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【单选】
If a CFA Institute member knows that a fellow employee has violated a law, according to Standard I(A) the member is NOT required to do which of the following?
A. Report the employee violating the law to the appropriate governmental authority.
B. Seek legal advice.
C. Report the employee violating the law to the appropriate supervisor in the firm.
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【单选】
A CFA Institute member conscientiously maintains records of changes in security regulations. The member notices that his colleagues do not, and does NOT say anything. Is this a violation of Standard I(A)?
A. Yes, and the member should disassociate from these colleagues.
B. Yes, because the member is bound by the Code of Ethics.
C. No, as long as the colleagues do not violate the new rules.
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【单选】
WEB, an investment-banking firm, is the principal underwriter for MTEX's upcoming debenture issue. Wendy Berry, CFA, an analyst with WEB, has found out from an employee in MTEX's programming department that a serious glitch was recently discovered in the software program of their major new product line. In fact, the glitch is so bad that most of their orders have been canceled. Berry checked the debenture's prospectus and found no mention of this development. The red herring prospectus has already been distributed. Berry's best course of action is to:
A. notify potential investors of the omission on a fair and equitable basis.
B. inform her immediate supervisor at WEB of her discovery.
C. keep quiet since this is material non-public inside information.
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【单选】
Sometimes a CFA Institute member simply feels a law has been violated by his firm, and sometimes the member knows a law has been violated. Which of the following pairs of guidelines is CORRECT with respect to the first step a member should take in each case? The member should first contact:
A. the firm's counsel if he feels a law has been violated and the SEC if he knows a law has been violated.
B. the firm's counsel if he feels a law has been violated and contact his supervisor if he knows a law has been violated.
C. his supervisor in the firm if he feels a law has been violated and contact the firm's counsel if he knows a law has been violated.
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【单选】
Michael Bellow, CFA, CAIA, is an investment banker who is involved with an initial public offering (IPO) of NewCo. Because this is Bellow’s first involvement in an IPO, he reports to an experienced supervisor. While reviewing past financial statements provided by NewCo, Bellow suspects that NewCo deliberately overstated its earnings for the past several quarters. Bellow seeks the advice of his firm’s highly competent general counsel and follows the advice given without deviation. Based on the general counsel’s advice, Bellow consults his immediate supervisor about the suspected overstatement of earnings. After reviewing the situation, Bellow’s supervisor explains why NewCo’s calculations of its earnings are correct. Bellow realizes that his inexperience and exuberance initially led him to an incorrect conclusion about NewCo’s earnings.
Which of the following statements about Bellow’s actions involving Standard I(A), Knowledge of the law, and Standard I(C), Misrepresentation, is CORRECT? Bellow:
A. violated both Standard I(A) and Standard I(C).
B. did not violate either Standard I(A) or Standard I(C).
C. violated Standard I(A) but did not violate Standard I(C).
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【单选】
Allen Parsons, a CFA candidate, suspects a colleague at his firm of engaging in an illegal activity. Which of the following statements about procedures for compliance involving Standard I(A), Knowledge of the law is NOT correct? Parsons:
A. should urge his firm to attempt to persuade the perpetrator to cease such conduct.
B. is required to report this legal violation to the appropriate governmental or regulatory organizations.
C. should consult counsel to determine whether the conduct is, in fact, illegal.
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【单选】
A CFA Institute member is also a member and the portfolio manager of an environmentalist group. In its charter, the environmentalist group lists a group of companies its members should boycott. The CFA Institute member would violate Standard I(A) concerning obeying all rules and regulations if the member:
A. performs either of the activities listed here.
B. actively protests against a publicly traded firm boycotted by the group.
C. purchases stock of a boycotted firm for the group's portfolio.
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【单选】
CFA Institute believes:
A. that a maximum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.
B. that firms should comply with all domestic laws and regulations and that these laws also govern behavior in foreign markets, regardless of foreign laws and requirements.
C. that a minimum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.
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【单选】
A CFA Institute member works for Secure Securities, Inc., and plays rugby on the firm’s rugby team. Secure Securities’ team recently played the team of a rival firm. During the game, a fight broke out and the CFA Institute member was the instigator, but no one was seriously hurt. Is this a violation of I(A) concerning maintaining knowledge and complying with laws, rules, and regulations?
A. No, because a fight at a rugby game is not a professional activity.
B. Yes, because the member is bound by the Code of Ethics.
C. Yes, because the member could have hurt someone in the fight.
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【单选】
Which of the following statements about the CFA Institute Code and Standards is most accurate? The Code and Standards:
A. require members to persuade the perpetrator to cease illegal activities.
B. do not require that members report legal violations to the appropriate governmental or regulatory organization.
C. prohibit members from accepting gifts that create a conflict with their employer's interest.
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【单选】
Jane Dawson, CFA, an analyst at a New York brokerage firm, suspects that Bob Boatman, CFA, another analyst at the same firm, has violated a state securities law. According to the CFA Institute Standards of Professional Conduct, Dawson is:
A. required to report the suspected violation to CFA Institute.
B. required to report the suspected violation to the appropriate state regulatory agency.
C. NOT required to report the violation to the appropriate governmental or regulatory organizations.
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【单选】
Deloris Johnson, CFA, suspected that her intern, who was working without pay at her brokerage firm, had violated a federal securities regulation. Johnson discussed the matter with her company's legal counsel who said that the intern's conduct was illegal. According to the CFA Institute Code and Standards of Professional Conduct, Johnson can dissociate herself from this illegal activity by:
A. transferring supervision of the intern to another person.
B. telling her intern to stop such conduct.
C. reporting the activity to the appropriate authorities.
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【单选】
Georgia Jones, CFA, is an analyst for Johnson, Thomas & Co. She also serves as an outside director for Dewey Manufacturing, Inc. In the course of her duties, she begins to believe that Dewey’s income statement for the most recent period may have been misstated. Georgia should do all of the following EXCEPT:
A. consult with Dewey Manufacturing's legal counsel.
B. inform the Securities and Exchange Commission.
C. consult with Johnson, Thomas' legal counsel.
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【单选】
Lawrence Kelly is the Chief Investment Officer at a money management company that claims it is in compliance with CFA Institute Soft Dollar Standards. For the first time, the company has purchased securities in the country of Santa Rosa. He learns that under Santa Rosen law, one of the company's soft dollar policies is forbidden, yet to conform with the law, Lawrence would have to violate the Soft Dollar Standards, but not the Standards of Professional Conduct. Lawrence:
A. should follow the Santa Rosen Law and can still claim compliance with CFA Institute Soft Dollar Standards.
B. must follow the Santa Rosen Law and cease claiming compliance with CFA Institute Soft Dollar Standards.
C. must follow the CFA Institute Soft Dollar Standards, informing the Santa Rosen regulators of his reasons.
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【单选】
Mary White, CFA, sits on the board of directors of XYZ Manufacturing, Inc. She discovers that management has knowingly participated in an activity she knows is illegal. According to the CFA Institute Standards of Professional Conduct, White is required to:
A. disassociate herself from the activity.
B. seek legal advice to determine what actions should be taken.
C. both of these choices are correct.
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【单选】
Bob Blanford, CFA, is an investment analyst for a large global brokerage firm. He recently moved to Ragatan, a developing country with few securities laws and regulations. As part of conducting a company analysis, Blanford interviews Ravi Shanti, vice-president of finance at Starr Industries. Starr is a major industrial firm in Ragatan and a client at Blanford’s firm. Based on his analysis, Blanford suspects that Shanti may have deliberately overstated Starr’s current earnings and its earnings for the past several quarters. If this information becomes public, Blanford believes that Starr’s stock price will drop substantially. Blanford suspects that Shanti may have violated Ragatan’s securities laws. Which of the following statements is least likely to comply with Standard I, Professionalism? Blanford should:
A. take no action.
B. determine the legality of the activity, possibly by consulting counsel.
C. disassociate himself from the client, if the activity is illegal or unethical.
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【单选】
The CFA Institute Standards of Practice Handbook requires CFA Institute members to do all the following EXCEPT:
A. receive written permission from both their employer and outside clients to engage in investment consulting outside the firm.
B. to disclose in writing to the proper regulatory authority all observed violations of the securities laws and regulations.
C. to inform employer, clients, and potential clients of benefits received for recommending products or services.
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【单选】
A government committee has concluded that investment company fees should be disclosed to clients each quarter and has proposed new legislation to require this. Currently, the legal requirement is to report such data annually. In compliance with current legal requirements, Dolphin Investments discloses its fees annually. Eugene Shin, CFA, Dolphin's compliance officer, learns of the proposed changes but does not convert Dolphin's reporting to a quarterly basis. Shin's decision not to act:
A. constitutes professional misconduct as defined in the Code and Standards.
B. is a violation of his duty to employer as defined in the Code and Standards.
C. is not a violation of the Code and Standards.
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【单选】
For an employee with the CFA designation who works for a firm, which of the following is NOT necessary to meet the requirements of the Code and Standards?
A. Deliver a copy of the Code and Standards to their employer.
B. It is recommended that their employer is aware of the Code and Standards.
C. Recommend notifying their employer of their responsibility to follow the Code and Standards.
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【单选】
Janet Green, CFA, provides investment advice and other services to clients in several countries. She resides in Country A whose securities laws and regulations are less strict than the Code and Standards. She also conducts business with clients in Country B, which has no securities laws or regulations, and in Country C, which has securities laws and regulations that are stricter than the Code and Standards. Which of the following statements is CORRECT? According to CFA Institute Standards of Professional Conduct, Green must adhere to the Code and Standards in:
A. Country A, Country B, and Country C.
B. Country A but the law in Country B and Country C.
C. Country A and Country B but the law in Country C.
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【单选】
Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250.
Valdes is obligated to:
A. disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation.
B. disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation.
C. disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity.
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【单选】
If an analyst suspects a client or a colleague of planning or engaging in ongoing illegal activities, which of the statements about the actions that the analyst should take is most correct? According to the CFA Institute Standards of Professional Conduct, the analyst should:
A. consult counsel to determine the legality of the activity and disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.
B. disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.
C. consult counsel to determine the legality of the activity.
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【单选】
Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really effected in order to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is:
A. an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as a CFA Institute member.
B. a suitable reaction, and he is in compliance with the Code and Standards.
C. a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act.
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【单选】
Robe Advisory Services operates an office in San Francisco, where it manages portfolios for its clients based in the United States. The firm also maintains an office in Tokyo, where it employs Sam Lee, CFA who researches Japanese stocks. According to the CFA Institute Standards of Professional Conduct, Lee is required to maintain knowledge of and comply with all applicable laws, rules, and regulations in:
A. both the U.S. and Japan and the CFA Institute Standards of Professional Conduct.
B. both the U.S. and Japan, but not the CFA Institute Standards of Professional Conduct.
C. Japan, but not the U.S., and the CFA Institute Standards of Professional Conduct.
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【单选】
The SEC’s new stock-trading rule has just gone into effect. The SEC will give brokers a 10-day grace period, during which violators of the rule will be immediately notified and given a chance to remedy their situation to comply with the new rule. If a CFA Institute member unknowingly violates the rule and then remedies the situation within the 10-day grace period, has the member violated Standard I(A)?
A. No, because the member remedied the situation.
B. No, because the member unknowingly broke the rule.
C. Yes, because the member did not maintain knowledge and know of the rule.
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【单选】
According to the CFA Institute Standards of Professional Conduct, Standard I(A), Knowledge of the Law, members shall not knowingly participate or assist in any violations of laws, rules, or regulations. An analyst:
A. is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and can participate in a violation by having knowledge of the violation and taking no action to stop it or disassociate from it.
B. is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and is held responsible for violations by others when the analyst is unaware of the facts giving rise to the violation.
C. must report all legal violations to the proper regulatory commission and is held responsible for participating in illegal acts when the law is evident to anyone knowing the law.
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【单选】
Nicholas Brynne, CFA, is a fixed-income analyst who trades in mortgage-backed securities (MBS). The MBS industry has seen sweeping regulatory changes since Brynne took his current position, and he now feels his understanding of applicable laws and regulatory standards is dated. Brynne must:
A. have all trades reviewed by his compliance department until he has obtained an expert level of knowledge in compliance.
B. update his understanding of applicable laws and regulatory standards relating to his position.
C. rely on his firm’s policies and procedures for guidance on legal and regulatory standards.
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【单选】Ronald Franklin, CFA, has recently been promoted to junior portfolio manager for a large equity portfolio at Davidson-Sherman (DS), a large multinational investment-banking firm. He is specifically responsible for the development of a new investment strategy that DS wants all equity portfolio managers to implement. Upper management at DS has instructed its portfolio managers to begin overlaying option strategies on all equity portfolios. The relatively poor performance of many of their equity portfolios has been the main factor behind this decision. Prior to this new mandate, DS portfolio managers had been allowed to use options at their own discretion, and the results were somewhat inconsistent. Some portfolio managers were not comfortable with the most basic concepts of option valuation and their expected return profiles, and simply did not utilize options at all. Upper management of DS wants Franklin to develop an option strategy that would be applicable to all DS portfolios regardless of their underlying investment composition. Management views this new implementation of option strategies as an opportunity to either add value or reduce the risk of the portfolio.
Franklin gained experience with basic options strategies at his previous job. As an exercise, he decides to review the fundamentals of option valuation using a simple example. Franklin recognizes that the behavior of an option's value is dependent on many variables and decides to spend some time closely analyzing this behavior. His analysis has resulted in the information shown in Exhibits 1 and 2 for European style options.
Exhibit 1: Input for European Options
Stock Price (S)
100
Strike Price (X)
100
Interest Rate (r)
0.07
Dividend Yield (q)
0.00
Time to Maturity (years) (t)
1.00
Volatility (Std. Dev.)(Sigma)
0.20
Black-Scholes Put Option Value
$4.7809
Exhibit 2: European Option Sensitivities
Sensitivity
Call
Put
Delta
0.6736
-0.3264
Gamma
0.0180
0.0180
Theta
-3.9797
2.5470
Vega
36.0527
36.0527
Rho
55.8230
-37.4164
Franklin wants to know if the option sensitivities shown in Exhibit 2 have minimum or maximum bounds. Which of the following are the minimum and maximum bounds, respectively, for the put option delta?
A. -1 and 1.
B. -1 and 0.
C. -1 and no maximum bound.
D. There are no minimum or maximum bounds.
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【单选】Ronald Franklin, CFA, has recently been promoted to junior portfolio manager for a large equity portfolio at Davidson-Sherman (DS), a large multinational investment-banking firm. He is specifically responsible for the development of a new investment strategy that DS wants all equity portfolio managers to implement. Upper management at DS has instructed its portfolio managers to begin overlaying option strategies on all equity portfolios. The relatively poor performance of many of their equity portfolios has been the main factor behind this decision. Prior to this new mandate, DS portfolio managers had been allowed to use options at their own discretion, and the results were somewhat inconsistent. Some portfolio managers were not comfortable with the most basic concepts of option valuation and their expected return profiles, and simply did not utilize options at all. Upper management of DS wants Franklin to develop an option strategy that would be applicable to all DS portfolios regardless of their underlying investment composition. Management views this new implementation of option strategies as an opportunity to either add value or reduce the risk of the portfolio.
Franklin gained experience with basic options strategies at his previous job. As an exercise, he decides to review the fundamentals of option valuation using a simple example. Franklin recognizes that the behavior of an option's value is dependent on many variables and decides to spend some time closely analyzing this behavior. His analysis has resulted in the information shown in Exhibits 1 and 2 for European style options.Exhibit 1: Input for European Options Stock Price (S)100Strike Price (X)100Interest Rate (r)0.07Dividend Yield (q)0.00Time to Maturity (years) (t)1.00Volatility (Std. Dev.)(Sigma)0.20Black-Scholes Put Option Value$4.7809Exhibit 2: European Option Sensitivities Sensitivity Call Put Delta0.6736-0.3264Gamma0.01800.0180Theta-3.97972.5470Vega36.052736.0527Rho55.8230-37.4164Which of the following is the best estimate of the change in the put option when the underlying equity increases by $1?
A. -$3.61.
B. -$0.37.
C. $0.67.
D. -$0.33.
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【单选】Al Bingly, CFA, is a derivatives specialist who attempts to identify and make short-term gains from trading mispriced options. One of the strategies that Bingly uses is to look for arbitrage opportunities in the market for European options. This strategy involves creating a synthetic call from other instruments at a cost less than the market value of the call itself, and then selling the call. During the course of his research, he observes that Hilland Corporation’s stock is currently priced at $56, while a European-style put option with a strike price of $55 is trading at $0.40 and a European-style call option with the same strike price is trading at $2.50. Both options have 6 months remaining until expiration. The risk-free rate is currently 4 percent.Bingly often uses the binomial model to estimate the fair price of an option. He then compares his estimated price to the market price. He observes that Dale Corporation’s stock has a current market price of $200, and he predicts that its price will either be $166.67 or $240 in one year. The risk-free rate is currently 4 percent. He also observes that the price of a one-year call with a $220 strike price is $11.11.Bingly also uses the Black-Scholes-Merton model to price options. His stated rationale for using this model is that he believes the prices of the stocks he analyzes follow a lognormal distribution, and because the model allows for a varying risk-free rate over the life of the option. His plan is to use a statistical technique to estimate the volatility of a stock, enter it into the Black-Scholes-Merton model, and see if the associated price is higher or lower than the observed market price of the options on the stock.Bingly wishes to apply the Black-Scholes-Merton model to both non-dividend paying and dividend paying stocks. He investigates how the presence of dividends will affect the estimated call and put price.In the case of the options on Hilland Corporation’s stock, if Bingly were to establish a long protective put position, he could:
A. earn an arbitrage profit of $0.30 per share by selling the call and lending $57.20 at the risk-free rate.
B. not earn an arbitrage profit because he should short the protective put position.
C. earn an arbitrage profit of $0.03 per share by selling the call and borrowing the remaining funds needed for the position at the risk-free rate.
D. not earn an arbitrage profit because the position is in equilibrium.
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