Question 6 

Which of the following is most likely permitted under Standard I(C), Misrepresentation? 

A) Including an exhibit of the current yield curve in a report to a client without stating its source.

B) Using excerpts from reports prepared by others without acknowledgement.

C) Citing quotes attributed to "investment experts" without specific reference.

D) Using charts and graphs from another company's marketing materials without stating their source.

Question 7 

Bill Fence, CFA, supervises a group of research analysts, none of whom have earned the CFA designation or are

CFA candidates. On several occasions he has attempted to get his firm to adopt a compliance system to ensure that applicable laws and regulations are followed. However, the firm's principals have never adopted his recommendations. Fence should most appropriately: 

A) resign from the firm, because no other alternative will keep him in compliance with the Code and Standards.

B) take no further action, because the Code and Standards do not apply to any of his subordinates.

C) decline in writing to accept supervisory responsibility until reasonable compliance procedures are adopted.

D) take no further action, because by encouraging his firm to adopt a compliance system he has fulfilled his obligations under the Code and Standards.

Question 8 

Carl Weather, CFA, is the chief financial officer of Talbot Enterprises. Based on inside information about Talbot’s favorable prospects, Weather concludes that Talbot’s common stock price is substantially undervalued in the market. With the approval of Talbot’s Board of Directors, Weather announces a program for his firm to repurchase $100 million of its own stock in the market. Talbot’s stock price rises immediately after the announcement of the repurchase program.

Reese Winter, a CFA Institute member, is Weather’s assistant. While waiting in Weather’s office, Winter reads an internal memo marked “confidential” from Talbot’s chief accountant to Weather. The memo states that Talbot sustained an unexpected substantial profit during the past quarter, and its earnings projections show a substantial increase compared with previous estimates. Winter uses her cell phone to call her brother and discloses this information to him. Her brother immediately buys 1000 shares of Talbot’s stock.

Did the actions of Weather and Winter violate Standard II(A): Material Nonpublic Information?

    Weather    Winter

A)   No         Yes

B)   Yes        No

C)  Yes         Yes

D)  No          No

Question 9 

Gerri Kocimski, CFA, is a portfolio manager for Wendover Securities. Kocimski received correspondence from Alfred Tomba that included a brief letter requesting that Kocimski purchase a portfolio of growth stocks on behalf of Tomba, and included a check for $1,000,000 made out to Wendover’s custodian, together with contract and application that were completed and signed, except that none of the questions that asked about Tomba’s personal financial circumstances, net worth, and investment experience had been answered. Kocimski most likely: 

A) should not open the account before contacting Tomba to inquire about Tomba's financial situation, investment experience, and investment objectives.

B) must have signed documentation from Tomba that describes his financial situation, investment experience, and investment objectives before she can open the account.

C) may open the account because Tomba's net worth is equal to or exceeds $1,000,000 and he is a qualified investor based on the size of his account. 

D) may open the account because Tomba affirmatively solicited Kocimski's services. 

Question 10 

 Barders, Inc. has a portfolio of energy stocks that is being managed by Drew Grant, CFA, a representative of Bladstone Investments. Barders has approached Grant and offered to pay him a $1,000 bonus if the Barders portfolio outperforms its industry average by 3 percentage points or more this year. To be in compliance with the Code and Standards, Grant must: 

A) inform Bladstone in writing about the bonus arrangement.

B) inform his supervisor and receive approval before accepting the bonus.

C) obtain written consent from both Barders and Bladstone to participate in the bonus arrangement. 

D) not accept the bonus arrangement as it creates a conflict of interest with his other clients. 

Question 6 

The correct answer was A) Including an exhibit of the current yield curve in a report to a client without stating its source. 

The current yield curve is factual information that can be used without specific reference as long as its source is a recognized financial or statistical reporting service. 

This question tested from Session 1, Reading 2-I, LOS C.

Question 7 

The correct answer was C) decline in writing to accept supervisory responsibility until reasonable compliance procedures are adopted. 

According to Standard IV(C), Responsibilities of Supervisors, if the member cannot discharge supervisory responsibilities because of a poor or nonexistent compliance system, the member should decline in writing to accept supervisory responsibility until the firm adopts an adequate system. The standard does not require Fence to resign. 

This question tested from Session 1, Reading 2-IV, LOS C.

Question 8 

The correct answer was A) No Yes

Weather did not violate Standard II(A) because this prohibition applies to recipients who are not directly or indirectly associated with the firm the material nonpublic information is about. As a corporate insider, Weather can use insider information to benefit his firm’s shareholders. Winter violated Standard II(A) because the information is both material and nonpublic and she is required not to trade or cause others to trade on the information. 

This question tested from Session 1, Reading 2-II, LOS A.

Question 9 

The correct answer was A) should not open the account before contacting Tomba to inquire about Tomba's financial situation, investment experience, and investment objectives. 

Standard III(C), Suitability requires that members make a reasonable inquiry into a client’s financial situation, investment experience, and risk and return objectives prior to making any investment recommendations. There is no requirement for signed documentation, no exemption for high net worth, and no exception for client-solicited advice. 

This question tested from Session 1, Reading 2-III, LOS C.

Question 10 

The correct answer was C) obtain written consent from both Barders and Bladstone to participate in the bonus arrangement. 

According to Standard IV(B), Additional Compensation Arrangements, Grant must not accept compensation that might compete with his employer’s interest without receiving written consent from all parties involved. 

This question tested from Session 1, Reading 2-IV, LOS B.

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