for reasonable procedures being in place for the entire firm. Since Berger is not the supervisor of Chennings, however, Berger assumes no extra responsibility upon his hiring.
This question tested from Session 1, Reading 2-IV, LOS C..
Question 72 - #464
Your answer: C was incorrect. The correct answer was B) accept Reilly's order after she acquaints Reilly with the downside risks associated with a risky investment of this type.
Members are required to consider the appropriateness and suitability of investment actions for their clients. The needs and circumstances of the client, and the characteristics of the investment and the portfolio must be taken into account. If Reilly understands the risks of this investment and the rest of her portfolio is adequate for her income needs, Miller can proceed to make the investment.
This question tested from Session 1, Reading 2-III, LOS C..
Question 73 - #56
Your answer: C was incorrect. The correct answer was A) entity to which local securities laws apply when they exceed the GIPS requirements.
When a firm claims compliance with GIPS, it must be compliant on a firm-wide basis. The definition of the “firm” under the GIPS standards establishes the boundaries for what constitutes firm assets, and the set of portfolios that must be included in at least one composite.
This question tested from Session 1, Reading 4, LOS b.
Question 74 - #39263
Your answer: C was correct!
All of these are explicitly required by Standard V(A).
This question tested from Session 1, Reading 2-V, LOS A..
Question 75 - #39510
Your answer: B was incorrect. The correct answer was A) all consideration received or paid for the recommendation of products or services.
According to Standard VI(C), Referral Fees, consideration includes all fees that are paid in cash, soft dollars, and in kind. Referral fees must be disclosed to the client or employer whether the consideration is received by or paid to others for the recommendation.
This question tested from Session 1, Reading 2-VI, LOS C..
Question 76 - #437
Your answer: C was incorrect. The correct answer was B) fulfilled all obligations.
If the analyst had been an investment manager, it would have been inappropriate for him to make a blanket recommendation for all of his clients without considering the unique needs of each. However, the analyst is merely stating that given the qualities of the investment, it is an attractive buy. He has kept adequate records, and made fair disclosure of his rating decision.
This question tested from Session 1, Reading 2-V, LOS A..
Question 77 - #12611
Part 1)
Your answer: C was incorrect. The correct answer was D) Rangen's conduct violates Standard IV(B), Additional Compensation Arrangements.
No information in the case suggests that Rangen’s conduct violates Standard IV(B), Disclosure of Additional Compensation Arrangements.
This question tested from Session 1, Reading 2-III, LOS C..
Part 2)
Your answer: C was incorrect. The correct answer was D) does not meet the requirements of the Code and Standards because his investment strategy is inconsistent with his clients' objectives.
Rangen's actions are inconsistent with Standard III(C), Suitability, because his investment actions are neither appropriate nor suitable for each client. Even if his clients were aware of the risks, the portfolios that he
constructed are inconsistent with their financial needs. Because he is in a position to control the volume and frequency of transactions in their accounts, he has control over the accounts. Although Rangen relies upon recommendations from his firm’s research department, he cannot shift blame to his employer because he must follow recommendations that are in the best interests of his clients.
This question tested from Session 1, Reading 2-III, LOS C..
Question 78 - #39249
Your answer: C was incorrect. The correct answer was D) review the compliance system for its adequacy. According to Standard IV(C), Responsibilities of Supervisors, Taylor must make reasonable efforts to detect violations of law, rules, regulations, and Code and Standards. This responsibility is not eliminated because the Taylor’s subordinates are CFA Charterholders. Taylor should review the compliance system and report any inadequacies to senior management.
This question tested from Session 1, Reading 2-IV, LOS C..
Question 79 - #39254
Your answer: C was incorrect. The correct answer was D) is arrested for participating in a nonviolent protest. Any professional conduct that involves dishonesty, fraud, or deceit is a violation of Standard I(D), Misconduct. Members and candidates must refrain from activities that reflect poorly on integrity, reputation, trustworthiness, or professional conduct. The focus of the Standard is on professional, not personal, conduct.
This question tested from Session 1, Reading 2-I, LOS D..
Question 80 - #12607
Your answer: C was incorrect. The correct answer was B) Standard V(A), Diligence and Reasonable Basis. Jones has violated Standard V(A) by failing to exercise diligence and thoroughness.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 81 - #39505
Your answer: B was incorrect. The correct answer was A) Overstating an earnings projection in order to increase the price of a stock.
Standard II(B), Market Manipulation, is not intended to prohibit transactions that are done in order to minimize income taxes or trading strategies that are not intended to distort prices or artificially inflate trading volume. Overstating earnings projections in order to increase the price of a stock is a direct violation.
This question tested from Session 1, Reading 2-II, LOS B..
Question 82 - #416
Your answer: C was incorrect. The correct answer was B) mortgage payment.
The mortgage payment per se is of interest to the portfolio manager only insofar as it affects the bigger picture issues such as liquidity needs, cash flow, etc.
This question tested from Session 1, Reading 2-III, LOS C..
Question 83 - #12600
Your answer: C was incorrect. The correct answer was A)
seek advice from company counsel to determine appropriate action.
Kenny’s best choice is to seek the company counsel’s advice. If Kenny does nothing, he is breaching Standard I(A) Knowledge of the Law. Disassociation is not enough, and a public statement can result in a negative impact on the company.
This question tested from Session 1, Reading 2-I, LOS A..
Question 84 - #39217
Your answer: C was incorrect. The correct answer was D) violated the Standards concerning material nonpublic information.
Thomas cannot act or cause others to act on material nonpublic information.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 85 - #327
Your answer: C was incorrect. The correct answer was B) only disclose research that has already been disseminated to clients, as long as the reporter is providing valuable information of her own.
In no case should information be disclosed to a reporter before all clients are provided with the research—doing so will violate the Standard on fair dealing. However, once clients have been informed, there is no
violation in releasing the information to the reporter, and in doing so Phillips might obtain information that can further help his clients.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 86 - #39142
Your answer: C was correct!
Crockett had a responsibility to know the model well enough to detect the mistakes that could occur from misapplication, so he violated the Standard of diligence and reasonable basis.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 87 - #39204
Your answer: C was incorrect. The correct answer was D) Saul must obtain written consent from all parties to only if he decides to accept the offer to serve on the Board of Directors.
Standard IV(B) requires that members obtain written consent from all parties involved before accepting monetary compensation or other benefits that they receive for their services that are in addition to
compensation or benefits conferred by a member's employer. In this situation, Saul may also be obligated to disclose his participation on Fairway's Board to clients, prospective clients, and employer under Standard VI(A), Disclosure of Conflicts.
This question tested from Session 1, Reading 2-IV, LOS B..
Question 88 - #403
Your answer: C was incorrect. The correct answer was A) Capelli has a reasonable basis for his recommendation, but King does not.
Capelli appears to have exercised diligence and thoroughness in making his recommendation. King's
recommendation is not based on thorough quantitative work because the period used in her study is only one year. Also, her recommendation does not consider the client's specific needs and circumstances.
This question tested from Session 1, Reading 2-V, LOS A..
Question 89 - #39234
Your answer: C was incorrect. The correct answer was B) Offshore is an OTC market maker for Burch Corporation's stock.
Standard VI(A), Disclosure of Conflicts, requires members to disclose to their employer all matters, including beneficial ownership of securities, that reasonably could be expected to interfere with their duty to their employer or ability to make unbiased and objective recommendations. Disclosure of an employer's own
involvement with the security is not necessary in this instance. If the report had been for external use, it would have been necessary to make all of the disclosures given as choices.
This question tested from Session 1, Reading 2-VI, LOS A..
Question 90 - #39304
Your answer: C was incorrect. The correct answer was D) may be a violation despite the clients' approval.
Just because the clients know of a practice does not make it right. The analyst must put the clients first. It is a violation for the analyst to participate in a “hot new issue” which can lower the allocation to any given client below what that client would prefer. This is tantamount to putting the analyst’s interests ahead of the clients’ interests.
This question tested from Session 1, Reading 2-VI, LOS B..
Question 91 - #39154
Your answer: C was incorrect. The correct answer was A) make reasonable efforts to insure the information's accuracy before recommending that others trade on the information.
Standard II(A), regarding material nonpublic information, prohibits those possessing material nonpublic
information from trading or causing others to trade on that information. Members or candidates should make reasonable efforts to make sure the information is disseminated to the public. Trading based on the mosaic theory is acceptable because this is based on the analysis of public and nonmaterial nonpublic information.
This question tested from Session 1, Reading 2-II, LOS A..
Question 92 - #39230
Your answer: C was incorrect. The correct answer was B) reveal to the prospects referred by Smith that he performs services for Smith, along with the estimated value of those services.
According to VI(C), Referral Fees, as a member of CFA Institute, Towers must tell his clients about the payment in kind to Smith along with an estimate of the value of those services.
This question tested from Session 1, Reading 2-VI, LOS C..
Question 93 - #8103
Your answer: C was correct!
Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program, applies. In order to use the CFA designation, the member must pay annual dues and submit a yearly Professional Conduct Statement.
This question tested from Session 1, Reading 2-VII, LOS B..
Question 94 - #330
Your answer: C was incorrect. The correct answer was A) violated the Standards by not including all of the relevant factors in the research report, but not by making patriotic statements.
By not mentioning the increased risk of the market, Brooks has violated the Standard on using reasonable judgment in a research report. However, the patriotic statements do not violate the Standards.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 95 - #39374
Your answer: C was incorrect. The correct answer was B) inform the Securities and Exchange Commission. Jones must pursue her concerns about a possible misstatement, because, if material, it may be misleading to investors. Consistent with Standard I(A), Jones must not knowingly participate or assist in a regulatory
violation. As long as her concerns exist, she must not validate any financial statements by voting to approve them. In addition she should seek competent legal counsel both at her own firm and at Dewey Manufacturing. She should not go to regulatory bodies until she has more certainty about the possible misstatement and has received counsel that she should proceed.
This question tested from Session 1, Reading 2-I, LOS A..
Question 96 - #10
Your answer: C was incorrect. The correct answer was D) that a minimum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.
CFA Institute’s Code and Standards dictate a minimum level of conduct. Standards should not be based on ethics of upper management and the board of directors of a company. Firms must comply with the strictest applicable standards, whether they be foreign or domestic laws and regulations.
This question tested from Session 1, Reading 2-I, LOS A..
Question 97 - #307
Your answer: C was incorrect. The correct answer was B) violated the Standards by not having a reasonable and adequate basis for making the recommendation.
Despite the fact the addition of the fund was successful, Hoolihan acted improperly in not conducting the same degree of research as she did for the other funds on her list.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 98 - #39210
Your answer: C was correct!
Component one mentions all of these except solemnity.
This question tested from Session 1, Reading 1, LOS b, (Part 1).
Question 99 - #39220
Your answer: C was correct!
According to Standard III(C), Suitability, the analyst must assess the time horizon, return objectives, tax considerations, and liquidity needs of a client before changing an investment policy. The analyst must notify the client of the new policy. Implementing the policy for the other client may be a violation of the Standard unless that client’s needs are totally reassessed and determined to be identical to the needs of the newly married client.
This question tested from Session 1, Reading 2-III, LOS C..
Question 100 - #39298
Your answer: C was incorrect. The correct answer was B) violated CFA Institute Standards of Professional Conduct because he implied superior performance that would be linked to the CFA Charter.
According to Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program,
Johnson may indicate that he has completed the requirements and is eligible for the CFA charter along with an accurate explanation of the requirements. However, he may not imply that the designation would mean superior performance capabilities.
This question tested from Session 1, Reading 2-VII, LOS B..
Question 101 - #384
Your answer: C was incorrect. The correct answer was D) in accordance with the Code and Standards since he has indicated the basis in a footnote.
Members who communicate performance information must ensure that the information is fair, accurate, and complete. Seminole Equity’s presentation meets this standard.
This question tested from Session 1, Reading 2-III, LOS D..
Question 102 - #39443
Your answer: C was incorrect. The correct answer was A) solicitation of the employer's clients following termination of employment.
Solicitation of the employer’s clients prior to termination of employment would constitute a violation of Loyalty to Employer, but solicitation of clients following termination would not.
This question tested from Session 1, Reading 2-IV, LOS A..
Question 103 - #8031
Your answer: C was incorrect. The correct answer was A) The comments are non material and the report can be issued as long as he maintains a file of the facts as supplied by management.
This is an example of the mosaic theory where separate pieces of nonmaterial information are pieced together to make an investment recommendation.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 104 - #208
Your answer: C was incorrect. The correct answer was D)
strive to maintain and improve their competence and the competence of others in the profession.
Striving to maintain and improve their competence and the competence of others in the profession is one of the components of the Code of Ethics, whereas the other statements are part of the Standards of Professional Conduct.
This question tested from Session 1, Reading 1, LOS b, (Part 1).
Question 105 - #203
Your answer: C was incorrect. The correct answer was A) Members shall use reasonable care and exercise independent professional judgment.
This is a component of the Code of Ethics. Others pertain to the Standards of Professional Conduct.
This question tested from Session 1, Reading 1, LOS b, (Part 1).
Question 106 - #39152 Your answer: C was correct!
Standard IV(B) requires that members disclose to their employer in writing all benefits that they receive in addition to their regular compensation for services they perform on behalf of their employer. It is not
unreasonable for an individual’s godfather to give them a birthday gift. Moreover, since the tax services were a regular birthday present before her godfather became a client, this implies that they are unrelated to any investment management services.
This question tested from Session 1, Reading 2-IV, LOS B..
Question 107 - #61
Your answer: C was incorrect. The correct answer was B) Increase the role of government agencies in the investment industry.
All of these were motivations for creating GIPS except to increase the role of government. In fact, these standards have been created to bolster the notion of self-regulation and reduce the encroachment of government into the investment industry.
This question tested from Session 1, Reading 4, LOS b.
Question 108 - #8036
Your answer: C was incorrect. The correct answer was B) Portfolio managers of active funds must vote in all proxies; portfolio managers of index funds should vote only when they have a definitive opinion.
Proxies for stocks in passively managed funds must also be voted. A cost-benefit analysis may show that voting all proxies may not benefit all clients.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 109 - #8292
Your answer: C was incorrect. The correct answer was B) Her actions are a violation of the Standards only if prosecution results in a felony conviction.
Jones violated Standard I(C) Misrepresentation by promising clients she would allocate more shares than she could deliver. Her actions also violated Standard I(D) Misconduct pertaining to acts of dishonesty, fraud, or deceit which reflects adversely on a member's professional reputation, integrity, or competence. She also violated the Code of Ethics which states that members and candidates must act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, and prospective clients. The specific punishment for the actions is not relevant.
This question tested from Session 1, Reading 2-I, LOS D..
Question 110 - #47793 Your answer: C was correct!
Standard V(C), Record Retention requires that members maintain all records supporting analysis,
recommendations, actions, and all other investment related communications with clients and prospects. The
recommended procedures for compliance with Standard V(C) state that the record-keeping requirement is generally the firm’s responsibility. These records are the property of the firm, so Redd keeping her own copies at home could potentially violate Standard IV(A), Loyalty. Redd’s best course of action is to review the firm’s procedures with her supervisor and recommend any improvements that are necessary to bring them into compliance with Standard V(C).
This question tested from Session 1, Reading 2-V, LOS C..
Question 111 - #119
Your answer: C was incorrect. The correct answer was D) not a violation of his duty to employer.
O’Donnell is required to obtain consent from his employer if he is attempting to practice in competition with his employer. Merely undertaking preparations to leave, which do not violate a duty, is not a violation of the Code and Standards.
This question tested from Session 1, Reading 2-IV, LOS A..
Question 112 - #12581
Your answer: B was incorrect. The correct answer was C) violate the Standard of Fair Dealing.
Lang violates Standard III(B), Fair Dealing, which imposes the requirement to start trading on the clients’ portfolios only after the information is disseminated to all clients.
This question tested from Session 1, Reading 2, LOS a, b, c.
Question 113 - #12279
Your answer: C was incorrect. The correct answer was D)
Clients should not be discriminated against when disseminating investment recommendations. The dissemination of information and recommendations to clients must be handled fairly.
This question tested from Session 1, Reading 2-III, LOS B..
Question 114 - #204
Your answer: C was correct!
This is a component of the Code of Ethics. Others pertain to the Standards of Practice.
This question tested from Session 1, Reading 1, LOS b, (Part 1).
Question 115 - #2
Your answer: C was correct!
Because the applicable law in Country L is less strict than the Code and Standards, Black must adhere to the Code and Standards. Because the applicable law is stricter than the Code and Standards, White must adhere to the more strict applicable law of Country S.
This question tested from Session 1, Reading 2-I, LOS A..
Question 116 - #39187
Your answer: C was incorrect. The correct answer was B) All of these choices require disclosure. Standard VI(A) requires that Members and Candidates fully disclose all matters which may impair their independence or objectivity or interfere with their duties to their employer, clients and prospects.
This question tested from Session 1, Reading 2-VI, LOS A..
Question 117 - #39380
Your answer: C was incorrect. The correct answer was A) telephones clients in distant cities the day after a buy recommendation is mailed to all clients because their mail service is later than the member's local clients. Standard III(B) states, \"Members shall deal fairly and objectively with all clients and prospects when providing investment analysis, making investment recommendations, taking investment action, or in other professional activities.”
The term “fairly” implies that members should take care not to discriminate against a client when disseminating investment recommendations. All the responses, except for the telephoning of distant clients (which has the effect of putting them in the same position as local clients), describe a situation in which a client or group of clients is receiving preferential or detrimental treatment that is unfair.
This question tested from Session 1, Reading 2-III, LOS B..
Question 118 - #39255 Your answer: C was correct!
Standard IV(A) does not preclude providing independent services for compensation while still employed;
however, notification to the employer is required describing the type of service, the expected duration, and the compensation. Compensation includes more than just monetary benefits.
This question tested from Session 1, Reading 2-IV, LOS A..
Question 119 - #38
Your answer: C was incorrect. The correct answer was B) the firm's counsel if he feels a law has been violated and contact his supervisor if he knows a law has been violated.
Standard I(A) says that when a member feels a law has been broken, the member should seek advice from the firm’s counsel. If the member feels the advice is unbiased and competent, the member should follow it. If the member knows a law has been violated, the member should contact a supervisor.
This question tested from Session 1, Reading 2-I, LOS A..
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