CFA Level I: Mock Exam II questions and
answers 2025\2026 A+ Grade
Justin Matthews, CFA, is CFO of a bank and serves on the bank's investment committee. The majority of
the committee has voted to invest in medium-term euro debt. Matthew feels very strongly that this is a
poor strategy and that trends in both the exchange rate and in euro interest rates over the next year will
result in large losses on the position.
According to the Code and Standards, Matthew should:
- correct answer document his difference of opinion with the committee.
Standard V(A) Diligence and Reasonable Basis states that if a consensus opinion has a reasonable basis,
a member or candidate who disagrees with it does not have to disassociate from it but should document
the difference of opinion.
Kim Vance, CFA, tells a prospective client, "Over the three years I have been in the business, my equity-
oriented accounts have had a mean return of more than 20% a year." The statement is accurate, but the
mean return was influenced by the account of one client realizing a large gain on a position in a small-
cap company he took based on his own research.
Without this account, the average gain would have been 18% per year. Has Vance violated CFAI
Standards of Professional Conduct?
- correct answer Yes, because the statement misrepresents Vance's performance.
This is a violation of Standard III(D) Performance Presentation
Joseph Drake, CFA, an investment advisor at Best Wealth Managers, has identified a growth stock that
he believes has the potential to provide excellent returns over the next five years. He includes this stock
on a "recommended list" that he sends to all of his clients. Drake includes recent earnings, his estimates
of future earnings, and a note that more information is available on request.
,Drake has:
- correct answer NOT violated the Standards.
It is not a violation of the Standards to present a recommended list of securities, some of which may not
be suitable for some clients. It is permitted to present investment recommendation in capsule form as
long as clients are informed that more information about the securities is available on request.
Brian Farley, CFA, is an investment manager with one client, a $75 million university endowment fund. A
representative of the endowment fund calls Farley and places a "sell" order on a portfolio holding whose
management has just reduced its earnings guidance for the coming year. Farley also owns the security
and, because the new guidance is public information, places simultaneous "sell" orders for both the
client account and his personal account.
According to the Standards on fair dealing and priority of transactions, Farley is in violation of:
- correct answer Farley is in violation of Standard VI(B) Priority of Transactions.
Client transactions must take PRECEDENCE over members' or candidates' trades.
Gabe Klement, CFA, an analyst for HB Investments, is responsible for the valuation model for an IPO.
Without his knowledge, others at HB adjusted the inputs to the model to increase the estimated value
of the shares, and the offering is oversubscribed. Complying with local securities laws, Klement
purchases shares of the IPO for his personal account and allocates the remaining shares to client
accounts on a pro rata basis.
With regard to the Standard on knowledge of the law, the analyst:
- correct answer violated the Standard by purchasing the shares of the IPO but not by allowing the IPO
valuation to be published. Gave violated both Standard I(A) and Standard VI(B) Priority of Transactions
as Standard VI(B) does NOT permit the purchasing of IPO shares.
Standard I(A) Knowledge of the Law requires candidates and members comply with all applicable rules
and regulations, including the CFAI Standards of Practice.
Charmaine Townsend, CFA, has been managing equity portfolios for clients using a model that identifies
growth companies selling at reasonable multiples. With economic growth slowing for the foreseeable
, future, she has decided to change to a securities selection model that emphasizes dividend income and
low valuation.
To comply with the Code and Standards, Townsend should most appropriately:
- correct answer Promptly notify her clients of the change.
Standard V(B) Communication with Clients and Prospective Clients requires prompt disclosure of any
change that might significantly affect the manager's investment processes. The disclosure need not be in
writing.
Wells Investments implements a new procedure for unsolicited trade requests that an advisor believes
are inconsistent with the client's IPS:
+ If the trade will have only a minimal impact on the client's portfolio, first advise the client in what way
the trade deviates from the IPS, and then request the client's approval for the trade.
+ If the trade will have a material impact on the risk and return characteristics of the client's portfolio,
discuss with the client that this trade will require change in the IPS.
Which statement is consistent with the standard concerning suitability?
- correct answer Both of these statements.
According to Standard III(C) Suitability, if an unsolicited trade is inconsistent with a client's IPS, a
member or candidate should not execute the trade before discussing it with the client.
Alberto Cosini is the top-rated, sell-side analyst in the biotechnology industry. His recommendations
significantly affect prices of industry stocks regularly. Yesterday Cosini changed his rating on Biopharm
from "hold" to "buy," and Cosini's firm emailed the change to its clients although no public disclosure
has yet been made.
If Peter Allen, CFA, who heard about Cosini's rating change for Biopharm from his brother, purchases
Biopharm in his personal account, Allen will most likely:
- correct answer NOT violate the Standards
answers 2025\2026 A+ Grade
Justin Matthews, CFA, is CFO of a bank and serves on the bank's investment committee. The majority of
the committee has voted to invest in medium-term euro debt. Matthew feels very strongly that this is a
poor strategy and that trends in both the exchange rate and in euro interest rates over the next year will
result in large losses on the position.
According to the Code and Standards, Matthew should:
- correct answer document his difference of opinion with the committee.
Standard V(A) Diligence and Reasonable Basis states that if a consensus opinion has a reasonable basis,
a member or candidate who disagrees with it does not have to disassociate from it but should document
the difference of opinion.
Kim Vance, CFA, tells a prospective client, "Over the three years I have been in the business, my equity-
oriented accounts have had a mean return of more than 20% a year." The statement is accurate, but the
mean return was influenced by the account of one client realizing a large gain on a position in a small-
cap company he took based on his own research.
Without this account, the average gain would have been 18% per year. Has Vance violated CFAI
Standards of Professional Conduct?
- correct answer Yes, because the statement misrepresents Vance's performance.
This is a violation of Standard III(D) Performance Presentation
Joseph Drake, CFA, an investment advisor at Best Wealth Managers, has identified a growth stock that
he believes has the potential to provide excellent returns over the next five years. He includes this stock
on a "recommended list" that he sends to all of his clients. Drake includes recent earnings, his estimates
of future earnings, and a note that more information is available on request.
,Drake has:
- correct answer NOT violated the Standards.
It is not a violation of the Standards to present a recommended list of securities, some of which may not
be suitable for some clients. It is permitted to present investment recommendation in capsule form as
long as clients are informed that more information about the securities is available on request.
Brian Farley, CFA, is an investment manager with one client, a $75 million university endowment fund. A
representative of the endowment fund calls Farley and places a "sell" order on a portfolio holding whose
management has just reduced its earnings guidance for the coming year. Farley also owns the security
and, because the new guidance is public information, places simultaneous "sell" orders for both the
client account and his personal account.
According to the Standards on fair dealing and priority of transactions, Farley is in violation of:
- correct answer Farley is in violation of Standard VI(B) Priority of Transactions.
Client transactions must take PRECEDENCE over members' or candidates' trades.
Gabe Klement, CFA, an analyst for HB Investments, is responsible for the valuation model for an IPO.
Without his knowledge, others at HB adjusted the inputs to the model to increase the estimated value
of the shares, and the offering is oversubscribed. Complying with local securities laws, Klement
purchases shares of the IPO for his personal account and allocates the remaining shares to client
accounts on a pro rata basis.
With regard to the Standard on knowledge of the law, the analyst:
- correct answer violated the Standard by purchasing the shares of the IPO but not by allowing the IPO
valuation to be published. Gave violated both Standard I(A) and Standard VI(B) Priority of Transactions
as Standard VI(B) does NOT permit the purchasing of IPO shares.
Standard I(A) Knowledge of the Law requires candidates and members comply with all applicable rules
and regulations, including the CFAI Standards of Practice.
Charmaine Townsend, CFA, has been managing equity portfolios for clients using a model that identifies
growth companies selling at reasonable multiples. With economic growth slowing for the foreseeable
, future, she has decided to change to a securities selection model that emphasizes dividend income and
low valuation.
To comply with the Code and Standards, Townsend should most appropriately:
- correct answer Promptly notify her clients of the change.
Standard V(B) Communication with Clients and Prospective Clients requires prompt disclosure of any
change that might significantly affect the manager's investment processes. The disclosure need not be in
writing.
Wells Investments implements a new procedure for unsolicited trade requests that an advisor believes
are inconsistent with the client's IPS:
+ If the trade will have only a minimal impact on the client's portfolio, first advise the client in what way
the trade deviates from the IPS, and then request the client's approval for the trade.
+ If the trade will have a material impact on the risk and return characteristics of the client's portfolio,
discuss with the client that this trade will require change in the IPS.
Which statement is consistent with the standard concerning suitability?
- correct answer Both of these statements.
According to Standard III(C) Suitability, if an unsolicited trade is inconsistent with a client's IPS, a
member or candidate should not execute the trade before discussing it with the client.
Alberto Cosini is the top-rated, sell-side analyst in the biotechnology industry. His recommendations
significantly affect prices of industry stocks regularly. Yesterday Cosini changed his rating on Biopharm
from "hold" to "buy," and Cosini's firm emailed the change to its clients although no public disclosure
has yet been made.
If Peter Allen, CFA, who heard about Cosini's rating change for Biopharm from his brother, purchases
Biopharm in his personal account, Allen will most likely:
- correct answer NOT violate the Standards
