CFA Mock A (Morning) questions with
answers.
In order to provide investors with a more comprehensive view of a firm's performance, the current GIPS
standards includes new provisions related to: ANS -Various measures of risk.
Historically, the GIPS standards focused primarily on returns. In the spirit of fair representation and full
disclosure, and in order to provide investors with a more comprehensive view of a firm's performance,
the current GIPS standards includes new provisions related to risk.
Claire Jones, CFA, is an analyst following natural gas companies in the United States. At an industry
energy conference, the CFO of Alpine Energy states they are interested in making strategic acquisitions.
At a separate event, Alpine's head of exploration commented he is bullish on natural gas production
prospects within Northeastern Pennsylvania. Jones is aware that Alpine currently has very little exposure
to this region. She also knows another company in her universe, Pure Energy, Inc., is based in
Northeastern Pennsylvania and controls significant assets in the area. Pure Energy is highly leveraged,
and Jones believes they will need to raise additional capital or partner with another firm to move to the
production phase with their assets. Jones attempts to contact Alpine's CEO with an unrelated question
and is told he is unavailable because he is on a business trip to Northeastern Pennsylvania. Jones
updates her ANS -No.
Because Jones has used the mosaic theory to combine non-material, nonpublic information with
material public information.
Ian O'Sullivan, CFA, is the owner and sole employee of two companies, a public relations firm and a
financial research firm. The public relations firm entered into a contract with Mallory Enterprises to
provide public relations services, with O'Sullivan receiving 40,000 shares of Mallory stock in payment for
his services. Over the next 10 days, the public relations firm issued several press releases that discussed
Mallory's excellent growth prospects. O'Sullivan, through his financial research firm, also published a
research report recommending Mallory stock as a "buy." According to the CFA Institute Standards of
Professional Conduct, O'Sullivan is most likely required to disclose his ownership of Mallory stock in the:
ANS -both the press release and the research report.
because members should disclose all matters that reasonably could be expected to impair the member's
objectivity [Standard I(B), Standard VI(A)].
,When making performance presentations to prospective clients, a GIPS compliant firm should least likely
do which of the following? ANS -Selectively report its top fund performance
When a firm complies with GIPS standards it cannot selectively choose its top fund performances while
excluding weaker performing funds. It must include all fee-paying discretionary funds managed to a
similar investment mandate, objective, or strategy.
For a retail client's portfolio to be included in a GIPS compliant firm's composite, it will most likely be in a
composite: ANS -Composed of discretionary funds.
A composite must include all actual, fee-paying, discretionary portfolios managed in accordance with the
same investment mandate, objective, or strategy.
In countries where new local laws relating to calculation and presentation of investment performance
conflict with GIPS standards, firms who have claimed GIPS compliance should most likely: ANS -follow
local laws, continue to claim GIPS compliance, and disclose conflicts.
Prudence Charmaine, a CFA charterholder, was recently accused in writing of cheating on a professional
accounting exam. She denied cheating and successfully defended herself against the allegation. As part
of her defense and as evidence of her character, Charmaine stated that she is a CFA charterholder and
upholds the CFA Institute Code of Ethics and Standards of Professional Conduct. On her next annual
Professional Conduct Statement, Charmaine does not report this allegation to CFA Institute. Did
Charmaine most likely violate the CFA Institute Code of Ethics or Standards of Professional Conduct?
ANS -Yes, she did not report the allegation on her annual Professional Conduct Statement.
Even though she successfully defended herself against the charges and the charges were dropped, she
has a responsibility to report the written complaint involving her integrity.
Gardner Knight, CFA, is a product development specialist at an investment bank. Knight is responsible
for creating and marketing collateralized debt obligations (CDOs) consisting of residential mortgage
bonds. In the marketing brochure for his most recent CDO, Knight provided a list of the mortgage bonds
that the CDO was created from. The brochure also states "an independent third party, the collateral
manager, had sole authority over the selection of all mortgage bonds used as collateral in the CDO."
However, Knight met with the collateral manager and helped her select the bonds for the CDO. Knight is
least likely to be in violation of which of the following CFA Institute Standards of Professional Conduct?
,Suitability
Conflicts of Interest
Client Communication ANS -Suitability
because there is no indication that the investment is unsuitable for investors and in violation of
Standard III(C)-Suitability.
Jan Loots, CFA, quit his job as a portfolio manager at an investment firm with whom he had a non-
solicitation agreement he signed several years ago. Loots received permission to take his investment
performance history with him and also took a copy of the firm's software-trading platform.
Subsequently, Loots sent out messages on social media sites announcing he was looking for clients for
his new investment management firm. Access to Loots' social media sites is restricted to friends, family,
and former clients. Loots least likely violated the CFA Institute Standards of Professional Conduct
concerning his:
trading software.
non-solicitation agreement.
investment performance history. ANS -investment performance history.
because the portfolio manager received permission to use his investment performance history from his
prior employer.
The member violated his non-solicitation agreement by indicating his availability to new clients on
several social media sites accessible by clients of his former employer. This is a violation of Standard
IV(A)-Loyalty because he did not act for the benefit of his former employer & his weekend messages
may result in clients moving to his new business from his former employer
Sherry Buckner, CFA, manages equity accounts for government entities whose portfolios are classified as
being conservative and risk averse. Since the objective of her clients is to maximize returns with the
lowest possible risk, Buckner considers adding to their holdings a new, thinly traded, leveraged
derivative product that she believes has the potential for high returns. To make her investment decision,
Buckner relies upon comprehensive research from an investment bank with a solid reputation for top
quality research. After her review of that research, Buckner positions her accounts so each has a 10%
allocation to the derivative product. Did Buckner most likely violate any CFA Institute Standards of
, Professional Conduct by purchasing the derivative product for her clients? ANS -Yes, related to
Suitability.
since she did not consider issues such as the limited liquidity or any potential leverage of this new
product when she invested a substantial percentage of her clients' portfolios in these instruments.
Wouter Duyck, CFA, is the sole proprietor of an investment advisory firm serving several hundred middle
class retail clients. Duyck claims to be different from his competitors because he conducts research
himself. He discloses that to simplify the management of all these accounts he has created a
recommended list of stocks, from which he selects investments for all of his clients based on their
suitability. Duyck's recommended list of stocks is obtained from his primary broker, who has completed
due diligence on each stock. Duyck's recommended list least likely violates which of the following CFA
Institute Standards of Professional Conduct?
Fair Dealing.
Misrepresentation.
Diligence and Reasonable Basis. ANS -Fair Dealing.
there is no indication that the advisor has discriminated against any clients with regard to his
recommendations as he invests all clients in the same universe of stocks.
Which of the following activities if undertaken by CFA Institute members and/or candidates would most
likely violate the Code and Standards?
An analyst discloses confidential, sensitive information about a client account as part of an investigation
by the CFA Institute Professional Conduct Program.
A senior trader does not have safeguards in place to determine whether a junior trader under their
supervision is following the firm's policies regarding best execution.
An institutional portfolio manager takes a group of clients to an expensive restaurant to discuss portfolio
returns over the recently completed quarter without prior written consent from his employer. ANS -A
senior trader does not have safeguards in place to determine whether a junior trader under their
supervision is following the firm's policies regarding best execution.
answers.
In order to provide investors with a more comprehensive view of a firm's performance, the current GIPS
standards includes new provisions related to: ANS -Various measures of risk.
Historically, the GIPS standards focused primarily on returns. In the spirit of fair representation and full
disclosure, and in order to provide investors with a more comprehensive view of a firm's performance,
the current GIPS standards includes new provisions related to risk.
Claire Jones, CFA, is an analyst following natural gas companies in the United States. At an industry
energy conference, the CFO of Alpine Energy states they are interested in making strategic acquisitions.
At a separate event, Alpine's head of exploration commented he is bullish on natural gas production
prospects within Northeastern Pennsylvania. Jones is aware that Alpine currently has very little exposure
to this region. She also knows another company in her universe, Pure Energy, Inc., is based in
Northeastern Pennsylvania and controls significant assets in the area. Pure Energy is highly leveraged,
and Jones believes they will need to raise additional capital or partner with another firm to move to the
production phase with their assets. Jones attempts to contact Alpine's CEO with an unrelated question
and is told he is unavailable because he is on a business trip to Northeastern Pennsylvania. Jones
updates her ANS -No.
Because Jones has used the mosaic theory to combine non-material, nonpublic information with
material public information.
Ian O'Sullivan, CFA, is the owner and sole employee of two companies, a public relations firm and a
financial research firm. The public relations firm entered into a contract with Mallory Enterprises to
provide public relations services, with O'Sullivan receiving 40,000 shares of Mallory stock in payment for
his services. Over the next 10 days, the public relations firm issued several press releases that discussed
Mallory's excellent growth prospects. O'Sullivan, through his financial research firm, also published a
research report recommending Mallory stock as a "buy." According to the CFA Institute Standards of
Professional Conduct, O'Sullivan is most likely required to disclose his ownership of Mallory stock in the:
ANS -both the press release and the research report.
because members should disclose all matters that reasonably could be expected to impair the member's
objectivity [Standard I(B), Standard VI(A)].
,When making performance presentations to prospective clients, a GIPS compliant firm should least likely
do which of the following? ANS -Selectively report its top fund performance
When a firm complies with GIPS standards it cannot selectively choose its top fund performances while
excluding weaker performing funds. It must include all fee-paying discretionary funds managed to a
similar investment mandate, objective, or strategy.
For a retail client's portfolio to be included in a GIPS compliant firm's composite, it will most likely be in a
composite: ANS -Composed of discretionary funds.
A composite must include all actual, fee-paying, discretionary portfolios managed in accordance with the
same investment mandate, objective, or strategy.
In countries where new local laws relating to calculation and presentation of investment performance
conflict with GIPS standards, firms who have claimed GIPS compliance should most likely: ANS -follow
local laws, continue to claim GIPS compliance, and disclose conflicts.
Prudence Charmaine, a CFA charterholder, was recently accused in writing of cheating on a professional
accounting exam. She denied cheating and successfully defended herself against the allegation. As part
of her defense and as evidence of her character, Charmaine stated that she is a CFA charterholder and
upholds the CFA Institute Code of Ethics and Standards of Professional Conduct. On her next annual
Professional Conduct Statement, Charmaine does not report this allegation to CFA Institute. Did
Charmaine most likely violate the CFA Institute Code of Ethics or Standards of Professional Conduct?
ANS -Yes, she did not report the allegation on her annual Professional Conduct Statement.
Even though she successfully defended herself against the charges and the charges were dropped, she
has a responsibility to report the written complaint involving her integrity.
Gardner Knight, CFA, is a product development specialist at an investment bank. Knight is responsible
for creating and marketing collateralized debt obligations (CDOs) consisting of residential mortgage
bonds. In the marketing brochure for his most recent CDO, Knight provided a list of the mortgage bonds
that the CDO was created from. The brochure also states "an independent third party, the collateral
manager, had sole authority over the selection of all mortgage bonds used as collateral in the CDO."
However, Knight met with the collateral manager and helped her select the bonds for the CDO. Knight is
least likely to be in violation of which of the following CFA Institute Standards of Professional Conduct?
,Suitability
Conflicts of Interest
Client Communication ANS -Suitability
because there is no indication that the investment is unsuitable for investors and in violation of
Standard III(C)-Suitability.
Jan Loots, CFA, quit his job as a portfolio manager at an investment firm with whom he had a non-
solicitation agreement he signed several years ago. Loots received permission to take his investment
performance history with him and also took a copy of the firm's software-trading platform.
Subsequently, Loots sent out messages on social media sites announcing he was looking for clients for
his new investment management firm. Access to Loots' social media sites is restricted to friends, family,
and former clients. Loots least likely violated the CFA Institute Standards of Professional Conduct
concerning his:
trading software.
non-solicitation agreement.
investment performance history. ANS -investment performance history.
because the portfolio manager received permission to use his investment performance history from his
prior employer.
The member violated his non-solicitation agreement by indicating his availability to new clients on
several social media sites accessible by clients of his former employer. This is a violation of Standard
IV(A)-Loyalty because he did not act for the benefit of his former employer & his weekend messages
may result in clients moving to his new business from his former employer
Sherry Buckner, CFA, manages equity accounts for government entities whose portfolios are classified as
being conservative and risk averse. Since the objective of her clients is to maximize returns with the
lowest possible risk, Buckner considers adding to their holdings a new, thinly traded, leveraged
derivative product that she believes has the potential for high returns. To make her investment decision,
Buckner relies upon comprehensive research from an investment bank with a solid reputation for top
quality research. After her review of that research, Buckner positions her accounts so each has a 10%
allocation to the derivative product. Did Buckner most likely violate any CFA Institute Standards of
, Professional Conduct by purchasing the derivative product for her clients? ANS -Yes, related to
Suitability.
since she did not consider issues such as the limited liquidity or any potential leverage of this new
product when she invested a substantial percentage of her clients' portfolios in these instruments.
Wouter Duyck, CFA, is the sole proprietor of an investment advisory firm serving several hundred middle
class retail clients. Duyck claims to be different from his competitors because he conducts research
himself. He discloses that to simplify the management of all these accounts he has created a
recommended list of stocks, from which he selects investments for all of his clients based on their
suitability. Duyck's recommended list of stocks is obtained from his primary broker, who has completed
due diligence on each stock. Duyck's recommended list least likely violates which of the following CFA
Institute Standards of Professional Conduct?
Fair Dealing.
Misrepresentation.
Diligence and Reasonable Basis. ANS -Fair Dealing.
there is no indication that the advisor has discriminated against any clients with regard to his
recommendations as he invests all clients in the same universe of stocks.
Which of the following activities if undertaken by CFA Institute members and/or candidates would most
likely violate the Code and Standards?
An analyst discloses confidential, sensitive information about a client account as part of an investigation
by the CFA Institute Professional Conduct Program.
A senior trader does not have safeguards in place to determine whether a junior trader under their
supervision is following the firm's policies regarding best execution.
An institutional portfolio manager takes a group of clients to an expensive restaurant to discuss portfolio
returns over the recently completed quarter without prior written consent from his employer. ANS -A
senior trader does not have safeguards in place to determine whether a junior trader under their
supervision is following the firm's policies regarding best execution.
