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

• Question 3731:

  Relationships with and Responsibilities to the Employer are dealt with under:

  A. Standard II

  B. Standard I

  C. Standard V

  D. Standard III

  E. None of these answers

  F. Standard IV

  Correct Answer: D

  Relationships with and Responsibilities to the Employer are dealt with under Standard III.

• Question 3732:

  A manager who pays a higher commission than would normally be paid to purchase the goods or services:

  A. may be violating the fiduciary duties owed to the client.

  B. none of these answers.

  C. is violating the fiduciary duties owed to the client.

  D. is not violating the fiduciary duties owed to the client.

  Correct Answer: C

  This practice is commonly referred to as "paying up" for services.

• Question 3733:

  Parts of the standards that are ________ must be observed.

  A. recommended

  B. suggested

  C. mandatory

  D. restraining

  E. inhibiting

  Correct Answer: C

  Some aspects of the Performance Presentation Standards are mandatory and must be observed, while other aspects are recommended.

• Question 3734:

  An investment recommendation can be disseminated to clients via each of the following methods, EXCEPT:

  A. through a brief update report.

  B. by addition to a recommended list.

  C. by oral communication.

  D. through an initial detailed research report.

  E. by deletion from a recommended list.

  F. all of these answers are acceptable methods.

  Correct Answer: F

  According to Standard IV (B.3) - Fair Dealing, an investment recommendation is any opinion expressed by a member in regard to purchasing, selling or holding a given security or other investment. All of the methods listed are acceptable for dissemination.

• Question 3735:

  Which standard deals with the Prohibition against Use of Material Nonpublic Information?

  A. III

  B. III (B.4)

  C. IV (B.4)

  D. IV (B.5)

  E. V (A)

  F. III (B.2)

  Correct Answer: E

  Standard V (A) - Prohibition against Use of Material Nonpublic Information, states that "members who possess material nonpublic information related to the value of a security shall not trade in that security if such trading would breach a duty or if the information was misappropriated or relates to a tender offer."

• Question 3736:

  Scott works for a regional brokerage firm. He estimates that Walkton Industries will increase its dividend by $1.50 a share during the next year. He realized that this increase is contingent on pending legislation that would, if enacted, give Walkton a substantial tax break. The U.S. representative for Walkton's home district has told Scott that, although he is lobbying hard for the bill and prospects for passage look good, Congress's concern over the federal deficit could cause the tax bill to be voted down. Walkton has not made any statements regarding a change in dividend policy. Scott writes in his research report, "We expect Walkton's stock price to rise by at least $8.00 a share by the end of the year. Because the dividend will increase by $1.50 a share, the stock price gain will be fueled, in large part, by the increase in the dividend. Investors buying the stock at the current time should expect to realize a total return of at least 15 percent on the stock." Which of the following is/are true?

  I. Scott violated the Standards because he used material inside information.

  II. Scott violated the Standards because he failed to separate opinion from fact.

  III.

  Scott did not violate the Standards.

  A.

  I and II only.

  B.

  II only.

  C.

  I only.

  D.

  III only.

  Correct Answer: B

  This question relates to Standard IV (A.2), Research Reports. Scott issued a research report stating that the stock price of Walkton is expected to rise to $8 a share "because the dividend will increase by $1.50 a share." Yet, he made this assertion fully aware the dividend will increase only if Congress enacts certain legislation, which is an uncertain prospect. By stating that the dividend will increase, Scott failed to separate fact from opinion. The information on the passing of legislation is not material inside information because it does not come from or pertain to company operations.

• Question 3737:

  Taxes must be recognized

  A. in the same period as when the taxable event occurred.

  B. on a quarterly basis.

  C. in the period immediately following the period in which the taxable event occurred.

  D. on a yearly basis.

  Correct Answer: A

  Taxes must be recognized in the same period as when the taxable event occurred. This is a requirement for calculation of returns.

• Question 3738:

  Bronson provides investment advice to the board of trustees of a private university endowment fund. The trustees have provided Bronson with the fund's financial information, including planned expenditures. Bronson receives a phone call on Friday afternoon from Murdock, a prominent alumnus, requesting that Bronson fax him comprehensive financial information about the fund. According to Murdock, he has a potential contributor but needs the information that day to close the deal and cannot contact any of the trustees. Based on AIMR Standards, Bronson should:

  A. send Murdock the information because it is not material nonpublic information.

  B. not send Murdock the information to preserve confidentiality.

  C. send Murdock the information, provided Bronson promptly notifies the trustees.

  D. send Murdock the information because disclosure would benefit the client.

  Correct Answer: B

  This question deals with Standard IV (B.1), Fiduciary Duties and Standard IV (B.5), Preservation of Confidentiality. Bronson owes a fiduciary duty to the fund trustees. He cannot disclose confidential financial information to anyone without the permission of the fund, regardless of whether the disclosure may benefit the fund. The fund must be notified and permission obtained before the information is publicized. Even if the information were nonmaterial, the member cannot disclose it because it is confidential.

• Question 3739:

  ________ accounting is mandatory for fixed-income securities.

  A. Flexible

  B. Risky

  C. Total

  D. Equal E. Accrual

  Correct Answer: E

  Accrual accounting must be used for fixed-income securities and all other securities that accrue income. Accrued income must be included in the market value calculation of the denominator and numerator.

• Question 3740:

  The Performance Presentation Standards maintain that composites should cover a minimum of ________ years, or present the entire record of the firm, if shorter.

  A. ten

  B. eight

  C. seven

  D. two

  E. five

  Correct Answer: A

  A 10 year performance record (or a record for the period since firm inception if inception is less than 10 years) must be presented.