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

• Question 3741:

  The ________ of portfolio performance over time is a measure of the variability or dispersion of the historical returns around their central tendency or mean return.

  A. variance

  B. standard deviation

  C. mean variance

  D. mode

  Correct Answer: B

  Standard deviation is also a useful measure of the relative volatility of fund categories.

• Question 3742:

  The financial analyst may ________.

  A. not accept gifts from issuers of securities under any circumstances

  B. accept modest gifts

  C. accept any gift, as long as it is disclosed

  D. none of these answers

  Correct Answer: B

  According to Standard IV (A.3) - Independence and Objectivity - modest gifts that do not exceed $100 and entertainment are acceptable, but special care should be taken by member analysts and investment managers to resist lavish gifts such as tickets, favors, job referrals and so on, which may be tied in with subtle pressures for favors possibly detrimental to clients.

• Question 3743:

  Tessmer is a hard-working employee working in the sales department of a large bank. In this capacity, Tessmer is allowed to have an expense account to be used to entertain clients and cover business expenses. Over the past 3 months, Tessmer's expenses have almost doubled, a large part coming from expenses attributed to "business expense." While his manager, Janus Lace, is suspicious about this and believes that Tessmer is using the account for personal expenses, he has no proof of this. All of Tessmer's reimbursement bills appear to be in order. Tessmer has:

  A. violated the AIMR standard on Professional Misrepresentation.

  B. violated the AIMR standard on Reasonable Costs.

  C. not violated any AIMR standard.

  D. violated the AIMR standard on Professional Misconduct.

  Correct Answer: C

  There is no evidence that Tessmer is misusing his expense account. The increase may simply be due to an increased professional activity. There is a chance that Tessmer is altering his bills but that needs to be investigated in some depth by Janus Lace, with a detailed examination of the results accruing from increased expenses. If Tessmer is found guilty of falsifying records, he would be in violation of Standard II (B) - Professional Misconduct. Without such evidence, charges of violation cannot be leveled against anyone.

• Question 3744:

  According to the AIMR-PPS, assets assigned to subadvisors that are not part of the firm

  A. are not to be included in total firm assets and their performance record is, therefore, not part of the firm's performance record.

  B. are included in total firm assets at the investment manager's discretion and information regarding their inclusion should be included in the disclosures.

  C. are to be included in total firm assets, however, because they are subadvisors, their performance record is not part of the firm's performance record.

  D. are to be included in total firm assets, hence, their performance record is part of the firm's performance record.

  Correct Answer: A

  Total firm assets are defined to include all discretionary and nondiscretionary assets. Assets assigned to subadvisors that are not part of the firm are not to be included in total firm assets and their performance record is, therefore, not part of the firm's record.

• Question 3745:

  When complying with Standard IV (B.3) - Fair Dealing, a change of recommendation from "sell" to "buy" is considered:

  A. none of these answers.

  B. material only if so specified prior to the recommendation by the client.

  C. not material.

  D. material only if so specified prior to the recommendation by the investment manager.

  E. generally material.

  Correct Answer: E

  In general, a material change in a firm's recommendation is one that could be expected to affect the investor's judgment or motivate an informed buyer or seller to take an investment action. Hence, a change of recommendation from "sell" to "buy" is generally material.

• Question 3746:

  An employee has a duty of ________ to his current employer, even if he has already disclosed plans to leave within the near future.

  A. loyalty

  B. judgment

  C. none of these answers

  D. sagacity

  E. prudence

  Correct Answer: A

  Standard III (B) states that a departing employee is free to make preparations to go into a competitive business before terminating the relationship with the employee's current employer provided that such preparations do not breach the employee's duty of loyalty.

• Question 3747:

  Which of the following statements is true?

  A. Standard I sets forth minimum standards relating to general activities.

  B. All of these statements are correct.

  C. Members are to be aware of laws and regulations of foreign jurisdictions.

  D. Standards II through V address specific conduct.

  E. Members who work in a country where the Code and Standards impose a lesser degree of responsibility than local laws and regulations must adhere to the local laws and regulations.

  F. Members are to comply with the laws and regulations of foreign jurisdictions.

  Correct Answer: B

  All the statements are true. Standard I contains principles that apply to the general activities of members while Standards II-V address specific conduct. In addition to complying with the requirements of the Code and Standards, members must be aware of laws and regulations of foreign jurisdictions. When the Code and Standards impose a higher degree of responsibility than applicable securities laws, members must adhere to the Code and Standards and vice-versa.

• Question 3748:

  Which of the following statements is NOT correct?

  A. All of these statements are correct.

  B. Standards II through V contain principles guiding the general activities of members.

  C. Members who work in a country where the Code and Standards impose a higher degree of responsibility than local laws and regulations must adhere to the Code and Standards.

  D. Members are not required to report legal violations to the appropriate governmental or regulatory organizations.

  E. Members who work in a country where the Code and Standards impose a lesser degree of responsibility than local laws and regulations must adhere to the local laws and regulations.

  Correct Answer: B

  Standards II through V address specific conduct, while Standard I contains principles guiding the general activities of members. This distinction should be noted.

• Question 3749:

  To claim compliance, firms must meet

  A. all composite, calculation, presentation and disclosure requirements of the AIMR Performance Presentation Standards.

  B. all composite, calculation, presentation and disclosure recommendations of the AIMR Performance Presentation Standards.

  C. all composite, calculation, presentation and disclosure requirements and recommendations of the AIMR Performance Presentation Standards.

  D. all composite, calculation, presentation and disclosure requirements and at least half of the recommendations of the AIMR Performance Presentation Standards.

  Correct Answer: A

  To claim compliance, firms must meet all composite, calculation, presentation and disclosure requirements of the AIMR Performance Presentation Standards. Firms are also strongly encouraged to follow the recommended standards.

• Question 3750:

  Convertible and other hybrid securities

  A. are never included in composites with conventional securities.

  B. are managed separately and treatment must be disclosed in performance reporting.

  C. are not assets to which the Standards are applicable.

  D. must be treated consistently across and within composites.

  Correct Answer: D

  Convertible and other hybrid securities must be treated consistently across and within composites.

  Portfolios must not be switched from one composite to another unless documented changes in client

  guidelines make switching appropriate.

  This is a requirement for creation and maintenance of composites.