CFA 1 Exam Questions with Correct
Answers Answers Latest
Which of the following statements about the Standard on misconduct is most
accurate?
s.
A. Misconduct applies only to a member or candidate's professional activities.
B. Neglecting to perform due diligence when required is an example of
misconduct.
C. A member or candidate commits misconduct by engaging in any illegal
activity. - Answer-B Failing to act when required by one's professional obligations, such
as neglecting to
perform due diligence related to an investment recommendation, violates Standard I(D)
Misconduct. Acts a member commits outside his professional capacity are misconduct
if they reflect poorly on the member or candidate's honesty, integrity, or competence
(e.g., theft or fraud).Violations of the law that do not reflect on the member or
candidate's honesty, integrity, or competence (e.g., an act related to civil disobedience)
are not necessarily regarded as misconduct.
Ed Ingus, CFA, visits the headquarters and main plant of Bullitt Company
and observes that inventories of unsold goods appear unusually large. From the
CFO, he learns that a recent increase in returned items may result in earnings
for the current quarter that are below analysts' estimates. Based on his visit,
Ingus changes his recommendation on Bullitt to "Sell." Has Ingus violated the
Standard concerning material nonpublic information?
A. Yes.
B. No, because the information he used is not material.
C. No, because his actions are consistent with the mosaic theory. - Answer-A The
statement from the CFO about the current quarter's earnings is material nonpublic
information. Ingw violated Standard II(A) Material Nonpublic Information by acting or
causing others to act on it.
Green Brothers, an emerging market fund manager, has two of its subsidiaries
simultaneously buy and sell emerging market stocks. In its marketing literature,
Green Brothers cites the overall emerging market volume as evidence of the
market's liquidity. As a result of its actions, more investors participate in the
emerging markets fund. Green Brothers most likely:
A. did not violate the Code and Standards.
B. violated the Standard regarding market manipulation.
C. violated the Standard regarding performance presentation. - Answer-B The intent of
Green Brothers' actions is to manipulate the appearance of market
liquidity in order to attract investment to its own funds. The increased trading activity
, was not based on market fundamentals or an actual trading strategy to benefit
investors.
It was merely an attempt to mislead market participants in order to increase assets
under
Green Brothers' management. The action violates Standard II(B) Market Manipulation.
Cobb, Inc., has hired Jude Kasten, CFA, to manage its pension fund. The
client(s) to whom Kasten owes a duty of loyalty are:
A. Cobb's management.
B. the shareholders of Cobb, Inc.
C. the beneficiaries of the pension fund. - Answer-C Standard III(A) Loyalty, Prudence,
and Care specifies that for the manager of a pension
or trust, the duty ofloyalty is owed to the beneficiaries, not to the individuals who hired
the manager.
Which of the following actions is most likely a violation of the Standard on fair
dealing?
A. A portfolio manager allocates IPO shares to all client accounts, including
her brother's fee-based retirement account.
B. An investment firm routinely begins trading for its own account
immediately after announcing recommendation changes to clients.
C. After releasing a general recommendation to all clients, an analyst calls the
firm's largest institutional clients to discuss the recommendation in more
detail. - Answer-B The firm must give its clients an opponunity to act on
recommendation changes. Firms
can offer different levels of service to clients as long as this is disclosed to all clients.
The largest institutional clients would likely be paying higher fees for a greater level of
service. The ponfolio manager's brother's account should be treated the same as any
other client account.
The Standard regarding suitability most likely requires that:
A. an advisor must analyze an investment's suitability for the client prior to
recommending or acting on the investment.
B. a member or candidate must decline to carry out an unsolicited transaction
that she believes is unsuitable for the client.
C. when managing a fund to an index, a manager who is evaluating potential
investments must consider their suitability for the fund's shareholders. - Answer-A
According to Standard III(C) Suitability, a member or candidate who is in an advisory
relationship with a client is responsible for analyzing the suitability of an investment
for the client before taking investment action or making a recommendation. A member
or candidate who believes an unsolicited trade is unsuitable for the client can either
decline to carry it out or ask the client to provide a statement that suitability is not a
consideration for this trade. When managing a fund to an index or stated mandate,
the manager is responsible for ensuring that potential investments are consistent with
the fund's mandate. Suitability for individuals would be a concern for an advisor who
recommends the fund to clients, but not for the manager of the fund.
Answers Answers Latest
Which of the following statements about the Standard on misconduct is most
accurate?
s.
A. Misconduct applies only to a member or candidate's professional activities.
B. Neglecting to perform due diligence when required is an example of
misconduct.
C. A member or candidate commits misconduct by engaging in any illegal
activity. - Answer-B Failing to act when required by one's professional obligations, such
as neglecting to
perform due diligence related to an investment recommendation, violates Standard I(D)
Misconduct. Acts a member commits outside his professional capacity are misconduct
if they reflect poorly on the member or candidate's honesty, integrity, or competence
(e.g., theft or fraud).Violations of the law that do not reflect on the member or
candidate's honesty, integrity, or competence (e.g., an act related to civil disobedience)
are not necessarily regarded as misconduct.
Ed Ingus, CFA, visits the headquarters and main plant of Bullitt Company
and observes that inventories of unsold goods appear unusually large. From the
CFO, he learns that a recent increase in returned items may result in earnings
for the current quarter that are below analysts' estimates. Based on his visit,
Ingus changes his recommendation on Bullitt to "Sell." Has Ingus violated the
Standard concerning material nonpublic information?
A. Yes.
B. No, because the information he used is not material.
C. No, because his actions are consistent with the mosaic theory. - Answer-A The
statement from the CFO about the current quarter's earnings is material nonpublic
information. Ingw violated Standard II(A) Material Nonpublic Information by acting or
causing others to act on it.
Green Brothers, an emerging market fund manager, has two of its subsidiaries
simultaneously buy and sell emerging market stocks. In its marketing literature,
Green Brothers cites the overall emerging market volume as evidence of the
market's liquidity. As a result of its actions, more investors participate in the
emerging markets fund. Green Brothers most likely:
A. did not violate the Code and Standards.
B. violated the Standard regarding market manipulation.
C. violated the Standard regarding performance presentation. - Answer-B The intent of
Green Brothers' actions is to manipulate the appearance of market
liquidity in order to attract investment to its own funds. The increased trading activity
, was not based on market fundamentals or an actual trading strategy to benefit
investors.
It was merely an attempt to mislead market participants in order to increase assets
under
Green Brothers' management. The action violates Standard II(B) Market Manipulation.
Cobb, Inc., has hired Jude Kasten, CFA, to manage its pension fund. The
client(s) to whom Kasten owes a duty of loyalty are:
A. Cobb's management.
B. the shareholders of Cobb, Inc.
C. the beneficiaries of the pension fund. - Answer-C Standard III(A) Loyalty, Prudence,
and Care specifies that for the manager of a pension
or trust, the duty ofloyalty is owed to the beneficiaries, not to the individuals who hired
the manager.
Which of the following actions is most likely a violation of the Standard on fair
dealing?
A. A portfolio manager allocates IPO shares to all client accounts, including
her brother's fee-based retirement account.
B. An investment firm routinely begins trading for its own account
immediately after announcing recommendation changes to clients.
C. After releasing a general recommendation to all clients, an analyst calls the
firm's largest institutional clients to discuss the recommendation in more
detail. - Answer-B The firm must give its clients an opponunity to act on
recommendation changes. Firms
can offer different levels of service to clients as long as this is disclosed to all clients.
The largest institutional clients would likely be paying higher fees for a greater level of
service. The ponfolio manager's brother's account should be treated the same as any
other client account.
The Standard regarding suitability most likely requires that:
A. an advisor must analyze an investment's suitability for the client prior to
recommending or acting on the investment.
B. a member or candidate must decline to carry out an unsolicited transaction
that she believes is unsuitable for the client.
C. when managing a fund to an index, a manager who is evaluating potential
investments must consider their suitability for the fund's shareholders. - Answer-A
According to Standard III(C) Suitability, a member or candidate who is in an advisory
relationship with a client is responsible for analyzing the suitability of an investment
for the client before taking investment action or making a recommendation. A member
or candidate who believes an unsolicited trade is unsuitable for the client can either
decline to carry it out or ask the client to provide a statement that suitability is not a
consideration for this trade. When managing a fund to an index or stated mandate,
the manager is responsible for ensuring that potential investments are consistent with
the fund's mandate. Suitability for individuals would be a concern for an advisor who
recommends the fund to clients, but not for the manager of the fund.
