2019 CFA level 3 qbank r 1 2 CFA ins code of ethics and standards of prof conduct standards I–VII 2 questions

10/11/2018 Learning Management System Question #1 of 199 In the process of recommending an investment, in order to comply with Standard V(A), Diligence and Reasonable Basis, a CFA Institute member must: A) have a reasonable and adequate basis for the recommendation B) both of these .in C) support a recommendation with appropriate research and investigation en tre Question #2 of 199 Jim Crockett is a portfolio manager for Miami Advisors and reports to Vicki Tubbs, the Chief Investment O cer Miami has developed a proprietary model that has been thoroughly bo ok c researched and is known throughout the industry as the Miami model The model is purely quantitative and takes a given set of client characteristics and universe of potential securities and forms a portfolio for the investor Individual portfolio managers are responsible for selecting securities to t into the model based on recommendations from the rm's research department and the managers' own judgment Because of the speci c nature of the inputs to m the model, each manager is responsible for applying the model on his or her own computer .o The basic philosophy of the process is thoroughly explained to clients Crockett does not w w understand the basics of the model, but feels that since it provides pure quantitative output, he does not need to understand it However, he misapplies the model for several of his clients In reviewing some of Crockett's portfolios, Tubbs nds the errors and points them out to Crockett w Which of the following statements regarding Tubbs and Crockett is CORRECT? A) Crockett has violated the Standards by not considering the appropriateness and suitability of the investment for his clients B) Tubbs has violated the Standards by failing to supervise adequately C) Crockett has violated the Standards by not exercising diligence and thoroughness in making investment recommendations Chandra Patel, CFA, manages private client portfolios for QED Investment Advisers Part of QED's rm-wide policy is to adhere to CFA Institute Standards of Professional Conduct in the https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 1/92 10/11/2018 Learning Management System management of all client portfolios, and to this end, the rm requires that client objectives, investment experience, and nancial limitations be clearly established at the outset of the relationship This information is updated at regular intervals not to exceed eighteen months The information is maintained in a written investment policy statement for each client Anarudh Singh has been one of Patel's clients ever since she began managing money ten years ago Shortly after his regular situational update, Singh calls to inform Patel that his uncle is ill, and it is not known how long the uncle will survive Singh expects to inherit "a sizeable sum of money," mainly in the form of municipal bonds His existing portfolio allocation guidelines are for 75% to be invested in bonds Singh believes that the expected inheritance will allow him to assume a more aggressive investment pro le and asks Patel to begin moving toward a 75% in allocation to equities He is speci cally interested in opening sizable positions in several technology rms, some of which have only recently become publicly traded companies Patel en tre agrees to begin making the changes to the portfolio and the next day begins selling bonds from the portfolio and purchasing stocks in the technology sector as well as in other sectors After placing the trade orders, Patel sends Singh an email to request that he come to her o ce bo ok c sometime during the next week to update his investment policy statement Singh replies to Patel, saying that he can meet with her next Friday A few days before the meeting, however, Singh's uncle dies and the portfolio of municipal bonds is transferred to Singh's account with QED Patel sees this as an opportunity to purchase more technology stocks for the portfolio and suggests taking such action during her meeting m with Singh, who agrees Patel reviews her les on technology companies and locates a report o on NetWin The analyst's recommendation is that this stock is a "core holding" in the technology sector Patel decides to purchase the stock for Singh's account, as well as several w w other wealthy client accounts with high risk tolerance levels, but due to time constraints she does not review the holdings in each account Patel does examine the aggregate holdings of the w accounts to determine the approximate weight that NetWin should represent in each portfolio Since Patel has very recently passed the Level III examination leading to the award of the CFA designation, QED sends a promotional email to all of the rm's clients The email states "QED is proud to announce that Chandra Patel is now a CFA (Chartered Financial Analyst) This distinction, which is the culmination of many years of work and study, is further evidence of the superior performance you've come to expect at QED." Patel also places phone calls to inform of her accomplishments several brokers that she uses to place trades for her accounts, stating that she "passed all three CFA examinations on the rst attempt." One of the people Patel contacts is Max Spellman, a long-time friend and broker with TradeRight Brokers Inc Patel uses the opportunity to discuss her exclusive trading agreement with TradeRight for Singh's account https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 2/92 10/11/2018 Learning Management System When ordering trades for Singh's account, Patel's agreement with TradeRight for brokerage services requires her to rst o er the trade to TradeRight and then to another broker if TradeRight declines to take the trade TradeRight never refuses the trades from any manager's clients Patel established the relationship with TradeRight because Singh, knowing the rm's fee schedule relative to other brokers, asked her to so However, because TradeRight is very expensive and o ers only moderate quality of execution, Patel is considering directing trades on Singh's account to BullBroker, which charges lower commissions and generally completes trades sooner than TradeRight .in Question #3 of 199 Do QED's policies comply with CFA Institute Standards of Professional Conduct with respect to with which the information is updated? Information B) Yes No C) No No bo ok c Yes o m A) No Frequency en tre the information contained within the client investment policy statements and the frequency w w Question #4 of 199 In light of Singh's comments during his telephone call to Patel prior to his uncle's death, which w of the following actions that Patel can take comply with CFA Institute Standards of Professional Conduct? A) Patel may change the current portfolio strategy and begin trading based upon Singh’s expectations because he advised her to so B) Patel must adhere to the existing portfolio strategy until she meets with Singh to develop a new portfolio strategy based upon updated nancial information but may l d hi h i ih h i i C) Patel must not place any trades in the account until she meets with Singh to develop a new portfolio strategy based on the updated information https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 3/92 10/11/2018 Learning Management System Question #5 of 199 According to CFA Institute Standards of Professional Conduct, may Patel reallocate Singh's portfolio toward technology stocks after his Uncle dies but before the meeting with Singh? A) No, because Patel must wait until the next annual meeting to reallocate B) No, because Patel and Singh must meet and revise the investment policy statement and portfolio strategy before reallocating C) Yes, because the total value of the municipal bonds received into the account will be too en tre in large relative to the other assets in the portfolio Question #6 of 199 Did Patel violate any CFA Institute Standards of Professional Conduct when she purchased the bo ok c NetWin stock for Singh's portfolio or for the other clients' portfolios? Other portfolios A) No No B) No Yes o C) Yes m Singh's portfolio w w w Yes Question #7 of 199 Which of the following is least accurate regarding the promotional announcement of Patel passing the Level III exam? A) The promotional announcement uses the letters “CFA” as a noun and hence is an improper use of the designation B) The announcement violates the Code of Ethics because it implies that obtaining a CFA charter leads to superior performance https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 4/92 10/11/2018 Learning Management System C) The fact that a promotional announcement was made violates the restrictions on misrepresenting the meaning of the CFA designation Question #8 of 199 With respect to the choice of broker, did Patel violate any CFA Institute Standards of Professional Conduct? A) No .in B) Yes, since Patel is obligated to seek the best possible price and execution for all clients Question #9 of 199 bo ok c higher commissions and opportunity costs en tre C) Yes, since Patel failed to properly notify Singh that using TradeRight would lead to Greg Stiles, CFA, keeps a list of his clients' birthdays and has personally sent them a birthday card each year at the appropriate time With respect to this action, which of the following may m be a violation of Standard III(E), Preservation of Con dentiality? o A) Sending a gift along with the card w w B) Hiring a company outside the rm to perform the task w C) The mere act of sending a birthday card each year Question #10 of 199 Jill Marsh, CFA, works for Advisors where she manages various portfolios Marsh's godfather is an accountant and has done Marsh's tax returns every year as a birthday gift Marsh's godfather has recently become a client of Advisors and asked speci cally for Marsh to manage his account In order to comply Standard IV(B), Disclosure of Additional Compensation Arrangements, she needs to: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 5/92 10/11/2018 Learning Management System A) liquidate from her personal portfolio any stocks her godfather owns and verbally tell her supervisor about the tax services B) neither of the actions listed here C) have her godfather cease doing her taxes Michael Pennington Case Scenario Michael Pennington is Senior Vice President of equity investments at Alpha Investment Advisors, Inc (AIA) He manages a team of analysts and portfolio managers and is responsible in for maintaining and developing client relationships AIA is located in Belgium and provides Candidate for the CFA designation en tre investment management services to high net work individuals Pennington is also a Level III One of Pennington's clients is the Flanders family Pennington had a long relationship with Helmut Flanders Before Flanders's untimely death, he gave Pennington full discretion over his bo ok c portfolio based on an investment policy statement that had been re ned continuously over the years Flanders was the president of a publicly traded manufacturing company, Allux, and 20% of his portfolio's assets were invested in Allux equity His contract with Allux prohibited selling his Allux shares while he was employed m Flanders had little liquidity needs His children were grown, and his salary at Allux was w w portfolio .o su cient to cover his annual expenditures as well as contribute to his investment A former accountant, Flanders had been extremely knowledgeable and comfortable with the investment decision-making process w Pennington owns 10,000 shares of Allux and serves on Allux's board Pennington played golf with Flanders on a regular basis and, with Flanders's help, developed many client relationships from these outings AIA has an agreement with a local brokerage rm, First Brokerage, owned by Pennington's sister to place all AIA trades through First Brokerage Flanders agreed in writing that all trades in his portfolio would be directed to First Brokerage Pennington purchased new carpets for his o ce with soft dollars He believes that his managers make better investment decisions when their environment is pleasant and comfortable https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 6/92 10/11/2018 Learning Management System Pennington attended an industry conference in the Bahamas with soft dollars The program is devoted to improving management of the investment advisory rm He believes that a well-run rm makes better investment decisions Pennington consistently uses soft dollars to purchase research reports from an independent research rm that does in-depth analysis of a company's nancial reporting Several of his managers have commented on the quality and usefulness of these reports to their analysis and decision making Pennington has an appointment to meet with Flanders's widow, Elise, who, as an artist, left management of their nancial assets to her husband She is meeting with Pennington to better Question #11 of 199 en tre in understand her nancial position Which of the following Standards is most relevant regarding Pennington's meeting with Elise? A) Standard III(A), Loyalty, Prudence, and Care m C) Standard III(C), Suitability bo ok c B) Standard III(E), Preservation of Con dentiality .o Question #12 of 199 w w Standard VI(A), Disclosures of Con icts, requires Pennington to disclose all matters, including bene cial ownership of securities of other investments, that could be expected to impair the w member's ability to make unbiased and objective recommendations Which of the following matters would least likely be disclosed to Elise? A) AIA has a soft dollar arrangement with a brokerage rm owned by Pennington’s sister B) Pennington owns shares in Allux C) Pennington played golf with Helmut Flanders on a regular basis and developed client relationships from those golf outings Question #13 of 199 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 7/92 10/11/2018 Learning Management System Which of the following best describes Pennington's compliance with the CFA Institute Standards regarding his use of soft dollars? The purchase of: A) research reports and attending the conference are allowable uses of soft dollars B) research reports is an allowable use of soft dollars C) both research reports and carpeting are allowable uses of soft dollars .in Question #14 of 199 Pennington would like to continue to direct trades from Elise's portfolio to his sister's en tre brokerage rm In order to continue with this arrangement and comply with the CFA Institute Standards, which of the following disclosures are required? A) Pennington must clearly disclose that his duty as the investment manager is to continue bo ok c to seek to obtain best execution B) Pennington must disclose that directed brokerage arrangements that require the investment manager to commit a certain percentage of brokerage might a ect his bili k b i b i C) Pennington must disclose policies with respect to all soft dollar arrangements and b i d i h h i k w w o ki m receive written consent from Elise that she understands the consequences if he is not Question #15 of 199 w After determining Elise's risk and return objectives, liquidity needs, tax considerations, and unique circumstances, Pennington has decided the he must reduce Elise's holding of Allux shares He has several other clients, whom he met through Flanders, who also have signi cant holdings in Allux Pennington has also decided to reduce his own holdings in Allux since his term as a director of Allux will be up in June He does not plan to seek reappointment, but as a member of the audit committee, he is privy to information about a tender o er Pennington realizes this is a complex situation Of the following Standards, determine which would least likely help Pennington decide what actions with respect to selling shares of Allux would be in compliance with the CFA Institute Standards of Practice https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 8/92 10/11/2018 Learning Management System A) Standard III(B), Fair Dealing B) Standard VI(A), Disclosure of Con icts C) Standard III(C), Suitability Question #16 of 199 Since Pennington is a director of Allux and a member of the audit committee, what additional Standard is speci cally applicable to Pennington's decision to sell his and his clients' shares of in Allux? B) Standard II, Integrity of Capital Markets Question #17 of 199 bo ok c C) Standard IV, Duties to Employers en tre A) Standard VII, Responsibilities as a CFA Institute Member or CFA Candidate m An analyst who routinely purges the les that support his research and recommendations: o A) may be violating Standard V(C), Record Retention w w B) is acting in accordance to Standard IV(A), Loyalty to Employer w C) is acting in accordance to Standard III(E), Preservation of Con dentiality Question #18 of 199 Denise Weaver is a portfolio manager who manages a mutual fund and has pension clients When Weaver receives a proxy for stock in the mutual fund, she gives it to Susan Gri th, her administrative assistant, to complete When the proxy is for a stock owned in a pension plan, she asks Gri th to send the proxy on to the sponsor of the pension fund Weaver has: A) violated the Standards by her policy on mutual fund and pension fund proxies https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 9/92 10/11/2018 Learning Management System B) violated the Standards by her policy on mutual fund proxies, but not her policy on pension fund proxies C) not violated the Standards Question #19 of 199 While it would be customary to report both ve-year and ten-year performance data, Seminole Equity Partners has been in existence for only eight years Because of this, Kurt Dambach does in not report ten-year data but reports for both ve years and since the inception of the fund This en tre he notes in a footnote at the bottom of the information sheet This action is: A) in accordance with the Code and Standards since he has indicated the basis in a footnote B) a violation of the Standard concerning performance presentation m Question #20 of 199 bo ok c C) a violation of the Standard concerning prohibition against misrepresentation .o Wes Smith, CFA, works for Advisors, Inc In order to remain in compliance with Standard V(A), Diligence and Reasonable Basis, Smith may recommend a security in which of the following w w situations? w A) Advisors' research department recommends a stock B) For either of the reasons listed here C) Smith reads a favorable review of the security in a widely read periodical Question #21 of 199 Janet Thompson, CFA, is employed as an analyst by Nationwide Securities According to CFA Institute Standards of Professional Conduct, which of the following statements about Thompson's duty to Nationwide is NOT correct? Thompson must refrain from: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 10/92 10/11/2018 Learning Management System Lynne Jennings is a chemical industry research analyst for a large brokerage company That industry is currently seeing an increase in mergers and acquisitions While ying through Chicago, Jennings sees several senior o cers who she knows are from the largest and fourth largest chemical companies walk into a conference room She concludes that negotiations for an acquisition might be taking place Jennings: A) may not act or cause others to act on this information B) should inform her compliance o cer that she has material nonpublic information on rms she covers en tre in C) may use this information to support an investment recommendation Question #169 of 199 Jim Kent is an individual investment advisor in San Francisco with 300 clients Kent uses open- bo ok c ended mutual funds to implement his investment policy For most of his clients, Kent has used the Baker fund, a small company growth fund based in Boston, for a portion of their portfolio As a result he has become very friendly with Keith Dunston, the manager of the fund, whom Kent feels is mainly responsible for Baker's performance One day Dunston calls Kent and tells him that he will be leaving the fund in four weeks and moving to San Francisco to work for a m di erent money management company Dunston is seeking suggestions on housing in the o area Baker has not yet announced Dunston's departure Kent immediately nds a fund that is a suitable replacement for the Baker fund, and over the next two days he calls his 30 clients w w with the largest dollar investments in the funds and tells them he feels they should switch their holdings Baker feels the remaining clients' positions are small enough to wait for their annual w review to switch funds Kent has: A) violated the Standards by not dealing fairly with clients and regarding material nonpublic information B) violated the Standards regarding nonpublic information but has not violated the Standards in failing to deal fairly with clients C) violated the Standards by not dealing fairly with clients but has not violated the Standards regarding material nonpublic information https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 78/92 10/11/2018 Learning Management System Question #170 of 199 The following scenarios refer to recommendations made by two analysts Jean King, CFA, is a quantitative analyst at Quantlogic, Inc King uses computer-generated screens to di erentiate value and growth stocks based on accounting numbers such as sales, cash ow, earnings, and book value Based on her analysis of all domestically traded stocks in the U.S over the past year, King concludes that value stocks as a class have underperformed growth stocks over that period Using only this analysis, she recommends that account executives at Quantlogic sell all value stocks from the portfolios for which they have discretionary authority to trade and replace these stocks in with growth stocks James Capelli, CFA, is a fundamental analyst at Wheaton Capital Management, which en tre focuses on regional stocks His analysis of Branson Wireless includes the investment's basic characteristics such as information about historical earnings, ownership of assets, outstanding contracts, and other business factors In addition to conducting both a general industry analysis and a company nancial analysis, Capelli interviews key bo ok c executives at Branson Based on his analysis, he concludes that the company's future prospects are strong and issues a "buy" recommendation According to CFA Institute Standards of Professional Conduct, did King and Capelli have a m reasonable and adequate basis for making their recommendations? A) King has a reasonable basis for his recommendation, but Capelli does not .o B) Capelli has a reasonable basis for his recommendation, but King does not w w w C) Both King and Capelli have a reasonable basis for their recommendations Question #171 of 199 John Hill, CFA, has been working for Advisors, Inc., for eight years Hill is about to start his own money management business and has given his two-week notice of his resignation from Advisors A few days before his resignation takes e ect, a former client of Advisors calls Hill at his home about his new rm The former client says that he is very happy that Hill is leaving Advisors because now he and Hill can resume a professional relationship The client says that he would never become a client of Advisors again Hill promises to call the client back after he has left Advisors Hill does not tell his employer about the call Hill has most likely: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 79/92 10/11/2018 Learning Management System A) not violated the Standards B) violated the Standard concerning loyalty to employer C) violated the Standard concerning disclosure of icts Question #172 of 199 Which of the following statements about soft dollars is least accurate? B) Soft dollars are third party research arrangements .in A) Soft dollars are assets of the client en tre C) Directed brokerage are soft dollars to be used for research that bene ts the investment Question #173 of 199 bo ok c rm Patricia Young is an individual investment advisor who uses a computer model to place each of m her clients into an appropriate portfolio The model analyzes a range of simulated portfolios and computes for each the probabilities of achieving various levels of return Young then o selects the portfolio that provides the highest probability of achieving the clients' minimum w w required return By using this process, Young is: A) violating Standard I(C) - Misrepresentation w B) not violating the Standards C) violating Standard III(C) - Suitability Question #174 of 199 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 80/92 10/11/2018 Learning Management System Bob Hat eld, CFA, has his own money management rm with two clients The accounts of the two clients are equal in value One of the clients gets married and the assets of the new spouse and the client are combined With the larger portfolio of the now married client, Hat eld determines that they can assume a higher level of risk and begins a change in the policy concerning that portfolio Which of the following would violate Standard III(C), Suitability? A) Assess the time horizon of the newly married client and his spouse B) Implement a similar policy for the other client who did not just get married .in C) Assess the return objectives of the newly married client and his spouse en tre Question #175 of 199 An analyst belongs to a nationally recognized charitable organization, which requires dues for membership The analyst has worked out a deal that he provides money management advice in bo ok c lieu of paying dues For this arrangement to comply with the standards, the analyst needs consent from: A) both his supervisor in the organization and his regular place of work B) his supervisor in the organization only w w o m C) his supervisor in his regular place of work only w Question #176 of 199 An analyst receives a report from his research department that summarizes and interprets a recent speech from the chairman of the U.S Federal Reserve The summary says that the chairman thinks in ation is under control Based upon this summary, the analyst says in his next newsletter that in ation is under control This is a violation of: A) none of the Standards listed here B) Standard V(A), Diligence and Reasonable Basis, only C) Standard V(A), Diligence and Reasonable Basis, and Standard V(B), Communication with Clients and Prospective Clients https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 81/92 10/11/2018 Learning Management System Question #177 of 199 Kim Lee manages a variety of accounts at Superior Investments Some are permitted to invest in tax-exempt issues only; others may not invest in a stock unless it pays dividends Lee is researching a biotech rm specializing in the analysis of "mad cow" disease While touring company facilities and meeting with management, she learns that they believe they may have found a way to reverse the disease Moreover, one manager conjectured, "Suppose that we reversed the disease in someone who didn't even have it? We might then be able to boost that individual's IQ into the stratosphere!" Lee returns to her o ce and buys shares for all accounts A) appropriate given the obvious potential of the therapy .in under her supervision This action is: B) a violation of the Standard concerning appropriateness and suitability of investment en tre actions Question #178 of 199 bo ok c C) a violation of the Standard concerning duciary duties Brian Williams is a portfolio manager with Santo Capital and works on the Banks Company's m account Santo has a policy against accepting gifts over $500 from clients The Banks' portfolio has a fantastic year, and in appreciation, a Banks manager sends Williams a rare bottle of wine o that he estimates is worth $300 Williams must: w w A) return the bottle to the client B) inform his supervisor in writing that he received additional compensation in the form of w the wine C) report the pension fund manager to the CFA Institute Professional Conduct Program Question #179 of 199 https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 82/92 10/11/2018 Learning Management System Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto Calaveccio places a trade with Quantco Brokerage While Calaveccio's part of the transaction was conveyed correctly to Quantco, there was a trading error made in Calaveccio's account due to a slip up within Quantco Calaveccio realizes that the error has taken place, and informs his contact at Quantco Calaveccio allows Quantco to cover the error, with no cost to TrustCo This is: A) permissible under CFA Institute Standards B) a violation of Calaveccio's duciary duties en tre in C) a violation of Calaveccio's duty to his employer Question #180 of 199 June Bird is a pension consultant asked to advise on the Backwater County Pension Plan Bird bo ok c notices that 20 percent of the plan's assets are invested in privately held local businesses Bird is concerned about the lack of liquidity and diversi cation caused by such an investment She learns that state law allows investing in local businesses and county law requires at least onefth of the plan's assets to be dedicated to investing in local businesses Bird: m A) must immediately resign as a consultant to the plan B) should le a written complaint to the Department of Labor pointing out that the law is o in ict with the Employee Retirement Income Security Act (ERISA) w w w C) can continue to advise the pension plan as best she can with the restrictions Question #181 of 199 Dan Je ries is a portfolio manager who is being sued by one of his clients for inappropriate investment advice The Professional Conduct Program of CFA Institute is investigating Je ries for the same o ense Je ries settles the lawsuit with the client while the Professional Conduct Program investigation is ongoing When the Professional Conduct Program sta questions Je ries about the problematic investment advice, Je ries claims he cannot talk about it because doing so would violate the dentiality of his client Je ries has: https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 83/92 10/11/2018 Learning Management System A) violated the Standards by refusing to talk about the case with the Professional Conduct Program, but not by executing the settlement agreement B) violated the Standards by executing the settlement agreement, but not by refusing to talk about the case with the Professional Conduct Program C) not violated the Standards by executing the settlement agreement or by refusing to talk about the case with the Professional Conduct Program .in Question #182 of 199 Patricia Cu is the chief nancial o cer and compliance o cer at Super Selection Investment en tre Advisors, an organization that has incorporated the CFA Institute Code of Standards into the rm's compliance manual Karen Trader is a portfolio manager for Super Selection Trader is friendly with Josey James, president of AMD, a rapidly growing biotech company Trader has served on AMD's board of directors for the last three years James has asked Trader to commit bo ok c to a large purchase of AMD stock for Trader's clients' portfolios Trader had previously determined that AMD was a questionable investment but agreed to reconsider Her reevaluation deemed the stock to be overpriced, but Trader nevertheless decides to purchase for her portfolios Which standard was least likely violated? o B) III(B) Fair Dealing m A) III(A) Loyalty, Prudence, and Care w w w C) V(A) Diligence and Reasonable Basis Question #183 of 199 Carol Hull, CFA, is an investment advisor whose prospective client, Frank Peters, presents special requirements To construct an investment policy statement for Peters, Hull inquires about Peters' investment experience, risk and return objectives, and nancial constraints Peters states that he has a great deal of investment experience in the capital markets and does not wish to answer questions about his tolerance for risk or his other holdings Under Standard III(C), Suitability, Hull: A) must decline to enter into an advisory relationship with Peters https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 84/92 10/11/2018 Learning Management System B) is permitted to manage Peters’ account without any knowledge of his risk preferences C) may accept Peters’ account but may only manage his portfolio to a benchmark or index Question #184 of 199 Dave Kline, CFA, is a personal investment advisor with 200 individual, family, and corporate accounts After a dispute with a coworker on margin policy, he formally resigns his position by giving suitable notice However, he does not follow his rm's established "Transition and Exit in Policies" regarding his accounts The rm's stated policies require him to notify each client of his planned departure and personally introduce them to their new account representative, own clients." Kline is most likely: en tre Greg Potter Kline sees Potter as a rival and states " let Potter his own work and nd his A) in violation of Standard IV(A) "Loyalty" for failing to follow the employer’s policies and bo ok c procedures related to notifying clients of his departure B) not in violation of the Code and Standards C) in violation of Standard I(D) "Misconduct" for leaving clients subject to an account m representative he does not nd suitable .o Sally Watson works as an equity portfolio manager for Brunswick Investment Advisers (BIA) w w Wally Jackson, President and Chief Investment O cer of the rm, is a CFA charterholder who supervises Watson and other investment professionals within the rm Watson is a candidate in the CFA Program, and she has recently passed the Level II exam BIA's clients include trusts, w foundations, endowments, corporations, and high net worth individuals, including accounts for family and friends of its employees Jackson and Watson manage client portfolios with a growth strategy and concentrate on holdings in the healthcare, technology, and communications sectors About 10 percent of BIA accounts are actively managed Because BIA uses Accommodate Broker Dealer for executing transactions, Accommodate provides research to BIA regarding holdings in accounts that are actively managed The fees Accommodate charges BIA are competitive, and BIA applies the same basic fee structure to all its clients BIA's clients not know about BIA's arrangement to get research information from Accommodate https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 85/92 10/11/2018 Learning Management System The clients know that Accommodate routinely allocates shares in IPOs that it underwrites to BIA Jackson is eagerly awaiting the IPO of a new technology company that he intends to allocate across all current portfolios, including the proprietary account and accounts of friends and family Based upon his research, Jackson feels this IPO has good potential and has been working to get an unusually large number of shares of the IPO BIA has recently been awarded two new client accounts, totaling $100 million, which are in the process of completing transitions from other managers Although an investment objective and guidelines have not been formalized for the accounts, Jackson allocates shares of the IPO across all client accounts on a pro rata basis, including an allocation for these new client in accounts.  Watson serves on the board of directors for New Medical Developments, a biotech rm in en tre which she maintains signi cant stock and options BIA owns 4.5 percent of New Medical's stock on behalf of its clients and in its proprietary account At a special meeting of New Medical's board, Watson learns that Remedy Inc is preparing a dential tender o er for all of New Jackson detailing the o er bo ok c Medical's shares outstanding After the meeting, Watson sends an electronic mail message to Jackson immediately places New Medical Developments on BIA's restricted list so representatives of BIA cannot recommend the stock As rumors circulate in the investment community about the tender o er, some of Jackson's clients call and ask him to look into the m possibility of purchasing stock in New Medical Developments Jackson is fearful of his situation and puts o such requests As a result, one client, Craig Mills, les a complaint with CFA o Institute that Jackson is not responding to his requests Knowing the precarious situation he is w w in, Jackson decides to wait until the tender o er has been announced to address Mills' complaint w CFA Institute becomes suspicious of Mills, because he seems to have a history of trading stocks for which material information soon becomes public As part of an investigation into possible insider trading activities, CFA Institute asks Jackson to furnish CFA Institute with Mills' trading history Question #185 of 199 Watson must notify BIA of all the following EXCEPT: A) her plans for taking the next CFA exam B) her ownership of the stock in New Medical Developments https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 86/92 10/11/2018 Learning Management System C) any independent consulting work she performs for third parties Question #186 of 199 With respect to the arrangement that BIA has with Accommodate, based on the information provided: A) no violation has occurred as long as BIA informs CFA Institute that the rm receives research information from the brokerage rm .in B) no violation has occurred since BIA charges the same fee structure to all of its clients bo ok c Question #187 of 199 en tre C) a violation has occurred because BIA charges the same fee structure to all of its clients With respect to how Jackson allocated the shares in the IPO of the technology company, has Jackson acted in accordance with the Code and Standards? m A) No, Jackson has violated Standard III(C) Suitability accounts .o B) Yes, Jackson allocated the shares of the o ering fairly on a pro rata basis to all client w w w C) No, Jackson has violated Standard VI(B) Priority of Transactions Question #188 of 199 Given Brunswick's current ownership in New Medical, the Code and Standards require Jackson to: A) trade the shares in client accounts before any accounts for himself, family or friends B) not take any investment action but communicate the information to other members of the proxy committee in preparation for consideration C) not initiate any investment action prior to the information being publicly disseminated https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 87/92 10/11/2018 Learning Management System Question #189 of 199 Given Watson's actions, which of the following statements is most accurate? A) Standard III(E) – Preservation of Con dentiality was violated B) None of the Code and Standards were violated .in C) Standard III(A) – Loyalty, Prudence, and Care was violated en tre Question #190 of 199 With respect to the complaint Mills led against Jackson, and the subsequent investigation of Mills by CFA Institute, which of the following statements is least accurate? bo ok c A) Jackson violated the Code and Standards by not responding to Mills B) Jackson violated the Code and Standards by putting New Medical Developments on its restricted stock list C) Jackson did not violate the Code and Standards if he provides Mills’ trading information w w o m to CFA Institute Question #191 of 199 w Jess Green, CFA is the research director for Castle Investment, Inc., and has supervisory responsibility over eight analysts, including three CFA charterholders Castle has a compliance program in place According to CFA Institute Standards of Professional Conduct, which of the following is least likely an action that Green should take to adhere to the compliance procedures involving responsibilities of supervisors? Green should: A) issue periodic reminders of the procedures to all analysts under his supervision B) incorporate a professional conduct evaluation as part of the performance review only for the three CFA charterholders C) disseminate the contents of the compliance program to the eight analysts https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 88/92 10/11/2018 Learning Management System Question #192 of 199 Joni Black, CFA, works for a portfolio management rm Black is a partner of the rm and is primarily responsible for managing several large pension plans Black has just nished a research report in which she recommends Zeta Corporation as a "Strong Buy." Her rating is based on solid management in a growing and expanding industry She just handed the report to the marketing department of the rm for immediate dissemination Upon returning to her desk she notices a news ash by CNN reporting that management for Zeta Corporation is retiring Black wishes she did not recommend Zeta Corporation as a "Strong Buy," but believes the corporation is still a good investment regardless of the management What course of action in for Black is best? Black: A) may send out the report as written as long as a follow up is disseminated within a en tre reasonable amount of time re ecting the changes in management B) should revise the recommendation based on this new information C) should report the new information to her immediate supervisor so that they can bo ok c determine whether or not the marketing department should send out the report as i Carla Tonis is an investment analyst at Target Investments, Inc (Target), an investment management rm that helps recent college graduates start investing in the stock market Tonis m wants to earn the CFA designation and has passed the Level I CFA exam She plans to take the o Level II exam a year from now but has not enrolled in the next scheduled exam She is also a w w member of CFA Institute A group of graduates from one university have been so happy with Tonis's investment advice w they made her an honorary member of their alumni association which includes nonmonetary bene ts They recently gave her complimentary tickets to a major athletic event of the school and allowed her to stay at the school's alumni house for free While at the athletic event, Tonis overhears two alumni as they discuss plans for their rm to begin marketing a major new product that should be very pro table for the rm From the context of what Tonis overhears and knows, she concludes that this is nonpublic information Tonis believes she is the only one to hear the discussion She knows a mutual fund that has a large holding in the rm It is a mutual fund that she has often recommended to her clientele While at Target, Tonis uses Target's computers, software, and data to develop a computer model that she claims can predict stock market returns She tests the model with market data from the previous 12 months and recommends to her supervisor that Target should use the https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 89/92 10/11/2018 Learning Management System model to aid in the investment process for the rm's clients However, the supervisor rejects the use of the model because it has not been back-tested with a su cient amount of data Tonis believes strongly in the predictive power of her model and decides to form her own investment rm It is her intention to use the model as the basis of her investment advice to her new clients She has compiled a list of clients that had previously been rejected by Target and begins soliciting them as her potential clients She tells the prospects about the model and how it performed in the back tests Question #193 of 199 in Which of the following statements would NOT be in violation of the Code and Standards? en tre A) Tonis is a CFA Level II Candidate B) Tonis is a member of CFA Institute and would become a CFA upon completion of all requirements as administered by CFA Institute C) Tonis is a member of CFA Institute, has passed her Level I Exam of the CFA program, m Question #194 of 199 bo ok c and plans to take her Level II exam next year .o In order to keep her CFA Institute membership status Tonis must: w w A) avoid two or more public censures within any 12 consecutive months B) le a professional conduct statement every year w C) enroll in the next scheduled CFA exam Question #195 of 199 With respect to the honorary membership in the alumni association, the complimentary tickets, and accommodations for the sporting event, Tonis needs to inform her employer in writing of: A) the tickets but not the membership or accommodations B) the membership, the tickets, and accommodations https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 90/92 10/11/2018 Learning Management System C) the tickets and accommodations but not the membership Question #196 of 199 With respect to the information that Tonis overhears at the sporting event, she: A) may not act on the information and must try to achieve public dissemination of the information .in B) may not act on the information and must keep the information a secret C) may trade on the information using the mutual funds she has been already been using bo ok c Question #197 of 199 en tre only With respect to planning her own business while still at Target, which of the following statements is most accurate? Tonis may: m A) not begin planning a new business until she resigns from Target .o B) not copy and take home the model because it is property of her employer w w w C) copy and later use her model because Target is not using it Question #198 of 199 Soliciting rejected prospects from Target is: A) not a violation of CFA Institute Standards because rejected prospects not represent a competition with Target B) not a violation of CFA Institute Standards because she plans to use a model rejected by Target’s management C) a violation of CFA Institute Standards under any circumstances https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 91/92 10/11/2018 Learning Management System Question #199 of 199 Kim Lee is a research analyst at Superior Investments and is researching a biotech rm specializing in the analysis of "mad cow" disease While touring company facilities and meeting with management, she learns that they believe they may have found a way to reverse the disease Moreover, one manager conjectured, "Suppose that we reversed the disease in someone who didn't even have it? We might then be able to boost that individual's IQ into the stratosphere!" After returning to her o ce, Lee issues a research report describing the compound as an "IQ booster with huge potential." This statement: A) lacks a reasonable and adequate basis in fact .in B) is reasonable given the information she was provided by the company w w w o m bo ok c en tre C) is allowable but only if quoted verbatim from her conversations with management https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495925615029a3fd/practice/qbank/24038518/quiz/83400877/print 92/92 ... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 834 00877/print 12 / 92 10 /11 /2 018 Learning Management System Question # 23 of 19 9 Under the current... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 834 00877/print 2/ 92 10 /11 /2 018 Learning Management System When ordering trades for Singh''s account, Patel''s agreement with TradeRight for brokerage... https://www.kaplanlearn.com/education/dashboard/index/66a9ea0d62bb71ab495 925 615 029 a3fd/practice /qbank/ 24 038 518 /quiz/ 834 00877/print 18 / 92 10 /11 /2 018 Learning Management System C) not violated the Standards Question #38 of 19 9 Roger Halpert, CFA, prepares a company research report in which he recommends