CFA FINAL EXAM UPDATED ACTUAL QUESTIONS AND
ANSWERS
Alan Brown, an investment advisor, wants to set up his own firm. He is making all the legal
arrangements to do so during his free time. His current employer is not aware of his activities. He is also
informing all his current clients about his new venture and offering them discounts to do business with
his new firm. Which of the following is most accurate?
A. Alan is violation the standards, as he is setting up a new business during his free time
B. Alan is violating the standards, as he is setting up a new business and soliciting the clients of his
current employer.
C. Alan is violating the standards by soliciting the clients of his current employer. - CORRECT
ANSWER✅✅✅C. Alan is violating the standards by soliciting the clients of his current employer.
Dinah Bonnevie, CFA, was elected to the board of directors of a worldwide charitable organization with
the written consent of her employer. The organization has recently started a fund‐raising campaign for a
vaccination program in Africa. Knowing that most of her clients make regular charitable donations, she
includes a section in her regular newsletter covering her directorship with the charity and the fund‐
raising campaign. Did Bonnevie violate Standard III(E) Preservation of Confidentiality? - CORRECT
ANSWER✅✅✅No
In the event that local law is in conflict with GIPS, firms must: - CORRECT ANSWER✅✅✅comply with
local law and disclose the nature of the conflict.
Lana Torres, CFA, is a founder of her own private investment advisory practice serving senior clients with
high net worth. Since inception, Torres has always invested her clients' money in blue‐chip stocks with
high dividends. With the recent boom of technology stocks, Torres determined that the technology
stocks will have a better return for her clients in the medium term and allocated a portion of her clients'
assets into the small‐cap technology stocks that she has done thorough analysis on. She plans to inform
clients of this change in her next market commentary in three months. Did Torres violate any CFA
Institute Standards? - CORRECT ANSWER✅✅✅Yes, because she did not inform her client about the
change in the investment process promptly.
,Joe is in charge of a very large equity management firm that does a significant amount of trading with
soft‐dollar commissions. At the end of the year, what percent of the soft‐dollar commissions is he
allowed to pay out in annual bonuses to his employees? - CORRECT ANSWER✅✅✅0%
During an internal meeting, Jack O'Neil, CFA, who is the fund manager of the firm, had a disagreement
with an analyst on one of the stock picks. At the end, Jack stated that the analyst must listen to him
because he is a CFA charter holder and therefore knows better. Did Jack violate any of the CFA Institute
Standards of Professional Conduct according to the Standards of Practice Handbook? - CORRECT
ANSWER✅✅✅Yes, he violated the standard pertaining to Responsibilities as a CFA Institute
Member.
Firm X, because of portfolio underperformance relative to its stated benchmark, decides to switch to a
passive asset management strategy and does not inform its clients.
At Firm Y, where individual asset managers are responsible for security selection, a new policy is
implemented in which only stocks on an approved list constructed by the firm's senior manager may be
purchased for client accounts. Several portfolio managers do not inform their respective clients.
Firm Z recently changes its external manager of property investments and provides information of this
change in the firm's annual report where external advisers are listed. The annual report is due for
publication in seven months.
Which firm(s) violated Standard V(B)? - CORRECT ANSWER✅✅✅Firm Y and Firm Z
A firm's culture that promotes loyalty to the firm over its clients is an example of: - CORRECT
ANSWER✅✅✅A situational influence
Toby Green, CFA, works in an equity brokerage department at Mulberry Securities. Green has reviewed
a report from the firm's research department that suggests Crown Appliances is rated a "buy" because
the sales figures for the firm's new products have been better than those of the closest competition.
Green lives on the same street as the CFO of Crown Appliances. While waiting for the train to work,
Green accidentally overheard the chief financial officer of Crown Appliances report to his colleague on a
mobile phone about an announcement in the morning newspaper that a competitor has just launched a
website for appliance distribution over the Internet. Upon returning to his office, Green tipped his father
to sell his holding based on this new information, but he still recommends a "buy" to all Mulberry's
clients. Green: - CORRECT ANSWER✅✅✅Was in full compliance with the Code and Standards.
Rafi Binder is an oil industry analyst at a brokerage firm. He recently read an article in the Wall Street
Journal describing a research study that analyzed global oil reserves. Binder thinks this study would
provide insight into the long‐term movement of oil prices and wants to quote the study in a research
,report he is preparing. Using the Journal article to identify the author as Dr. Rangoon of State University,
Binder obtained a copy of the original research study and used several excerpts in his oil industry report.
In citing the source of the excerpts, Binder must credit:
Wall Street JournalThe Original Study
A.Yes No
B.No Yes
C.Yes Yes - CORRECT ANSWER✅✅✅Row B
With respect to composites, GIPS requires that a firm: - CORRECT ANSWER✅✅✅may define
composites itself as long as the classification is made ex ante.
Which of the following statements regarding Global Investment Performance Standards (GIPS) is most
accurate? - CORRECT ANSWER✅✅✅Under GIPS, firms are required to present at least five years of
performance, or for the period since the firm's inception if the firm has been in existence less than five
years, that meets the requirements of the GIPS standards.
Shelly recently started at a Texas based institutional consulting firm that provides manager search and
selection services. During the Christmas holiday she received gifts of chocolates, popcorn, and other
holiday food items from numerous investment managers. With respect to Standard 1(B) of the
Professional Code of Conduct, what must Shelly do? - CORRECT ANSWER✅✅✅Do nothing.
Which of the following is not a requirement for Composite Construction under the GIPS? - CORRECT
ANSWER✅✅✅NOT "Firms must not link performance of simulated or model portfolios with actual
performance."
Victoria Anderson, CFA, works for Pluto Capital, a newly established investment counseling firm. The
founding partners of Pluto Capital came from Vulcan Investments after it was taken over by a large
financial services group. Jonathan Beecham is meeting with Pluto Capital for the first time because he
has been disappointed by Vulcan's underperformance following the takeover. At the beginning of their
meeting, Anderson sympathizes with his situation, then immediately explains to Beecham that she has
discovered an undervalued stock that offers large potential gains. Anderson then promises Beecham
that she can buy the stock for his account at the current price if he switches the account within 48
hours. Anderson's best course of action to avoid violating the Standards was to have: - CORRECT
ANSWER✅✅✅determined Beecham's investment needs, objectives, and tolerance for risk before
making any investment recommendation.
, Steve Michael, CFA is having lunch with one of his friends at a local restaurant and overhears someone
talking about a pending merger for Pharmotech stock. Michael walks over to this person because he
follows this stock as well and knows nothing of a merger, only to find out it is the company's CEO making
these statements. Which of the following Standards of Professional Conduct applies to this situation? -
CORRECT ANSWER✅✅✅Standard II(A)
Which of the following is least likely required of fiduciaries that are responsible for pension plans? -
CORRECT ANSWER✅✅✅Supporting the sponsor's management during proxy fights.
Nick Austin has failed the CFA Level I exam three times and is registered for the exam for the fourth
time. In his frustration, Nick publicly posted the following comment on his social media account: "I
believe that the CFA Institute is limiting the percentage of passers so they can profit more from the
exam fee!" Which is correct? - CORRECT ANSWER✅✅✅Austin is not in violation of Standard I(D) nor
Standard VII(A).
Sam Smith, a portfolio manager, has invested in Ken Petrochemicals Corp. He discovers that Clarke
Consultancy Inc., a leading financial research firm, is planning to give a sell recommendation of Ken's
stocks. Sam approaches Jim Clarke, the head of the research firm, and requests Jim to postpone the
publication of the research. Jim agrees to the request for a deal from Sam. Which of the following
statements is most accurate?
Statement I: Jim has violated Standard III(A).
Statement II: Both Jim and Sam have violated Standard II(B) related to market manipulation and
Standard I(B) related to independence and objectivity.
Statement III: Both Jim and Sam have violated Standard V(A) Diligence and Reasonable Basis. - CORRECT
ANSWER✅✅✅Statements I and II.
A code of ethics sets out: - CORRECT ANSWER✅✅✅Principles of behavior for a group
Dave Johnson, an analyst at Star Bank, works as a golf coach during his leisure time. He is doing well in
his coaching and is even considering setting up a golf academy in the future. Should Dave inform his
employer about his second profession? - CORRECT ANSWER✅✅✅Yes, he should inform his
employer if the amount he earns is substantial in comparison to his current salary at the bank.
ANSWERS
Alan Brown, an investment advisor, wants to set up his own firm. He is making all the legal
arrangements to do so during his free time. His current employer is not aware of his activities. He is also
informing all his current clients about his new venture and offering them discounts to do business with
his new firm. Which of the following is most accurate?
A. Alan is violation the standards, as he is setting up a new business during his free time
B. Alan is violating the standards, as he is setting up a new business and soliciting the clients of his
current employer.
C. Alan is violating the standards by soliciting the clients of his current employer. - CORRECT
ANSWER✅✅✅C. Alan is violating the standards by soliciting the clients of his current employer.
Dinah Bonnevie, CFA, was elected to the board of directors of a worldwide charitable organization with
the written consent of her employer. The organization has recently started a fund‐raising campaign for a
vaccination program in Africa. Knowing that most of her clients make regular charitable donations, she
includes a section in her regular newsletter covering her directorship with the charity and the fund‐
raising campaign. Did Bonnevie violate Standard III(E) Preservation of Confidentiality? - CORRECT
ANSWER✅✅✅No
In the event that local law is in conflict with GIPS, firms must: - CORRECT ANSWER✅✅✅comply with
local law and disclose the nature of the conflict.
Lana Torres, CFA, is a founder of her own private investment advisory practice serving senior clients with
high net worth. Since inception, Torres has always invested her clients' money in blue‐chip stocks with
high dividends. With the recent boom of technology stocks, Torres determined that the technology
stocks will have a better return for her clients in the medium term and allocated a portion of her clients'
assets into the small‐cap technology stocks that she has done thorough analysis on. She plans to inform
clients of this change in her next market commentary in three months. Did Torres violate any CFA
Institute Standards? - CORRECT ANSWER✅✅✅Yes, because she did not inform her client about the
change in the investment process promptly.
,Joe is in charge of a very large equity management firm that does a significant amount of trading with
soft‐dollar commissions. At the end of the year, what percent of the soft‐dollar commissions is he
allowed to pay out in annual bonuses to his employees? - CORRECT ANSWER✅✅✅0%
During an internal meeting, Jack O'Neil, CFA, who is the fund manager of the firm, had a disagreement
with an analyst on one of the stock picks. At the end, Jack stated that the analyst must listen to him
because he is a CFA charter holder and therefore knows better. Did Jack violate any of the CFA Institute
Standards of Professional Conduct according to the Standards of Practice Handbook? - CORRECT
ANSWER✅✅✅Yes, he violated the standard pertaining to Responsibilities as a CFA Institute
Member.
Firm X, because of portfolio underperformance relative to its stated benchmark, decides to switch to a
passive asset management strategy and does not inform its clients.
At Firm Y, where individual asset managers are responsible for security selection, a new policy is
implemented in which only stocks on an approved list constructed by the firm's senior manager may be
purchased for client accounts. Several portfolio managers do not inform their respective clients.
Firm Z recently changes its external manager of property investments and provides information of this
change in the firm's annual report where external advisers are listed. The annual report is due for
publication in seven months.
Which firm(s) violated Standard V(B)? - CORRECT ANSWER✅✅✅Firm Y and Firm Z
A firm's culture that promotes loyalty to the firm over its clients is an example of: - CORRECT
ANSWER✅✅✅A situational influence
Toby Green, CFA, works in an equity brokerage department at Mulberry Securities. Green has reviewed
a report from the firm's research department that suggests Crown Appliances is rated a "buy" because
the sales figures for the firm's new products have been better than those of the closest competition.
Green lives on the same street as the CFO of Crown Appliances. While waiting for the train to work,
Green accidentally overheard the chief financial officer of Crown Appliances report to his colleague on a
mobile phone about an announcement in the morning newspaper that a competitor has just launched a
website for appliance distribution over the Internet. Upon returning to his office, Green tipped his father
to sell his holding based on this new information, but he still recommends a "buy" to all Mulberry's
clients. Green: - CORRECT ANSWER✅✅✅Was in full compliance with the Code and Standards.
Rafi Binder is an oil industry analyst at a brokerage firm. He recently read an article in the Wall Street
Journal describing a research study that analyzed global oil reserves. Binder thinks this study would
provide insight into the long‐term movement of oil prices and wants to quote the study in a research
,report he is preparing. Using the Journal article to identify the author as Dr. Rangoon of State University,
Binder obtained a copy of the original research study and used several excerpts in his oil industry report.
In citing the source of the excerpts, Binder must credit:
Wall Street JournalThe Original Study
A.Yes No
B.No Yes
C.Yes Yes - CORRECT ANSWER✅✅✅Row B
With respect to composites, GIPS requires that a firm: - CORRECT ANSWER✅✅✅may define
composites itself as long as the classification is made ex ante.
Which of the following statements regarding Global Investment Performance Standards (GIPS) is most
accurate? - CORRECT ANSWER✅✅✅Under GIPS, firms are required to present at least five years of
performance, or for the period since the firm's inception if the firm has been in existence less than five
years, that meets the requirements of the GIPS standards.
Shelly recently started at a Texas based institutional consulting firm that provides manager search and
selection services. During the Christmas holiday she received gifts of chocolates, popcorn, and other
holiday food items from numerous investment managers. With respect to Standard 1(B) of the
Professional Code of Conduct, what must Shelly do? - CORRECT ANSWER✅✅✅Do nothing.
Which of the following is not a requirement for Composite Construction under the GIPS? - CORRECT
ANSWER✅✅✅NOT "Firms must not link performance of simulated or model portfolios with actual
performance."
Victoria Anderson, CFA, works for Pluto Capital, a newly established investment counseling firm. The
founding partners of Pluto Capital came from Vulcan Investments after it was taken over by a large
financial services group. Jonathan Beecham is meeting with Pluto Capital for the first time because he
has been disappointed by Vulcan's underperformance following the takeover. At the beginning of their
meeting, Anderson sympathizes with his situation, then immediately explains to Beecham that she has
discovered an undervalued stock that offers large potential gains. Anderson then promises Beecham
that she can buy the stock for his account at the current price if he switches the account within 48
hours. Anderson's best course of action to avoid violating the Standards was to have: - CORRECT
ANSWER✅✅✅determined Beecham's investment needs, objectives, and tolerance for risk before
making any investment recommendation.
, Steve Michael, CFA is having lunch with one of his friends at a local restaurant and overhears someone
talking about a pending merger for Pharmotech stock. Michael walks over to this person because he
follows this stock as well and knows nothing of a merger, only to find out it is the company's CEO making
these statements. Which of the following Standards of Professional Conduct applies to this situation? -
CORRECT ANSWER✅✅✅Standard II(A)
Which of the following is least likely required of fiduciaries that are responsible for pension plans? -
CORRECT ANSWER✅✅✅Supporting the sponsor's management during proxy fights.
Nick Austin has failed the CFA Level I exam three times and is registered for the exam for the fourth
time. In his frustration, Nick publicly posted the following comment on his social media account: "I
believe that the CFA Institute is limiting the percentage of passers so they can profit more from the
exam fee!" Which is correct? - CORRECT ANSWER✅✅✅Austin is not in violation of Standard I(D) nor
Standard VII(A).
Sam Smith, a portfolio manager, has invested in Ken Petrochemicals Corp. He discovers that Clarke
Consultancy Inc., a leading financial research firm, is planning to give a sell recommendation of Ken's
stocks. Sam approaches Jim Clarke, the head of the research firm, and requests Jim to postpone the
publication of the research. Jim agrees to the request for a deal from Sam. Which of the following
statements is most accurate?
Statement I: Jim has violated Standard III(A).
Statement II: Both Jim and Sam have violated Standard II(B) related to market manipulation and
Standard I(B) related to independence and objectivity.
Statement III: Both Jim and Sam have violated Standard V(A) Diligence and Reasonable Basis. - CORRECT
ANSWER✅✅✅Statements I and II.
A code of ethics sets out: - CORRECT ANSWER✅✅✅Principles of behavior for a group
Dave Johnson, an analyst at Star Bank, works as a golf coach during his leisure time. He is doing well in
his coaching and is even considering setting up a golf academy in the future. Should Dave inform his
employer about his second profession? - CORRECT ANSWER✅✅✅Yes, he should inform his
employer if the amount he earns is substantial in comparison to his current salary at the bank.
