CAIA Exam Sample

Samuel Tong, CAIA, has clients who await his recommendation of a particular stock that is about to release earnings. From his office he sends the single recommendation "Sell" to all his clients via a text message that includes the phrase "more info on web." Does this communication violate Standard V(B): Communication with Clients and Prospective Clients? - No A communication may be in capsule form but members should notify clients that additional information and analyses are available from the producer of the report Standard VI(A): Disclosure of Conflicts states that members and candidates must make - full and fair disclosure of all matters that could reasonably be expected to impair the independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Even friends. Standard IV(C): Responsibilities of Supervisors states that members and candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards. - Mr. Malone has committed no violation. He has informed his supervisor, the CEO, of the model changes. It is the CEO's responsibility to inform the investors. Maxwell Chalmers, CAIA, is the founder of and a partner in a quantitative hedge fund. He has developed a proprietary factor model that tracks social media patterns to identify market supply and demand trends. His model was developed and tested using 12 months of data. Based on the evidence, he concludes that the model will generate trading signals that will result in outperformance over the coming 24 months. Mr. Chalmers has prepared a research report in which he clearly explains these elements, and he has distributed the report to the fund's partners, but not to his clients. In the report, he makes a recommendation that the fund implement the model. What standard has Mr. Chalmers violated? - Standard V(A): Diligence and Reasonable Basis states that members and candidates must have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action. In this case, because Mr. Chalmers used only 12 months of data (a time horizon that is likely to be too short to incorporate both positive and negative market cycles) to project over the coming 24 months, he has failed to exercise a reasonable basis in his analysis. According to the guidance section for Standard I(B): Independence and Objectivity, members and candidates who are responsible for hiring and retaining outside managers should not - accept gifts, entertainment, or travel funding that may be perceived as impairing their decisions. According to Standard VI(C): Referral Fees, members and candidates must inform their clients and employer about - services that would be received as well as an estimate of the value of those services. In this case, general disclosure (to the clients and to the employer) is recommended. Standard IV(A): Loyalty does not preclude one from opening an independent practice. - However, before opening such a practice, one should obtain authorization from his or her current employer. Thus, Ms. Sikorska must obtain authorization. Absolute return standard means that returns are evaluated relative to - the riskless rate, or zero, and therefore independently of performance in equity markets, debt markets, or any other markets. What alternative investment category includes both mezzanine and distressed debt - Private equity Private equity investments include - venture capital (funding new ventures), leveraged buyouts (LBOs) of existing businesses, mezzanine financing of LBOs or other ventures, and distressed debt investing The tax consequences to fund investors are not determined at the master trust level but instead at the investor's country of domicile based on the relevant feeder fund. - For example, investors in the onshore U.S. based feeder fund are subject to the U.S. Internal Revenue Code, whereas investors in the offshore feeder fund are subject to the tax codes of their respective domiciles What action is most likely to be