sCFA Level 1 Mock Exam 11: 2024 Mock
Exam A Session 1 || Questions &
Answers (Graded A+)
Simon Jensen, CFA, a portfolio manager, participates in an IPO of PT Tech. Jensen
prorates the oversubscribed issue on an odd-lot basis to suitable clients. After the
successful IPO, his colleague Todd Durkny, a CFA candidate, initiates coverage of PT
Tech and sends her "buy" recommendation to all clients by email. She then calls her
premium fee-paying clients to discuss PT Tech in-depth. Whose actions are consistent
with the Standards?
A. Durkny's only
B. Jensen's only
C. Both Durkny's and Jensen's - ANSWER-A. Durkny's only
Correct because according to Standard III (B), Fair Dealing, members and candidates
may provide more personal, specialized, or in-depth service to clients who are willing to
pay for premium services through higher management fees or higher levels of
brokerage.
According to the recommended procedures for compliance with the Standard relating to
performance presentation, members should:
A. exclude terminated accounts from performance history.
B. consider the knowledge of the audience to whom a performance presentation is
addressed.
C. use a representative account when presenting the performance of the weighted
composite of similar portfolios. - ANSWER-B. consider the knowledge of the audience
to whom a performance presentation is addressed.
because according to Standard III (D), Performance Presentation, members can meet
obligation of the Standard by considering the knowledge and sophistication of the
audience to whom a performance presentation is addressed.
Gurdeep Singh, CFA, is an analyst with a hedge fund and works closely with his
supervisor, Joan Tanner, who earned her CFA designation 20 years ago. Singh
becomes aware that Tanner uses her CFA designation even though she no longer pays
her membership dues. Tanner uses the designation during several meetings that she
,and Singh have with the firm's clients and emphasizes that all her team members,
including herself, are CFA charterholders. Has Singh violated the Standards?
A. No
B. Yes, the Standard relating to knowledge of the law
C. Yes, the Standard relating to reference to CFA Institute, the CFA designation, and
the CFA program - ANSWER-B. Yes, the Standard relating to knowledge of the law
because according to Standard I(A), Knowledge of the Law, members and Candidates
must not knowingly participate or assist in and must dissociate from any violation of
such laws, rules, or regulations. In this case, by staying silent in a client meeting in
which he knows false information is being given to a potential investor that could cause
harm to that investor, Singh would be seen as assisting Tanner in providing that false
information, even though Singh is not actively engaging in the misconduct himself Singh
should report her conduct to the fund's compliance department for it to address and
should dissociate himself from the activity. By not dissociating himself from Tanner and
their meetings with clients, Singh has violated the Standard.
Peter Levinson, CFA, declared personal bankruptcy due to unpaid medical bills. After
losing his receipt for a business dinner, he uses his wife's receipt for a smaller amount
from the same restaurant to submit his expense claim. Has Levinson most likely
violated the Standards?
A. No
B. Yes, by declaring personal bankruptcy
C. Yes, by using his wife's receipt for his expense claim - ANSWER-C. Yes, by using his
wife's receipt for his expense claim
Correct because according to the Standard I(D), misconduct, Members and Candidates
must not engage in any professional conduct involving dishonesty, fraud, or deceit or
commit any act that reflects adversely on their professional reputation, integrity, or
competence. And using his wife's receipt for expense claim is a dishonest professional
conduct.
Ethics Application
explain how the practices, policies, and conduct do or do not violate the CFA Institute
Code of Ethics and Standards of Professional Conduct
A member has been asked by her supervisor to write a research report on a company.
The member's firm owns options to buy the company's stock. The member's firm does
not possess material nonpublic information on the company. According to the
Standards, the member should:
,A. outsource the report to an approved third-party research provider.
B. place the stock on a restricted list and provide only factual information about the
company.
C. disclose in the research report the amount and the expiration date of the options held
by her firm in the covered company. - ANSWER-C. disclose in the research report the
amount and the expiration date of the options held by her firm in the covered company.
because according to the recommended procedures for compliance with Standard VI
(A), Disclosure of Conflicts, if a member, a candidate, or a member's or candidate's firm
has outstanding agent options to buy stock as part of the compensation package for
corporate financing activities, the amount and expiration date of these options should be
disclosed as a footnote to any research report published by the member's or candidate's
firm. Therefore, if the member's firm owns options to buy the company's stock as part of
the compensation for offering corporate finance solutions, the member should disclose
in the research report the amount and the expiration date of the options held by her firm
in the covered company.
Guidance for Standards I-VII
recommend practices and procedures designed to prevent violations of the Code of
Ethics and Standards of Professional Conduct
John McCay, CFA, is an analyst who has prepared a report on the cable industry based
on research from a variety of sources and analysts. He compiles these findings to form
his own opinion and distributes the report to clients without acknowledging his sources.
McCay has violated the Standards by:
A. failing to cite the work of others.
B. failing to have a reasonable basis for his conclusions.
C. incorporating other analysts' research into his own work - ANSWER-A. failing to cite
the work of others.
because according to Standard I(C), Misrepresentation, in order to prevent plagiarism,
members and candidates may use and distribute other sources' research as long as
they do not represent themselves as the authors. Members should disclose and cite the
sources of their information, so that the client is not misled as to the level of expertise
behind the report. One of the most egregious practices in violation of this standard is the
preparation of research reports based on multiple sources of information without
acknowledging the sources. Therefore, McCay violated this Standard by failing to cite
the work of others.
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 from which the CDO was created.
The brochure also states "an independent third party, the collateral manager, has sole
authority for the selection of all mortgage bonds used as collateral in the CDO."
However, Knight met with the collateral manager and contributed to determining the
bonds included in the CDO. Knight is least likely to be in violation of which of the
following Standards?
A. Suitability
B. Disclosure of Conflicts
C. Communication with Clients and Prospective Clients - ANSWER-A. Suitability
because there is no indication that the investment is unsuitable for investors and in
violation of Standard III(C), Suitability.
Meera Doka, CFA, manages an equity fund for clients. One day, the fund experiences a
large loss due to an event unforeseen by all market participants. Prior to the event,
Doka failed to disclose the risk of this event occurring to her clients. One month later,
Doka decides to outsource 5% of the fund's assets to an external manager. She does
not inform her clients of this change because the external manager follows an
investment process that is very similar to her fund's process. Are Doka's actions
consistent with the Standard relating to communication with clients and prospective
clients?
A. Yes
B. No, because she failed to disclose the risk that resulted in the large loss
C. No, because she failed to inform her clients about outsourcing 5% of the fund's
assets - ANSWER-C. No, because she failed to inform her clients about outsourcing 5%
of the fund's assets
because it is not consistent with Standard V (B), Communications with Clients and
Prospective Clients, to fail to inform clients about the use of an outside manager. A
firm's investment policy may include the use of outside advisers to manage various
portions of clients' assets under management. Members and candidates should inform
the clients about the specialization or diversification expertise provided by the external
adviser(s). This information allows clients to understand the full mix of products and
strategies being applied that may affect their investment objectives.
Guidance for Standards I-VII
demonstrate the application of the Code of Ethics and Standards of Professional
Conduct to situations involving issues of professional integrity
According to the Standards, if a member cannot discharge supervisory responsibilities
due to an inadequate compliance system, the member is:
Exam A Session 1 || Questions &
Answers (Graded A+)
Simon Jensen, CFA, a portfolio manager, participates in an IPO of PT Tech. Jensen
prorates the oversubscribed issue on an odd-lot basis to suitable clients. After the
successful IPO, his colleague Todd Durkny, a CFA candidate, initiates coverage of PT
Tech and sends her "buy" recommendation to all clients by email. She then calls her
premium fee-paying clients to discuss PT Tech in-depth. Whose actions are consistent
with the Standards?
A. Durkny's only
B. Jensen's only
C. Both Durkny's and Jensen's - ANSWER-A. Durkny's only
Correct because according to Standard III (B), Fair Dealing, members and candidates
may provide more personal, specialized, or in-depth service to clients who are willing to
pay for premium services through higher management fees or higher levels of
brokerage.
According to the recommended procedures for compliance with the Standard relating to
performance presentation, members should:
A. exclude terminated accounts from performance history.
B. consider the knowledge of the audience to whom a performance presentation is
addressed.
C. use a representative account when presenting the performance of the weighted
composite of similar portfolios. - ANSWER-B. consider the knowledge of the audience
to whom a performance presentation is addressed.
because according to Standard III (D), Performance Presentation, members can meet
obligation of the Standard by considering the knowledge and sophistication of the
audience to whom a performance presentation is addressed.
Gurdeep Singh, CFA, is an analyst with a hedge fund and works closely with his
supervisor, Joan Tanner, who earned her CFA designation 20 years ago. Singh
becomes aware that Tanner uses her CFA designation even though she no longer pays
her membership dues. Tanner uses the designation during several meetings that she
,and Singh have with the firm's clients and emphasizes that all her team members,
including herself, are CFA charterholders. Has Singh violated the Standards?
A. No
B. Yes, the Standard relating to knowledge of the law
C. Yes, the Standard relating to reference to CFA Institute, the CFA designation, and
the CFA program - ANSWER-B. Yes, the Standard relating to knowledge of the law
because according to Standard I(A), Knowledge of the Law, members and Candidates
must not knowingly participate or assist in and must dissociate from any violation of
such laws, rules, or regulations. In this case, by staying silent in a client meeting in
which he knows false information is being given to a potential investor that could cause
harm to that investor, Singh would be seen as assisting Tanner in providing that false
information, even though Singh is not actively engaging in the misconduct himself Singh
should report her conduct to the fund's compliance department for it to address and
should dissociate himself from the activity. By not dissociating himself from Tanner and
their meetings with clients, Singh has violated the Standard.
Peter Levinson, CFA, declared personal bankruptcy due to unpaid medical bills. After
losing his receipt for a business dinner, he uses his wife's receipt for a smaller amount
from the same restaurant to submit his expense claim. Has Levinson most likely
violated the Standards?
A. No
B. Yes, by declaring personal bankruptcy
C. Yes, by using his wife's receipt for his expense claim - ANSWER-C. Yes, by using his
wife's receipt for his expense claim
Correct because according to the Standard I(D), misconduct, Members and Candidates
must not engage in any professional conduct involving dishonesty, fraud, or deceit or
commit any act that reflects adversely on their professional reputation, integrity, or
competence. And using his wife's receipt for expense claim is a dishonest professional
conduct.
Ethics Application
explain how the practices, policies, and conduct do or do not violate the CFA Institute
Code of Ethics and Standards of Professional Conduct
A member has been asked by her supervisor to write a research report on a company.
The member's firm owns options to buy the company's stock. The member's firm does
not possess material nonpublic information on the company. According to the
Standards, the member should:
,A. outsource the report to an approved third-party research provider.
B. place the stock on a restricted list and provide only factual information about the
company.
C. disclose in the research report the amount and the expiration date of the options held
by her firm in the covered company. - ANSWER-C. disclose in the research report the
amount and the expiration date of the options held by her firm in the covered company.
because according to the recommended procedures for compliance with Standard VI
(A), Disclosure of Conflicts, if a member, a candidate, or a member's or candidate's firm
has outstanding agent options to buy stock as part of the compensation package for
corporate financing activities, the amount and expiration date of these options should be
disclosed as a footnote to any research report published by the member's or candidate's
firm. Therefore, if the member's firm owns options to buy the company's stock as part of
the compensation for offering corporate finance solutions, the member should disclose
in the research report the amount and the expiration date of the options held by her firm
in the covered company.
Guidance for Standards I-VII
recommend practices and procedures designed to prevent violations of the Code of
Ethics and Standards of Professional Conduct
John McCay, CFA, is an analyst who has prepared a report on the cable industry based
on research from a variety of sources and analysts. He compiles these findings to form
his own opinion and distributes the report to clients without acknowledging his sources.
McCay has violated the Standards by:
A. failing to cite the work of others.
B. failing to have a reasonable basis for his conclusions.
C. incorporating other analysts' research into his own work - ANSWER-A. failing to cite
the work of others.
because according to Standard I(C), Misrepresentation, in order to prevent plagiarism,
members and candidates may use and distribute other sources' research as long as
they do not represent themselves as the authors. Members should disclose and cite the
sources of their information, so that the client is not misled as to the level of expertise
behind the report. One of the most egregious practices in violation of this standard is the
preparation of research reports based on multiple sources of information without
acknowledging the sources. Therefore, McCay violated this Standard by failing to cite
the work of others.
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 from which the CDO was created.
The brochure also states "an independent third party, the collateral manager, has sole
authority for the selection of all mortgage bonds used as collateral in the CDO."
However, Knight met with the collateral manager and contributed to determining the
bonds included in the CDO. Knight is least likely to be in violation of which of the
following Standards?
A. Suitability
B. Disclosure of Conflicts
C. Communication with Clients and Prospective Clients - ANSWER-A. Suitability
because there is no indication that the investment is unsuitable for investors and in
violation of Standard III(C), Suitability.
Meera Doka, CFA, manages an equity fund for clients. One day, the fund experiences a
large loss due to an event unforeseen by all market participants. Prior to the event,
Doka failed to disclose the risk of this event occurring to her clients. One month later,
Doka decides to outsource 5% of the fund's assets to an external manager. She does
not inform her clients of this change because the external manager follows an
investment process that is very similar to her fund's process. Are Doka's actions
consistent with the Standard relating to communication with clients and prospective
clients?
A. Yes
B. No, because she failed to disclose the risk that resulted in the large loss
C. No, because she failed to inform her clients about outsourcing 5% of the fund's
assets - ANSWER-C. No, because she failed to inform her clients about outsourcing 5%
of the fund's assets
because it is not consistent with Standard V (B), Communications with Clients and
Prospective Clients, to fail to inform clients about the use of an outside manager. A
firm's investment policy may include the use of outside advisers to manage various
portions of clients' assets under management. Members and candidates should inform
the clients about the specialization or diversification expertise provided by the external
adviser(s). This information allows clients to understand the full mix of products and
strategies being applied that may affect their investment objectives.
Guidance for Standards I-VII
demonstrate the application of the Code of Ethics and Standards of Professional
Conduct to situations involving issues of professional integrity
According to the Standards, if a member cannot discharge supervisory responsibilities
due to an inadequate compliance system, the member is:
