Rose, a portfolio manager for a local investment advisory firm, is planning to sell a portion of his personal investment portfolio to cover the costs of his child’s academic tuition. Rose wants to sell a portion of his holdings in Household Products, but his firm recently upgraded the stock to “strong buy.” Which of the following describes Rose’s options under the Code and Standards?

Margie Germainne, CFA, is a risk management consultant who has been asked by a small investment bank to recommend policies to prevent bank employees from front-running client orders. These clients generally invest in one or more of the bank’s large cap equity unit trusts. To ensure compliance with the CFA Institute Standards of Professional Conduct, Germainne should least likely recommend which of the following? Employees should be restricted from trading:

What is the theory that best describes the process by which financial analysts combine material public information and nonmaterial nonpublic information as a basis for investment recommendations even if those conclusions would have been material inside information had they been communicated directly to the analyst by the company?

Lewis McChord, CFA, a research analyst at an investment bank, covers the auto industry. McChord recently read a report on an auto manufacturing company written by Pierce Brown. Brown’s report provided extensive coverage of the company’s newly launched products indicating that sales volume, not yet publicly available, would raise future profits. Intrigued by the report, McChord called a senior executive at the company whom she has known personally for years. The officer gave her specific details on new vehicle sales, indicating that profits would double in the current quarter. McChord added this data to Brown’s report and then circulated it within her firm as her own report. McChord least likely violated which of the following CFA Institute Standards of Professional Conduct?

Alexandra Zagoreos, CFA, is the head of a government pension plan. Whenever Zagoreos hires a money management firm to work with the pension plan, she finalizes the deal over dinner at a nice restaurant. At these meals, Zagoreos also arranges for the money manager to provide her payments equal to 10% of the management fee the manager receives from the pension plan with no formal documentation of this agreement. Zagoreos keeps half of the payments for her own use and distributes the remainder as cash incentives to a handful of her most trusted staff. Zagoreos least likely violated which of the following CFA Institute Code of Ethics and Standards of Professional Conduct?

Which of the following is least likely a phase in an ethical decision-making framework?

A large manufacturing company is seeking help finding a fund manager for its pension plan. After a comprehensive but unsuccessful search, Brett Arun, CFA, is hired to solicit proposals from various fund managers. The client pays Arun a lump sum fee for his services. The search concludes with Ramport Investments being hired as the pension plan’s manager. A year after Ramport is hired, the pension administrator sends Arun a letter telling him how satisfied the pension trustees are with the services provided by the fund manager. Subsequently, without the plan sponsor’s knowledge, Arun receives a payment from Ramport for successfully introducing it to the pension plan under an agreement Arun entered into with Ramport when the initial contact with the fund manager was made. With regard to the payment received, did Arun most likely violate the CFA Institute Code of Ethics and Standards of Professional Conduct?

Which of the following statements clearly conflicts with the recommended procedures for compliance presented in the CFA Institute Standards of Practice Handbook?

Christy Pasley, CFA, is the Chief Investment Officer for Risen Investment Funds (RIF) a mutual fund organization. At a meeting between Homeland Builders (HB), a publicly traded company, Pasley learns HB sales are much slower than expected. In fact, HB sales declined more than 20% in the last quarter, but this information has not yet been widely disseminated. Immediately after meeting with HB, Pasley purchases put options on HB stock. Subsequently, HB issues a press release with their most recent sales figures. Has Pasley most likely violated the CFA Institute Standards of Professional Conduct?

Priscilla Moab, CFA, is the director of marketing at Red Lantern Investments. Red’s investment approach uses technical and fundamental analysis as well as portfolio construction to minimize risk. Moab plans to market an online investment newsletter to retail clients. Moab decides to let prospective clients have access to Red’s buy and sell recommendation list by posting this information on a social media site. The posting also provides information on Red’s basic investment process and logic. To avoid violating the CFA Institute Code of Ethics and Standards of Professional Conduct, Moab should most likely:

Under what circumstances could a client possibly win a lawsuit against a financial adviser despite the financial adviser abiding by all regulatory and legal requirements?

Can an asset management firm who follows the GIPS standards for select performance composites claim that it is GIPS compliant?

Grey recommends the purchase of a mutual fund that invests solely in long-term US Treasury bonds. He makes the following statements to his clients: “The payment of the bonds is guaranteed by the US government; therefore, the default risk of the bonds is virtually zero.”<br />“If you invest in the mutual fund, you will earn a 10% rate of return each year for the next several years based on historical performance of the market.”<br />Did Grey’s statements violate the CFA Institute Code and Standards?

Alexandra Smirnov, CFA, is a pension consultant to the Springwell Pension Fund. After reviewing Springwell’s three-year performance presentation showing the fund’s underperformance relative to its investment objectives and agreed benchmarks, Smirnov recommends that the fund hire new asset managers. Smirnov proposes that the fund hire Newday Managers on the basis of recent meetings she has had with the firm. Lengthy discussions at these meetings included Newday’s investment strategy, its suitability to manage pension funds, its ability to adhere to its stated strategy, the firm’s historical investment performance, and its adoption of the CFA Institute Code and Standards. Smirnov turned down Newday’s offer of an introduction fee when recommending its services, but did not inform Springwell trustees of this offer. Which of the following CFA Institute Standards does Smirnov most likely violate?

Specialized knowledge and skills, a commitment to serve others, and a shared code of ethics best characterize a(n):

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

Nicholas Bennett, CFA, is a trader at a stock exchange. Another trader approached Bennett on the floor of the exchange and verbally harassed him about a poorly executed trade. In response, Bennett pushed the trader and knocked him to the ground. After investigating the incident, the exchange cleared Bennett from any wrongdoing. Which of the following best describes Bennett’s conduct in relation to the CFA Institute Code of Ethics or Standards of Professional Conduct? Bennett:

Which of the following situations most likely helps to explain why the GIPS standards were created?

Firms claiming compliance with GIPS standards are most likely required to:

An investment management firm that does not adopt the GIPS standards could mischaracterize its overall performance by presenting a performance history:

Carter works for Invest Today, a local asset management firm. A broker that provides Carter with proprietary research through client brokerage arrangements is offering a new trading service. The broker is offering low-fee, execution-only trades to complement its traditional full-service, execution-and-research trades. To entice Carter and other asset managers to send additional business its way, the broker will apply the commissions paid on the new service toward satisfying the brokerage commitment of the prior full-service arrangements. Carter has always been satisfied with the execution provided on the full-service trades, and the new low-fee trades are comparable to the fees of other brokers currently used for the accounts that prohibit soft dollar arrangements.

Albert and Tye, who recently started their own investment advisory business, have registered to take the Level III CFA examination. Albert’s business card reads, “Judy Albert, CFA Level II.” Tye has not put anything about the CFA designation on his business card, but promotional material that he designed for the business describes the CFA requirements and indicates that Tye participates in the CFA Program and has completed Levels I and II. According to the Standards:

Solomon Sulzberg, CFA, is a research analyst at Blue Water Management. Sulzberg’s recommendations typically go through a number of internal reviews before they are published. In developing his recommendations, Sulzberg uses a model developed by a quantitative analyst within the firm. Sulzberg made some minor changes to the model but retained the primary framework. In his reports, Sulzberg attributes the model to both the quantitative analyst and himself. Before the internal reviews of his reports were completed, Sulzberg buys shares in one of the companies. After the internal review is complete he fails to recommend the purchase of the stock to his clients and erases all of his research related to this company. Sulzberg least likely violated the CFA Institute Code of Ethics and Standards of Professional Conduct related to:

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?

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?

Hezi Cohen, a CFA candidate, is a heavy user of social networking sites on the Internet. His favorite site only allows a limited number of characters for each entry so he has learned to abbreviate everything, including CFA trademarks. Cohen also enjoys professional networking sites and contributes regularly to blogs that discuss the broad topical areas covered within the CFA Program. In addition, he posts to these blogs pieces he has written in his area of expertise: retirement planning. By claiming to be an expert on retirement planning, he believes his stature within the investment community increases and he can gain more clients. Which internet activity can Cohen most likely continue to be in compliance with the CFA Standards of Professional Conduct?

Which of the following indicators is most appropriate in predicting a turning point in the economy?

If inventory unit costs are increasing from period-to-period, a LIFO liquidation is most likely to result in an increase in:

Red Road Company, a consulting company, reported total revenues of $100 million, total expenses of $80 million, and net income of $20 million in the most recent year. If accounts receivable increased by $10 million, how much cash did the company receive from customers?

Which of the following conditions conducive to issuing low-quality financial reports is most likely a result of poor internal controls?

A European put option on stock conveys the right to sell the stock at a prespecified price, called the exercise price, at the maturity date of the option. The value of this put at maturity is (exercise price – stock price) or $0, whichever is greater. Suppose the exercise price is $100 and the underlying stock trades in ticks of $0.01. At any time before maturity, the terminal value of the put is a random variable.

The probability of an event given that another event has occurred is a:

Which of the following ratios will most likely result in an increase in a company’s sustainable growth rate?

On 1 January 2010, Elegant Fragrances Company issues £1,000,000 face value, five-year bonds with annual interest payments of £55,000 to be paid each 31 December. The market interest rate is 6.0 percent. Using the effective interest rate method of amortisation, Elegant Fragrances is most likely to record:

First-degree price discrimination is best described as pricing that allows producers to increase their economic profit while consumer surplus:

The impairment of intangible assets with finite lives affects:

Which of the following most accurately describes a distribution that is more peaked than normal?

Which of the following inventory valuation methods best matches the actual historical cost of the inventory items sold to their physical flow?

At the beginning of the year, a company purchased a fixed asset for $500,000 with no expected residual value. The company depreciates similar assets on a straight-line basis over 10 years, whereas the tax authorities allow declining balance depreciation at the rate of 15% per year. In both cases, the company takes a full year’s depreciation in the first year. The tax rate is 40%. Which of the following statements concerning this asset at the end of the year is mostaccurate?

Assume the following:The real risk-free rate of return is 3%.<br />The expected inflation premium is 5%.<br />The market-determined interest rate of a security is 12%.<br />The sum of the default risk premium, liquidity premium, and maturity premium for the security is closest to:

An increase in sample size is most likely to result in a:

An expansionary fiscal policy is most likely associated with:

US and Spanish bonds have return standard deviations of 0.64 and 0.56, respectively. If the correlation between the two bonds is 0.24, the covariance of returns is closest to

An increase in which of the following items would most likely result in an increase in a company’s quick ratio, all else being held equal?

Interim reports most likely:

For its fiscal year-end, Sublyme Corporation reported net income of $200 million and a weighted average of 50,000,000 common shares outstanding. There are 2,000,000 convertible preferred shares outstanding that paid an annual dividend of $5. Each preferred share is convertible into two shares of the common stock. The diluted EPS is closest to:

A firm is operating beyond minimum efficient scale in a perfectly competitive industry. To maintain long-term viability the most likely course of action for the firm is to:

Published ratings on stocks ranging from 1 (strong sell) to 5 (strong buy) are examples of which measurement scale?

The goods and services produced by UK citizens who are working in the United States are most likely included in the:

Which of the following elements of financial statements is most closely related to measurement of financial position?

The short-term shutdown point of production for a firm operating under perfect competition will most likely occur when:

The gain or loss on a sale of a long-lived asset to which the revaluation model has been applied is most likelycalculated using sales proceeds less:

If companies earn economic profits in a perfectly competitive market, over the long run the supply curve will most likely:

Galambos Corporation had an average receivables collection period of 19 days in 2003. Galambos has stated that it wants to decrease its collection period in 2004 to match the industry average of 15 days. Credit sales in 2003 were $300 million, and analysts expect credit sales to increase to $400 million in 2004. To achieve the company’s goal of decreasing the collection period, the change in the average accounts receivable balance from 2003 to 2004 that must occur is closest to:

As the price level declines along the aggregate demand curve, the interest rate is most likely to:

In an industry comprised of three companies, which are small-scale manufacturers of an easily replicable product unprotected by brand recognition or patents, the most representative model of company behavior is:

Which is the most accurate statement regarding central banks and monetary policy?

Which of the following is best described as a discrete random variable?

A decrease in both the labor force participation ratio and the unemployment rate is most likely caused by:

Which of the following items is most likely to be classified as a non-current asset?

The component least likely to be included in a measurement of gross domestic product (GDP) is:

Information about a company’s objectives, strategies, and significant risks are most likely to be found in the:

According to the Solow neoclassical growth model, sustained long-term growth in potential GDP is best explained by:

In an effort to influence the economy, a central bank conducted open market activities by selling government bonds. This action implies that the central bank is most likely attempting to:

A pooled estimator is used when testing a hypothesis concerning the: