Financial Institute CFA Level I Chartered Analyst® CFA Level 1 Exam Questions in PDF

Free Financial CFA Level 1 Dumps Questions (page: 55)

Under the Performance Presentation Standards, asset-weighting of portfolio returns within a composite is required. The ________ of period weightings must be used.

  1. beginning
  2. end
  3. none of these answers
  4. midpoint

Answer(s): A

Explanation:

Composites must be asset weighted using beginning-of-period weightings.



ERISA fiduciaries must adhere to the following prudent procedures:
- establish a written investment policy for the plan
- ________ plan assets - make investment decisions with the skill and care of aprudent expert
- monitor investment performance
- control investment expenses - avoid prohibited transactions

  1. distribute
  2. qualify
  3. account for
  4. none of these answers
  5. diversify

Answer(s): E

Explanation:

These procedures are stipulated under the detailing of ERISA fiduciary duties, to ensure that the fiduciary complies with the duty to act with prudence.



Which of the following is/are true about claims of compliance with the AIMR-PPS?

  1. If a firm is only in partial compliance with PPS, it must use a disclaimer specifying the exact areas of non- compliance.
    II. If the calculation methodology used by a firm follow standard industry practice, it is allowed to claim that the methodology is in compliance with the AIMR-PPS.
    III. If a member misuses the claim of compliance with the PPS, AIMR can publicly censure him, suspend his membership and revoke his CFA charter.
  2. I, II and III
  3. none of them
  4. III only
  5. I and III only

Answer(s): C

Explanation:

A firm cannot claim partial compliance with the PPS. It is either fully compliant or non-compliant. Further, statements referring to the calculation methodologies being in accordance with the PPS are explicitly prohibited; the PPS are mainly presentation standards, not measurement standards. Violations are punishable by public censure, membership suspension and revocation of CFA charter.



Regarding beneficiaries and remaindermen, current life-income beneficiaries prefer to receive ________; remaindermen would rather have ________.

  1. a minimal current income; a high rate of current income
  2. a high rate of current income; growth and stability of principal
  3. growth and stability of principal; a high rate of current income
  4. small incremental principal repayments; predictable current income
  5. none of these answers

Answer(s): B

Explanation:

Trustees recognize a conflict of interests often exists between the primary or current beneficiaries of a trust and the remaindermen (secondary or later beneficiaries of the trust). Current life-income beneficiaries would prefer to receive a high rate of current income; remaindermen would rather have growth and stability of principal.
Trustees thus have a duty to exercise their best skill and care to serve all beneficiaries impartially and with equal consideration of their needs.



Abra, a vice-president at Mahogany, Inc., recently revealed - quite inadvertently - information about the tender offer from Mahogany to Kadabra, his friend who works for a rival firm. Kadabra, in turn, shared this information with his trading buddy, Cosmo. Cosmo immediately recognized that in light of this information, he was better off not participating in the offer. He went ahead and shorted the stock of Mahogany and reaped a tidy profit of about a hundred thousand dollars in a month's time when Mahogany tanked. In this case:

  1. Cosmo can be held liable for insider trading under SEC Section 10(b) and Rule 10b-5.
    II. Cosmo can be held liable for insider trading under the Misappropriation Theory.
    III. Cosmo can be held liable for insider trading under SEC Rule 14e-3 which prohibits insider trading based on information about tender offers.
    IV. Kadabra has breached his fiduciary duty toward Mahogany.
  2. I, II, III & IV.
  3. I only.
  4. none of these answers.
  5. III only.
  6. I & IV only.
  7. IV only.
  8. II & III.
  9. II only.

Answer(s): C

Explanation:

This case is similar to the precedent set by United States vs. Chestman. According to the decision in the Chestman case, Kadabra was a "gratuitous recipient" of inside information and as such, had no responsibility to maintain its confidentiality. One party - according to this ruling - cannot unilaterallyimpose a relationship of confidence on another by simply sharing information. Thus, while Kadabra is a tippee, he has no fiduciary duty toward Mahogany. Now, the traditional theory applies only when there is a breach of a direct or inherited fiduciary duty or if the insider trading occurs in a tender offer and the trading is done by an insider or a tippee.
So if an outsider - including Cosmo - received and traded based on this information, he could not be held liable under the Traditional Theory or the Misappropriation Theory. However, if Kadabra had traded for his own account, he would be liable under both the theories as well as under Rule 14e-3.



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