Mariam Musa, CFA, head of compliance at Dunfield Brokers, questions her colleague Omar Kassim, a CFA candidate and a research analyst, about his purchase of shares in a company for his own account immediately before he publishes a “buy” recommendation. He defends his actions by stating he has done nothing wrong because Dunfield does not have any personal trading policies in place. The CFA Institute Code of Ethics and Standards of Professional Conduct were most likely violated by:

Charlie Mancini, CFA, is the Managing Director for Business Development at SV Financial (SVF), a large US-based mutual fund organization. Mancini has been under pressure recently to increase revenues. In order to secure business from a large hedge fund manager based in Asia, Mancini recently approved flexible terms for the fund’s client agreement. To allow for time zone differences, the agreement permits the hedge fund to trade in all of SVF’s mutual funds six hours after the close of US markets, which is prohibited by US regulators. Did Mancini violate any CFA Institute Standards of Professional Conduct?

Q. Which of the following responses most completely represents an ethical principle of CFA Institute as outlined in the Standards of Practice Handbook?

Danielle Deschutes, CFA, is a portfolio manager who is part of a 10-person team that manages equity portfolios for institutional clients. A competing firm, South West Managers, asks Deschutes to interview for a position within its firm and to bring her performance history to the interview. Deschutes receives written permission from her current employer to bring the performance history of the stock portfolio with her. At the interview, she discloses that the performance numbers represent the work of her team and describes the role of each member. To bolster her credibility, Deschutes also provides the names of institutional clients and related assets constituting the portfolio. During her interview Deschutes most likely violated the CFA Institute Standards of Professional Conduct with regards to:

Q. Which of the following statements best describes an aspect of the Professional Conduct Program process?

Ethical conduct is most likely behavior that:

Victoria Christchurch, CFA, is a management consultant currently working with a financial services firm interested in curtailing its high staff turnover, particularly amongst CFA charterholders. In recent months, the company lost 5 of its 10 most senior managers, all of whom have cited systemic unethical business practices as the reason for their leaving. To curtail staff turnover by encouraging ethical behavior, it would be least appropriate for Christchurch to recommend the company to do which of the following?

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

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:

The most important factor in promoting ethical decision making among an investment firm’s employees is:

Dilshan Kumar, CFA, is a world-renowned mining analyst based in London. Recently he received an invitation from Cerberus Mining, a London Stock Exchange listed company with headquarters in Johannesburg, South Africa. Cerberus asked Kumar to join a group of prominent analysts from around the world on a tour of their mines in South Africa, some of which are in remote locations, not easily accessible. The invitation also includes an arranged wildlife safari to Krueger National Park for the analysts. Kumar accepts the invitation planning to visit other mining companies he covers in Namibia and Botswana after the safari. To prevent violating any CFA Institute Standards of Professional Conduct, it is most appropriate for Kumar to only accept which type of paid travel arrangements from Cerberus?

A central bank fines a commercial bank it supervises for not following statutory regulations regarding non-performing loan provisions on three large loans as a result of the bank’s loan provisioning policy. Louis Marie Buffet, CFA, sits on the Board of Directors of the commercial bank as a non-executive director, representing minority shareholders. He also chairs the internal audit committee of the bank that determines the loan provisioning policy of the bank. Mercy Gatabaki, CFA, is the bank’s external auditor and follows international auditing standards whereby she tests the loan portfolio by randomly selecting loans to check for compliance in all aspects of central bank regulations. Which charterholder is most likely in violation of the Code and Standard?

Jennifer Ducumon, CFA, is a portfolio manager for high-net-worth individuals at Northeast Investment Bank. Northeast holds a large number of shares in Babyskin Care Inc., a manufacturer of baby care products. Northeast obtained the Babyskin shares when they underwrote the company’s recent IPO. Ducumon has been asked by the investment banking department to recommend Babyskin to her clients, who currently do not hold any shares in their portfolios. Although Ducumon has a favorable opinion of Babyskin, she does not consider the shares a buy at the IPO price nor at current price levels. According to the CFA Institute Code of Ethics and Standards of Professional Conduct the most appropriate action for Ducumon is to:

From the point of view of an investor, unethical behavior by investment professionals can most likely lead to which of the following?

Charles Mbuwanga, a Level 3 CFA Candidate, is the Business Development Manager for Sokoza Investment Group, an investment management firm with high-net-worth retail clients throughout Africa. Sokoza introduced listed Kenyan Real Estate Investment Trusts (REITs) to its line of investment products based on new regulations introduced in Kenya so as to diversify its product offering to clients. The product introduction comes after months of researching Kenyan property correlations with other property markets and asset classes in Africa. Sokoza assigns Mbuwanga as part of the sales team in introducing this product to its clients across Africa. Mbuwanga subsequently determines that most of Sokoza’s clients’ portfolios would benefit from having a small Kenyan property exposure to help diversify their investment portfolios. By promoting the Kenyan REITS for Sokoza’s client portfolios as planned, Mbuwanga would least likely violate which of the following Standards?

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?

Several years ago, Leo Peek, CFA, co-founded an investment club. The club is fully invested but has not actively traded its account for at least a year and does not plan to resume active trading of the account. Peek’s employer requires an annual disclosure of employee stock ownership. Peek discloses all of his personal trading accounts, but does not disclose his holdings in the investment club. Peek’s actions are least likely to be a violation of which of the CFA Institute Standards of Professional Conduct?

Francesca Ndenda, CFA, and Grace Rutabingwa work in the same department for New Age Managers with Rutabingwa reporting to Ndenda. Ndenda learns that Rutabingwa received a Notice of Enquiry from the Professional Conduct Program at CFA Institute regarding a potential cheating violation when he sat for the CFA exam in June. As Rutabingwa’s supervisor, Ndenda is afraid the behavior of Rutabingwa will be seen as a violation of the CFA Code and Standards. Does Ndenda most likely have cause for concern?

Q. Jamison is a junior research analyst with Howard & Howard, a brokerage and investment banking firm. Howard & Howard’s mergers and acquisitions department has represented the Britland Company in all of its acquisitions for the past 20 years. Two of Howard & Howard’s senior officers are directors of various Britland subsidiaries. Jamison has been asked to write a research report on Britland. What is the best course of action for her to follow?

Q. Michelieu tells a prospective client, “I may not have a long-term track record yet, but I’m sure that you’ll be very pleased with my recommendations and service. In the three years that I’ve been in the business, my equity-oriented clients have averaged a total return of more than 26% a year.” The statement is true, but Michelieu only has a few clients, and one of his clients took a large position in a penny stock (against Michelieu’s advice) and realized a huge gain. This large return caused the average of all of Michelieu’s clients to exceed 26% a year. Without this one investment, the average gain would have been 8% a year. Has Michelieu violated the Standards?

Q. According to the Code of Ethics, members of CFA Institute and candidates for the CFA designation must:

Gardner Knight, CFA, is a product development specialist at an investment bank. Knight is responsible for creating and marketing collateralized debt obligations (CDOs) consisting of residential mortgage bonds. In the marketing brochure for his most recent CDO, Knight provided a list of the mortgage bonds that the CDO was created from. The brochure also states “an independent third party, the collateral manager, had sole authority over the selection of all mortgage bonds used as collateral in the CDO.” However, Knight met with the collateral manager and helped her select the bonds for the CDO. Knight is least likely to be in violation of which of the following CFA Institute Standards of Professional Conduct?

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

Q. Which of the following best identifies an internal trait that may lead to poor ethical decision making?

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:

Diana Fairbanks, CFA, is married to an auditor who is employed at a large accounting firm. When her husband mentions that a computer firm he audits will receive a qualified opinion she thinks nothing of it. Later that week when she reviews a new client account she notices that there are substantial holdings of this computer firm. When she does a thorough internet search for news on the company, she does not find anything about its most recent audit or any other adverse information. Which of the following actions concerning the computer stock should Fairbanks most likely take to avoid violating the CFA Institute Standards of Professional Conduct?

Q. Which of the following statements best describes the costs of international trade?

Q. A sports car, purchased for £200,000, is financed for five years at an annual rate of 6% compounded monthly. If the first payment is due in one month, the monthly payment is closest to:

None

Q. An operator of a ski resort is considering offering price reductions on weekday ski passes. At the normal price of €50 per day, 300 customers are expected to buy passes each weekday. At a discounted price of €40 per day 450 customers are expected to buy passes each weekday. The marginal revenue per customer earned from offering the discounted price is closest to:

If a stock’s continuously compounded return is normally distributed, then the distribution of the future stock price is best described as being:

Which of the following is most likely a characteristic of a country that follows the dollarization exchange rate regime? The country:

Q. Carey Company adheres to US GAAP, whereas Jonathan Company adheres to IFRS. It is least likely that:

All else being equal and ignoring tax effects, compared with using the straight-line method of depreciation, the use of an accelerated method of depreciation in the early years of an asset’s life would most likely result in a decrease in the firm’s:

Which of the following best describes the link between the cash flow statement and the balance sheet?

Q. Which of the following data types would be classified as being categorical?

None

Q. Which of the following best represents a contractionary fiscal policy?

Q. Using the same information as in Question 11, how much depreciation would Glass take in 2009 for financial reporting purposes under the double-declining balance method?

Q. Income tax expense reported on a company’s income statement equals taxes payable, plus the net increase in:

Q. Which inventory method is least likely to be used under IFRS?

Q. For a sample size of 17, with a mean of 116.23 and a variance of 245.55, the width of a 90% confidence interval using the appropriate t-distribution is closest to:

Q. Which ratio would a company most likely use to measure its ability to meet short-term obligations?

None

Q. Market competitors are least likely to use advertising as a tool of differentiation in an industry structure identified as:

Common-size financial statements are most likely a component of which step in the financial analysis framework?

Q. Which of the following statements is correct with respect to the p-value?

None

Non-operating items reported on the income statement:

The unemployment rate is best described as the ratio of unemployed to:

Which of the following is most likely to lead to a recessionary gap?

Q. At the beginning of 2009, Glass Manufacturing purchased a new machine for its assembly line at a cost of $600,000. The machine has an estimated useful life of 10 years and estimated residual value of $50,000. Under the straight-line method, how much depreciation would Glass take in 2010 for financial reporting purposes?

Q. Purple Fleur S.A., a retailer of floral products, reported cost of goods sold for the year of $75 million. Total assets increased by $55 million, but inventory declined by $6 million. Total liabilities increased by $45 million, and accounts payable increased by $2 million. The cash paid by the company to its suppliers is most likely closest to:

Q. If a company uses the fair value model to value investment property, changes in the fair value of the asset are least likely to affect:

Q. According to IFRS, all of the following pieces of information about intangible assets must be disclosed in a company’s financial statements and footnotes except for:

None

Q. In contrast to normal distributions, lognormal distributions:

Q. When screening for potential equity investments based on return on equity, to control risk, an analyst would be most likely to include a criterion that requires:

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:

Liabilities of a company equal:

None

Q. Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in 2018. Compared to the results the company would have reported if the write-down had never occurred, Zimt’s reported 2018:

Q. Florence Hixon is screening a set of 100 stocks based on two criteria (Criterion 1 and Criterion 2). She set the passing level such that 50% of the stocks passed each screen. For these stocks, the values for Criterion 1 and Criterion 2 are not independent but are positively related. How many stocks should pass Hixon’s two screens?

Q. A bar chart that orders categories by frequency in descending order and includes a line displaying cumulative relative frequency is referred to as a:

Q. The level of significance of a hypothesis test is best used to:

In a hypothetical economy, consumption is 70% of pre-tax income, and the average tax rate is 25% of total income. If planned government expenditures are expected to increase by $1.25 billion, the increase in total income and spending, in billions, is closest to:

Q. In order to minimize the foreign exchange exposure on a euro-denominated receivable due from a German company in 100 days, a British company would most likely initiate a:

None

Q. MARU S.A. de C.V., a Mexican corporation that follows IFRS, has elected to use the revaluation model for its property, plant, and equipment. One of MARU’s machines was purchased for 2,500,000 Mexican pesos (MXN) at the beginning of the fiscal year ended 31 March 2010. As of 31 March 2010, the machine has a fair value of MXN 3,000,000. Should MARU show a profit for the revaluation of the machine?

None

A payment received for a subscription service at the beginning of the period will most likely be recorded as:

Q. The probability of correctly rejecting the null hypothesis is the:

Which of the following statements is most accurate?

Accounts payable are:

Q. For 2009, Flamingo Products had net income of $1,000,000. At 1 January 2009, there were 1,000,000 shares outstanding. On 1 July 2009, the company issued 100,000 new shares for $20 per share. The company paid $200,000 in dividends to common shareholders. What is Flamingo’s basic earnings per share for 2009?

In the short run, a firm operating in a perfectly competitive market will most likely avoid shutdown if it is able to earn sufficient revenue to cover which of the following costs?

None

Obligations arising from past events that are expected to result in an outflow of economic benefits from an entity are most likely known as:

Investors should be most attracted to return distributions that are:

Q. Consolidated Enterprises issues €10 million face value, five-year bonds with a coupon rate of 6.5 percent. At the time of issuance, the market interest rate is 6.0 percent. Using the effective interest rate method of amortisation, the carrying value after one year will be closest to:

None

A small country has a comparative advantage in the production of pencils. The government establishes an export subsidy for pencils to promote economic growth. Which of the following will be the most likely result of this policy?

Q. The reason analysts follow developments in the availability of credit is that:

Q. Convergence of incomes over time between emerging market countries and developed countries is most likely the result of:

Q. Regarding a company’s debt obligations, which of the following is most likely presented on the balance sheet?

Q. Which of the following events can be represented as a Bernoulli trial?

A one-tailed hypothesis testing has a p-value for a test statistic of 3%. An analyst would not reject the null hypothesis at a significance level of:

Q. If the base currency in a forward exchange rate quote is trading at a forward discount, which of the following statements is most accurate?

Which of the following most accurately describes how to standardize a random variable X?