Test Prep CFA® Level I Chartered Financial Analyst CFA® LEVEL 1 Dumps in PDF

Free Test Prep CFA® LEVEL 1 Real Questions (page: 13)

Mirabelle is an experienced analyst who has worked for the investment research arm of Clifford & Clifford, Inc. for the past 7 years. Recently, TransOmega retained Clifford & Clifford to conduct a study on possible takeover candidates in the aviation industry. Mirabelle has been given the project and two assistants to conduct the research. During their review, Mirabelle's assistants located a research report created recently by Donaldson, a freelance analyst. Mirabelle found the report thorough, though she did not agree with many of Donaldson's conclusions. She carried out further inquiry along those lines and modified the report with new conclusions. She showed the completed report, with proper attributions to Donaldson in places where she had used his results, to a senior partner, John Cliff of Clifford & Clifford. The report was approved and released to TransOmega. In this case,

  1. both Mirabelle and John Cliff violated the standards.
  2. only Mirabelle violated the plagiarism standard by using Donaldson's report.
  3. only John Cliff violated the Standard of Reasonable Care (IVA.1) by not adequately monitoring Mirabelle.
  4. neither Mirabelle nor John Cliff violated any of the standards.

Answer(s): D

Explanation:

Since proper care was taken at all steps, no violation has occurred. The use of Donaldson's report is acceptable as long as proper acknowledgments are given.



According to the AIMR-PPS when presenting results, annual returns for all years must be presented.
Performance for periods of less than one year

  1. must be treated as all of the other performance results.
  2. must not be included in the presentation.
  3. must not be annualized.
  4. must be prorated and appropriate disclosures made.

Answer(s): C

Explanation:

Annual returns for all years must be presented. Performance for periods of less than one year must not be annualized. This is a requirement for presentation of results.



________ accounting is mandatory for fixed-income securities.

  1. Accrual
  2. Cash
  3. Flexible
  4. Equal
  5. Risk-free
  6. Total

Answer(s): A

Explanation:

Accrual accounting must be used for fixed-income securities and all other securities that accrue income.
Accrued income must be included in the market value calculation of the denominator and numerator.



Joseph Silk is a veteran money manager with Aakanksha, Inc., a hedge fund that caters to high net-worth individuals. His friend, Gribbin, recently incorporated a private business and invited Joseph to be on its board of directors. Gribbin's business is in the paper industry and does not directly or indirectly affect Aakanksha's client base. Joseph accepted the board membership with the understanding that he would participate in Gribbin's business only over the weekends. He considered this a private venture and did not inform Aakanksha's Compliance officer. In not doing so, Joseph has

  1. violated Standard III (C) - Disclosure of Conflicts to Employer.
  2. not violated any standards since there is no conflicts of interest between his two professional obligations.
  3. violated Standard IV (A.3) - Independence and Objectivity.
  4. violated Standard IV (B.1) - Fiduciary Duties.

Answer(s): A

Explanation:

While Gribbin's business is not in any competition with Aakanksha, Joe's position as a director creates an appearance of conflicts of interest since he will have a say in many decisions of the business, including investments in securities. Hence, before accepting any such position, Joe must discuss the situation with the compliance department at Aakanksha to evaluate the potential conflicts of interest. While Joe is not precluded from being on an outside Board, not getting this cleared with his current employer represents a violation of Standard III (C) - Disclosure of Conflicts to Employer.



Which of the following is/are required by AIMR-PPS with regards to calculation of returns?

  1. Total return - realized and unrealized gains plus income - should be used.
    II. Returns must be based on arithmetic mean calculations.
    III. Accrual accounting must be used for fixed-income securities.
  2. I, II and III
  3. I only
  4. I and III only
  5. II and III only

Answer(s): C

Explanation:

The PPS require that calculations be based on time-weighted (geometric) returns. Accrual accounting must be used for fixed-income and other securities that accrue income. The performance measurement must be based on total returns.



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