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

• Question 3611:

  Anamese Barrytone is a broker with Caledonia Investments. Caledonia also provides investment recommendations through its weekly letter. In its last letter released 3 days ago, Caledonia changed its investment recommendation on Sell-Me- Now, Inc. from "hold" to "sell." Anamese has just received a call from Sloan who wants to place a market-buy order on 600 shares of Sell-Me-Now. Anamese should

  A. not execute the order since her firm has placed the stock on the sell list.

  B. inform her supervisor about the order and then decide if the order should be executed.

  C. execute the order as is without trying to change Sloan's mind by telling him about Caledonia's recommendation since she is required to be a neutral broker by SEC rules.

  D. inform Sloan about the change in Caledonia's recommendation before executing the order.

  Correct Answer: D

  According to the SEC rules, if a person places an order contrary to current firm recommendation, he or she should first be informed about the firm's position before accepting the order. Standard IV (B.3) - Fair Dealing.

• Question 3612:

  When formulating an investment policy for a client, all of the following fall under "investor constraints," except ________.

  A. expected cash flows

  B. type and nature of clients

  C. regulatory and legal circumstances

  D. investor preferences, circumstances and unique needs

  E. liquidity needs

  F. none of these answers

  G. proxy voting

  H. investable funds

  Correct Answer: B

  Type and nature of clients is considered under the "client identification" category.

• Question 3613:

  What is the name of the act enacted in 1940 that reflects a Congressional recognition of the "delicate" fiduciary nature of an investment advisory relationship and the intent to eliminate, or at least to expose all conflicts of interest?

  A. The Investment Company Act

  B. The Congressional Investor's Protection Act

  C. The U.S. Investment Advisers Act

  D. The U.S. Fiduciary-Investor Act

  Correct Answer: C

  The U.S. Investment Advisers Act of 1940 (Advisers Act) states "that advisors cannot employ any device or scheme to defraud any client or prospective client; engage in any transaction or course of business that may operate as a fraud or deceit upon any client or prospective client; engage in transactions as a principle or as an agent in a client's account without first disclosing the transaction to the client and receiving the client's consent; or engage in any act or course of business that is fraudulent, deceptive, or manipulative."

• Question 3614:

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

  A. multiple

  B. composite

  C. average

  D. cash

  Correct Answer: D

  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 3615:

  Jamison is a junior research analyst with Howard and Howard, a brokerage and investment banking firm. Howard and Howard's mergers and acquisitions department has represented the Britland Company in all of its acquisitions for the past 20 years. Two of Howard and Howard's senior officers are directors of various Britland subsidiaries. Jamison has been asked to write a research report on Britland. What is the best course of action for her to follow?

  A. Jamison should not write the report because the two Howard officers are constructive insiders.

  B. Jamison may write the report but must refrain from expressing any opinions because of the special relationships between the two companies.

  C. Jamison may write the report if she discloses the special relationships with the company in the report.

  D. Jamison may write the report so long as the officers agree not to alter it.

  Correct Answer: C

  The question involves Standard IV (B.7), Disclosure of Conflicts to Clients and Prospects. There are two conflicts of interest that must be disclosed: (1) the company is a client of Jamison's employer, (2) two directors of the company are senior officers of her employer. As long as the relationship the analyst's employer has with the company is disclosed, the analyst is not prevented from writing a report. She can or not express opinions, which is irrelevant to her duty to disclose a conflict of interest, which is the relationship between the two companies.

• Question 3616:

  The Performance Presentation Standards ________ require retroactive compliance.

  A. never

  B. always C. sometimes

  Correct Answer: C

  Retroactive compliance is not required, but it is allowed for firms with performance calculations for periods prior to the applicable dates that are not in conformance with the AIMR-PPS. In this case, the firm can restate its historical performance in accordance with the Relaxed Retroactive Standards.

• Question 3617:

  Which of the following AIMR Standards maintains that the financial analyst must preserve the confidentiality of information communicated to him by the client?

  A. IV (A)

  B. None of these answers

  C. II (B)

  D. III (C)

  Correct Answer: B

  Standard IV (B.5) - Preservation of Confidentiality states: "Members shall preserve the confidentiality of information communicated by clients, prospects, or employers concerning matters within the scope of the client-member, prospect- member, or employer-member relationship unless the member receives information concerning illegal activities on the part of the client, prospect, or employer."

• Question 3618:

  3 months ago, Fred Hoyle received the AIMR letter, informing him that he had passed Level II exam. He has now registered for Level III exam. Fred can do which of the following?

  I. Put "CFA-II" on his business card, as long as it is in a smaller font than his name.

  II. Mention on his resume that he has passed Level II exam of the CFA program.

  III. Mention that he is a Level III candidate in the CFA program.

  IV.

  Inform his clients of his professional progress and assure them of his quality as an analyst.

  A.

  I, II and III only

  B.

  II and IV only

  C.

  I, II and IV only

  D.

  II and III only

  Correct Answer: D

  Standard II (A).

• Question 3619:

  Young, a portfolio manager with Northside Bank, has just been given investment authority for a newly acquired pension account. Client objectives have not yet been established. On the day the account is received, $2 million in bonds, representing 4 percent of the portfolio, mature. Which of the following is Young's best course of action on that day?

  A. Invest the proceeds in cash equivalents until a meeting can be arranged to establish fund objectives.

  B. Contact the client's former investment advisor and take investment action based on previously used guidelines.

  C. Invest the proceeds in accordance with the bank's current asset allocation strategy.

  D. Make no decision until client objectives have been established.

  Correct Answer: A

  This question relates to Standard IV (B.2), Portfolio Investment Recommendations and Actions. This standard requires that members make a reasonable inquiry into a client's financial situation, investment experience and investment objectives prior to making any investment recommendation. To rely on outdated investment guidelines, or firmwide strategies, or to hold the funds, would be inappropriate because it might violate a member's duty to safeguard client's interests. The best course of action is to invest in cash equivalents until a meeting can be arranged to establish fund objectives, because it adequately protects the client's interest until investment objectives are established.

• Question 3620:

  Misrepresentation of performance is prohibited by section ________ of the Standards of Professional Conduct.

  A. III (A)

  B. II (E)

  C. III (F)

  D. IV (E)

  E. V (B)

  Correct Answer: E

  Standard V (B) states "Members shall not make any statements, orally or in writing, that misrepresent the investment performance that they or their firm have accomplished or can reasonably be expected to achieve."