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CFA - Exams| Questions with 100%Verified Answers
Daniel Lyons, CFA, is an analyst who covers several stocks including Horizon
Company. Lyons's aunt owns 30,000 shares of Horizon. She informs Lyons that
she has created a trust in his name into which she has placed 2,000 shares of
Horizon. The trust is structured so that Lyons will not be able to sell the shares
until his aunt dies, but may vote the shares. Lyons is due to update his research
coverage of Horizon next week. Lyons should most appropriately:
A. update the report as usual because he is not a beneficial owner of the stock.
B. advise his superiors that he is no longer able to issue research
recommendations on Horizon.
C. disclose the situation to his employer and, if then asked to prepare a report,
also disclose his beneficial ownership of the shares in his report. - ✔ ✔ C Even
though the shares are held in trust, Lyons is considered a beneficial owner under
Standard VI(A) Disclosure of Conflicts because he has a pecuniary interest in the
shares
and because has the power to vote the shares. Lyons is obligated to inform
his employer
of the potential conflict. If Lyons's employer permits him to continue
issuing investment
recommendations on the company, Lyons must disclose the existence of
a potential
conflict in his reports.
,Kate Wilson, CFA, is an equity analyst. Wilson enters two transactions for her
personal account. Wilson sells 500 shares ofTibon, Inc., a stock on which her
firm currently has a "Buy" recommendation. Wilson buys 200 shares of
Hayfield Co. and the following day issues a research report on Hayfield with a
"Buy" recommendation. Has Wilson violated the Code and Standards?
A. No.
B. Yes, both of her actions violate the Code and Standards.
C. Yes, but only one of her actions violates the Code and Standards. - ✔ ✔ C Only
one of these transactions is a violation. Standard VI(B) Priority of Transactions
requires members and candidates to give clients an adequate opportunity to act
on
a recommendation before trading for accounts in which the member or candidate
has a beneficial ownership interest. Members and candidates may trade for
their own
accounts as long as they do not disadvantage clients, benefit personally
from client
trades, or violate any regulations that apply. The Standard does not prohibit
members
and candidates from entering personal transactions that are contrary to what
their firms
are recommending for clients, as long as the transaction does not violate any of
these
criteria.
Hern Investments provides monthly emerging market research to Baker
, Brokerage in exchange for prospective client referrals and European equity
research from Baker. Clients and prospects of Hern are not made aware of
the agreement, but clients unanimously rave about the high quality of the
research provided by Baker. As a result of the research, many clients with
nondiscretionary
accounts have earned substantial returns on their portfolios.
Managers at Hern have also used the research to earn outstanding returns for the
firm's discretionary accounts. Hern has most likely: A. not violated the Code and
Standards.
B. violated the Code and Standards by using third-party research
in discretionary accounts.
C. violated the Code and Standards by failing to disclose the referral agreement
with Baker. - ✔ ✔ C According to Standard VI( C) Referral Fees, Hern must
disclose the referral arrangement
between itself and Baker so that potential clients can judge the true cost of Hern's
services and assess whether there is any partiality inherent in
the recommendation of
services.
After writing the CFA Level I exam, Cynthia White goes to internet discussion site
CPA Havm to express her frustration. White writes, "CFA Institute is not doing a
competent job of evaluating candidates because none of the questions in the
June exam touched on Alternative Investments." White most likely violated the
Standard related to conduct as a candidate in the CFA program by: A. publicly
disputing CFA Institute policies and procedures.
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