Which of the following statements related to requirements for the CFA Institute Standards of Professional Conduct Standard V(B)–Communication with Clients and Prospective Clients is least likely accurate? The standard requires members and candidates to:

A. divulge the number of investment related personnel responsible for external communication.

B. disclose the basic format and general principles of the investment process.

C. distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Bailey Watson, CFA, manages 25 emerging market pension funds. He recently had the opportunity to buy 100,000 shares in a publicly listed company whose prospects are considered “above industry norm” by most analysts. The company’s shares rarely trade because most managers take a “buy and hold” strategy due to the company’s small free float. Before placing the order with his dealer, Watson allocated the shares to be purchased according to the weighted value of each of his clients’ portfolios. When it came time to execute the trades, the dealer was only able to purchase 50,000 shares. To prevent violating Standard III(B)–Fair Dealing, it would be most appropriate for Watson to reallocate the 50,000 shares purchased by:

A. reducing each pension fund’s allocation proportionately.

B. distributing them equally amongst all the pension fund portfolios.

C. allocating randomly but giving funds left out priority on the next similar type trade.

Q. Long has been asked to be the keynote speaker at an upcoming investment conference. The event is being hosted by one of the third-party investment managers currently used by his pension fund. The manager offers to cover all conference and travel costs for Long and make the conference registrations free for three additional members of his investment management team. To ensure that the conference obtains the best speakers, the host firm has arranged for an exclusive golf outing for the day following the conference on a local championship-caliber course. Which of the following is least likely to violate Standard I(B)?

A. Long may accept only the offer to have his conference-related expenses paid by the host firm.

B. Long may accept the offer to have his conference-related expenses paid and may attend the exclusive golf outing at the expense of the hosting firm.

C. Long may accept the entire package of incentives offered to speak at this conference.

Which of the following activities if undertaken by CFA Institute members and/or candidates would most likely violate the Code and Standards?

B. A senior trader does not have safeguards in place to determine whether a junior trader under their supervision is following the firm’s policies regarding best execution.

A. An analyst discloses confidential, sensitive information about a client account as part of an investigation by the CFA Institute Professional Conduct Program.

C. An institutional portfolio manager takes a group of clients to an expensive restaurant to discuss portfolio returns over the recently completed quarter without prior written consent from his employer.

The benefits of an ethical decision-making framework would least likely include:

B. focusing on immediate consequences.

C. limiting unintended consequences.

Q. Which of the following is a correct statement of a member’s or candidate’s duty under the Code and Standards?

A. In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member’s or candidate’s actions.

B. A member or candidate is required to comply only with applicable local laws, rules, regulations, or customs, even though the Code and Standards may impose a higher degree of responsibility or a higher duty on the member or candidate.

C. A member or candidate who trades securities in a securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on material nonpublic information.

Q. The mosaic theory holds that an analyst:

B. Can use material public information and nonmaterial nonpublic information in the analyst’s analysis.

A. Violates the Code and Standards if the analyst fails to have knowledge of and comply with applicable laws.

C. Should use all available and relevant information in support of an investment recommendation.

Jeffrey Jones passed the Level I CFA examination in 1997 and the Level II examination in 2009. He is not currently enrolled for the Level III examination. According to the CFA Institute Standards of Professional Conduct, which of the following is the most appropriate way for Jones to refer to his participation in the CFA Program?

C. Passed Level II of the CFA examination in 2009

A. Jeffrey Jones, CFA (expected 2014)

B. Candidate in the CFA Institute CFA Program

Q. Brown works for an investment counseling firm. Green, a new client of the firm, is meeting with Brown for the first time. Green used another counseling firm for financial advice for years, but she has switched her account to Brown’s firm. After spending a few minutes getting acquainted, Brown explains to Green that she has discovered a highly undervalued stock that offers large potential gains. She recommends that Green purchase the stock. Brown has committed a violation of the Standards. What should she have done differently?

A. Brown should have determined Green’s needs, objectives, and tolerance for risk before making a recommendation of any type of security.

B. Brown should have thoroughly explained the characteristics of the company to Green, including the characteristics of the industry in which the company operates.

C. Brown should have explained her qualifications, including her education, training, and experience and the meaning of the CFA designation.

Q. As stated in the revised 11th edition, the Standards of Professional Conduct:

C. address the risks and limitations of recommendations being made to clients.

A. require supervisors to focus on the detection and prevention of violations.

B. adopt separate ethical considerations for programs such as CIPM and Investment Foundations.

Claire Jones, CFA, is an analyst following natural gas companies in the United States. At an industry energy conference, the CFO of Alpine Energy states they are interested in making strategic acquisitions. At a separate event, Alpine’s head of exploration commented he is bullish on natural gas production prospects within Northeastern Pennsylvania. Jones is aware that Alpine currently has very little exposure to this region. She also knows another company in her universe, Pure Energy, Inc., is based in Northeastern Pennsylvania and controls significant assets in the area. Pure Energy is highly leveraged, and Jones believes they will need to raise additional capital or partner with another firm to move to the production phase with their assets. Jones attempts to contact Alpine’s CEO with an unrelated question and is told he is unavailable because he is on a business trip to Northeastern Pennsylvania. Jones updates her research on Pure Energy and then recommends the stock to Lisa Wong, CFA, a portfolio manager who purchases significant positions in client accounts. The following week, Pure Energy announces that they have entered into an agreement to be purchased by Alpine for a significant premium. Has either Jones or Wong most likely violated Standards with regards to the integrity of capital markets?

B. Yes, Jones’ recommendation is based on insider information.

C. Yes, both Jones and Wong have acted on insider information.

Q. The Responsibilities as a CFA Institute Member or CFA Candidate Standard explicitly states a requirement regarding:

B. responsibility of supervisors.

While at a bar in the financial district after work, Ellen Miffitt, CFA, overhears several employees of a competitor discuss how they will manipulate down the price of a thinly traded micro cap stock’s price over the next few days. Miffitt’s clients have large positions of this stock so when she arrives at work the next day she immediately sells all of these holdings. Because she had determined the micro cap stock was suitable for all of her accounts at its previously higher price, Miffitt buys back her client's original exposure at the end of the week at the new, lower price. Which CFA Institute Standards of Professional Conduct did Miffitt least likely violate?

B. Preservation of Confidentiality

C. Material Nonpublic Information

According to the Code and Standards regarding knowledge of laws and regulations, CFA Institute members and candidates must:

A. understand the relevant regulations for all the countries where they trade securities.

B. have detailed knowledge of all the laws that could potentially govern the member’s activities.

C. spend a minimum of five hours per calendar year on continuing education activities related to applicable laws and regulations.

Q. Cinnamon, Inc. recorded a total deferred tax asset in Year 3 of $12,301, offset by a $12,301 valuation allowance. Cinnamon most likely:

C. expects not to earn any taxable income before the deferred tax asset expires.

A. fully utilized the deferred tax asset in Year 3.

B. has an equal amount of deferred tax assets and deferred tax liabilities.

Q. An analyst calculated the excess kurtosis of a stock’s returns as −0.75. From this information, we conclude that the distribution of returns is:

B. thin-tailed compared to the normal distribution.

C. fat-tailed compared to the normal distribution.

Q. The management of Bank EZ repurchases its own bonds in the open market. They pay €6.5 million for bonds with a face value of €10.0 million and a carrying value of €9.8 million. The bank will most likely report:

C. a gain of €3.3 million on the income statement.

A. other comprehensive income of €3.3 million.

B. other comprehensive income of €3.5 million.

B. its mean approximately equal to the population mean.

A. the same distribution as the population distribution.

C. its variance approximately equal to the population variance.

Q. In the case of a normal good with a decrease in own price, which of the following statements is most likely true?

A. Both the substitution and income effects lead to an increase in the quantity purchased.

B. The substitution effect leads to an increase in the quantity purchased, while the income effect has no impact.

C. The substitution effect leads to an increase in the quantity purchased, while the income effect leads to a decrease.

Q. Which one of the following statements concerning chi-square and F-distributions is false?

C. The domains of their pdfs are positive and negative numbers.

A. They are both asymmetric distributions.

B. As their degrees of freedom increase, the shapes of their pdfs become more bell curve–like.

Which of the following statements regarding inventory valuation is most accurate?

C. Both IFRS and US GAAP allow agricultural inventories to be valued at net realizable value.

A. IFRS defines market value as net realizable value less a normal profit margin.

B. Both IFRS and US GAAP allow the reversal of write-downs back to the original cost.

Q. When a central bank announces a decrease in its official policy rate, the desired impact is an increase in:

C. the national currency’s value in exchange for other currencies.

One reason that the last-in, first-out (LIFO) inventory valuation method is widely used in the United States is most likely that it:

C. results in higher operating cash flows.

A. results in higher reported gross profit.

B. is available under both US GAAP and International Financial Reporting Standards.

Which of the following descriptions of financial reporting is considered to be of the highest quality?

B. Within GAAP but with biased choices

A. Within GAAP but with earnings management

C. Outside GAAP but with conservative choices

Q. The three major classifications of activities in a cash flow statement are:

B. operating, investing, and financing.

A. inflows, outflows, and net flows.

C. revenues, expenses, and net income.

After a two-for-one stock split, which of the following will most likely change relative to its pre-split value?

B. Price-to-earnings ratio (P/E

Previously, a manufacturer of high-quality industrial electrical generators only sold its units to customers, but it has just introduced a leasing program. The generators have expected useful lives of about 25 years, and the company anticipates that the leases will have a term of 20 years or more. If the company reports under International Financial Reporting Standards, which of the following statements about the first year of the new leasing program is most accurate? The company will recognize:

A. revenue equal to the value of the leased asset.

B. depreciation of the leased asset as an expense.

C. cost of goods sold equal to the market value of the asset.

Q. One disadvantage of the Herfindahl–Hirschmann Index is that the index:

B. fails to reflect low barriers to entry.

C. fails to reflect the effect of mergers in the industry.

TE10 Mock test 2 ss1 Quiz

1.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Elliott Johnson, CFA, a portfolio manager at Childress Investment Management, a mid-size asset management firm, actively uses social media to discuss his firm’s outlook on the market and the stocks its analysts cover. He frequently posts on the firm’s Facebook page, his personal Twitter account, and the firm’s password-protected website. Which of the following would most likely result in Johnson violating CFA Institute Standard III(B): Fair Dealing?

A. His tweet, “I’ll be recommending approval for this acquisition to the Investment Committee!”

B. His post on the firm’s website listing companies reporting earnings over the next week, including consensus expectations versus the firm’s analysts’ expectations

C. His post on Facebook following the quarterly reporting period to the firm’s clients giving the firm’s expectation regarding economic growth for the next 12 months

2.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Lisa Hajak, CFA, specialized in research on real estate companies at Cornerstone Country Bank for the past twenty years. Hajak recently started her own investment research firm, Hajak Investment Advisory. One of her former clients at Cornerstone asks Hajak to update a research report she wrote on a real estate company when she was at Cornerstone. Hajak updates the report, which she had copied to her personal computer without the bank’s knowledge, and replaces references to the bank with her new firm, Hajak Investment Advisory. Hajak also incorporates the conclusions of a real estate study conducted by the Realtors Association that appeared in the Wall Street Journal. She references the Journal as her source in her report. She provides the revised report free of charge along with a cover letter for the bank’s client to become a client of her firm. Concerning the reissued research report, Hajak least likely violated the CFA Institute Standards of Professional Conduct because she:

A. solicited the bank’s client.

B. did not obtain consent to use the bank report.

C. did not cite the actual source of the real estate study.

3.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

An investment fund manager has a finance degree and over 20 years of experience working for a top-ranking asset management firm. Based only on this information, could the investment fund manager most likely claim to be part of a profession?

A. Yes, a person working in this industry requires specialized knowledge and skills.

B. No.

C. Yes, as part of the industry, he is providing a service to others.

4.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

If you are seeking guidance from the firm’s code of ethics or written policies, your actions most likely reflect which phase of an ethical decision-making framework?

A. Decide

B. Reflect

C. Consider

5.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Justin Blake, CFA, a retired portfolio manager, owns 20,000 shares of a small public company that he would like to sell because he is worried about the company’s prospects. He posts messages on several internet bulletin boards. The messages read, “This stock is going up once the pending patents are released, so now is the time to buy. The stock is a buy at anything below $3. I have done some close research on these guys.” According to the Standards of Practice Handbook, Blake most likely violated the Standard or Standards associated with:

A. Integrity of Capital Markets and Conflicts of Interest.

B. Integrity of Capital Markets, but not Conflicts of Interest.

C. Neither Integrity of Capital Markets nor Conflicts of Interest.

6.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

On a flight to Europe, Romy Haas, CFA, strikes up a conversation with a fellow passenger, Vincent Trujillo. When Trujillo learns that Haas is in the investment profession, he asks about the CFA designation. Haas tells him the following about the CFA designation: Statement 1 Individuals who have completed the CFA Program have the right to use the CFA designation. Statement 2 The CFA designation is globally recognized, which is why I use it as part of my firm’s name. Statement 3 CFA charterholders must satisfy membership requirements to continue using the designation. In explaining the use of the CFA designation, Haas least likely violated the CFA Institute Standards of Professional Conduct concerning which of the following statements?

A. Statement 1

B. Statement 2

C. Statement 3

7.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

According to the Global Investment Performance Standards (GIPS®), which of the following is not a part of the verification process? Testing whether the:

A. firm has implemented policies and procedures compliant with all the composite maintenance requirements.

B. verification is undertaken by the compliance department in the absence of a third party.

C. firm’s processes and procedures are designed to calculate results in compliance with GIPS standards.

8.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Edo Ronde, CFA, an analyst for a hedge fund, One World Investments, is attending a key industry conference for the microelectronics industry. At lunch in a restaurant adjacent to the conference venue, Ronde sits next to a table of conference attendees and is able to read their nametags. Ronde realizes the group includes the president of a publicly traded company in the microelectronics industry, Fulda Manufacturing, a company Ronde follows. Ronde overhears the president complain about a production delay problem Fulda’s factories are experiencing. The president mentions that the delay will reduce Fulda earnings more than 20% during the next year if not solved. Ronde relays this information to the portfolio manager he reports to at One World explaining that in a recent research report he recommended Fulda as a buy. The manager asks Ronde to write up a negative report on Fulda so the fund can sell the stock. According to the CFA Institute Code of Ethics and Standards of Professional Conduct Ronde should least likely:

A. revise his research report.

B. leave his research report as it is.

C. request the portfolio manager not act on the information.

9.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. ABC Investment Management acquires a new, very large account with two concentrated positions. The firm’s current policy is to add new accounts for the purpose of performance calculation after the first full month of management. Cupp is responsible for calculating the firm’s performance returns. Before the end of the initial month, Cupp notices that one of the significant holdings of the new accounts is acquired by another company, causing the value of the investment to double. Because of this holding, Cupp decides to account for the new portfolio as of the date of transfer, thereby allowing ABC Investment to reap the positive impact of that month’s portfolio return.

A. Cupp did not violate the Code and Standards because the GIPS standards allow composites to be updated on the date of large external cash flows.

B. Cupp did not violate the Code and Standards because companies are allowed to determine when to incorporate new accounts into their composite calculation.

C. Cupp violated the Code and Standards because the inclusion of the new account produces an inaccurate calculation of the monthly results according to the firm’s stated policies.

10.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Vishal Chandarana, an unemployed research analyst, recently registered for the CFA Level I exam. After two months of intense interviewing, he accepts a job with a stock brokerage company in a different region of the country. Chandarana posts on a social media blog how being a CFA candidate really helped him get a job. He also notes how relieved he was when his new employer didn’t ask him about being fired from his former employer. Which CFA Institute Code of Ethics or Standards of Professional Conduct did Chandarana least likely violate?

A. Misconduct

B. Loyalty to Employers

C. Reference to the CFA Program

TE10 Mock test 2 ss1

90 questions

An investment fund manager has a finance degree and over 20 years of experience working for a top-ranking asset management firm. Based only on this information, could the investment fund manager most likely claim to be part of a profession?

If you are seeking guidance from the firm’s code of ethics or written policies, your actions most likely reflect which phase of an ethical decision-making framework?

According to the Global Investment Performance Standards (GIPS®), which of the following is not a part of the verification process? Testing whether the:

Create a free account and access millions of resources

Similar Resources on Wayground

Popular Resources on Wayground

Discover more resources for Professional Development