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【单选】
Ron James, CFA, computed the correlation coefficient for historical oil prices and the occurrence of a leap year and has identified a statistically significant relationship. Specifically, the price of oil declined every fourth calendar year, all other factors held constant. James has most likely identified which of the following conditions in correlation analysis?
A. Spurious correlation.
B. Positive correlation.
C. Outliers.
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【单选】
Rafael Garza, CFA, is considering the purchase of ABC stock for a client’s portfolio. His analysis includes calculating the covariance between the returns of ABC stock and the equity market index. Which of the following statements regarding Garza’s analysis is most accurate?
A. The covariance measures the strength of the linear relationship between two variables.
B. The actual value of the covariance is not very meaningful because the measurement is very sensitive to the scale of the two variables.
C. A covariance of +1 indicates a perfect positive covariance between the two variables.
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【单选】
In the scatter plot below, the correlation between the return on stock A and the market index is:
A. negative.
B. positive.
C. not discernable using the scatter plot.
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【单选】
Robert Jones, CFA, is the trustee for The Homestead Foundation, a charitable organization whose mission is to provide funding to construct affordable housing in economically disadvantaged neighborhoods across the U.S. In accordance with the new Prudent Investor Rule, a key factor that Jones should consider when making investment decisions for the portfolio is:
A. to eliminate the Foundation’s assets’ exposure to investment risk through appropriate investment decisions.
B. avoiding strategies that interfere with legal list statutes, or fail to preserve the purchasing power of Foundation assets.
C. the Foundation’s irregular needs for liquidity when undertaking construction projects.
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【单选】
Joan Ball, CFA, is trustee for the portfolios of several high net worth individuals. She is considering the purchase of equity shares in ARGO Corp., a company that is currently facing allegations of financial mismanagement. Ball believes that the scandal will be forgiven by the market and that shares in ARGO will perform well in the long term. Which of the following statements is in accordance with the new Prudent Investor Rule?
A. Ball should evaluate any potential investment with regard to how it will contribute to the risk and return of the overall portfolio.
B. Ball should not consider the addition of any investment that would add incremental risk to the portfolio.
C. Ball should not recommend an investment whose performance could be negatively impacted by fraud or negligence on the part of management.
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【单选】
Lorenzo Edwards, CFA, is a member of the board of trustees for the Waldrop Enterprise pension fund. He was instrumental in the hiring of Dora Ray, CFA, as lead manager of the fund 5 years ago. During her tenure, Ray's long-term performance has been solid. The record shows that the fund has outperformed the relevant composite benchmark by 62 basis points, on average, during the period. Last quarter, she purchased shares of Baseco which proceed to fall sharply in value and brought down the overall performance of the fund. The board is now asking Edwards what has gone wrong. Which of the following is most correct with regard to the situation at Waldrop pension fund?
A. Edwards should tell the board that under the Prudent Man Rule, the investment risk for Baseco must be evaluated in a portfolio context, and not on a standalone basis.
B. Edwards should tell the board that even though the Baseco investment did not perform as expected, there is no evidence that the Prudent Investor Rule has been violated.
C. As a CFA Charterholder, Edwards’ delegation of investment authority to Rey is in violation of the Code and Standards.
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【单选】
Mary Rutherford, CFA, is considering the purchase of Greenbelt Paper's stock in an upcoming initial public offering (IPO) for a portfolio that she serves as trustee. She has performed the necessary research and believes that the stock satisfies the fund's risk/reward requirements. Under the Prudent Man Rule, Rutherford would:
A. be allowed to buy the IPO as well as any options on the stock.
B. be allowed to buy the IPO.
C. not be allowed to buy the IPO, because the transaction is considered too risky.
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【单选】
Mary Rutherford, CFA, is considering the purchase of Greenbelt Paper's stock in an upcoming initial public offering (IPO) for a portfolio that she serves as trustee. She has performed the necessary research, and believes that the stock satisfies the fund's risk/reward requirements. Under the Prudent Investor Rule, Rutherford would:
A. not be allowed to buy the IPO because the transaction is considered too risky.
B. not be allowed to buy the IPO but could instead purchase a large position in the secondary market.
C. be allowed to buy the IPO.
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【单选】
Xavier Newsome, CFA, serves as trustee for the Block Corporation's trust. Newsome is 31 years old. The trust requires a certain amount of current income to support Mr. Block's widow. After her death, the trust proceeds will go to the Block grandchildren. Newsome is a member of a running club as are several of the Block grandchildren. As part of his duties as trustee, Newsome makes portfolio decisions that favor growth of the principal and puts the current income at risk. Has he violated any fiduciary standards?
A. No, because he acted impartially.
B. Yes, because he did not use caution.
C. Yes, because he did not act impartially.
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【单选】
Miles Turner, a CFA candidate, oversees a union pension fund. He got this job because of family connections as he is just learning the investment management business. Subsequently, he realizes that he is not ready to make the necessary decisions about the fund. He hires several portfolio managers. Under the Prudent Investor Rule, Turner is:
A. in compliance. Delegation of authority is allowed.
B. not in compliance because he did not put in writing that funds were managed in-house prior to the hiring of outside managers.
C. not in compliance. Delegation of authority is not allowed.
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【单选】
Erica Barnes, CFA, is a trustee for a pension fund. Which of the following is an example of Barnes' failure to follow general fiduciary standards set forth in the new Prudent Investor Rule? She recommends the fund should:
A. hire an outside manager when they lack the in-house expertise to manage a small cap portfolio.
B. hire her relative to manage a new high yield portfolio.
C. consider the need for future growth while maintaining current income obligations.
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【单选】
Wanda Brunner, CFA, is preparing for her first meeting with the Johnsons—her firm’s newest clients. She makes notes regarding disclosure of the investment process. These notes most likely include reminders to:
A. notify her supervisors of any potential change in the security selection and portfolio construction process.
B. adequately disclose the basic security selection and portfolio construction process.
C. anticipate changes in her clients’ investment objectives that could cause them to leave her firm.
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【单选】
Wanda Brunner, CFA, is reviewing a draft fund prospectus for her new “Leveraged Long Coffee” (LLC), a closed-end fund. LLC uses a of combination fundamental and technical trading models to evaluate individual securities. She notes the LLC prospectus has several disclosures which cause her to worry that prospective clients will avoid her fund.
Disclosure 1: “LLC charges a flat 3.00% of assets under management.”
Disclosure 2: “LLC may invest up to 40% of the fund’s assets in securities which are not related to coffee or other consumer products.”
Disclosure 3: “LLC relies only on fundamental valuation of individual securities.”
Which of the following standards will most likely be violated by distribution of the prospectus?
A. Standard III(C) Duties to Clients: Suitability because it misleads the reader as to the process by which securities are selected.
B. Standard III(C) Duties to Clients: Suitability because the fees are exorbitant.
C. Standard III(C) Duties to Clients: Suitability because the fund can hold an excessive portion of the portfolio in non-core assets.
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【单选】
Rey Sanchez, CFA, covers the specialty chemical industry for Rock Advisory Associates. Until today he has had a buy recommendation on ChemStar, and many of the firm’s customers have purchased shares based upon his recommendation. The firm’s client accounts are divided into two fundamental categories: trading and buy-and-hold accounts. The firm holds discretionary trading authority over the trading accounts, but not the buy-and-hold accounts. Sanchez has recently come to believe that the fundamentals are changing for the worse at ChemStar, and is preparing a sell recommendation. He calls a meeting of the firm’s portfolio managers with accounts holding ChemStar and tells them of the pending release of the sell recommendation. On this basis, the portfolio managers sell all positions in the discretionary accounts but not in the buy-and-hold accounts. Sanchez completes and mails the report to all clients two days later, and, shortly thereafter, many of the buy-and-hold accounts sell their ChemStar positions. With regard to these actions, Sanchez is:
A. not in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.
B. in violation of the Standard on Fair Dealing; the portfolio managers are not in violation of the Standard on Fair Dealing.
C. in violation of the Standard on Fair Dealing; the portfolio managers are in violation of the Standard on Fair Dealing.
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【单选】
Patricia Spraetz is the chief financial officer and compliance officer at Super Selection Investment Advisors. Super Selection is a medium-sized money management firm which has incorporated the CFA Institute Code of Ethics and Standards of Practice into the firm's compliance manual.
Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is friendly with David James, president of AMD, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson has also served on AMD's board of directors but has never notified Super Selection of this fact. She has received options and fees as compensation.
Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase AMD for her clients' portfolios.
Which of the following statements is NOT correct?
A. Jackson violated Standard IV(B) regarding Disclosure of Additional Compensation by not disclosing additional compensation in the form of cash and stock options received from AMD, as its board member to her employer.
B. Jackson did not violate Standard III(A) on Fiduciary Duty to clients because she was bound by her fiduciary duty to AMD and its stockholders as a board member. Therefore, when she reversed her decision to buy AMD shares for Super Selection's clients, portfolios on James' request, her obligation to AMD took precedence.
C. Jackson violated Standard VI(A) regarding Conflicts of interest by not disclosing her board membership and ownership of stock options to her employer.
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【单选】
Patricia Spraetz is the chief financial officer and compliance officer at Super Selection Investment Advisors. Super Selection is a medium-sized money management firm which has incorporated the CFA Institute Code of Ethics and Standards of Practice into the firm's compliance manual.
Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is friendly with David James, president of AMD, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson has also served on AMD's board of directors. She has received options and fees as compensation.
Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase AMD for her clients' portfolios.
Which of the following actions are most appropriate for Spraetz?
A. Spraetz, as the chief compliance officer, must set company policy in clear terms and monitor the actions of the employees. In case of violations, she should investigate thoroughly, initiate disciplinary action, and issue guidelines that must be followed in order to prevent future violations. She must not only detect violations through a continuous monitoring process but also provide guidance for proper conduct consistent with the firm's policy manual.
B. If, after her investigation Spraetz finds that Jackson has committed violations, Spraetz must report them to senior management and seek legal counsel for possible legal and regulatory implications. If the upper management does not follow through and take action, Spraetz has fulfilled her supervisory duties and need not take any further action.
C. Even though Spraetz does not supervise Jackson, as the compliance officer of the firm she is responsible for identifying violations. Spraetz is not responsible for preventing them and should not go beyond their documentation for senior management. Thus, she should record the violations but need not take any further action.
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【单选】
Patricia Spraetz is the chief financial officer and compliance officer at Super Selection Investment Advisors. Super Selection is a medium-sized money management firm which has incorporated the CFA Institute Code of Ethics and Standards of Practice into the firm's compliance manual.
Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is friendly with David James, president of AMD, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson has also served on AMD's board of directors. She has received options and fees as compensation.
Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase AMD for her clients' portfolios.
Which of the following statements concerning Super Selection is CORRECT?
A. Jackson did not violate the CFA Institute Code of Ethics and Standards since she is not a CFA charterholder.
B. Spraetz, in her capacity as a supervisor, violated Standard IV(C) by not preventing violations by Jackson.
C. All employees of a firm are bound by CFA Institute's Code and Standards if they are incorporated in the company's policies manual, and the firm subscribes to them explicitly.
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【单选】
Preston Partners Case Study (Refer to CFA Institute Standards of Practice Casebook for details).
Preston partners is a medium-sized investment management firm which adopted the Code and Standards as part of its policy manual. Gerald Smithson, CFA, a portfolio manager, had recently added the stock of Utah Biochemical Company and Norgood PLC to all his clients' investment portfolios. Smithson had a personal relationship with the president of Utah Biochemical. Shortly afterwards Utah Biochemicals and Norgood announced a merger which increased the share prices of both companies.
Smithson contends that he saw the president of Utah Biochemical dining with the chairman of Norgood but did not overhear their conversation. Smithson researched both companies extensively and determined that each company was a good investment. He also pondered whether there would be a merger as they seemed to complement each other. He put in block trades for shares of each company which were executed over a period of two weeks at various prices. Preston's policies were not clear in this area so he allocated the shares by starting with his largest client and working down to small accounts. Some of Smithson's clients were very conservative personal trust accounts; others were pension funds which had aggressive investment objectives.
Which of the following statements is CORRECT?
A. Utah Biochemical was an appropriate investment for Preston's personal trust accounts.
B. Smithson failed to comply with Standard III(C) regarding suitability of investments for clients portfolios.
C. Smithson acted on inside information because he had observed senior executives of Norgood and Utah Biochemical having lunch together, in violation of Standard II(A).
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【单选】Glenarm Case Study (Refer to CFA Institute's Standards of Practice Casebook for details.)
Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm.
After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm's business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he joined the company. He also identified materials from Pearl to take with him, such as:
sample marketing presentations he had prepared
computer program models for stock selection
research materials on companies he had been following
a list of companies recommended by Sherman for potential investment, but which were rejected by Pearl
news articles for potential research ideas
Under the obligation to act in the best interest of the employer while still an employee, Sherman's actions constitute the following violations except:
A. solicitation of potential clients of Pearl--violation of Standard IV(A).
B. leaving Pearl to join a possible competitor--violation of Standard IV(A), Loyalty to Employer.
C. solicitation of clients while still employed by Pearl--violation of Standard IV(A).
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【单选】
Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.)
Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm.
After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm's business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he joined the company. He also identified materials from Pearl to take with him, such as:
sample marketing presentations he had prepared
computer program models for stock selection
research materials on companies he had been following
a list of companies recommended by Sherman for potential investment, but which were rejected by Pearl
news articles for potential research ideas
Upon Sherman's joining Glenarm, which of the following acts did NOT violate the standards?
A. He misappropriated news articles from his old employer.
B. He did not give Glenarm a written statement disclosing his independent consulting practice and details of activities that resulted in compensation since they had already been approved by Pearl-his previous employer.
C. He allowed Glenarm to advertise the fact that they had hired a portfolio manager who was a CFA charterholder.
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【单选】
Kevin Bryan is a financial analyst for Summit Investments. Bryan recently completed a research report recommending the stock of Independence Medical Company. Bryan failed to disclose that he has a material ownership interest in Independence Medical through a family trust.
Kim Scott, a CFA Charterholder with Overland Associates, is invited to attend an investment management conference in the Cayman Islands. The sponsor, one of Scott’s clients, has offered to reimburse Scott for all of her expenses. Scott accepts the sponsor’s offer and discloses the arrangement to her employer in writing.
Based on the CFA Institute Research Objectivity Standards, which of the following statements is CORRECT?
A. Both Summit and Overland are in violation of the Research Objectivity Standards.
B. Summit is in violation of the Research Objectivity Standards but Overland is not in violation.
C. Neither Summit nor Overland is in violation of the Research Objectivity Standards.
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【单选】
Alexis Capital is a full service investment banking and advisory firm. Jason Beech, head of Alexis’ investment banking division, has just received a report from Alexis’ research division on a national supply-chain management firm which has used Alexis as the underwriter in several public debt offerings. While reading through the report Beech realizes that the sales projections for the firm have been substantially overestimated in the short-term forecast. Beech calls the author of the report, Steve Henderson, a sell-side equity analyst, to inform him of the error. Henderson confirms that there was a slight error in the forecasting model and agrees to change the sales forecast before publishing the report the following day. Do Alexis Capital’s policies violate any CFA Institute Research Objectivity Standards?
A. Yes.
B. No, since the firm is able to objectively ensure the accuracy of investment research.
C. No, since the firm provides multiple layers of review before making research publicly available.
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【单选】
Perry Smith is a research analyst for Hugley Financial Corp. For the past several weeks, Smith has diligently researched the economic condition of BNS Inc., an international pharmaceuticals manufacturer. Smith has determined that the BNS’ secondary common stock offering is a strong buy and has disseminated this opinion to Hugley’s research subscribers. One month after issuing the recommendation, the price of BNS’ stock had risen by over 13 percent. The director of Hugley’s investment banking division, which underwrote BNS’ secondary offering, called to thank Smith for his participation in the offering and to notify him he will receive a stock option bonus next week as a result of the outstanding performance of BNS’ stock. Has Hugley Financial Corp. violated any CFA Institute Research Objectivity Standards?
A. No.
B. Yes, since the analyst’s bonus was inappropriately structured as stock options.
C. Yes, since the performance of the secondary offering led to a bonus for the analyst.
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【单选】
Greg Hibbert, CFA, is working with his firm’s compliance department to implement policies and procedures that comply with the requirements of the CFA Institute Research Objectivity Standards (ROS). Hibbert has informed the compliance officer that in order to meet the ROS requirements, the firm must require a written annual update of personal investments held by covered investment personnel or their families, and must provide a list of activities that violate the firm’s policies and the accompanying disciplinary actions to all of the firm’s clients and prospects. Are Hibbert’s statements regarding personal investments and the disclosure of violating activities CORRECT?
Personal Investments
Violating Activities
A.
|
Yes |
No |
B. |
No |
No |
C. |
Yes |
Yes |
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【单选】
All of the following procedures are recommended to comply with CFA Institute Research Objectivity Standards, EXCEPT:
A. restrict employee trades 30 calendar days before and 5 calendar days after the release of a research report.
B. update research recommendations annually.
C. prohibit communication between the research employees and investment banking employees before the publication of a research report.
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【单选】
In a meeting with her firm’s research director, Janice Mitchell, a proponent of the CFA Institute Research Objectivity Standards (ROS), stated that two of the key objectives of the ROS were to:
Assist in meaningful, fair, specific, and complete disclosure of both possible and real conflicts of interest.
Create voluntary reporting of research practices that promote independent and objective research to CFA Institute on an annual basis.
Determine whether Mitchell is correct or incorrect with regard to her statements about the objectives of the ROS.
Objective 1
Objective 2
A.
|
Correct |
Correct |
B. |
Incorrect |
Correct |
C. |
Correct |
Incorrect |
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【单选】
Bill Williams, CFA, has been tasked by his firm, Null Investments, to ensure that the firm’s policies and procedures allow its research department to maintain its independence and objectivity. One of the objectives Williams has outlined for Null’s policies and procedures is that they should promote the establishment of a non-governmental regulatory body. This body will be responsible for creating standards that assure that research firms produce independent and objective research. Is this objective for Null’s policies and procedures consistent with the objectives of the CFA Institute Research Objectivity Standards (ROS)?
A. No, the ROS support the establishment of laws to assure independent and objective research but do not support a regulatory body.
B. Yes.
C. No, the ROS are intended to promote self-regulation to assure independent and objective research.
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【单选】
When designing policies and procedures to implement the CFA Institute Research Objectivity Standards, all of the following are objectives, EXCEPT:
A. put the client’s interest before the firm’s interest, minimize possible conflicts that may adversely affect the independence and objectivity of research, and support self-regulation.
B. fully disclose conflicts of interest, put the client’s interest before the firm’s interest, and reference CFA Institute membership in a dignified and judicious manner.
C. provide a work environment conducive to ethical behavior, fully disclose conflicts of interest, and put the client’s interest before the employees’ interest.
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【单选】
David Sanders is the Chief Investment Officer at a money management company that claims it is in compliance with CFA Institute Soft Dollar Standards. Last year he purchased a Bloomberg system for the portfolio managers to get information concerning investment decisions. He used soft dollars from brokers to pay for the system. Because the system has come up for renewal, he has an assistant audit the use of the terminal for a week. The assistant reports that the system is only used about 20 percent of the time for investment decision-making activities and 80 percent for other uses. Sanders:
A. can use soft dollars to pay for 20 percent of the system for the next year and must reimburse clients for 80 percent of the cost of last year's system.
B. can use soft dollars to pay for 20 percent of the system for the next year and need not take any action concerning last year's soft dollars.
C. cannot use soft dollars to pay for any part of the system for the next year, but need not take any action concerning last year's soft dollars.
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【单选】
A brokerage firm has just purchased a new computer system that will facilitate trades for its customers and supply research to the brokers directly aiding in their investment recommendations. Which of the following statements regarding the application of the CFA Institute Soft Dollar Standards is CORRECT?
A. The full cost of the computer system can be paid for with Client Brokerage.
B. Only the software applications and not the hardware can be paid for with Client Brokerage.
C. Only the portion of the costs that will be attributed to research can be paid for with Client Brokerage.
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