CFA Level I: Mock Exam II
Justin Matthews, CFA, is CFO of a financial institution and serves at the financial institution's
investment committee. The majority of the committee has voted to invest in medium-time period
euro debt. Matthew feels very strongly that that is a negative strategy and that tendencies in
both the trade charge and in euro interest costs over the subsequent yr will bring about huge
losses on the location.
According to the Code and Standards, Matthew ought to: - ANSdocument his difference of
opinion with the committee.
Standard V(A) Diligence and Reasonable Basis states that if a consensus opinion has an
inexpensive foundation, a member or candidate who disagrees with it does now not need to
disassociate from it however need to file the distinction of opinion.
Kim Vance, CFA, tells a prospective purchaser, "Over the three years I had been inside the
commercial enterprise, my equity-oriented accounts have had a mean go back of extra than
20% a 12 months." The declaration is correct, however the mean return became stimulated with
the aid of the account of one consumer knowing a huge benefit on a function in a small-cap
agency he took primarily based on his very own studies.
Without this account, the average gain might were 18% in keeping with 12 months. Has Vance
violated CFAI Standards of Professional Conduct? - ANSYes, because the declaration
misrepresents Vance's overall performance.
This is a violation of Standard III(D) Performance Presentation
Joseph Drake, CFA, an investment guide at Best Wealth Managers, has recognized a increase
stock that he believes has the capability to provide incredible returns over the following five
years. He consists of this stock on a "recommended listing" that he sends to all of his
customers. Drake consists of current income, his estimates of future earnings, and a note that
extra information is available on request.
Drake has: - ANSNOT violated the Standards.
It isn't a violation of the Standards to provide a recommended listing of securities, a number of
which might not be suitable for some customers. It is permitted to present investment advice in
tablet form so long as customers are knowledgeable that greater data approximately the
securities is to be had on request.
, Brian Farley, CFA, is an funding manager with one purchaser, a $75 million college endowment
fund. A consultant of the endowment fund calls Farley and locations a "sell" order on a portfolio
protecting whose management has just reduced its earnings steerage for the approaching yr.
Farley also owns the security and, due to the fact the brand new guidance is public data, places
simultaneous "promote" orders for both the customer account and his non-public account.
According to the Standards on truthful dealing and precedence of transactions, Farley is in
violation of: - ANSFarley is in violation of Standard VI(B) Priority of Transactions.
Client transactions should take PRECEDENCE over contributors' or candidates' trades.
Gabe Klement, CFA, an analyst for HB Investments, is chargeable for the valuation model for an
IPO. Without his information, others at HB adjusted the inputs to the model to growth the
expected cost of the stocks, and the providing is oversubscribed. Complying with neighborhood
securities legal guidelines, Klement purchases shares of the IPO for his personal account and
allocates the last shares to consumer bills on a seasoned rata foundation.
With regard to the Standard on knowledge of the regulation, the analyst: - ANSviolated the
Standard by using shopping the stocks of the IPO however not by way of 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 applicants and contributors comply with all
applicable rules and regulations, inclusive of the CFAI Standards of Practice.
Charmaine Townsend, CFA, has been managing equity portfolios for customers the usage of a
version that identifies boom groups selling at reasonable multiples. With monetary growth
slowing for the foreseeable destiny, she has decided to change to a securities selection model
that emphasizes dividend income and coffee valuation.
To comply with the Code and Standards, Townsend should most as it should be: - ANSPromptly
notify her customers of the trade.
Standard V(B) Communication with Clients and Prospective Clients calls for activate disclosure
of any change that might substantially affect the supervisor's investment processes. The
disclosure need now not be in writing.
Wells Investments implements a brand new system for unsolicited trade requests that an
advisor believes are inconsistent with the client's IPS:
+ If the exchange will have best a minimum effect at the customer's portfolio, first advise the
customer in what way the trade deviates from the IPS, after which request the client's acclaim
for the alternate.
Justin Matthews, CFA, is CFO of a financial institution and serves at the financial institution's
investment committee. The majority of the committee has voted to invest in medium-time period
euro debt. Matthew feels very strongly that that is a negative strategy and that tendencies in
both the trade charge and in euro interest costs over the subsequent yr will bring about huge
losses on the location.
According to the Code and Standards, Matthew ought to: - ANSdocument his difference of
opinion with the committee.
Standard V(A) Diligence and Reasonable Basis states that if a consensus opinion has an
inexpensive foundation, a member or candidate who disagrees with it does now not need to
disassociate from it however need to file the distinction of opinion.
Kim Vance, CFA, tells a prospective purchaser, "Over the three years I had been inside the
commercial enterprise, my equity-oriented accounts have had a mean go back of extra than
20% a 12 months." The declaration is correct, however the mean return became stimulated with
the aid of the account of one consumer knowing a huge benefit on a function in a small-cap
agency he took primarily based on his very own studies.
Without this account, the average gain might were 18% in keeping with 12 months. Has Vance
violated CFAI Standards of Professional Conduct? - ANSYes, because the declaration
misrepresents Vance's overall performance.
This is a violation of Standard III(D) Performance Presentation
Joseph Drake, CFA, an investment guide at Best Wealth Managers, has recognized a increase
stock that he believes has the capability to provide incredible returns over the following five
years. He consists of this stock on a "recommended listing" that he sends to all of his
customers. Drake consists of current income, his estimates of future earnings, and a note that
extra information is available on request.
Drake has: - ANSNOT violated the Standards.
It isn't a violation of the Standards to provide a recommended listing of securities, a number of
which might not be suitable for some customers. It is permitted to present investment advice in
tablet form so long as customers are knowledgeable that greater data approximately the
securities is to be had on request.
, Brian Farley, CFA, is an funding manager with one purchaser, a $75 million college endowment
fund. A consultant of the endowment fund calls Farley and locations a "sell" order on a portfolio
protecting whose management has just reduced its earnings steerage for the approaching yr.
Farley also owns the security and, due to the fact the brand new guidance is public data, places
simultaneous "promote" orders for both the customer account and his non-public account.
According to the Standards on truthful dealing and precedence of transactions, Farley is in
violation of: - ANSFarley is in violation of Standard VI(B) Priority of Transactions.
Client transactions should take PRECEDENCE over contributors' or candidates' trades.
Gabe Klement, CFA, an analyst for HB Investments, is chargeable for the valuation model for an
IPO. Without his information, others at HB adjusted the inputs to the model to growth the
expected cost of the stocks, and the providing is oversubscribed. Complying with neighborhood
securities legal guidelines, Klement purchases shares of the IPO for his personal account and
allocates the last shares to consumer bills on a seasoned rata foundation.
With regard to the Standard on knowledge of the regulation, the analyst: - ANSviolated the
Standard by using shopping the stocks of the IPO however not by way of 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 applicants and contributors comply with all
applicable rules and regulations, inclusive of the CFAI Standards of Practice.
Charmaine Townsend, CFA, has been managing equity portfolios for customers the usage of a
version that identifies boom groups selling at reasonable multiples. With monetary growth
slowing for the foreseeable destiny, she has decided to change to a securities selection model
that emphasizes dividend income and coffee valuation.
To comply with the Code and Standards, Townsend should most as it should be: - ANSPromptly
notify her customers of the trade.
Standard V(B) Communication with Clients and Prospective Clients calls for activate disclosure
of any change that might substantially affect the supervisor's investment processes. The
disclosure need now not be in writing.
Wells Investments implements a brand new system for unsolicited trade requests that an
advisor believes are inconsistent with the client's IPS:
+ If the exchange will have best a minimum effect at the customer's portfolio, first advise the
customer in what way the trade deviates from the IPS, after which request the client's acclaim
for the alternate.
