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

• Question 3531:

  Standard II (B) deals with ________.

  A. None of these answers

  B. Plagiarism

  C. Use of Professional Designation

  D. Fundamental Responsibilities

  E. Professional Misconduct

  F. Obligation to Inform Employer of Code and Standards

  G. Duty to Employer

  H. Disclosure of Conflicts to Employer

  Correct Answer: E

  Standard I deals with Fundamental Responsibilities. Standard II (A) deals with Use of Professional Designation. Standard II (B) deals with Professional Misconduct. Standard II (C) deals with Plagiarism. Standard III (A) deals with the Obligation to Inform Employer of Codes and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer.

• Question 3532:

  Performance results for a portfolio need to be presented with cash, ________ equivalents, or substitute assets.

  A. composite

  B. multiple

  C. cash

  D. average

  Correct Answer: C

  Returns from cash and cash equivalents held in portfolios must be included in return calculations and the cash and cash equivalents must be included in the portfolio amount (total assets) on which the return is calculated.

• Question 3533:

  According to the AIMR-PPS, plan sponsors, consultants and software vendors

  A. are exempt from any of the Standards.

  B. are directly responsible for ensuring the companies they employ are in compliance with the Standards.

  C. are held accountable to the Standards in the same way as AIMR Members, Charterholders and Candidates.

  D. cannot make a claim of compliance unless these entities actually manage the assets for which they are making the claim of compliance.

  Correct Answer: D

  Plan sponsors, consultants and software vendors cannot make a claim of compliance unless these entities actually manage the assets for which they are making the claim of compliance. These groups can claim to endorse the Standards and/ or require that the investment management firms they employ, from which they solicit information, or to which they sell be in compliance with the Standards.

• Question 3534:

  Sunil Vaskar is an employee of Glamorgan, a reputable investment banking firm. Glamorgan is a major underwriter for an equity issued by a private firm, Raindrop Waterworks. Sunil has accidentally discovered that the preliminary prospectus issued by Raindrop contains material overstatements about the scope of its businesses and future earning potential. Sunil:

  A. must report his findings to his supervisor and consult his legal department.

  B. must sever all connections with Glamorgan and dissociate himself from its activities.

  C. need not do anything because the prospectus has been distributed and is, in any case, preliminary.

  D. must report the case to the SEC since there has been a violation of laws governing equity issues.

  Correct Answer: A

  Standard I requires that suspected violation of laws be reported to appropriate supervisory people in the firm. It is also advisable to consult the legal department and dissociate oneself from the illegal activity. Sunil has to dissociate himself from the underwriting process involving Raindrop but he does not have to sever connections with his employer, Glamorgan.

• Question 3535:

  Standard V (B) deals with

  A. independence and objectivity.

  B. performance presentation.

  C. preservation of confidentiality.

  D. insider information.

  E. fair dealing.

  F. research report.

  Correct Answer: B

  The purpose of Standard V (B) is to state the responsibility of AIMR members to avoid misrepresentation of the investment performance and encourages full disclosure of investment performance data to clients and client prospects.

• Question 3536:

  The ________ assumption must be disclosed if results are presented after taxes.

  A. tax rate

  B. trade

  C. composite

  D. selection

  E. settlement-date

  Correct Answer: A

  To be in compliance with the PPS, a firm's presentation of its investment performance must disclose the tax rate information.

• Question 3537:

  According to the AIMR-Performance Presentation Standards, ________ must be used when calculating investment performance.

  A. benchmark

  B. asset-weighted return

  C. aggregate return

  D. total return

  Correct Answer: D

  Total return, including realized and unrealized gains plus income, must be used when calculating investment performance. Portfolios must not be switched from one composite to another unlessdocumented changes in client guidelines make switching appropriate. This is a requirement for calculation of returns.

• Question 3538:

  Level I verification requires independent attestation that portfolio returns are calculated according to a(n) ________ weighted return methodology.

  A. size

  B. price

  C. time

  D. risk

  E. asset

  Correct Answer: C

  Portfolio returns must be calculated according to a time-weighted return methodology with a minimum of quarterly valuation and accrual of income for fixed-income securities.

• Question 3539:

  Martha Maris is a qualified investment advisor who has been handling investment accounts of a few

  wealthy friends for a fee. She recently interviewed with Capital Management, Inc. and accepted a position

  as a money manager with them.

  She:

  A. needs to inform only Capital Management about her old clients.

  B. must inform Capital Management as well as all her old clients in writing about the arrangement.

  C. does not have to inform her client friends about her employment with Capital Management.

  D. does not have to inform Capital Management about her old clients since they were not retained through Capital Management.

  Correct Answer: B

  This is required by Standard III (B) - Duty to Employer.

• Question 3540:

  Performance Presentation Standards require that income and capital appreciation be presented in addition to total return when dealing with ________.

  A. anti-linear appreciation

  B. real estate

  C. none of these answers

  D. long-term liabilities

  Correct Answer: B

  For real estate, PPS require that income and capital appreciation be presented in addition to total return.