bmaggie

June Carter passed Level III of the CFA examination in June but will not complete her work experience requirement until August of next year. Carter can state on her resume that she:

A) passed Levels I, II, and III of the CFA examination.

B) will be a CFA charterholder in August of next year as long as she is on track to complete her work experience.

C) is a CFA in waiting.

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A candidate cannot use any form of the CFA designation until receiving her charter.

bmaggie

Todd Gregory has been recently hired as the head of compliance for Speed Capital. He decides the firm should precisely follow the recommendations of the CFA Institute Standards of Professional Conduct to ensure integrity within the firm. Which of the following is NOT a compliance procedure that Speed should put in place?

A) A requirement that investment personnel should clear all personal investments to identify possible conflicts.

B) A requirement of disclosure of all investment holdings of friends and family members of employees on an annual basis.

C) A requirement that employees provide duplicate confirmations of personal investing transactions.

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Members and Candidates are not required to disclose investment holdings of friends unless those holdings create a conflict of interest.

bmaggie

Patricia Young is an individual investment advisor who uses a computer model to place her clients into an appropriate portfolio. The model takes the clients’ goals and a range of simulated returns and presents the probability of achieving their goals. The investor then chooses the portfolio that provides a satisfactory probability of achieving their goals. By using this process, Young is:

A) violating the Standard on misrepresenting the expected investment performance.

B) not violating the Standards.

C) violating the Standard on suitability.

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The Standard on suitability calls for Young to assess risk tolerance, which is ignored by her process.

bmaggie

Milton Baker, CFA, prepares a research report on the dynamics of a stock price. In his study, he uses a considerable number of information sources, both outside sources and his company’s own research papers, prepared for both internal and public use. The report will first be distributed at the monthly department meeting and then later will be published on the company’s Internet site. He thinks that he may have neglected to mention some of his sources in his reference list but decides that he needs to be concerned about full disclosure of his sources only for the public version of the report, so he will wait to revise his work until after the monthly meeting but before it is published on the internet site. Which Standards does Baker NOT comply with?

A) Standard I(C), Misrepresentation, I(B), Independence and Objectivity, and I(A), Knowledge of the Law.

B) Standard I(C), Misrepresentation, and I(A), Knowledge of the Law.

C) Standard I(C), Misrepresentation, only.

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Baker has some doubts but does not initiate any action presuming they only apply to the publicly disclosed report. The lack of action is a violation of Standard I(A), Knowledge of the Law. He also violates Standard I(C), Misrepresentation, by failing to properly disclose the sources of his information, where necessary.

bmaggie

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:

A) write a research report describing that she witnessed the senior officers together in the hospitality center, but need not mention in the report that her sister is an employee of the center.

B) not write a research report disclosing the meeting.

C) 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.

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The information is material and nonpublic, therefore, Jennings cannot trade or cause others to trade.

bmaggie

Williams and Fudd is a major London-based brokerage and investment banking firm. Heritage Group, a money management firm, is the first, second, or third largest holder of each of the securities listed on Williams & Fudd's "PrimeShare #10" equity security list.

On Tuesday morning, August 22, Williams & Fudd released a research report recommending the purchase of Skelmerdale Industries to the public and to its clients. On Wednesday afternoon, August 23, Heritage Group bought 1.5 million shares of Skelmerdale. This action is:

A) a violation of the Standard concerning fair dealing.

B) in accordance with the CFA Institute Code and Standards.

C) a violation of the Standard concerning disclosure of conflicts.

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These actions are in accordance with both Standards III(B), Fair Dealing, and VI(B), Priority of Transactions. There is no violation.

bmaggie

Tara Bailey was a very strong proponent of Biloxi, Inc. due to a friendship with its founder. She has let her positive feelings for the firm color her research report and has allowed her optimism to be translated into certainty. She has violated all of the following standards EXCEPT:

A) Standard III(A), Loyalty, Prudence, and Care, with regard to Biloxi.

B) Standard VI(A), Disclosure of Conflicts.

C) Standard I(B), Independence and Objectivity.

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She is violating all of the above except Standard III(A), Loyalty, Prudence, and Care. Biloxi is not a client and Bailey owes no fiduciary duty. Her objectivity is compromised by her relationship with the founder. She has not disclosed this to her employer, and she does not have a reasonable basis for representations about the firm.

bmaggie

Jessica French is an individual investment advisor with 200 clients and claims she conforms to Global Investment Performance Standards (GIPS). French includes all of the clients on her books. One of those clients is her father, to whom she charges no fee. However, she manages that portfolio using the same processes as she uses for her paying clients. Another client included in the composite is John Randolph, a wealthy entrepreneur. Randolph is the only client who does not give her discretion over the assets and makes every decision himself, getting suggestions from French and using her to implement decisions. French:

A) conforms to GIPS, if disclosures are made about the non-fee-paying account.

B) has violated GIPS because it includes Randolph's account, but not because it includes her father's account.

C) has violated GIPS because it includes her father's account, but not because it includes Randolph's account.

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Non-fee-paying clients can be included in the same composite as fee-paying clients as long as it is disclosed. Nondiscretionary clients should not be included in the composite as the clients would not adhere to the investment strategy used by the investment advisor.

bmaggie

Patricia Cuff is the chief financial officer and compliance officer at Super Selection Investment Advisors that has incorporated the CFA Institute Code of Standards into the firm's compliance manual. Karen Trader is a portfolio manager for Super Selection. Trader is friendly with Josey James, president of AMD, a rapidly growing biotech company. Trader has served on AMD's board of directors for the last three years. James has asked Trader to commit to a large purchase of AMD stock for her portfolios. Trader had previously determined that AMD was a questionable investment but agreed to reconsider. Her reevaluation deemed the stock to be overpriced, but she nevertheless decides to purchase for her portfolios. Which standard was NOT broken?

A) IV(A)--Loyalty.

B) I(C)--Misrepresentation.

C) IV(C)--Responsibilities of Supervisors.

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IV(A) Loyalty was not broken because this standard involves going into a business that competes with your employer. IV(C) Responsibilities of Supervisors was breached because Trader broke several CFA Institute Standards which Cuff should have enforced. I(C) Misrepresentation was broken because Trader purchased stock for her clients even though she thought AMD was a questionable investment.

bmaggie

Noah Johnson, CFA, is a broker with a money management company, Factor, Inc. In a conversation with Tom Williams, Johnson describes the activities of Factor and discusses the characteristics of portfolio construction. Which of the following statements would NOT, on its face, be considered a misrepresentation?

A) The portfolio securities were carefully selected by Factor to minimize Williams' risk.

B) Factor guarantees the portfolio will achieve its goal return.

C) If Williams is not satisfied with the current target return, Johnson can always improve it by increasing his T-bills share.

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Standard I(C), Misrepresentation, prohibits CFA charterholders from misrepresenting characteristics of the portfolio or the services that the company can provide. The only statement that can be accepted as plausible is that the securities were selected to minimize the risk.