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

Free Test Prep CFA® LEVEL 1 Dumps Questions (page: 70)

Jamison is a junior research analyst with Howard & Howard, a brokerage and investment banking firm. Howard & Howard's mergers and acquisitions department has represented the Britland Company in all of its acquisitions for the past 20 years. Two of Howard & Howard's senior officers are directors of various Britland subsidiaries. Jamison has been asked to write a research report on Britland. What is the best course of action for her to follow?

  1. Jamison should not write the report because the two Howard officers are constructive insiders.
  2. Jamison may write the report but must refrain from expressing any opinions because of the special relationships between the two companies.
  3. Jamison may write the report if she discloses the special relationships with the company in the report.
  4. Jamison may write the report so long as the officers agree not to alter it.

Answer(s): C

Explanation:

The question involves Standard IV (B.7), Disclosure of Conflicts to Clients and Prospects. There are two conflicts of interest that must be disclosed: (1) the company is a client of Jamison's employer, (2) two directors of the company are senior officers of her employer. As long as the relationship the analyst's employer has with the company is disclosed, the analyst is not prevented from writing a report. She can or not express opinions, which is irrelevant to her duty to disclose a conflict of interest, which is the relationship between the two companies.



When formulating an investment policy for a client, all of the following fall under "investor constraints," except ________.

  1. expected cash flows
  2. type and nature of clients
  3. regulatory and legal circumstances
  4. investor preferences, circumstances and unique needs
  5. liquidity needs
  6. none of these answers
  7. proxy voting
  8. investable funds

Answer(s): B

Explanation:

Type and nature of clients is considered under the "client identification" category.



What is the name of the act enacted in 1940 that reflects a Congressional recognition of the "delicate" fiduciary nature of an investment advisory relationship and the intent to eliminate, or at least to expose all conflicts of interest?

  1. The Investment Company Act
  2. The Congressional Investor's Protection Act
  3. The U.S. Investment Advisers Act
  4. The U.S. Fiduciary-Investor Act

Answer(s): C

Explanation:

The U.S. Investment Advisers Act of 1940 (Advisers Act) states "that advisors cannot employ any device or scheme to defraud any client or prospective client; engage in any transaction or course of business that may operate as a fraud or deceit upon any client or prospective client; engage in transactions as a principle or as an agent in a client's account without first disclosing the transaction to the client and receiving the client's consent; or engage in any act or course of business that is fraudulent, deceptive, or manipulative."



Performance results for a portfolio need to be presented with cash, ________ equivalents, or substitute assets.

  1. multiple
  2. composite
  3. average
  4. cash

Answer(s): D

Explanation:

Returns from cash and cash equivalents held in portfolios must be included in return calculations and the cash and cash equivalents must be included in the portfolio amount (total assets) on which the return is calculated.



Anamese Barrytone is a broker with Caledonia Investments. Caledonia also provides investment recommendations through its weekly letter. In its last letter released 3 days ago, Caledonia changed its investment recommendation on Sell-Me-Now, Inc. from "hold" to "sell." Anamese has just received a call from Sloan who wants to place a market-buy order on 600 shares of Sell-Me-Now. Anamese should

  1. not execute the order since her firm has placed the stock on the sell list.
  2. inform her supervisor about the order and then decide if the order should be executed.
  3. execute the order as is without trying to change Sloan's mind by telling him about Caledonia's recommendation since she is required to be a neutral broker by SEC rules.
  4. inform Sloan about the change in Caledonia's recommendation before executing the order.

Answer(s): D

Explanation:

According to the SEC rules, if a person places an order contrary to current firm recommendation, he or she should first be informed about the firm's position before accepting the order. Standard IV (B.3) - Fair Dealing.



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