Reading 2-III: Standards of Professional Conduct & Guida

benefit, investing, telling, calling, potential

Q12.An analyst thinks that a major change in the tax law will benefit holders of utility company stocks. She immediately begins calling all her clients and telling them of the upside potential of investing in such assets now. Based upon this information, this is most likely:

A) a violation of Standard V(A), Diligence and Reasonable Basis.

B) congruent with Standard V(A), Diligence and Reasonable Basis.

C) a violation of Standard III(C), Suitability.

Q13.Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients are equal in value. Hatfield has been trading on the clients’ behalf with a single brokerage firm for several years. Because of his many years of business, the brokerage firm occasionally gives Hatfield shares in an initial public offering (IPO) to sell to his clients. Hatfield has a policy of allocating the IPO shares equally between the portfolios of the two clients. This policy is:

A) a violation of Standard III(C), Suitability.

B) congruent with Standard III(C), Suitability.

C) a violation of Standard III(B), Fair Dealing.

Q14.Kim Lee manages a variety of accounts at Superior Investments. Some are permitted to invest in tax-exempt issues only; others may not invest in a stock unless it pays dividends. Lee is researching a biotech firm specializing in the analysis of "mad cow" disease. While touring company facilities and meeting with management, she learns that they believe they may have found a way to reverse the disease. Moreover, one manager conjectured, "Suppose that we reversed the disease in someone who didn't even have it? We might then be able to boost that individual's IQ into the stratosphere!" Lee returns to her office and buys shares for all accounts under her supervision. This action is:

A) a violation of the Standard concerning appropriateness and suitability of investment actions.

B) appropriate given the obvious potential of the therapy.

C) a violation of the Standard concerning fiduciary duties.

Q15.Procedures for compliance with Standard III(C), Suitability, include determining all of the following with respect to a client EXCEPT:

A) social habits and interests.

B) liquidity needs.

C) return objectives.