invic

Steve Barton, CFA, used to work for Advisors, Inc. After he left Advisors, Barton developed a new screening methodology for determining which stocks to include in a portfolio. Barton is on friendly terms with his former colleagues at Advisors and shares his screening methodology with them. If Advisors uses the screening methodology without notifying Barton, then:

A) Advisors must assume the responsibility of any client losses.

B) Advisors has violated Standard I(C), Misrepresentation.

C) Barton must assume the responsibility of any client losses.

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According to Standard I(C), if an analyst or firm uses the work of others, they must seek authorization from the creators. Such work includes algorithms, such as a stock screening methodology.

invic

Marc Randall, CFA, is an investment analyst. During a meeting with a potential client, Randall's boss states that, "You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members, like Marc." Randall knows that this statement is:

A) a violation of fiduciary duties owed to clients under the Standards.

B) not in violation of the Code and Standards.

C) a violation of the Standard concerning prohibition against misrepresentation.

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Under Standard I(C), members are forbidden from guaranteeing a specific rate of return on volatile investments. Therefore, the statement is in violation of the Standard.

invic

A copyrighted technique for measuring the downside risk of an investment has just been revealed to the public. If an analyst adopts the technique, he must cite the use of the technique in all research reports in which the technique is used EXCEPT:

A) Neither of these answers provide grounds for an exception.

B) if the analyst does not modify the technique at all.

C) if the analyst uses reasonable care and verifies that the technique provides superior results.

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Neither of the answers in this question provide adequate grounds for not citing the source of the methodology. Although “verifying” the technique is a good idea and congruent with the Code and Standards, the analyst still needs to cite the use of the copyrighted technique even after modifying it slightly to avoid violation of Standard I(C), Misrepresentation.

invic

A CFA charterholder gathers the closing prices of a security from a widely read publication. The charterholder uses the data as part of a report she is preparing and fails to report the data source in the report. This is:

A) not a violation of Standard I(C) if the data can be gathered from several public sources.

B) a violation of Standard I(C).

C) not a violation of Standard I(C) if the data cannot be gathered from several public sources.

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Since the security prices represent factual information that can be verified from several sources, there is no violation. It could have been a violation had the information been exclusively published by the source.

kmf229

At the time of its initial public offering (IPO), a mutual fund is invested primarily in junk bonds. As part of its strategy, it is also invested in some zero-coupon U.S. Treasury bonds. The amount of the investment in the Treasury bonds is such that their maturity value equals 90% of the current value of the fund. Which of the following may a CFA Institute member say to her clients concerning the fund at issuance?

A) A CFA Institute member may not make either of these statements.

B) Since the fund is backed by the U.S. government, you know you will get your money back.

C) The fund is virtually default risk free.

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Standard I(C), Misrepresentation, prohibits making statements that mention a guarantee of returns or misrepresent the true nature of the investment.

kmf229

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 VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program.

B) Standard I(C), Misrepresentation.

C) none of the Standards if Smith does not make the cards public until after he defends his thesis and receives his degree.

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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.

kmf229

The following information involves two research analysts at a brokerage firm.

• Erik Bagenot, CFA, is preparing a research report on Global Enterprises, Inc. In preparing the report, he uses materials from many sources. For example, he uses factual information published by Standard & Poor's Corporation without acknowledging the source. He also uses excerpts from a research report prepared by another analyst. Bagenot makes only a slight change in wording for these excerpts, but acknowledges the source.
• Sally Wain, who is currently enrolled in the CFA program, is preparing a research report on Manson Telecommunications. She attends a conference in which several investment experts provide their views about the future prospects of this company. Wain cites several quotations from these investment experts in her report without specific reference.

According to CFA Institute Standards of Professional Conduct involving prohibition against plagiarism, which of the following statements is CORRECT?

A) Both Bagenot and Wain violated the Standards.

B) Bagenot violated the Standards, but Wain did not.

C) Wain violated the Standards, but Bagenot did not.

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Bagenot complied with Standard I(C), which permits publishing factual information from Standard & Poor's without acknowledgment and using excerpts with acknowledgment. Wain committed plagiarism because she failed to give specific references for the quotations that she used.

kmf229

All of the following violate Standard I(C), Misrepresentation, EXCEPT:

A) copying a proprietary computerized spreadsheet without seeking authorization from the creators.

B) presenting factual information published by recognized statistical reporting services without acknowledgment.

C) citing quotes attributable to "investment experts" without specific references.

Standard I(C), Misrepresentation, permits using recognized sources of factual information such as Standard & Poor’s Corporation and Moody’s Investors Service without acknowledgment.

kmf229

An analyst preparing a report needs to cite which of the following?

A) A recent quote from the Federal Reserve Chairman.

B) Estimates of betas provided by Standard & Poor's.

C) The individual who developed a chart from the same firm.

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Statistics provided by a recognized agency, such as Standard and Poor’s, do not need to be cited. Charts, quotes, and algorithms developed by the firm would need to be cited when they are used but the individual(s) who developed the materials within the firm do not need to be cited.

kmf229

Which of the following is NOT a form of plagiarism?

A) Presenting statistical forecasts by others with the sources identified but without the qualifying statements that may have been used by the originator.

B) Using factual information published by a recognized financial statistics reporting service without acknowledgment.

C) Citing quotations said to be attributable to "leading analysts" or "investment experts" without specific reference.

Members may not generally use material without acknowledging the original source, but an exception is made for factual information published by recognized financial and statistical reporting services.