According to the Code and Standards, members and candidates who are involved in distributing an initial public offering (IPO) of equity shares and wish to participate in the IPO: - ANSWERSmay participate unless the IPO is oversubscribed.
Amy Brooks, a Level III CFA candidate, has been given supe...
Practice exam 2 Questions & Answers
100%
According to the Code and Standards, members and candidates who are involved in
distributing an initial public offering (IPO) of equity shares and wish to participate in the
IPO: - ANSWERSmay participate unless the IPO is oversubscribed.
Amy Brooks, a Level III CFA candidate, has been given supervisory responsibilities. In
carrying out her responsibilities, Brooks has discovered that the firm's compliance
system is inadequate. She informed her supervisor, who is not supportive of Brooks's
efforts to correct the situation. According to CFA Institute Standards of Professional
Conduct, Brooks: - ANSWERSshould decline in writing to accept supervisory
responsibilities until an adequate compliance system is adopted.
Standard IV(C) Responsibilities of Supervisors indicates that a member should decline
supervisory responsibility in writing until the firm adopts reasonable compliance
procedures. Otherwise, Brooks cannot adequately exercise her responsibility. (Module
3.6)
Not including the results of terminated accounts when calculating historical performance
is recommended by: - ANSWERSneither GIPS nor the Standard concerning
performance presentation.
Which of the following is one of the nine major sections of the GIPS standards? -
ANSWERSPrivate Equity
Edie Pschorr, CFA, notices that a bond is priced at 98.0 in one market and 98.4 in
another market. Pschorr places an order to buy a large number of these bonds in the
first market and simultaneously places an order to sell the same number of bonds in the
second market. The bond's price increases to 98.2 in the first market and decreases to
98.2 in the second market. Are Pschorr's trades a violation of the Code and Standards?
- ANSWERSNo.
The trader has carried out an arbitrage transaction. Because she did not exhibit any
intent to distort prices or trading volume, the member did not violate Standard II(B)
Market Manipulation. Standard III(B) Fair Dealing is concerned with fair treatment of
clients and is not relevant to this transaction. (Modules 3.3, 3.4)
Rhonda Morrow, CFA, is an analyst for Waller & Madison, a brokerage and investment
banking firm. Waller & Madison is a market maker for CorpEast, and Tim Waller, a
principal in Morrow's firm, sits on CorpEast's board. Morrow has been asked to write a
research report on CorpEast. According to the Standard regarding disclosure of
, conflicts, Morrow: - ANSWERSmay write the report if she discloses both that Waller &
Madison is a market maker in CorpEast shares and that Waller sits on the CorpEast
board.
To comply with Standard VI(A) Disclosure of Conflicts, both the market-making activities
by the firm and the directorship held by a principal in the firm must be disclosed.
(Module 3.8)
According to the GIPS standards, which of the following statements is most accurate? -
ANSWERSGIPS compliant firms are required to maintain written documentation of
policies and procedures used to establish and maintain compliance with GIPS.
GIPS require firms that claim compliance to maintain written documentation of their
policies and procedures for complying with GIPS. Verification of GIPS compliance is
optional. In order to initially claim compliance with GIPS, a firm must have a minimum of
five years (or since firm inception) of GIPS-compliant data. After the first compliant
presentation, another year of compliant performance must be added each year until the
compliant performance history reaches at least ten years.
Shan Ang, CFA, is a portfolio manager at Huang Investments. Lian Jan, an old friend of
Ang's, is an executive recruiter in the same city. Jan proposes that she will refer any
high-level executives that she places locally to Ang, in exchange for one round of golf at
Ang's country club for each new client. According to the Standard concerning referral
fees, Ang would be required to disclose this referral arrangement: - ANSWERSto his
employer and all prospective clients referred by Jan.
Standard VI(C) Referral Fees states that members and candidates must disclose to
employers and to affected prospects and clients, before entering into any formal
agreement for services, any benefits received for the recommendation of services
provided by the member. (Module 3.8)
The odds for an event occurring are calculated by dividing: - ANSWERSthe probability
that the event occurs by the probability that the event does not occur.
If p is the probability that an event occurs, then the odds for the event occurring are
expressed as p / (1 - p), or the probability that the event occurs divided by the
probability that the event does not occur. The odds against the event are expressed as
the reciprocal of the odds for the event.
Greg Goldman, research analyst in the fixed-income area of an investment bank, needs
to determine the average duration of a sample of twenty 15-year fixed-coupon
investment grade bonds. Goldman first categorizes the bonds by risk class and then
randomly selects bonds from each class. After combining the bonds selected (bond
ratings and other information taken as of March 31 of the current year), he calculates a
sample mean duration of 10.5 years. Assuming that the actual population mean
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