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

• Question 3931:

  Complete the following: According to The Code of Ethics, members of AIMR shall: "Act with ________, competence, dignity and in an ethical manner when dealing with the public, clients, prospects, employers, employees and fellow members."

  A. virtue

  B. none of these answers

  C. honorability

  D. integrity

  E. morality

  Correct Answer: D

  According to The Code of Ethics, members of AIMR shall: "Act with integrity, competence, dignity and in an ethical manner when dealing with the public, clients, prospects, employers, employees and fellow members."

• Question 3932:

  Under what conditions is Standard II (B)- Professional Misconduct violated?

  I. The member is convicted of a misdemeanor.

  II. The member regularly engages in unprofessional but legal behavior.

  III. The member engages in dishonest activities that do not result in criminal conviction.

  IV.

  The member is convicted of a felony.

  A.

  II, III and IV.

  B.

  I, II and IV.

  C.

  I, II, III and IV.

  D.

  IV only.

  Correct Answer: A

  This question pertains to Standard II (B) - Professional Misconduct. A misdemeanor conviction is only considered grounds for a violation of II (B) if it occurs repeatedly, or involves "moral turpitude" (lying, cheating, stealing, or other dishonest conduct). Unprofessional and dishonest behavior or a felony conviction are violations of Standard II (B).

• Question 3933:

  ________ establishes the fiduciary principles for U.S. corporate pension plans.

  A. AIMR

  B. PSPC

  C. ERISA

  D. WTO

  E. UMIFA

  F. None of these answers

  G. RELAC

  Correct Answer: C

  ERISA establishes the fiduciary principles for U.S. corporate pension plans. ERISA is very specific in its definition of fiduciaries and their responsibilities and investment managers of U.S. corporate pension plans are subject to ERISA's fiduciary provisions.

• Question 3934:

  ERISA fiduciaries must adhere to the following prudent procedures:

  -establish a written investment policy for the plan

  -diversify plan assets

  -make investment decisions with the skill and care of a ________

  -monitor investment performance

  -control investment expenses

  -

  avoid prohibited transactions

  A.

  member

  B.

  supervisor

  C.

  prudent expert

  D.

  none of these answers

  E.

  trader

  Correct Answer: C

  These procedures are stipulated under the detailing of ERISA fiduciary duties, to ensure that the fiduciary complies with the duty to act with prudence. Under ERISA, the fiduciary is held to a higher standard than the Prudent Man Rule. The ERISA fiduciary needs to be as prudent as the average expert, not simply as prudent as the average person.

• Question 3935:

  Each ________ needs to comprise portfolios or asset classes that represent a similar investment goal.

  A. return

  B. composite

  C. value

  D. benchmark

  E. mix

  Correct Answer: B

  All actual fee-paying discretionary portfolios must be included in at least one composite defined according to similar strategy or investment objective.

• Question 3936:

  With regard to real estate, all properties must be included in at least one ________.

  A. account

  B. investment type

  C. composite

  D. sector

  E. portfolios

  Correct Answer: C

  Consistent with the general requirements for all composites, all properties with discretionary fee-paying investors must be included in at least one account. Because of the unique nature of individual real estate investments, however, composites containing single properties are appropriate in many cases.

• Question 3937:

  The disclosures for retroactive compliance apply to composites formulated prior to ________.

  A. January, 1989

  B. January, 1992

  C. January, 1991

  D. January, 1993

  E. January, 1990

  Correct Answer: D

  The effect date to be in compliance with AIMR-PPS was January 1, 1993. Any composites which predate the effective date can be brought into compliance retroactively.

• Question 3938:

  According to Standard IV (A.2), members should consider including the following information in research reports, except:

  A. the methodology that drove the investment decisions.

  B. yield-to-maturity.

  C. annual amount of income expected.

  D. degree of uncertainty associated with the cash flows.

  E. business, financial, political, sovereign and market risks.

  F. none of these answers.

  G. degree of marketability / liquidity.

  H. expected annual rate of return.

  Correct Answer: A

  All the information has to be included in the research reports except the methodology that drove the investment decision, which is part of the 'maintaining files' compliance procedure for Standard IV (A.1).

• Question 3939:

  Standard V (A) deals with ________.

  A. Prohibition against Use of Material Nonpublic Information

  B. Disclosure of Conflicts to Clients and Prospects

  C. Prohibition against Misrepresentation

  D. Disclosure of Referral Fees

  E. Performance Presentation

  F. Priority of Transactions

  G. Preservation of Confidentiality

  Correct Answer: A

  Standard V (A) prohibits members who possess material nonpublic information related to the value of a security from trading in that security if such trading would breach a duty or if the information was misappropriated or relates to a tender offer.

• Question 3940:

  Andy Pilling is a bond trading specialist who recently started a special fund, the "Structured Bond Fund." The strategy behind this fund is quite complex, involving a mix of highly speculative, high-yield bonds and various tax-free municipal bonds for some stability. Andy has a strong view that the economy will remain vibrant and bullish over the next two years and hence, is not worried about the risky bonds. Assuming a falling rate scenario in this case allows the fund to project an expected return 130 basis points above the SandP 500 return. In his special report, Pilling does not disclose such assumptions nor does he reveal any details about the bond strategy. He does analyze the state of the economy and the future outlook in the report. Based on his reputation and his association with some big name academics, Pilling is able to obtain capital of close to 75 million dollars on this fund alone. Andy has:

  A. not violated any standards in the AIMR Code of Ethics.

  B. violated Standard IV (B.6) - Prohibition Against Misrepresentation.

  C. violated Standard IV (A.2) - Research Reports - by not revealing the assumptions and details about the strategy.

  D. violated Standard IV (B.1) - Fiduciary Duties - by not disclosing the nature of the strategy.

  Correct Answer: C

  Standard IV (A.2) - Research Reports requires members to describe the basic characteristics of an investment, the degree of risks involved and scenario analysis to illustrate possible losses under different market conditions. By suppressing such relevant details, Pilling has violated the AIMR Code of Ethics.