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

• Question 3511:

  The AIMR Performance Presentation Standards are

  A. voluntary standards for the industry.

  B. mandatory for CFA Charterholders and Candidates.

  C. voluntary standards for the industry, but mandatory standards for AIMR members.

  D. mandatory standards for the industry.

  Correct Answer: A

  The AIMR-PPS are voluntary standards for the industry. Firms are not required to comply with the Standards when presenting performance, but the Standards are widely recognized as the most effective guidelines for fair and accurate reporting of investment performance.

• Question 3512:

  The mosaic theory holds that an analyst:

  A. Can use material public information or nonmaterial nonpublic information in the analyst's analysis.

  B. Should distinguish between facts and opinions in research reports.

  C. Should use all available and relevant information in support of an investment recommendation.

  D. Violates the Code and Standards if the analyst fails to notify her or his employer of the Code and Standards fails to have knowledge of and comply with applicable laws.

  Correct Answer: A

  This question pertains to Standard V (A), Prohibition against Use of Material Nonpublic Information. The mosaic theory states that an analyst may use material public information or nonmaterial nonpublic information in creating a larger picture than shown by any individual piece of information and the conclusions drawn become material only after the pieces are assembled. All the other answers describe violations of the Code and Standards, but are not the mosaic theory.

• Question 3513:

  Which of the following can be found in Standard V?

  A. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.

  B. Members shall deliver a copy of the Code to their employer.

  C. Members shall not misrepresent investment performance.

  D. Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.

  E. Members shall not knowingly participate or assist in any violation of laws, rules, or regulations.

  Correct Answer: C

  Standard V states that members shall not make any statements that misrepresent the investment performance that they or their firms have accomplished or can reasonably be expected to achieve.

• Question 3514:

  Carl Pagan lives in Meesopotamia, where insider trading is not considered a crime. His friend, Ann Dreen, lives in Gondwana, where an investment professional must report any knowledge of criminal activity to the appropriate authorities. The AIMR code of ethics bars insider trading but does not require one to report criminal activity to authorities. With regard to insider trading, Carl must follow ________ and with respect to reporting of criminal activity, Ann must follow ________.

  A. Meesapotamian law; AIMR code

  B. AIMR code; Gondwana law

  C. Meesapotamian law; Gondwana law

  D. AIMR code; AIMR code

  Correct Answer: B

  A member must always abide by the AIMR code, unless the local laws in any given case are stricter, in which case, the stricter standard applies. Standard I.

• Question 3515:

  Which of the following is/are true about insider trading laws?

  I. Corporations cannot discriminate amongst recipients without risking insider trading liability.

  II. Information provided to a group of analysts remains non-public till it is made available to investors in general.

  III.

  If a member receives inside information that he deems material, the member must disseminate the information to the public as soon as possible and not trade on it to avoid insider trading charges.

  A.

  I only.

  B.

  I and II.

  C.

  I, II and III.

  D.

  II and III.

  Correct Answer: B

  If a member receives inside information that he deems material, the member must: a. refrain from making decisions based on the information. b. encourage the firm to make the information publicly available. However, because the information is confidential, the member cannot unilaterally choose to broadcast it to the public. Indeed, he has an obligation not to personally disclose the information to an outsider.

• Question 3516:

  Serena Zaltz is a portfolio manager at Katalina Investments, a small boutique in Connecticut. She currently manages 3 client accounts, one of which belongs to John Hersham. John recently told Serena that if his portfolio beat the SandP500 by 75 basis points over the next 3 months, he would give 10 basis points to her as a "superior performance reward." Serena told him this was unnecessary but John insisted that such an arrangement be made on a handshake. Serena subsequently spoke to her supervisor, Helena, about it and Helena did not object to the arrangement. Then, Serena has:

  A. has violated Standard IV (A.3) - Independence and Objectivity.

  B. has violated Standard III (D) - Disclosure of Additional Compensation Arrangements.

  C. not violated any code of conduct.

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

  Correct Answer: B

  While Serena may have informed her employer orally about her additional compensation arrangement, Standard III (D) requires written notification to the employer and this includes any form of communication that can be documented. Such written disclosures act as paper trails of all such arrangements and act as a deterrent to such arrangements except in the more compelling cases.

• Question 3517:

  Standard IV (B.5) is known as ________.

  A. None of these answers

  B. Preservation of Confidentiality

  C. Fair Dealing

  D. Investment Process

  E. Duty to Employer

  F. Interactions with Clients and Prospects

  G. Prohibition against Use of Material Nonpublic Information

  H. Professional Misconduct

  Correct Answer: B

  Standard IV (A) deals with the Investment Process. Standard III (B) deals with Duty to Employer. Standard IV (B.3) deals with Fair Dealing. Standard IV (B) deals with Interactions with Clients and Prospects. Standard V (A) deals with Prohibition against Use of Material Nonpublic Information. Standard IV (B.5) deals with Preservation of Confidentiality. Standard II (B) deals with Professional Misconduct.

• Question 3518:

  The stated purposes of Standard IV (B) (8), Disclosure of Referral Fees, are to:

  I. Help the customer or client evaluate the full cost of the services.

  II. Help the customer or client evaluate any possible partiality.

  III.

  Help the customer or client evaluate potential conflicts of interest as a result of the participation of immediate family in transactions.

  A.

  I only.

  B.

  II only.

  C.

  III only.

  D.

  I and II only.

  E.

  II and III only.

  F.

  I and III only.

  G.

  I, II and III.

  Correct Answer: D

  This question relates to Standard IV (B.8), Disclosure of Referral Fees. Statements I and II give the two primary reasons listed in the Standards of Practice Handbook for disclosing referral fees to clients. The purpose given in Statement III is not a primary consideration.

• Question 3519:

  Real estate must be valued through an independent appraisal at least ________ unless client agreements state otherwise.

  A. once every five years

  B. once every year

  C. once every three years

  D. once every two years

  Correct Answer: C

  Real estate must be valued through an independent appraisal at least once every three years unless client agreements state otherwise. Real estate valuations must be reviewed at least quarterly. This is a requirement for calculation of returns.

• Question 3520:

  Which of the following can be found in Standard IV?

  A. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.

  B. Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.

  C. Members shall not knowingly participate or assist in any violation of laws, rules, or regulations.

  D. Members shall deliver a copy of the Code to their employer.

  E. Members shall not misrepresent investment performance.

  Correct Answer: B

  Standard IV states that members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.