Question 1 - 93502

In the course of reviewing the Corn Co., an analyst has received comments from management
that, while not meaningful by themselves, when pieced together with data he has accumulated
from outside sources, lead him to recommend placing Corn Co. on his firm's sell list. What
should the analyst do?
Show his report to his own manager and counsel for their review since this information has
become material once it was combined with his analysis.
The comments are non material and the report can be issued as long as he maintains a file
B)
of the facts as supplied by management.
C) Not issue the report until the comments are publicly announced.
A)

Question 2 - 94338
Albert Long, CFA, manages portfolios of high net worth individuals for HKB Corp. Alice
Thurmont, one of his close friends, heads a local charity for homeless children that depends on
donations to operate. Because donations have declined during the past year, the charity is
experiencing financial difficulty. Thurmont asks Long to give her a partial list of his clients so that
she can contact them to make tax-deductible donations. Because Long knows that the charity
provides much benefit to the community, he provides Thurmont with the requested list.
Betty Short, CFA, also works for HKB Corp. She receives a letter from CFA Institute's
Professional Conduct Program (PCP) requesting that she provide information about one of
HKBs clients who is being investigated. Short complies with the request despite the
confidential nature of the information requested by the PCP.
Based on Standard III(E), Preservation of Confidentiality, which of the following statements
about Long and Shorts actions is CORRECT?
A) Long violated Standard III(E) but Short did not violate Standard III(E).
B) Short violated Standard III(E) but Long did not violate Standard III(E).
C) Both Long and Short violated Standard III(E).

Question 3 - 94786
According to CFA Institute Standards of Professional Conduct, when a client asks her portfolio
manager to change the current investment strategy of the clients portfolio, the manager
should:
examine whether the strategy is appropriate for the client and explain the implications of the
new strategy before implementing the strategy.
explain the implications of the new strategy after the member manager implements the
B)
strategy.
C) obey the client's request without question.
A)

Question 4 - 94662
An analyst notices that for most years that a given class of assets has an abnormally high rate
of return, the asset class often has an abnormally low rate of return the next year. Based upon
this information, according to Standard V(A), Diligence and Reasonable Basis, the analyst can
recommend:

A) short selling assets that have had a good previous year to all clients.
an increased allocation of Treasury bills (T-bills) for all portfolios of assets that have
B)
increased dramatically in the previous year.
C) neither of these choices.

Question 5 - 94555
Which one of the following constitutes the illegal use of material nonpublic information?
A) Trading based on your analytical review of the firm's future prospects.
B) Trading on information your sister, the firm's attorney, told you over dinner.
C) Trading immediately after attending the firm's annual shareholders meeting.

Question 6 - 94373
Jim Kent is an individual investment advisor in San Francisco with 300 clients. Kent uses openended mutual funds to implement his investment policy. For most of his clients, Kent has used
the Baker fund, a small company growth fund based in Boston, for a portion of their portfolio. As
a result he has become very friendly with Keith Dunston, the manager of the fund, whom Kent
feels is mainly responsible for Baker's performance. One day Dunston calls Kent and tells him
that he will be leaving the fund in four weeks and moving to San Francisco to work for a different
money management company. Dunston is seeking suggestions on housing in the area. Baker
has not yet announced Dunston's departure. Kent immediately finds a fund that is a suitable
replacement for the Baker fund, and over the next two days he calls his 30 clients with the
largest dollar investments in the funds and tells them he feels they should switch their holdings.
Baker feels the remaining clients' positions are small enough to wait for their annual review to
switch funds. Kent has:
violated the Standards regarding nonpublic information but has not violated the Standards in
failing to deal fairly with clients.
violated the Standards by not dealing fairly with clients but has not violated the Standards
B)
regarding material nonpublic information.
violated the Standards by not dealing fairly with clients and regarding material nonpublic
C)
information.
A)

Question 7 - 127430
Lee Hurst, CFA, is an equity research analyst who has recently left a large firm to start
independent practice. He is able to re-create several of his previous recommendation reports
from memory, based on sources obtained at his previous employer. He publishes the reports
and obtains several new clients. Hurst is most likely:
A)
B)
C)

in violation of Standard V(C) Record Retention.

not in violation of any Standard.
in violation of Standard V(A) "Diligent and Reasonable Basis."

Question 8 - 94675
A CFA Institute member conscientiously maintains records of changes in security regulations.
The member notices that his colleagues do not, and does NOT say anything. Is this a violation
of Standard I(A)?

A) Yes, and the member should disassociate from these colleagues.

B) Yes, because the member is bound by the Code of Ethics.
C) No, as long as the colleagues do not violate the new rules.

Question 9 - 94591
If an analyst suspects a client or a colleague of planning or engaging in ongoing illegal activities,
which of the statements about the actions that the analyst should take is most correct?
According to the CFA Institute Standards of Professional Conduct, the analyst should:
consult counsel to determine the legality of the activity and disassociate from any illegal or
A) unethical activity if the member has reasonable grounds to believe that the activity is illegal
or unethical.
disassociate from any illegal or unethical activity if the member has reasonable grounds to
B)
believe that the activity is illegal or unethical.
C) consult counsel to determine the legality of the activity.

Question 10 - 94648
Lindsay Gordon is a CFA Level II candidate living in San Francisco. Gordons best friend,
Steve Haney, also a Level II candidate, is living in Munich. Because of the time difference
between Munich and San Francisco, Gordon suggests that Haney call Gordon during the
Munich exam lunch break to discuss the morning exam. Haney makes the call on exam day.
Which of the following statements regarding Gordon and Haney is CORRECT?
A) Gordon is in violation of Standard VII(A), but Haney is not in violation.
B) Both Gordon and Haney are in violation of Standard VII(A).
C) Neither Gordon nor Haney is in violation of Standard VII(A).

Question 11 - 94302
Stephen Rangen, a broker, has three accounts consisting of unsophisticated, inexperienced
individual investors with limited means. One of these accounts is an elderly couple. The
clients want to invest in safe, income-producing investments. They rely heavily on Rangens
advice and expect him to initiate most transactions in their respective accounts. In managing
their accounts, Rangen pursues the following strategies: (1) buys U.S. treasury strips and nondividend paying over-the-counter (OTC) stocks recommended by his firm's research
department, (2) uses margin accounts, and (3) concentrates the equity portion of their portfolio
in one or two stocks. Rangens approach leads to extremely high turnover rates in all
three accounts.
Part 1)
Which of the following statements about Rangen is NOT correct?
A) Rangen's conduct violates Standard IV(B), Additional Compensation Arrangements.
B) Rangen has a fiduciary duty to each client.
C) Rangen's conduct violates Standard III(C), Suitability.
Part 2)
Which of the following statements about Rangen's conduct is CORRECT? Rangen's conduct:
meets the requirements of the Code and Standards because his firm's research department
A)
recommended the U.S. Treasury strips and non-dividend paying stocks.
B) meets the requirements of the Code and Standards because his clients are aware of the

risks that he is taking in managing their accounts.

does not meet the requirements of the Code and Standards because his investment
C)
strategy is inconsistent with his clients' objectives.

Question 12 - 94815
Pamela Gee is a portfolio manager. She is planning to establish her own money management
firm. She has already informed her employer, Branford, Inc., about her plans. In her remaining
time at Branford, she can:
A) start the registration of her new company.
B) solicit Branford colleagues but not Branford clients.
inform her current clients about her resignation and let them know how to reach her, in case
C)
any problems arise in the future.

Question 13 - 94981
The Securities and Exchange Commission (SEC) sanctioned Stephen Rangen, a former broker,
for unsuitable recommendations and excessive trading in several accounts. His clients were
unsophisticated, inexperienced individual investors with limited means. As such, they relied
heavily on Rangens advice and expected him to initiate any transactions in their respective
accounts. The SEC found that Rangens trading methods were contrary to his clients
goals. For example, he used margin accounts and concentrated their equity holdings in
particular securities. Rangen claimed that his actions were justified because his clients were
aware of the risks.
Part 1)
Which of the following statements best describes why Rangens argument, that his clients
were aware of the risks, did NOT meet the requirements of the Code and Standards? Rangen
failed to:
A) deal fairly and objectively with his clients when taking investment action.
disclose to his clients all matters that reasonably could be expected to impair his ability to
B)
make unbiased and objective recommendations.
C) make recommendations that were consistent with his clients' financial needs.
Part 2)
Rangen bought U.S. Treasury strips and over-the-counter stocks that did not produce income as
sought by his clients. Rangen claimed that his actions were justified because his firms
research department recommended the purchase of the Treasury strips. Also, he claimed the
stocks that he bought were all in the top-rated categories of his firms research division.
Which of the following statements best describes why Rangens arguments, in which he
attempted to shift the blame to his employer, did NOT meet the requirements of the Code and
Standards?
Rangen's duty was to make only recommendations that were in the best interests of his
A)
clients.
Rangen misrepresented the basic characteristics of the investments that he bought for his
B)
clients' accounts.
Rangen did not use reasonable care and judgment to achieve and maintain independence
C)
and objectivity in taking investment actions.

Question 14 - 94529
Greg Allen is a security analyst and visits David Dawson, the Chief Financial Officer of Edmonds
Company. Dawson reveals a great deal of nonmaterial financial data to Allen, data that Dawson

routinely reveals to all security analysts who visit him. From this data and other industry
information, Allen conjectures that Edmonds is likely to make a tender offer for another company
in the industry, a fact that if true would be considered material to the value of the company.
Allen:
should send a copy of the report to Dawson for verification before disseminating the report
to clients.
must not disseminate the information or use it for trading purposes until the tender offer is
B)
announced.
C) can publish his conclusion in a research report.
A)

Question 15 - 94882
Liam McCoy has lunch with a wealthy client whose portfolio he manages. McCoy advises the
client to double his current position in the JKM Corporation due to an anticipated increase in
sales. In accordance with Standard (V) Investment Analysis, Recommendations and Actions,
when McCoy returns to his office he should:
identify other clients for whom JKM may be a suitable investment and notify them
immediately of his recommendation.
document the details of the conversation with the client with regard to his investment
B)
recommendation.
C) verify the suitability of the investment recommendation before placing the clients order.
A)

Question 16 - 94755
A money management firm has the following policy concerning new recommendations: When a
new recommendation is made, each portfolio manager estimates the likely transaction size for
each of their clients. Clients are notified of the new recommendation in the order of their
estimated transaction sizelargest first. All clients have signed a form where they
acknowledge and consent to this allocation procedure. With respect to Standard III(B), Fair
Dealing, this is:
A) a violation of the standard.
B) not a violation because the clients have signed the consent form.
C) not a violation because the clients are aware of the policy.

Question 17 - 94498
Nancy Westfall is an individual investment advisor who uses mutual funds for her clients. She
typically chooses funds from a list of 40 funds that she has thoroughly researched. The Craigs,
a married couple that is a client, asked her to consider the Eligis fund for their portfolio. Westfall
had not previously considered the fund because when she first conducted her research three
years ago, Eligis was too small to be considered. However, the fund has now grown in value,
and after doing thorough research on the fund, she finds the fund has suitable characteristics to
be included in her acceptable list of funds. She puts the fund in the Craigs' portfolio but not in
any of her other clients' portfolios. The fund ends up being the poorest performing fund in the
Craigs' portfolio. Has Westfall violated any Standards? Westfall has:
A) violated the Standards by not dealing fairly with clients.
B) not violated the Standards.
violated the Standards by not having a reasonable and adequate basis for making the
C)
recommendation.

Question 18 - 94610
An analyst needs to inform his supervisor in writing of which of the following?
An annual bonus, sent to the analyst by a client, which varies with the performance of the
A) client's portfolio that the analyst manages as an employee even though no verbal or written
agreement exists about the bonus.
B) A client and the analyst alternate paying for lunch at a local sandwich shop.
C) Both the lunch and the bonus mentioned in the other answers.

Question 19 - 94409
Noah Johnson, CFA, is a broker with a money management company, Factor, Inc. In a
conversation with Tom Williams, Johnson describes the activities of Factor and discusses the
characteristics of portfolio construction. Which of the following statements would NOT, on its
face, be considered a misrepresentation?
A) Factor guarantees the portfolio will achieve its goal return.
If Williams is not satisfied with the current target return, Johnson can always improve it by
B)
increasing his T-bills share.
C) The portfolio securities were carefully selected by Factor to minimize Williams' risk.

Question 20 - 94592
Bob Smith, CFA, is an outside board member of Atlantic Technologies, but is not paid by the firm
for his services. An employee at Atlantic informs Smith that Atlantic has improperly timed the
booking of contracts to achieve the desired quarterly financial results. The misleading financial
statements would turn losses into profits. Smith confers with the firm's legal counsel who
indicates that this conduct is, in fact, illegal. Smith urges Sharon White, Atlantic's chief operating
executive, to change the financial statements, but she refuses to do so. According to CFA
Institute Standards of Professional Conduct, which of the following statements best describes
what Smith should do in this situation?
A) Smith should immediately make CFA Institute aware of the situation at Atlantic.
Smith should wait until the next board meeting, which is scheduled in two weeks, to make
B)
other board members aware of the situation.
Smith should promptly disassociate himself from Atlantic's actions by resigning as a director
C)
or by reporting the activities to the appropriate authorities.

Question 21 - 94935
Michael Bellow, CFA, CAIA, is an investment banker who is involved with an initial public
offering (IPO) of NewCo. Because this is Bellows first involvement in an IPO, he reports to
an experienced supervisor. While reviewing past financial statements provided by NewCo,
Bellow suspects that NewCo deliberately overstated its earnings for the past several quarters.
Bellow seeks the advice of his firms highly competent general counsel and follows the
advice given without deviation. Based on the general counsels advice, Bellow consults his
immediate supervisor about the suspected overstatement of earnings. After reviewing the
situation, Bellows supervisor explains why NewCos calculations of its earnings are
correct. Bellow realizes that his inexperience and exuberance initially led him to an incorrect
conclusion about NewCos earnings.

Which of the following statements about Bellows actions involving Standard I(A),
Knowledge of the law, and Standard I(C), Misrepresentation, is CORRECT? Bellow:
A)
B)
C)

violated both Standard I(A) and Standard I(C).

violated Standard I(A) but did not violate Standard I(C).
did not violate either Standard I(A) or Standard I(C).

Question 22 - 93496
The use of client brokerage by an investment manager to obtain certain products and services
to aid the manager in the investment decision-making process is called:
A)
B)
C)

quid pro quo practices.

soft dollar practices.
trading practices.

Question 23 - 94720
Which of the following is most likely permitted under Standard I(C), Misrepresentation?
A) Using excerpts from reports prepared by others without acknowledgement.
B) Citing quotes attributed to "investment experts" without specific reference.
C) Including an exhibit of the current yield curve in a report to a client without stating its source.

Question 24 - 94624
Which of the following statements about Standard IV(C), Responsibilities of Supervisors, is NOT
correct? CFA Institute members with supervisory authority:
A) may delegate supervisory duties, which relieves them of their supervisory authority.
are expected to bring an inadequate compliance system to the attention of the firm's senior
B)
managers and recommend corrective action.
are expected to have in-depth knowledge of the Code and Standards and to apply this
C)
knowledge in discharging their supervisory responsibilities.

Question 25 - 94754
In securing the shares for all accounts under her management, Linda Kammel of Northwest
Futures purchased three blocks of shares at three different prices. She then allocated these
shares by placing shares from the first block in accounts with surnames beginning with A-G. The
second was allocated over accounts H-P, and the third over Q-Z. This action is:
A) not permissible under the Code and Standards.
B) consistent with her responsibilities under the Code and Standards.
C) permissible only if the clients are informed of the allocation procedure.

Question 26 - 94886
A CFA Institute member puts the following statement on her resume: I passed each level of
the CFA exam on the first try. Is this a violation of Standard VII(B)?

A) Yes, because she incorrectly refers to the CFA exam.

B) Yes, because saying she passed exams on the first try is not appropriate.
C) No, because it is a statement of fact.

Question 27 - 94562
Joni Black, CFA, works for a portfolio management firm. Black is a partner of the firm and is
primarily responsible for managing several large pension plans. Black has just finished a
research report in which she recommends Zeta Corporation as a Strong Buy. Her rating
is based on solid management in a growing and expanding industry. She just handed the report
to the marketing department of the firm for immediate dissemination. Upon returning to her desk
she notices a news flash by CNN reporting that management for Zeta Corporation is retiring.
Black wishes she did not recommend Zeta Corporation as a Strong Buy, but believes
the corporation is still a good investment regardless of the management. What course of action
for Black is best? Black:
may send out the report as written as long as a follow up is disseminated within a
reasonable amount of time reflecting the changes in management.
B) should revise the recommendation based on this new information.
should report the new information to her immediate supervisor so that they can determine
C)
whether or not the marketing department should send out the report as written.
A)

Question 28 - 94946
Several years ago, Hilton and Ross, a full service investment firm, managed the initial public
offering of eCom, Inc. Now, eCom wants Hilton and Ross to underwrite its secondary public
offering. A senior manager at Hilton and Ross asks Brent Whitman, CFA, one of its equity
analysts, to write a favorable research report on eCom to help make the underwriting a success.
Whitman conducts a thorough analysis of eCom and concludes that the company has serious
problems that do not suggest a favorable financial outlook. Nevertheless, Whitman writes a
favorable report because he is fearful of losing his job. Hilton and Ross publicly distribute a
report that only contains a buy recommendation and a brief description of the basic
characteristics of eCom. Whitman has violated:
A) Standard V(A) Diligence and Reasonable Basis only.
Both Standard I(B) Independence and Objectivity and Standard V(A) Diligence and
B)
Reasonable Basis.
C) Standard I(B) Independence and Objectivity, only.

Question 29 - 94594
Standard III(E), Preservation of Confidentiality, applies to the information that an analyst learns
from:
A)
B)
C)

current clients and prospects only.

current clients, former clients, and prospects.
current clients and former clients only.

Question 30 - 94953
Which of the following is NOT part of the CFA Institute Code of Ethics. Members of CFA Institute
will:

A) use reasonable care and exercise independent professional judgment.

strive to maintain and improve their competence and the competence of others in the
B)
profession.
C) recommend investments that maximize returns for a given level of risk.

Question 31 - 95003
Using as his universe all companies in the steel industry, Reynold Anderson analyses the
performance of stock prices for the industry. He succeeds in developing a regression model with
excellent statistical control measures. The extrapolation from the model shows low risk variance
of the securities in this industry. Without the inclusion of non-steel stocks in the portfolio,
Anderson concludes that, based on these results, every portfolio can use the steel industry
securities to diversify and lower its risk. He persuades his clients to change their current
portfolios. Anderson states that, as the models results show, some particular industries,
such as car manufacturers, have underpriced stocks, and investors should take advantage of it.
Anderson has violated the Standards because he:
A) does not distinguish the opinion, based on his model, from the fact.
B) does not consider the suitability of the investment.
C) is not clear enough about the model results.

Question 32 - 94422
A client calls his money manager and asks the manager to liquidate a large portion of his assets
under management for an emergency. The manager warns the client of the risk of selling many
assets quickly but says that he will try to get the client the best possible price. This is a violation
of:
A)
B)
C)

Standard V(A), Diligence and Reasonable Basis.

Standard III(C), Suitability.
none of the Standards listed here.

Question 33 - 94730
When a CFA Institute member who is presently employed by a firm undertakes any independent
practice, he must do all of the following EXCEPT:
A) disclose the expected duration of the services to be rendered.
B) secure permission from the employer.
remand a percentage (to be determined by the employee and employer) of the income
C)
earned back to the employer.

Question 34 - 94805
Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the
two clients are equal in value. Hatfield has been trading on the clients behalf with a single
brokerage firm for several years. Because of his many years of business, the brokerage firm
occasionally gives Hatfield shares in an initial public offering (IPO) to sell to his clients. Hatfield
has a policy of allocating the IPO shares equally between the portfolios of the two clients. This
policy is:
A)

a violation of Standard III(C), Suitability.

B)
C)

congruent with Standard III(C), Suitability.

a violation of Standard III(B), Fair Dealing.

Question 35 - 94439
Janice Melfi is a portfolio manager for Soprano Advisors. Soprano has developed a proprietary
model that has been thoroughly researched and is known throughout the industry as the
Soprano model. The model is purely quantitative and screens stocks into buy, hold, and sell
categories. The basic philosophy of the model is thoroughly explained to clients. The director of
research frequently alters the model based on rigorous researchan aspect that is well
explained to clients, although the specific alterations are not continually disclosed. Portfolio
managers use the model to assist them in making portfolio decisions, but, based on their own
fundamental research, are allowed to purchase securities not recommended by the model. This
fact is not disclosed to the clients, because the head of marketing does not think it is relevant.
Which of the following statements regarding the portfolio managers investment decisions is
CORRECT?
A) There is no violation of the Standards.
Melfi is violating the Standards by using two investment processes that are in conflict with
B)
each other.
Soprano is violating the Standards by not disclosing the fundamental research aspect of the
C)
investment process.

Question 36 - 94806
Kim Lee manages a variety of accounts at Superior Investments. Some are permitted to invest
in tax-exempt issues only; others may not invest in a stock unless it pays dividends. Lee is
researching a biotech firm specializing in the analysis of "mad cow" disease. While touring
company facilities and meeting with management, she learns that they believe they may have
found a way to reverse the disease. Moreover, one manager conjectured, "Suppose that we
reversed the disease in someone who didn't even have it? We might then be able to boost that
individual's IQ into the stratosphere!" Lee returns to her office and buys shares for all accounts
under her supervision. This action is:
A) appropriate given the obvious potential of the therapy.
B) a violation of the Standard concerning fiduciary duties.
C) a violation of the Standard concerning appropriateness and suitability of investment actions.

Question 37 - 94374
Janine Walker is an individual investment advisor with 200 individual clients. When she first
obtains a client, Walker solicits personal data that helps her formulate an investment
recommendation, including tax status, income, expenditure needs, and risk tolerance. The
Standards:
A) require updating a client's data only when a material change occurs to the personal data.
only require to update a client's data when a material change is being made to the clients'
B)
portfolio.
C) require Walker to update the data regularly.

Question 38 - 126952

Within the Global Investment Performance Standards (GIPS) are supplemental provisions which
must be applied to which of the following asset classes?
A)
B)
C)

Private equity and real estate.

Emerging markets and private equity.
Alternative investments and derivatives.

Question 39 - 94497
Peggy Green, CFA, is a research analyst following Brown Co. All the information she has
gathered suggests the stock should be rated a weak "hold." During a recent lunch, Green
overheard another analyst say that the stock should be rated a "buy." Green returns to her office
and issues a "buy" recommendation. Green:
violated CFA Institute Standards of Professional Conduct because she did not seek
approval of the change from her firm's compliance director.
has violated CFA Institute Standards of Professional Conduct because she failed to
B)
distinguish between fact and opinion.
has violated CFA Institute Standards of Professional Conduct because she did not have a
C)
reasonable and adequate basis for making this recommendation.
A)

Question 40 - 93504
All of the following are violations of Standard II(B) Market Manipulation EXCEPT:
securing a controlling interest in an equity security in order to influence the price of a related
derivative instrument.
B) exploiting differences in market inefficiencies.
disseminating misleading information about the development of new products and
C)
technologies.
A)

Question 41 - 126953
All of the following are titles of one of the nine sections of the Global Investment Performance
Standards (GIPS) EXCEPT:
A)
B)
C)

Real Estate.
Implementation.
Input Data.

Question 42 - 94634
A money manager works for a full-service brokerage firm. After meeting with a new client and
gathering all relevant information, the money manager says that she thinks her firm can perform
all the financial services the new client needs. With respect to Standard I(C), Misrepresentation,
this:
may not be a violation if the manager's opinion is based upon the factual information
gathered.
B) may not be a violation if the representation was made orally.
C) is a violation because she cannot make statements like this under any circumstances.
A)

Question 43 - 127416
Karen Dalby, CFA, volunteers on her churchs finance board but receives no cash
compensation so she does not report the arrangement to her employer. Board compensation is
limited to an annual retreat to Hawaii, but the accommodations are modest. Dalby does not
enjoy the retreat and often considers skipping the event entirely. Dalby is most likely:
A) not in violation of the Code and Standards.
B) in violation of Standard IV(B) "Additional Compensation Arrangements."
C) in violation of Standard IV(A) "Loyalty."

Question 44 - 94370
One year ago, Karen Jason left the employment as a portfolio manager of Howe Advisors. The
departure was contentious and both parties threatened legal action. As a result, both parties
signed a settlement in which Jason was paid a pro rated bonus, but agreed not to work on the
portfolios of any existing Howe client for two years. The terms of the agreement were that both
parties agreed to keep all aspects of the agreement confidential, including the fact that there
was hostility surrounding the departure. Jason now works for Torre Advisors, who has the Stein
Company as a new client. At the time Jason left Howe, Stein was a client of Howe, although
Jason did not personally work on the Stein portfolio. Jason's supervisor at Torre wants Jason to
work on the Stein portfolio. Jason should:
inform her supervisor that she cannot work on the portfolio because of a legal agreement,
but cannot tell him why.
inform her supervisor that she cannot work on the portfolio because of a non-compete
B)
agreement.
work on the portfolio because she did not personally work on the portfolio when she was at
C)
Howe.
A)

Question 45 - 94644
The Global Investment Performance Standards (GIPS) were designed to be applied with the
goal of full disclosure and fair representation of investment performance in all instances
EXCEPT:
A) when a composite includes nondiscretionary funds to which the GIPS are not applicable.
when a firm or composite has been in existence for less than five years, in which case, less
B)
stringent standards apply.
when applicable local laws or regulations conflict with the GIPS, in which case, firms must
C)
comply with local laws and fully disclose the conflict.

Question 46 - 94772
The ODouls (husband and wife) have decided to work with Jane Mack, CFA, to have her
recommend an investment portfolio for them. The ODouls are novice investors and Mack
has determined their asset allocation model falls into the conservative category. After
researching various investment options for the ODouls, Mack has made a recommendation
that they divide their account on a 25%/75% basis between shares of a computer peripherals
manufacturing company her brokerage firm is underwriting and investment grade corporate

bonds. The ODouls are not aware that Macks firm is underwriting an offering of the
company in question. Which CFA Institute Standard(s) has Mack violated given her actions?
A) Standard V(A), Diligence and Reasonable Basis, and I(D), Misconduct.
B) Standard III(B), Fair Dealing, and III(A), Loyalty, Prudence, and Care.
C) Standard VI(A), Disclosure of Conflicts, and III(C), Suitability.

Question 47 - 94563
In the process of recommending an investment, in order to comply with Standard V(A),
Diligence and Reasonable Basis, a CFA Institute member must:
A) have a reasonable and adequate basis for the recommendation.
B) do both of these.
C) support a recommendation with appropriate research and investigation.

Question 48 - 94398
Cynthia Abbott, a CFA charterholder, is preparing a research report on Boswell Company for her
employer, Capital Asset Management. Bob Carter, president of Boswell, invites Abbott and
several other analysts to visit his company and offers to pay her transportation and lodging.
Abbott declines Carters offer but, while visiting the company, accepts a gift from Carter
valued at $75. Abbott fails to disclose the gift to her supervisor at Capital when she returns. In
the course of the company visit, Abbott overhears a conversation between Carter and his chief
financial officer that the companys earnings per share (EPS) are expected to be $1.10 for
the next quarter. Abbott was surprised that this EPS is substantially above her initial earnings
estimate of $0.70 per share. Without further investigation, Abbott decides to include the $1.10
EPS in her research report on Boswell. Using the high EPS positively affects her
recommendation of Boswell.
Which of the following statements about whether Abbott violated Standard V(A), Diligence and
Reasonable Basis and Standard I(B), Independence and Objectivity is CORRECT? Abbott:
A) violated Standard V(A) but she did not violate Standard I(B).
B) did not violate Standard V(A) but she violated Standard I(B).
C) violated both Standard V(A) and Standard I(B).

Question 49 - 94853
Brian Bellow, a CFA Institute member, is a portfolio manager for Progressive Trust Company.
Several friends asked Bellow to review their investment portfolios. On his own time, Bellow
examined their portfolios and made several recommendations. He received no monetary
compensation from his friends for his investment advice and provided no future investment
counsel to them. According to CFA Institute Standards of Professional Conduct, did Bellow
violate his duty to Progressive Trust?
A) No, because Bellow received no monetary compensation for his services.
Yes, because he undertook an independent practice that could result in compensation or
B)
other benefit to him.
C) No, because Bellow provided no ongoing investment advice.

Question 50 - 94380

Ken James has been an independent financial advisor for 15 years. He received his CFA
Charter in 1993, but did not feel it helped his business, so he let his dues lapse this year. He still
has several hundred business cards with the CFA designation printed on them. His promotional
materials state that he received his CFA designation in 1993. James:
can continue to use the existing promotional materials, and can use the cards until his
supply runs outhis new cards cannot have the designation.
must cease distributing the cards with the CFA designation, but can continue to use the
B)
existing promotional materials.
must cease distributing the cards with the CFA designation and the existing promotional
C)
materials.
A)

Question 51 - 94741
Heidi Krueger, CFA, an investment advisor, applies soft dollars generated from client accounts
to purchase a report on the economic impact of world events, and to purchase a new
conference table for the office she uses to meet with clients and prospects. Do these purchases
violate Standard III(A) Loyalty, Prudence, and Care?
A)
B)
C)

Only one of these purchases violates the Standard.

Both of these purchases violate the Standard.
Neither of these purchases violates the Standard.

Question 52 - 94653
Greg Stiles, CFA, may withhold from CFA Institute information about a client acquired in the
regular performance of his duties:
A) only if Stiles is a relative of the client.
B) only if Stiles has a special confidentiality agreement with the client.
C) for neither of the reasons listed.

Question 53 - 94950
Andy Rock, CFA, is an analyst at Best Trade Co. The company is going to announce a sell
recommendation on Biomed stock in one hour. Rock was a member of the team who reached
the decision on Biomed. Rocks wife has an account at Best Trade Co. that contains
Biomed stock. According to the Code and Standards, trading on Rocks wifes account
can begin:
A) as soon as the information is disseminated to all clients.
B) only after the recommendation is announced to the general public.
only after Rock, as a beneficial owner, has given an appropriate amount of time for clients
C)
and his employer to act.

Question 54 - 94587
In the preparation of a research report, a CFA Institute member may emphasize certain matters,
touch briefly on others, and omit some altogether:
A) provided that the analyst both has a reasonable basis and is unconstrained by the Mosaic

theory.
B) provided that the analyst has a reasonable basis for his or her actions.
C) under no circumstances.

Question 55 - 94388
Which of the following would be the least important proxy issue?
A)
B)
C)

Takeover defense and related actions.

Compensation plans for officers.
Election of internal auditors.

Question 56 - 93507
While visiting the CSI Company, Mark Ramsey, CFA, overheard management make comments
that were not public information, but were not really meaningful by themselves. However, when
this information is combined with his own analysis and other outside sources, Ramsey decides
to change his recommendation on CSI from buy to sell. According to CFA Institute Standards of
Professional Conduct, Ramsey should:
report these events to his immediate supervisor and legal counsel, since they have become
material in combination with his analysis.
issue his sell report because the facts are nonmaterial, but maintain a file of the facts and
B)
documents leading to this conclusion.
C) not issue his report until these comments are made public.
A)

Question 57 - 94904
Jake Miles, CFA, includes the following phrase on his business card: Jake Miles is your
trusted local CFA. Is this a violation of Standard VII(B)?
A) Yes, because he cannot put the initials "CFA" on his business card.
B) No, because his CFA Institute membership indicates that he is indeed trustworthy.
C) Yes, because he uses CFA as a noun.

Question 58 - 94496
A CFO who is a CFA Institute member is careful to make his press releasessome of them
containing material and previously undisclosed informationclear and understandable to his
readers. While writing a new release, he often has his current intern proofread rough drafts. He
also sends electronic copies to his brother, an English teacher, to get suggestions concerning
style and grammar. With respect to Standard II(A), Material Nonpublic Information, the CFO is:
violating the standard by either showing the pre-release version to his intern or sending it to
his brother.
B) not in violation of the Standard.
only in violation by e-mailing the pre-release version to his brother but not the intern,
C)
because the intern is in essence an employee of the firm.
A)