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

Free Financial CFA Level 1 Dumps Questions (page: 84)

When creating composites, ________ returns must not be mixed with asset-plus-cash returns.

  1. model
  2. portfolio
  3. cash
  4. performance
  5. asset-only

Answer(s): E

Explanation:

To be in compliance with the PPS, a firm creating a composite must meet this requirement.



When complying with Standard IV (B.3) - Fair Dealing, there are certain points one should be sure to address when establishing compliance procedures.
Which of the following points is NOT mentioned in the Standards of Practice Handbook?

  1. Simultaneous dissemination.
  2. Establish procedures for determining material change.
  3. Disclose levels of service.
  4. Publish personnel guidelines for predissemination.
  5. Limit the number of people involved.
  6. Be flexible on the time frame between decision and dissemination.
  7. Establish control over trading activity.

Answer(s): F

Explanation:

Members have an obligation to ensure that their firms establish compliance procedures requiring all employees who disseminate investment recommendations or actions to treat clients fairly. The number of people privy to an investment recommendation should be limited. The amount of time that lapses between the decision and the dissemination of the recommendation should be shortened. Guidelines must be established to prohibit persons who have prior knowledge from discussing a pending recommendation. Trading activities should be monitored and controlled. Procedures should be established to determine whether a change in an investment recommendation is considered material. The organization should disclose to firms whether or not it offers two or more levels of service to clients for the same or different fees.



Michelieu tells a prospective client, "I may not have a long-term track record yet, but I'm sure that you'll be very pleased with my recommendations and service. In the three years that I've been in the business, my equity- oriented clients have averaged a total return of more than 26 percent a year." The statement is true, but Michelieu only has a few clients and one of his clients took a large position in a penny stock (against Michelieu's advice) and realized a huge gain. This large return caused the average of all of Michelieu's clients to exceed 26 percent a year. Without this one investment, the average gain would have been 8 percent a year. Has Michelieu violated the Standards?

  1. Yes, because the statement misrepresents Michelieu's track record.
  2. Yes, because the statement about return ignores the risk preferences of his clients.
  3. No, because the statement is a true and accurate description of Michelieu's track record.
  4. No, because Michelieu is not promising that he can earn a 26 percent return in the future.

Answer(s): A

Explanation:

Standard IV (B.6), Prohibition against Misrepresentation. Although Micheliu's statement regarding the total return of his client's accounts on average may be technically true, it is misleading because the majority of the gain resulted from one client's large position taken against Micheliu's advice. He has not taken steps to present a fair, accurate and complete presentation of performance. Even though he is not guaranteeing future results, his words are still a misrepresentation of performance. Not disclosing the risk preferences of clients does not make a statement misleading and is not a violation of the Standards in this context.



Level I verification requires independent attestation that portfolio returns are calculated according to a(n) ________ weighted return methodology.

  1. size
  2. price
  3. time
  4. risk
  5. asset

Answer(s): C

Explanation:

Portfolio returns must be calculated according to a time-weighted return methodology with a minimum of quarterly valuation and accrual of income for fixed-income securities.



Martha Maris is a qualified investment advisor who has been handling investment accounts of a few wealthy friends for a fee. She recently interviewed with Capital Management, Inc. and accepted a position as a money manager with them. She:

  1. needs to inform only Capital Management about her old clients.
  2. must inform Capital Management as well as all her old clients in writing about the arrangement.
  3. does not have to inform her client friends about her employment with Capital Management.
  4. does not have to inform Capital Management about her old clients since they were not retained through Capital Management.

Answer(s): B

Explanation:

This is required by Standard III (B) - Duty to Employer.



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