CFA Institute CFA Institute Certifications CFA-LEVEL-1 Questions & Answers

• Question 3711:

  Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except:

  A. the manager's soft-dollar practice must be disclosed.

  B. the manager may seek satisfactory price and execution.

  C. the goods or services purchased must be for "research service."

  D. none of these answers.

  E. the commission paid must be reasonable in relation to the research and execution services received.

  Correct Answer: B

  The manager must seek BEST price and execution.

• Question 3712:

  According to Standard IV (B.7), Disclosure of Conflicts, the most prevalent conflict pertains to ________.

  A. members' ownership of stock in companies they recommend

  B. broker-sponsored limited partnerships formed to invest venture capital

  C. service on a board of directors

  D. none of these answers

  Correct Answer: A

  Under Standard IV (B.7), Disclosure of Conflicts, the most prevalent conflict pertains to members' ownership of stock in companies they recommend. To avoid discrimination against members, sell-side members should disclose any materially beneficial ownership interest in a security or other investment that the member is recommending. Buy-side members should disclose their procedures for reporting requirements for personal transactions.

• Question 3713:

  According to Standard IV (B.4), Priority of Transactions, a member is a "beneficial owner" if the member has each of the following, EXCEPT:

  A. the power to vote or direct the voting of the shares of the securities or investments.

  B. the power to dispose or direct the disposition of the security or investment.

  C. the authority to supervise reasonably and adequately the actions of those accountable to him.

  D. a direct or indirect pecuniary interest in the securities.

  Correct Answer: C

  The authority to supervise those below the member has no relation to the concept of "beneficial owner." Also, supervisory responsibility is covered under Standard III (E).

• Question 3714:

  According to the AIMR-PPS, all actual fee-paying discretionary portfolios must be included in at least one composite defined according to

  A. managerial style of investment portfolio.

  B. similar strategy or investment objective.

  C. size of investment portfolio.

  D. date of portfolio inception.

  Correct Answer: B

  All fee-paying discretionary portfolios must be included in at least one composite defined according to similar strategy or investment objective. This is a requirement for creation and maintenance of composites.

• Question 3715:

  Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except:

  A. the manager's soft-dollar practice should be always maintained confidentially in his or her files.

  B. at all times, the manager must seek best price and execution.

  C. the commission paid must be reasonable in relation to the research and execution services received.

  D. the goods or services purchased must be for "research service."

  E. none of these answers.

  Correct Answer: A

  The soft-dollar practice must be disclosed.

• Question 3716:

  According to the AIMR-PPS, performance results of a past firm or affiliation

  A. must always be linked to the historical records of the new firm to show a fair and true representation of results.

  B. none of these answers.

  C. may or may not be linked to the historical records of new firm or affiliation, it is left to the discretion of the investment manager and that information should be disclosed.

  D. must not be used to represent the historical record of a new affiliation or a new firm identity.

  Correct Answer: D

  Performance results of a past firm or affiliation must not be used to represent the historical record of a new affiliation or a new firm entity. This is a requirement for presentation of results.

• Question 3717:

  When complying with Standard IV (B.3) - Fair Dealing, there are certain points one should be sure to address when establishing compliance procedures. Which of the following points is NOT mentioned in the Standards of Practice Handbook?

  A. Get as many people involved within the firm that a recommendation is going to be disseminated.

  B. Shorten the time frame between decision and dissemination.

  C. Disclose levels of service.

  D. Establish control over trading activity.

  E. Simultaneous dissemination.

  F. Publish personnel guidelines for predissemination.

  G. Establish systematic account review.

  Correct Answer: A

  Members have an obligation to ensure that their firms establish compliance procedures requiring all employees who disseminate investment recommendations or actions to treat clients fairly. The number of people privy to an investment recommendation should be limited. The amount of time that lapses between the decision and the dissemination of the recommendation should be shortened. Guidelines must be established to prohibit persons who have prior knowledge from discussing a pending recommendation. Trading activities should be monitored and controlled. Supervisors should review accounts on a regular basis to ensure that no client is being given preferential treatment.

• Question 3718:

  When presenting the components of total return for a real estate portfolio, the recognition of income at ________ level, rather than at the operating level, is preferred.

  A. risk

  B. purchase

  C. realized

  D. investment

  E. composite

  Correct Answer: D

  This is recommended under the AIMR-PPS for presenting investment performance results.

• Question 3719:

  The financial analyst is allowed to breach client confidentiality if the information concerns ________ activities that the client is engaged in.

  A. personal

  B. confidential

  C. insider

  D. none of these answers

  E. illegal

  Correct Answer: E

  Standard IV (B.5) states that "Members shall preserve the confidentiality of information communicated by clients, prospects, or employers concerning matters within the scope of the client -member relationship, unless the member receives information concerning illegal activities on the part of the client."

• Question 3720:

  When formulating an investment policy for a client, all of the following fall under the category of "investor constraints," except:

  A. risk tolerance

  B. liquidity needs

  C. expected cash flows

  D. regulatory and legal circumstances

  E. time horizon

  F. tax considerations

  G. investable funds

  H. investor preferences, circumstances and unique needs

  Correct Answer: A

  Risk tolerance is considered under "investor objectives," not "investor constraints."