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

• Question 3841:

  The AIMR Performance Presentation Standards require that firms report, at a minimum, ________ years of performance to claim compliance with the standards.

  A. one

  B. fifteen

  C. five

  D. ten

  E. seven

  F. two

  Correct Answer: D

  The AIMR-PPS require that firms report, at a minimum, 10 years of investment performance (or performance since the inception of the firm if inception is less than 10 years) to claim compliance with the Standards.

• Question 3842:

  Members pursuing the investment profession outside of the U.S. ________ the Code and Standards when local regulations are less stringent in order to maintain a level playing field.

  A. may disregard

  B. can modify

  C. should ignore

  D. must adhere to

  Correct Answer: D

  The concept of fiduciary duty is not exclusive to the United States. AIMR members are expected to follow any fiduciary duties imposed on them by their country or province, in addition to being governed by the Codes and Standards. As always, the primary concern must be to follow principles of discretion, loyalty and care and to act in the client's best interest.

• Question 3843:

  Pulser Primorak is an investment manager who recently bid in an IPO on behalf of his clients and was allowed to buy 1,000 shares of the issue. What should Primorak do?

  A. He should distribute the IPO shares amongst the client accounts over which he has discretionary investment powers on a pro rata basis.

  B. He should treat all his customers equally and fairly by distributing the IPO shares amongst all his client accounts on a pro rata basis.

  C. He should distribute the IPO shares amongst all his client accounts for which the IPO is an appropriate investment on a pro rata basis.

  D. The question is based on a false premise. Primorak should not have bid on an IPO in the first place since this violates the AIMR code of Ethics.

  Correct Answer: C

  Standard IV (B.3) - Fair Dealing. Note that the AIMR code does not prohibit investments by portfolio managers in IPOs if they are deemed appropriate investments.

• Question 3844:

  According to Standard IV (B.4), Priority of Transactions, ________ is recommended when a manager has purchased a security in violation of trading policy.

  A. forfeit of wages for one month

  B. a fine imposed by the SEC

  C. a civil damage

  D. public censure

  E. disgorgement

  Correct Answer: E

  This question relates to the compliance procedures for Standard IV (B.4), one of which states that firms should establish disciplinary procedures to enforce the standard. If a manager has purchased a security in violation of trading policy, disgorgement is recommended. Managers should disgorge all profits and assume any losses from the trade.

• Question 3845:

  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 goods or services purchased must be for "brokerage service."

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

  C. none of these answers.

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

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

  Correct Answer: A

  The good and services purchased must be for "research service."

• Question 3846:

  Which of the following AIMR Standards states that the financial analyst must exercise diligence and thoroughness in making investment recommendations or taking investment actions?

  A. III B

  B. IV A.1

  C. I

  D. None of these answers

  Correct Answer: B

  Standard IV (A.1) - Reasonable Basis and Representations states: "Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions."

• Question 3847:

  Standard III (C) deals with conflicts of interest of a member with ________.

  A. colleagues at the same firm

  B. the employer

  C. none of these answers

  D. the client

  E. other investment professionals

  F. the investing public

  Correct Answer: B

  Standard III (C) deals with conflicts of interest in any actions or decisions of a member and focuses on responsibility to the employer. By complying with employer guidelines, members allow their employers to avoid potentially embarrassing and costly violations.

• Question 3848:

  Standard II includes rules on which of the following?

  A. Professional Misconduct

  B. Prohibition against Plagiarism

  C. All of these answers

  D. Use of Professional Designation

  Correct Answer: C

  Standard II - Relationships with and Responsibilities to the Profession - includes rules on the use of Professional Designation, Professional Misconduct and Prohibition against Plagiarism.

• Question 3849:

  Standard III includes rules on which of the following?

  A. Professional Misconduct

  B. All of these answers

  C. Prohibition against Plagiarism

  D. Obligation to Inform Employer of Code and Standards

  E. Use of Professional Designation

  F. None of these answers

  Correct Answer: D

  Standard III deals with Obligation to Inform Employer of Code and Standard, Duty to Employer, Disclosure of Conflicts to Employer, Disclosure of Additional Compensation Arrangements and Responsibilities of Supervisors.

• Question 3850:

  Jackson, an analyst, decides not to change a recommendation from buy to sell because she wants to sell her holdings first. Is there a standards violation?

  A. No

  B. Yes, Standard IV (A.2), Research Reports

  C. Yes, Standard III (B), Duty to Clients and Prospects

  D. Yes, Standard IV (B.4), Priority of Transactions

  Correct Answer: D

  Jackson violated Standard IV (B.4) - Priority of Transactions Jackson has decided that she did not want to wait until all her clients have had the opportunity to sell first. Thus, her decision not to change her recommendation until she accomplished her own financial aims will result in losses to her clients if the value of the holding subsequently declines.