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

• Question 3921:

  Which of the following can be found in Standard IV?

  A. Members must use the CFA designation in a dignified manner.

  B. Members shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.

  C. Members shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists.

  D. Members shall maintain knowledge of AIMR's Code of Ethics.

  E. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates.

  Correct Answer: B

  Standard IV states: "Members shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation."

• Question 3922:

  Another name for "covered" person is ________.

  A. guardian

  B. none of these answers

  C. ombudsman

  D. access person

  E. fiduciary

  F. supervisor

  Correct Answer: D

  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 3923:

  Maria Golino is a financially savvy client of Hector Gomez, a portfolio manager with a small investment firm. Maria recently directed Hector to execute all trades on her behalf with Omega Brokerage. Omega charges higher commissions than most other brokerage firms but in this case, has agreed to provide research to Hector on behalf of Maria. Hector does not object to this and starts directing Maria's trades to Omega. Hector has

  A. violated Standard IV (B.1) - Fiduciary Duties.

  B. violated Standard IV (A.2) - Research Reports.

  C. violated Standard IV (B.8) - Disclosure of Referral Fees.

  D. not violated any standards.

  Correct Answer: D

  The practice in which a portfolio manager directs trades to a particular brokerage in exchange for additional goods or services at the behest of the client is known as "directed brokerage." This practice is not in violation of any AIMR standards since the portfolio manager is acting on the instructions of his client and the benefits accrue to the client. Standard IV (B.1) - Fiduciary Duties - and the Topical Study "Fiduciary Duty."

• Question 3924:

  Corporate directors are governed by the ________. Trustees are governed by the ________.

  A. none of these answers

  B. "common sense doctrine"; business judgment rule

  C. business judgment rule; Prudent Man Rule

  D. business judgment rule; "common sense doctrine"

  E. "common sense doctrine"; Prudent Man Rule

  F. Prudent Man Rule; business judgment rule

  G. Prudent Man Rule; "common sense doctrine"

  Correct Answer: C

  This question is trying to highlight the different standards of business care fiduciaries must uphold in charitable organizations and trusts respectively. Thus, fiduciaries at charities are bound by the business judgment rule, since they are comparable to directors of business corporations. In contrast, trustees are governed by the Prudent Man Rule. This distinction in the standard duties applicable to fiduciaries in different situations should be recognized.

• Question 3925:

  Fundamental Responsibilities is dealt with under:

  A. Standard I

  B. Standard III

  C. None of these answers

  D. Standard V

  E. Standard II

  F. Standard IV

  Correct Answer: A

  Fundamental Responsibilities is dealt with under Standard I.

• Question 3926:

  Which of the following are considered basic characteristics of a security and must be included in research reports?

  A. business risk

  B. degree of uncertainty

  C. annual expected income

  D. yield-to-maturity

  E. all of these answers

  F. both degree of liquidity and yield-to-maturity

  G. expected annual rate of return

  Correct Answer: E

  Members should include the following information in research reports:

  -expected annual rate of return

  -annual amount of income expected (current and future)

  -current rate of income return of yield to maturity

  -

  degree of uncertainty associated with cash flows

  -

  degree of marketability/liquidity

  -business, financial, political, sovereign and market risks

• Question 3927:

  Social investments:

  A. should never be used in pension fund investing.

  B. in pensions must be well thought-out, making sure that such investments are legal and do not impair the integrity of the funds in questions or the financial security of the participants or beneficiaries.

  C. none of these answers.

  D. have yet to be used as an investment in pension funds in the U.S.

  E. are proper investment vehicles for pensions, since they are a "public good."

  Correct Answer: B

  In a pension plan, the first and foremost duty of the fiduciary is to the plan participants and their beneficiaries rather than to the plan sponsor that has the power to hire and fire the investment manager. Consequently, if urged to make investments that might be of direct benefit to a sponsoring community or to the community at large, the manager must ensure that such investments are legal and do not impair the integrity of the funds in question or the financial security of the participants/beneficiaries.

• Question 3928:

  Standard ________ pertains to fair dealing with customers and clients.

  A. III (B)

  B. IV (B.3)

  C. IV (A)

  D. I (D)

  E. None of these answers

  Correct Answer: B

  Standard IV (B.3) states: "Members shall deal fairly and objectively with all clients and prospects when disseminating investment recommendations, disseminating material changes in prior investment recommendations and taking investment action."

• Question 3929:

  Standard IV of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

  A. None of these answers

  B. Clients and Prospects

  C. AIMR

  D. Supervisors

  E. the Employer

  Correct Answer: B

  Standard IV of the Standards of Professional Conduct deals with Relationships with and Responsibilities to Clients and Prospects.

• Question 3930:

  Each of the following is true regarding Standard II (A), except:

  A. You must be registered for the next CFA exam in order to call yourself a candidate.

  B. This standard relates to business cards and letterheads.

  C. This standard does not relate to oral statements.

  D. There is no designation for someone who has passed Level I, II, or III.

  E. All of these answers.

  F. Candidates may state that they have completed Level I, II, or III.

  Correct Answer: C

  Standard II (A) relates to the responsibility of AIMR members and candidates to use their professional designation properly and in a non-misleading manner. A person must be registered to take the next scheduled CFA exam to be a "candidate" in the CFA program. There is no designation for someone who has passed Level I, II, or III of the CFA exam. Candidates may state, however, that they have completed Level I, II, or III. The standard applies to all related explanations or descriptions of the CFA designation, including letterheads and business cards, resumes, directory listings, printed advertising, brochures and oral statements to clients and prospects.