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

• Question 3631:

  Silverio Arvantis is an aggressive and quick-silver analyst with Foresi Associates, an investment advisory firm. Silverio, a freshly minted Ph.D. from the University of Chicago, recently formulated an algorithm for selecting the portfolio weights in relatively new high-tech stocks. The algorithm evaluates 43 different variables to choose the investments and as such, is fairly complex in nature. Not wishing to drown his clients in esoteric terms like "martingale" and "stochastic transformation," Silverio writes up a short report which touches only briefly on the major characteristics of the model. Instead, he focuses on the performance of the model on past market data, which is absolutely sterling. Based on these tests, Silverio recommends 4 stocks for immediate purchase. Silverio has:

  A. violated Standard V (B) - Performance Presentation by relying on past data.

  B. not violated any standards.

  C. violated Standard IV (A.2) - Research Reports by failing to disclose sufficient details about the algorithm.

  D. violated Standard IV (A.2) - Research Reports by failing to distinguish opinion from fact.

  Correct Answer: C

  Standard IV (A.2) requires the member to disclose details of the reasoning and logic behind the recommendations so that investors can follow and challenge it and analyze the risks inherent in the recommended strategy. While Silverio does not have to delve into excessive technical details or reveal any proprietary formulas, the report must contain explanations for the recommendations. By omitting these, he has violated Standard IV (A.2). Note, however, that there is no evidence that he has confused opinion with fact.

• Question 3632:

  Standard IV (B.8) deals with ________.

  A. Prohibition against Use of Material Nonpublic Information

  B. Preservation of Confidentiality

  C. None of these answers

  D. Prohibition against Misrepresentation

  E. Disclosure of Referral Fees

  F. Disclosure of Conflicts to Clients and Prospects

  G. Priority of Transactions

  Correct Answer: E

  Standard IV (B.8) states that members shall disclose to all clients any referral fees received by the member for the recommendation of any services to the client or prospect.

• Question 3633:

  Which of the following statements is NOT correct?

  A. Members who work in a country where the Code and Standards impose a lesser degree of responsibility than local laws and regulations must still adhere to the Code and Standards.

  B. All of these statements are correct.

  C. Standards II through V address specific conduct.

  D. Standard I sets forth minimum standards relating to general activities.

  Correct Answer: A

  If a member lives in a country, or provides investment services to a client residing in a country, with more strict securities laws than the Codes and Standards, he/she must comply with the more strict laws and regulations of the country.

• Question 3634:

  Which of the following is NOT a form of plagiarism as defined by AIMR code of conduct?

  A. Copying proprietary software programs without permission.

  B. Using data from a well-known statistical service without attribution.

  C. Citing specific quotations to "leading analysts," without specific reference.

  D. Using publicized research reports prepared by others without attribution.

  Correct Answer: B

  Standard II(C) - Prohibition against Plagiarism considers a use of factual information published by recognized financial and statistical services without attribution acceptable. All of the others are forms of plagiarism and violations of Standard II (C).

• Question 3635:

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

  A. II (E)

  B. III (F)

  C. V (B)

  D. IV (E)

  E. III (A)

  Correct Answer: C

  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."

• Question 3636:

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

  A. AIMR

  B. Clients and Prospects

  C. None of these answers

  D. the Employer

  Correct Answer: D

  Standard III of the Standards of Professional Conduct deals with Relationships with and Responsibilities to the Employer.

• Question 3637:

  Regarding Standard III (A), which of the following is true?

  A. If the employer has publicly acknowledged, in writing, adoption of AIMR's Code and Standards as part of its firm policies, then the member need not give formal written notification.

  B. A member does not have to notify the supervisor, if the supervisor is a CFA charterholder.

  C. Notification must be given to the chief operating officer (or equivalent), orally or in writing.

  D. Notification must always be given, orally or in writing.

  E. None of these answers is true.

  Correct Answer: A

  "Members shall inform their employer, in writing, through their direct supervisor, that they are obligated to comply with the Codes and Standards and are subject to disciplinary sanctions for violations thereof." However, if the employer has publicly acknowledged, in writing, adoption of AIMR's Code and Standards as part of its firm policies, then the member need not give formal written notification. Subordinate employees cannot assume that their supervisors are aware of the obligations, even if the supervisors are AIMR members.

• Question 3638:

  According to the AIMR-PPS, composites must be asset weighted using

  A. end-of-period weightings.

  B. middle-of-period weightings.

  C. performance-period weightings.

  D. beginning-of-period weightings.

  Correct Answer: D

  Composites must be asset weighted using beginning-of-period weightings. This is a requirement for calculation of returns.

• Question 3639:

  Which of the following is not a required disclosure for real estate investments under the Performance Presentation Standards?

  A. amount of leverage used

  B. return formulas

  C. all of these answers

  D. accounting policies for capital expenditures

  Correct Answer: A

  The performance presentation for real estate must disclose the return formulas and accounting policies for such items as capital expenditures, tenant improvements and leasing commissions. There is no requirement or recommendation that the amount of leverage used be disclosed under the 1997 standards.

• Question 3640:

  Firms with records or performance calculations for periods prior to the effective dates for AIMR-PPS compliance can still claim compliance with the PPS using which of the following methods?

  I. Restate all of its performance numbers in accordance with the standards.

  II. Continue to use the non-conforming performance measures with specific disclosures about how the measures are not in compliance.

  III.

  Use the relaxed standards of AIMR designed specifically for this situation.

  A.

  I, II and III

  B.

  I only

  C.

  I and II only

  D.

  I and III only

  Correct Answer: A

  All three are acceptable ways in which firms with records or performance calculations for periods prior to the effective dates for AIMR-PPS compliance can continue to claim compliance with the PPS. This is known as "Retroactive Compliance."