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

• Question 3831:

  Mayberry's Mayor, in consultation with the trustees of Mayberry's Village Investment Fund, has decided that the fund needs to become more aggressive in its investment objectives to generate funds for village renovations like a paved road, a new school and an activity center for kids. He discussed these requirements with the plan manager, Otis, and asked him to suggest a suitable risk profile and investment instruments to achieve the objectives within a year. Barney, a businessman from a neighboring town, is trying to decide if he should invest his excess capital in setting up businesses in Mayberry or another town, Februberry. These businesses promise to generate about 35 new jobs at various levels and stimulate consumer spending in the town in which they are set up. Barney wants to be sure that the businesses are set up in areas that have high growth promise. So he calls up Otis to find out about the Mayor's plans for the next two years for Mayberry's development. Otis sets up a meeting with Barney and outlines the proposed renovation projects. Otis does his best to convince Barney that Mayberry is the right place for Barney's businesses.

  I. Barney has violated the Code of Ethics by discussing the plans with Otis.

  II. Otis has violated the Code of Ethics by discussing the plans with Barney.

  III.

  Neither Barney nor Otis violated any standards.

  A.

  II only

  B.

  III only

  C.

  I and II only

  D.

  I only

  Correct Answer: A

  Otis has violated Standard IV (B.5) - Preservation of Confidentiality by revealing the Mayor's plans to Barney. Any information that Otis receives in his capacity as a fund manager is strictly confidential and should not be revealed unless it is in connection with a criminal investigation or an AIMR investigation. Barney has not violated any Standards.

• Question 3832:

  A(n) ________ is someone who has knowledge of pending or actual investment recommendations or action.

  A. AIMR member

  B. access person

  C. none of these answers

  D. insider

  Correct Answer: B

  Access or covered persons have knowledge of pending or actual investment recommendations or action. The firm's definition of access (covered) person should be broad enough to cover all people with that knowledge.

• Question 3833:

  Although trade-date accounting is recommended, ________ accounting that is disclosed is acceptable for calculating performance.

  A. settlement-date

  B. maintenance

  C. accrual

  D. composite

  E. Performance

  Correct Answer: A

  Trade-date accounting is recommended when calculating performance, although settlement-date accounting is acceptable if disclosed. Because of the volatility and lengthy settlement periods of some markets, trade-date accounting is strongly recommended for calculating the performance of international portfolios.

• Question 3834:

  Standard V (B) addresses any practice that would lead to misrepresentation of a member's record, whether the practice involves performance ________ or performance ________.

  A. presentation; measurement

  B. none of these answers

  C. presentation; benchmarking

  D. assessment; benchmarking

  E. measurement; assessment

  F. assessment; presentation

  G. benchmarking; measurement

  Correct Answer: A

  Standard V (B) addresses any practice that would lead to misrepresentation of a member's record, whether the practice involves performance presentation or performance measurement.

• Question 3835:

  According to the AIMR-PPS, total firm assets are defined to include

  A. all discretionary and nondiscretionary assets, as well as assets underlying overlay investment strategies.

  B. all discretionary and nondiscretionary assets.

  C. any asset deemed eligible by the firm.

  D. only assets underlying overlay investments strategies.

  Correct Answer: B

  Total firm assets are defined to include all discretionary and nondiscretionary assets. Total firm assets do not refer to assets underlying overlay investment strategies, such as currency overlay, options and futures overlays, securities lending programs and asset allocation overlay strategies, unless the firm actually manages the underlying assets.

• Question 3836:

  Standard III (E) is known as ________.

  A. Prohibition against Use of Material Nonpublic Information

  B. Preservation of Confidentiality

  C. Fair Dealing

  D. Professional Misconduct

  E. Interactions with Clients and Prospects

  F. Investment Process

  G. Duty to Employer

  H. None of these answers

  Correct Answer: H

  Standard III (E) is Responsibilities of Supervisors. Be sure you remember that this standard may often be cited as a violation, along with most other standards (because failure to supervise is often at the root of many of the standard violations).

• Question 3837:

  According to Standard IV (B.4), Priority of Transactions: "Transactions for clients and employers shall have priority over transactions in securities or other investments of which a member is the ________ so that such personal transactions do not operate adversely to their clients' or employer's interests."

  A. material agent

  B. primary decision maker

  C. none of these answers

  D. proxy voter

  E. beneficial owner

  F. principal broker

  G. sole charterholder

  H. registered representative

  Correct Answer: E

  Standard IV (B.4) deals with the Priority of Transactions. Under this standard, transactions for clients and employers shall have priority over transactions in securities or other investments of which a member is the beneficial owner so that such personal transactions do not operate adversely to their clients' or employer's interests. If members make a recommendation regarding the purchase or sale of an investment, they shall give their clients and employer adequate opportunity to act on the recommendation before acting on their own behalf.

• Question 3838:

  Standard III (A) - Obligation to Inform Employer of Code and Standards - requires all AIMR members, Charterholders and CFA candidates inform their employers about their personal obligation to abide by the code. Which of the following is/are true in regard to this requirement?

  I. The notification can be in either oral form or in writing, either in print, handwriting or by electronic means like email.

  II. Notification is necessary even if the employer is publicly known to have adopted the Code of Ethics.

  III.

  For compliance with Standard III (A), notification must be made to the immediate employer and not necessarily senior management.

  A.

  III only

  B.

  I, II and III

  C.

  I and III only

  D.

  I and II only

  Correct Answer: A

  If the employer has publicly adopted the Code of Ethics, no explicit notification is required. Otherwise, the immediate supervisor must be informed in writing about the obligation to abide by the Code. "In writing" includes any form of communication that can be documented, including email. Refer Standard III (A) Obligation to Inform Employer of Code and Standards

• Question 3839:

  Complete the following: According to The Code of Ethics, members of AIMR shall: "Practice and encourage others to practice in a professional and ethical manner that will ________ members and their profession."

  A. improve the qualifications of

  B. reflect credit on

  C. none of these answers

  D. improve the compensation of

  E. improve the access of

  Correct Answer: B

  According to The Code of Ethics, members of AIMR shall: "Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession."

• Question 3840:

  Which of the following AIMR Standards states that the financial analyst shall distinguish between facts and opinions in research reports?

  A. III A

  B. III D

  C. III (B.1)

  D. IV (A.2)

  Correct Answer: D

  Standard IV (A.2) - Research Reports states: "Members shall distinguish between facts and opinions in research reports."