CFA Level I Chartered Financial Analyst CFA I Exam Questions in PDF

Free CFA CFA I Dumps Questions (page: 9)

If a firm uses discretionary leverage, it must present performance using:

  1. all-cash basis i.e. removing leverage effects.
  2. both actual returns and all-cash basis.
  3. none of these answers.
  4. actual returns.

Answer(s): B

Explanation:

For discretionary leverage, both actual returns and all-cash returns must be presented.



Kruskal Meriwether is a senior research analyst with Bellwether Advisors. He has been following Crystals &

Candles a publicly traded firm which makes high-quality diamond jewelry. Kruskal, after extensive interviews with senior management at Crystals, has inferred that the firm is about to take over a diamond- mining firm in South Africa at a rock-bottom price. The Crystal management has refused to explicitly confirm or deny this but Kruskal firmly believes that such a deal is in the works. He has not used any inside information; just pieced together information from various avenues to come to this conclusion. In his reports, he states, "All my research seems to indicate that Crystal & Candles is likely to buy a South African diamond producer at a bargain price. Clearly, now is the time to buy Crystal and Candles' stock." 2 weeks after his report is released, Crystal's management announces that it has no intentions of making any acquisitions in the near future. This leads to a 7% decline in Crystal's stock, causing a large decline in the accounts of Kruskal's clients. Kruskal has

  1. violated Standard IV (1) - Reasonable Basis & Representation.
  2. not violated any AIMR code in this incident.
  3. violated Standard IV (B.2) - Portfolio Investment Recommendations and Actions.
  4. violated Standard IV (B.1) - Fiduciary Duties.

Answer(s): B

Explanation:

Kruskal's recommendations were not based on whim, unsubstantiated rumors or inside information. It is clear that he put in much research behind his recommendation. The fact that his recommendation turned out to an incorrect choice ex post does not mean he was negligent. An investment advisor cannot be expected to be correct 100% of the time. What is expected of them is professional competence and diligence (Code of Ethics).
Nothing in this incident indicates that Kruskal lacked either of these.



Standard II (C) deals with ________.

  1. None of these answers
  2. Obligation to Inform Employer of Code and Standards
  3. Disclosure of Conflicts to Employer
  4. Duty to Employer
  5. Fundamental Responsibilities
  6. Plagiarism
  7. Use of Professional Designation
  8. Professional Misconduct

Answer(s): F

Explanation:

Standard I deals with Fundamental Responsibilities. Standard II (A) deals with Use of Professional Designation.
Standard II (B) deals with Professional Misconduct. Standard II (C) deals with Plagiarism. Standard III (A) deals with the Obligation to Inform Employer of Codes and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer.



Which of the following AIMR Standards states that client transactions must have priority over transactions in which the analyst is a beneficial owner?

  1. V
  2. None of these answers
  3. VII
  4. VI

Answer(s): B

Explanation:

It is Standard IV (B.4) which states that client transactions must have priority over transactions in which the analyst is a beneficial owner so that such personal transactions do not operate adversely to their client's or employer's interests.



Cariella is a junior analyst who is currently preparing a report on a diamond producing firm, Dense Carbon, Inc. Dense Carbon recently announced that the results of a mining survey in its South African diamond mines were in, which revealed substantial amounts of diamond reserves for the first time. It has offered to take a few industry analysts for a tour of the facilities and take stock of the situation first hand. During this tour, all expenses, including air-fare and basic accommodations, were provided for by Dense Carbon. Since the visit spanned a weekend, Dense Carbon also arranged for a Safari tour for all the analysts. Cariella did not consider the safari to be an undue entertainment, given the fact that the analysts had to be in the middle of nowhere for 5 days. She was quite assiduous in her appraisal of the mining reserves and in the final analysis, the tour proved extremely valuable to her analysis. However, she did not reveal the fact about the Safari trip to her employer. Cariella has

  1. violated Standard III (C) - Disclosure of Conflicts to Employer.
    II. violated Standard IV (1) - Reasonable Basis and Representations.
    III. violated Standard IV (3) - Independence and Objectivity.
    IV. not violated the AIMR code of ethics.
  2. I only
  3. I and III only
  4. I, II and III only
  5. IV only

Answer(s): B

Explanation:

Standard IV (A.3) - Independence and Objectivity requires members to use reasonable care and judgment while making investment recommendations. In particular, it requires that members avoid even appearances of conflict of interest or circumstances that could affect their independence or objectivity. While Dense Carbons travel arrangements for the analysts might not be considered an unnecessary "gift" (this is a gray area), the safari definitely is an unacceptable arrangement from the AIMR code of ethics' perspective. By accepting this gift, Cariella violated Standard IV (A.3). By not disclosing this fact to her employer, she violated Standard III (C)
- Disclosure of Conflicts to Employer.



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