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

Free Financial CFA Level 1 Dumps Questions (page: 83)

Cornelius is a portfolio manager with Apex Investments, an investment advisory firm. Cornelius has, over the years, developed a special symbiotic relationship with Mike Milken, the owner of Milk 'em, Inc., a small brokerage firm. Cornelius puts subtle pressure on the trading desk at Apex to execute its trades through Milk 'em, thus generating brokerage revenue for Mike. In return, Mike recommends the services of Apex Investments to many of its clients. This arrangement is not disclosed to either the senior management at Apex nor to any of the clients. It has been observed by many at Apex Investments that the commissions charged by Milk 'em are 10-15% higher than those by other brokers. However, Cornelius has justified the higher costs by pointing to the extra revenue-flow from Milk 'em. Cornelius has:

  1. not violated any AIMR standards.
    II. violated Standard III (C) - Disclosure of Conflicts to Employer.
    III. violated Standard IV (B.8) - Disclosure of Referral Fees.
    IV. violated Standard IV (B.1) - Fiduciary Duties.
  2. II, III and IV only
  3. II and IV only
  4. I only
  5. II and III only

Answer(s): A

Explanation:

Cornelius is clearly in a situation representing a conflict of interests. His arrangement and non-disclosure of the arrangement are unfair to the current clients of Apex and potential clients recommended by Milk 'em. They represent a violation of his fiduciary duties to the clients. By not informing senior management at Apex about the arrangement, he has also violated Standard III (B) - Disclosure of Conflicts to Employer.



According to the Prudent Investor Rule, the trustee must:

- adhere to ________, impartiality and prudence
- maintain overall portfolio risk at a reasonable level
- provide for reasonable diversification of trust investments
- act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents
- be cost conscious when investing

  1. supervisors
  2. loyalty
  3. none of these answers
  4. commitment
  5. diversification

Answer(s): B

Explanation:

Modern Portfolio Theory dictates that trustees consider a portfolio in its entirety and not just on an investment- by-investment basis. As a fiduciary, therefore, the trustee must:
- adhere to fundamental fiduciary duties of loyalty, impartiality and prudence.
- maintain overall portfolio risk at a reasonable level
- the trade-off between risk and return is the fiduciary's central concern.
- provide for reasonable diversification of trust investments.
- act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents.
- be cost conscious when investing.



Which of the following statements is correct regarding Standard II (A) Use of Professional Designation?

  1. Joe Martin passed Level I and Level II of the CFA exams and is scheduled for the next Level III exam. He may write "Joe Martin, CFA II."
  2. All of these answers are correct.
  3. Joe Martin passed Level I and Level II of the CFA exams and is scheduled for the next Level III exam. He may write, "I am a Level III candidate in the CFA program."
  4. Joe Martin passed Level I and Level II of the CFA exams, but is not scheduled for the next Level III exam.
    He may write, "I am a Level III Candidate in the CFA program."

Answer(s): C

Explanation:

"Joe Martin, CFA II" is a misrepresentation and a violation of Standard II (A). There is no designation for someone who has passed Level I, Level II, or Level III. He may not state he is a candidate unless he is registered for the next exam.



Sid Barnes is the senior most partner with Noble & Noble, a well-known brokerage firm. Bruce Lohmann is a senior partner who reports to Barnes. Lohmann is an AIMR member while Barnes is not. Recently, N&N's research department identified a sterling investment opportunity and Barnes decided to allow some of the largest discretionary accounts to benefit from this first. He directed Lohmann to take the appropriate steps and in turn, Lohmann assigned Doug Jardine, a senior analyst, to complete the portfolio rebalancing. Doug, an AIMR member, informed Bruce and Barnes that such a course of action would be in violation of the AIMR Standard IV (B.3) - Fair Dealing. Barnes told him that he was not aware of any such code and that in any case, the firm had not adopted it. If Doug refuses to carry out the action but Lohmann does, which of the following is/ are true?

  1. Barnes has violated the AIMR code.
    II. Lohmann has violated the AIMR code.
    III. Doug has violated the AIMR code by disobeying his superiors.
  2. I, II and III
  3. II only
  4. I and III only
  5. II and III only

Answer(s): B

Explanation:

Barnes cannot be said to have violated the AIMR code since he's not a member or a CFA candidate and does not have to abide by those rules. Lohmann, on the other hand, has violated the code in two ways: first, as the senior most AIMR member in the firm, it was his responsibility to ensure that Barnes knew not only about the AIMR code but also Lohmann's obligation to uphold it. Barnes' ignorance about the code implies Lohmann violated Standard III (A) - Obligation to Inform Employer of Code & Standards. Second, by allowing some of the largest discretionary accounts to benefit from the research first, he violated AIMR standard IV (B.3) - Fair Dealing. Doug, on the other hand, dissociated himself from the activity and did not violate any standard.



If the use of leverage is ________, the performance presented must include the effects of the leverage.

  1. discretionary
  2. mandatory
  3. nondiscretionary
  4. optional

Answer(s): A

Explanation:

If the use of leverage is nondiscretionary (i.e. mandated by the client), performance must be presented on an all-cash basis.



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