土豆妮

A financial analyst and CFA Institute member sends a preliminary research report on a company to his supervisor. The supervisor approves the report, but then the analyst receives news that causes him to revise downward the earnings estimate of the company. The analyst resubmits the report to the supervisor with the new earnings estimate. The analyst soon finds out that the supervisor plans to release the first version of the report with the first earnings estimate without a reasonable and adequate basis. In response to this the analyst must:

A) both insist that a follow up report be issued and take up the issue with regulatory authorities.

B) only insist that the first report be followed up by a revision.

C) insist that the supervisor change the earnings forecast or remove his (the analyst's) name from the report.

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According to Standard V(A), Diligence and Reasonable Basis, the analyst must exercise diligence, independence, and thoroughness when performing investment analysis, making a recommendation, or taking investment action. The analyst should document the difference in opinion including any request to remove his or her name from the report.

土豆妮

A client calls his money manager and asks the manager to liquidate a large portion of his assets under management for an emergency. The manager warns the client of the risk of selling many assets quickly but says that he will try to get the client the best possible price. This is a violation of:

A) Standard V(A), Diligence and Reasonable Basis.

B) none of the Standards listed here.

C) Standard III(C), Suitability.

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The money manager has done his duty. He has warned the client of the risk and made no explicit promises concerning what he can and cannot do.

土豆妮

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) do both of these.

B) have a reasonable and adequate basis for the recommendation.

C) support a recommendation with appropriate research and investigation.

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Both of these are explicitly required by Standard V(A).

土豆妮

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) fulfilled all obligations.

B) violated the Standard if he does not verify whether the investment is appropriate for all the clients.

C) violated the Standard by communicating the recommendation via e-mail.

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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.

土豆妮

Peggy Green, CFA, is a research analyst following Brown Co. All the information she has gathered suggests the stock should be rated a weak "hold." During a recent lunch, Green overheard another analyst say that the stock should be rated a "buy." Green returns to her office and issues a "buy" recommendation. Green:

A) violated CFA Institute Standards of Professional Conduct because she did not seek approval of the change from her firm's compliance director.

B) has violated CFA Institute Standards of Professional Conduct because she failed to distinguish between fact and opinion.

C) has violated CFA Institute Standards of Professional of Conduct because she did not have a reasonable and adequate basis for making this recommendation.

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Analysts are required to have a reasonable and adequate basis, supported by appropriate research and investigation, for their recommendations.

土豆妮

Which of the following statements regarding the research report on Sunrise Technologies after the company went public is TRUE?

A) Jones has violated the Standard on research reports because she failed to distinguish between fact and opinion; Karloff is in compliance with the supervisory-responsibilities Standard because he is keeping up with Jones’ actions and ensuring her report is accurate.

B) Jones is in compliance with the objectivity Standard because she made her recommendation based facts, not conjecture; Karloff has violated the Standard regarding the use of material nonpublic information.

C) Jones has violated the misrepresentation Standard with her aggressive growth prediction for Sunrise Technologies; Karloff has violated the plagiarism Standard by disseminating information he received in confidence.

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Jones’ second research report made reference to hard facts, and her analysis and revision of the cash flow projections seems thorough and reasonable. This time, Karloff did not press her to express a certain opinion, and she found the information about the company compelling. She projected higher growth in cash flow for Sunrise, but nowhere is it said that she guaranteed a hard target. Jones is in compliance with the misrepresentation, objectivity, reasonable-basis, and research-report Standards. Karloff violated the insider-trading Standard because the information was given to him in confidence. He may also have violated his fiduciary duty to Sunrise, which probably kept the information private for a reason. (Study Session 1, LOS 4.a)

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According to CFA Institute Standards concerning fair dealing, Jones is required to do which of the following?

A) Ensure that accounts belonging to her immediate family purchase securities only after other clients have had the chance to buy.

B) Disclose to all clients whether different levels of service are offered.

C) Disseminate new investment recommendations to all clients at the same time.

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Jones must disclose different levels of service to all clients. Jones must inform clients about new buy recommendations and advise them not to sell, but she cannot disregard the order if the client still wishes to sell. Family-owned accounts should be handled in the same way as other accounts, and cannot be made to wait until everyone else has acted. The Standard allows for the fact that it is impossible to notify everyone at the same time. (Study Session 1, LOS 2.a)

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Which of the following statements could Brown put on his resume without violating Standard VII(B): Reference to CFA Institute, the CFA Designation, and the CFA Program?

A) If I pass the Level III test, I may be eligible for my CFA charter late next year.

B) I am a Level III CFA and should become a chartered financial analyst next year.

C) I am a Level III CFA candidate eligible to receive my charter in November 2005.

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This statement is quite literally correct, and complies with the Standards. “Level III CFA” is not an acceptable use of the CFA mark. Candidates should not offer a prediction about the time they will earn their charter. While Brown is not likely to take the test, as long as he is registered, he may refer to himself as a candidate. (Study Session 1, LOS 2.a)

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In order for Clampett Securities to claim compliance with CFA Institute Soft Dollar Standards, the company must:

A) comply with all recommended provisions of the Soft Dollar Standards.

B) send all purchased research to the client whose brokerage was used to pay for it.

C) re-evaluate mixed-use research at least once a year.

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Mixed-use research must be evaluated at least annually. Companies that claim soft-dollar compliance must follow the mandatory provisions, but can forgo some of the recommended provisions. If research only benefits some clients, it is acceptable to use just their brokerage to pay for it. The Standards do not require sending research to clients. (Study Session 1, LOS 3.b)

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When Jones produced the research report on Sunrise Technologies before it went public, she violated:

A) Standard V(B): Communication with Clients and Prospective Clients by leaving relevant facts out of the report, but not Standard III(A): Loyalty, Prudence, and Care because the CEO cannot pass his fiduciary duty on to her.

B) Standard V(A): Diligence and Reasonable Basis because her research was not thorough, and Standard I(B): Independence and Objectivity because of her obedience to her CEO.

C) Standard I(B): Independence and Objectivity because of her obedience to her CEO, and Standard II(A): Material Nonpublic Information because of Karloff’s involvement.

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Jones’ research was not thorough, and her report did leave out salient facts. Thus, she violated Standards V(A) and V(B). Her objectivity was certainly in question, so she violated Standard I(B). She also has a fiduciary duty to the clients regardless of what the boss says, so she violated Standard III(A). No nonpublic information was used in this report, so Standard II(A) was not violated. (Study Session 1, LOS 2.a)