Q. Stewart has been hired by Goodner Industries, Inc., to manage its pension fund. Stewart’s duty of loyalty, prudence, and care is owed to:

B. The participants and beneficiaries of Goodner’s pension plan.

C. The shareholders of Goodner.

Who most likely determines whether a violation of the CFA Institute Code and Standards or testing policies has occurred and what sanction should be imposed? The:

A. Professional Conduct Staff and the Disciplinary Review Committee

C. Disciplinary Review Committee

Jan Loots, CFA, quit his job as a portfolio manager at an investment firm with whom he had a non-solicitation agreement he signed several years ago. Loots received permission to take his investment performance history with him and also took a copy of the firm’s software-trading platform. Subsequently, Loots sent out messages on social media sites announcing he was looking for clients for his new investment management firm. Access to Loots’ social media sites is restricted to friends, family, and former clients. Loots least likely violated the CFA Institute Standards of Professional Conduct concerning his:

C. investment performance history.

Fundamental asset managers claim compliance with the CFA Institute Global Investment Performance Standards (GIPS®) and manage both discretionary and nondiscretionary segregated accounts. When constructing a single composite for the firm, Juma Dzuya includes all discretionary, fee-paying segregated accounts with both value and growth strategies. Does the composite constructed by Dzuya most likely meet GIPS criteria?

B. No, because of dissimilar investment strategies.

C. No, because nondiscretionary segregated accounts are not included.

Norman Bosno, CFA, acts as an outside portfolio manager to a Sovereign Wealth Fund. Raphel Palmeti, a Fund official, approaches Bosno to interest him in investing in Starlite Construction Company. He tells Bosno if he approves a two million dollar investment in Starlite by the Fund, Bosno will receive a “bonus” that will make him wealthy. Palmeti also adds if Bosno decides not to invest, he will lose the Fund account. After doing a quick and simple analysis, Bosno determines the investment is too risky for the Fund. If Bosno agrees to make the investment, what Standard is least likely to be violated?

B. Diligence and Reasonable Basis

C. Additional Compensation Arrangements

Amanda Covington, CFA, works for McJan Investment Management. McJan employees must receive prior clearance of their personal investments in accordance with McJan’s compliance procedures. To obtain prior clearance, McJan employees must provide a written request identifying the security, the quantity of the security to be purchased, and the name of the broker through which the transaction will be made. Pre-cleared transactions are approved only for that trading day. As indicated below, Covington received prior clearance. Security Quantity Broker Prior Clearance. A 100 Easy Trade Yes. B 150 Easy Trade Yes. Two days after she received prior clearance, the price of Stock B had decreased, so Covington decided to purchase 250 shares of Stock B only. In her decision to purchase 250 shares of Stock B only, did Covington violate any CFA Institute Standards of Professional Conduct?

C. Yes, relating to her employer’s compliance procedures.

B. Yes, relating to diligence and reasonable basis.

Standard III(E)–Preservation of Confidentiality of the CFA Institute Standards of Professional Conduct most likely requires members and candidates to keep information about current, former, and prospective clients confidential unless:

A. the information concerns illegal activities.

B. there is a reasonable and adequate basis for not maintaining confidentiality.

C. they understand the limitations and risk associated with the disclosure.

A general ethical decision-making framework will most likely:

B. facilitate the decision-making process for all decisions.

A. define a series of actions for each possible situation.

C. ensure a decision or plan of action does not harm stakeholders.

Carolina Ochoa, CFA, is the chief financial officer at Pantagonia Computing. Ochoa is currently the subject of an inquiry by Pantagonia’s corporate investigations department. The inquiry is the result of an anonymous complaint accusing Ochoa of falsifying travel expenses for senior management related to a government contract. According to the CFA Institute Code of Ethics and Standards of Professional Conduct, it is most appropriate for Ochoa to disclose the allegations:

A. on her Professional Conduct Statement.

B. to CFA Institute when the investigation concludes.

C. to CFA Institute if the allegations are proven correct.

Q. An investment banking department of a brokerage firm often receives material nonpublic information that could have considerable value if used in advising the firm’s brokerage clients. In order to conform to the Code and Standards, which one of the following is the best policy for the brokerage firm?

B. Establish physical and informational barriers within the firm to prevent the exchange of information between the investment banking and brokerage operations.

A. Permanently prohibit both “buy” and “sell” recommendations of the stocks of clients of the investment banking department.

C. Monitor the exchange of information between the investment banking department and the brokerage operation.

Sanctions imposed by CFA Institute for violations of the CFA Institute Code of Ethics or Standards of Professional Conduct least likely include:

C. revocation of a CFA Charter.

Q. One of the discretionary accounts managed by Farnsworth is the Jones Corporation employee profit-sharing plan. Jones, the company president, recently asked Farnsworth to vote the shares in the profit-sharing plan in favor of the slate of directors nominated by Jones Corporation and against the directors sponsored by a dissident stockholder group. Farnsworth does not want to lose this account because he directs all the account’s trades to a brokerage firm that provides Farnsworth with useful information about tax-free investments. Although this information is not of value in managing the Jones Corporation account, it does help in managing several other accounts. The brokerage firm providing this information also offers the lowest commissions for trades and provides best execution. Farnsworth investigates the director issue, concludes that the management-nominated slate is better for the long-run performance of the company than the dissident group’s slate, and votes accordingly. Farnsworth:

B. Did not violate the Standards in voting the shares in the manner requested by Jones or in directing trades to the brokerage firm.

A. Violated the Standards in voting the shares in the manner requested by Jones but not in directing trades to the brokerage firm.

C. Violated the Standards in directing trades to the brokerage firm but not in voting the shares as requested by Jones.

Q. Jurgen is a portfolio manager. One of her firm’s clients has told Jurgen that he will compensate her beyond the compensation provided by her firm on the basis of the capital appreciation of his portfolio each year. Jurgen should:

C. Obtain permission from her employer prior to accepting the compensation arrangement.

A. Turn down the additional compensation because it will result in conflicts with the interests of other clients’ accounts.

B. Turn down the additional compensation because it will create undue pressure on her to achieve strong short-term performance.

Joan Tasha, CFA, a supervisor at Olympia Advisors (OA), wrote and implemented compliance policies at her firm. A long-time OA employee, Derek Longtree, recently changed the asset allocation of a client, which is inconsistent with her financial needs and objectives and with OA’s policies. Until now, Longtree has never violated OA’s policies. Tasha discusses the issue with Longtree but takes no further action. Do Tasha’s actions concerning Longtree most likely violate any CFA Institute Standards of Professional Conduct?

C. Yes, because she did not take steps to ensure that the violation will not be repeated.

B. Yes, because she failed to detect Longtree’s actions.

Praful Chandarana, CFA, is starting a new business to offer investment consulting services to pension fund trustees in response to a new regulation that requires all pension fund Investment Policy Statements (IPS) to be reviewed and approved by an independent CFA charterholder. Prior to starting the new business, he meets with the pension fund regulator to clarify if the CFA charterholder undertaking the IPS review should be a licensed financial advisor by the capital markets regulator. The capital markets regulator requires and grants licenses to those giving investment advice to clients. The pension regulator states that they do not require the CFA charterholder to hold a financial advisor’s license, despite financial-related advice being given to the pension funds during any IPS review. Chandarana therefore starts his new business to undertake IPS reviews without obtaining a financial advisor’s license from the capital markets regulator. Subsequently, when clients of his former employer contact him he informs them of his new company and the services he offers. Does Chandarana most likely violate the CFA Code and Standards?

B. Yes, with regard to Professionalism.

C. Yes, with regard to Duties to Employer.

Prudence Charmaine, a CFA charterholder, was recently accused in writing of cheating on a professional accounting exam. She denied cheating and successfully defended herself against the allegation. As part of her defense and as evidence of her character, Charmaine stated that she is a CFA charterholder and upholds the CFA Institute Code of Ethics and Standards of Professional Conduct. On her next annual Professional Conduct Statement, Charmaine does not report this allegation to CFA Institute. Did Charmaine most likely violate the CFA Institute Code of Ethics or Standards of Professional Conduct?

C. Yes, she did not report the allegation on her annual Professional Conduct Statement.

B. Yes, she improperly used the CFA Institute Code and Standards to defend herself.

Manuel Tacqueria, CFA, is a sole proprietor investment adviser managing accounts for a diversified group of clients. Tacqueria obtains his investment research through a subscription service with Alpha Services, a large financial services organization. Tacqueria notes that the research reports are sound because they are extremely detailed and comprehensive. As a result, Tacqueria feels comfortable relying solely upon this research when making recommendations to clients. Tacqueria should most likely do which of the following in order to conform to the CFA Institute Code of Ethics and Standards of Professional Conduct?

C. Conduct additional due diligence on Alpha Services

A. Utilize additional sources of third-party research

B. Undertake and add his own research to the existing reports

Which of the following best describes a component of the income statement?

B. Outflows or depletions of assets in the course of a business's activities

A. Amounts that a company owes its vendors for purchases of goods and services

C. Obligations from past events that are expected to result in an outflow of economic benefits

Under US GAAP, which of the following is least likely a disclosure concerning inventory?

C. The amount of the reversal of any write-down of inventories

A. The amount of inventories recognized as an expense during the period

B. The carrying amounts of inventories carried at fair value less costs to sell

Q. What does the P/E ratio measure?

A. The “multiple” that the stock market places on a company’s EPS.

B. The relationship between dividends and market prices.

C. The earnings for one common share of stock.

Which of the following best describes a responsibility of the SEC?

A. Overseeing the Public Companies Accounting Oversight Board (PCAOB)

B. Prosecuting analysts who disseminate conclusions based on non-material non-public information

C. Promoting the adoption of global financial reporting standards

Using a common-size income statement to compare a company to its peers, an analyst can determine the company’s:

C. revenue recognition policies.

Q. A correlation of 0.34 between two variables, X and Y, is best described as:

B. a positive association between X and Y.

A. changes in X causing changes in Y.

C. a curvilinear relationship between X and Y.

The non-controlling or minority interests found in the equity section of the balance sheet are best described as the equity interests:

B. of minority shareholders in subsidiaries that have been consolidated.

A. held by the corporation in other entities that it does not control, but has significant influence.

C. of minority shareholders of the corporation who have significant influence, but not control.

A two-tailed test of the null hypothesis that the mean of a distribution is equal to 4.00 has a p-value of 0.0567. Using a 5% level of significance (i.e., α = 0.05), the best conclusion is to:

A. fail to reject the null hypothesis.

B. increase the level of significance to 5.67%.

B. exclude the gains on the sale from investments because the company is a manufacturing firm.

A. use the most recent tax rate because it is the best predictor of future tax rates.

C. include the losses from discontinued operations because they appear to be an ongoing feature for this company.

Q. Which of the following is a required financial statement disclosure for long-lived intangible assets under US GAAP?

C. Estimated amortization expense for the next five fiscal years

B. The reversal of impairment losses

Mock Test 1 ss1 TE10

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Professional Development

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Sue Kim, CFA, a US citizen, works as an analyst for a subsidiary of a US investment firm on a small island that attracts offshore investment accounts. Local securities laws allow insider trading. While having dinner with the CEO of a local company, Kim learns that the firm is in negotiations to be acquired for a significant premium. Would Kim most likely comply with the CFA Institute Standards if she purchased the company’s shares for her client accounts?

A. No.

B. Yes, local laws allow insider trading.

C. Yes, if she receives permission from compliance department.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Which of the following is not part of the nine major sections of the GIPS® standards?

A. Performance Fees

B. Input Data

C. Disclosure

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

When making performance presentations to prospective clients, a GIPS®-compliant firm should least likely do which of the following?

A. Selectively report its top account performance

B. Include the account performance of former clients

C. Report performance history for all market cycles under review

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Which statement about a manager’s use of client brokerage commissions violates the Code and Standards?

A. A client may direct a manager to use that client’s brokerage commissions to purchase goods and services for that client.

B. Client brokerage commissions should be used to benefit the client and should be commensurate with the value of the brokerage and research services received.

C. Client brokerage commissions may be directed to pay for the investment manager’s operating expenses.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Jackson Barnes, CFA, works for an insurance company providing financial planning services to clients for a fee. Barnes has developed a network of specialists, including accountants, lawyers, and brokers, who contribute their expertise to the financial planning process. Each of the specialists is an independent contractor. Each contractor bills Barnes separately for the work he or she performs, providing a discount based upon the number of clients Barnes has referred. What steps should Barnes take to be consistent with the CFA Institute Standards of Professional Conduct?

A. Have his independent contractors approved by the insurance company

B. List the consideration he receives from the specialists on monthly client invoices

C. Inform potential clients about his arrangement with the contractors before they agree to hire him

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Which of the following statements best describes an aspect of the Standards of Professional Conduct? Members and candidates are required to:

A. ensure any portfolio mandate followed is fair, accurate, and complete.

B. promptly disclose changes that might materially affect investment processes.

C. have a reasonable and adequate basis for decisions about client confidentiality.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Which of the following least likely reflects the two primary principles of the CFA Institute Rules of Procedure for Proceedings Related to Professional Conduct?

A. Confidentiality of proceedings

B. Public disclosure of disciplinary sanctions

C. Fair process to the member and candidate

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Mock Test 1 ss1 TE10

Which of the following is not part of the nine major sections of the GIPS® standards?

When making performance presentations to prospective clients, a GIPS®-compliant firm should least likely do which of the following?

Q. Which statement about a manager’s use of client brokerage commissions violates the Code and Standards?

Q. Which of the following statements best describes an aspect of the Standards of Professional Conduct? Members and candidates are required to:

Which of the following least likely reflects the two primary principles of the CFA Institute Rules of Procedure for Proceedings Related to Professional Conduct?

The belief that one’s ethical standards are above average is most likely a reflection of which of the following behavioral biases?

Q. Stewart has been hired by Goodner Industries, Inc., to manage its pension fund. Stewart’s duty of loyalty, prudence, and care is owed to:

Who most likely determines whether a violation of the CFA Institute Code and Standards or testing policies has occurred and what sanction should be imposed? The:

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Popular Resources on Wayground

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