Ethics Assignment 1

Question 1 - 94879

A member or candidate who rejects a disciplinary sanction proposed by a Designated Officer

of the Professional Conduct Program:

A) may request an appeal to a hearing panel.

B) will be suspended from membership or participation in the CFA Program.

will typically not be subject to further disciplinary procedure unless a new

C)
investigation is initiated.

Question 2 - 94858

With respect to filing complaints concerning the professional conduct of a CFA Institute
member, which of the following is CORRECT?

Anyone can write the Professional Conduct Program staff with a complaint
A)
concerning the conduct of any member.

Only other members can write the Professional Conduct Program staff with a
B)
complaint concerning the conduct of another member.

Anyone can write the Standards and Policy Committee staff with a complaint
C)
concerning the conduct of any member.

Question 3 - 147052

Sanctions that CFA Institute may impose on a member or candidate under the Professional
Conduct Program include:

A) public censure.

B) suspension from employment in the financial services industry.

C) returning of all profits gained through violations of the Code and Standards.

Question 4 - 94852

Steve Jones is a member of CFA Institute but has not earned the CFA designation yet. CFA
Institute is investigating Jones’ activities. If Jones declines to cooperate, he:
 A) could be summarily suspended from membership.

B) is within his right only because it could be self incriminating.

C) is within his right only because he does not have the CFA designation yet.

Question 5 - 147051

The CFA Institute Professional Conduct Program may impose sanctions on:

A) CFA charterholders and candidates for the CFA designation.

B) CFA charterholders only.

C) CFA charterholders, member firms, and candidates for the CFA designation.

Question 6 - 94921

The Code of Ethics does NOT explicitly say that a CFA Institute member shall do which of
the following?

A) Reflect credit on the profession.

B) Actively lobby for new laws to protect the public.

C) Act with integrity.

Question 7 - 94916

Which of the following is a component of the Code of Ethics? CFA Institute members shall:

act for the benefit of their clients and place their clients' interests before their
A)
own.

strive to maintain and improve their competence and the competence of others in
B)
the profession.

disclose to their employer all matters that reasonably could be expected to

C) interfere with their duty to their employer or ability to make unbiased and
objective recommendations.

Question 8 - 94911
Which of the following is a component of the Code of Ethics?

Members and candidates shall not engage in any conduct or commit any act that
A) compromises the integrity of the CFA designation or the integrity or validity of
the examinations leading to the award of the right to use the CFA designation.

Practice and encourage others to practice in a professional and ethical manner that
B)
will reflect credit on members and their profession.

Members shall not copy or use, in substantially the same form as the original,
material prepared by another without acknowledging and identifying the name of
C) the author, publisher, or source of such material. Members may use, without
acknowledgment, factual information published by recognized financial and
statistical reporting services or similar sources.

Question 9 - 94589

Deloris Johnson, CFA, suspected that her intern, who was working without pay at her
brokerage firm, had violated a federal securities regulation. Johnson discussed the matter with
her company's legal counsel who said that the intern's conduct was illegal. According to the
CFA Institute Code and Standards of Professional Conduct, Johnson can dissociate herself
from this illegal activity by:

A) reporting the activity to the appropriate authorities.

B) transferring supervision of the intern to another person.

C) telling her intern to stop such conduct.

Question 10 - 94627

All of the following would be permitted according to the CFA Institute Standards of
Professional Conduct EXCEPT:

A) token gifts received from clients.

air transportation paid by a corporate issuer for travel to a major metropolitan

B)
airport.

use of an issuer’s corporate aircraft when commercial transportation is not

C)
available.

Question 11 - 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:

A) may not be a violation if the representation was made orally.

may not be a violation if the manager's opinion is based upon the factual
B)
information gathered.

is a violation because she cannot make statements like this under any
C)
circumstances.

Question 12 - 94705

A CFA charterholder is caught shoplifting and is sentenced to nine months in prison. Is this a
violation of Standard I(D) Misconduct?

A) Yes, because the crime involved stealing.

B) Yes, because the prison sentence is more than six months.

C) No, because the crime does not relate to the investment profession.

Question 13 - 94415

Klaus Gerber, CFA, is a regular contributor to the Internet site WizeGuy. This past week
Gerber has been incorrectly quoted as recommending that investors buy shares in Bradford,
Inc. He is unaware that this message has been placed on the site as the quote was placed as a
prank by an unknown source. This is the third time this has happened over the past month and
each time the stock being mentioned moved in price according to the buy or sell
recommendation.

Fritz Fox, CFA, maintains and updates the WizeGuy site and has learned how to determine if
the quotes being attributed to Gerber are actually valid. Several days later, he observes an
investment recommendation, posted on the site, to buy Gresham, Inc. The investment
recommendation is purported to be from Gerber, but Fox actually knows it to be bogus. He
immediately sells 1,000 Gresham short and e-mails Gerber to inform him of the bogus
recommendation. Gerber immediately issues a rebuttal, and Gresham falls by 14%. Fox's
action is:

A) a violation of the Standard concerning fiduciary duties.

 B) not in violation of the Code and Standards.

C) a violation of the Standard concerning use of material nonpublic information.

Question 14 - 93517

Ron Taylor, a CFA Level I candidate, trades cotton contracts for a small commodity broker.
Taylor convinces a government cotton inspector to issue a warning that the Texas cotton crop
is in danger from insect infestation. The price of cotton soars. Taylor immediately shorts
cotton futures. Once the position is created, the government inspector issues a second report
reversing his original opinion and cotton prices plummet.

Cedric Sims, a CFA Level III candidate, would like to generate a tax loss on a security held
in his personal portfolio; however, he believes the security has significant upside potential.
To avoid the wash sale provisions of the income tax code, Sims sells the security and
simultaneously creates a synthetic long position using derivatives.

With regard to Standard II(B) Market Manipulation, which of the following statements
concerning Taylor’s and Sims’s conduct is CORRECT?

A) Neither Taylor nor Sims is in violation of Standard II(B).

B) Taylor is in violation of Standard II(B), but Sims is not in violation.

C) Both Taylor and Sims are in violation of Standard II(B).

Question 15 - 94803

Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto.
Calaveccio places a trade with Quantco Brokerage. While Calaveccio's part of the transaction
was conveyed correctly to Quantco, there was a trading error made in Calaveccio's account
due to a slip up within Quantco. Calaveccio realizes that the error has taken place, and
informs his contact at Quantco. Calaveccio allows Quantco to cover the error, with no cost to
TrustCo. This is:

permissible under CFA Institute Standards since some trading errors are a fact of
A)
life in the securities industry.

B) a violation of Calaveccio's duty to his employer.

C) a violation of Calaveccio's fiduciary duties.

Question 16 - 94924
Mary White, CFA, sits on the board of directors of XYZ Manufacturing, Inc. She discovers
that management has knowingly participated in an activity she knows is illegal. According to
the CFA Institute Standards of Professional Conduct, White is required to:

A) both of these choices are correct.

B) disassociate herself from the activity.

C) seek legal advice to determine what actions should be taken.

Question 17 - 127433

Francisco Perez, CFA, CPA, is a portfolio manager for an investment advisory firm. Due to
the prominence of his position, he is often invited to attend free marketing and educational
events hosted by firms which seek to inform the investment community about their
investment processes. One such firm, Unlimited Horizons, has invited Perez to attend free
educational events which qualify for Continuing Education credits which could help Perez
maintain his CPA designation. Perez should most likely:

accept the invitation as no cash compensation is involved and the primary intent
A)
is to educate and inform the investment community.

decline to attend the event as it could result in a violation of Standard I(B)

B)
"Independence and Objectivity."

decline to attend the event as it could result in a violation of Standard I(A)

C)
"Knowledge of the Law."

Question 18 - 94756

Ellen Miamoto, CFA, is preparing a research report on an employment agency, Temp Help,
Inc. She includes in her report:

 A copy of a paragraph from a report by the Wall Street research firm of Benson
Smith.
 A graph Miamoto has modified based on an original graph prepared by Gordon
Thompson that was published in the Wall Street Journal.
 A chart of national employment trends that Miamoto created using data from the U.S.
government's Bureau of Labor Statistics.

In her report, Miamoto must identify and acknowledge:

A) Benson Smith, Gordon Thompson, and the Bureau of Labor Statistics.

 B) Benson Smith and Gordon Thompson.

C) Benson Smith only.

Question 19 - 94706

Which of the following does NOT violate Standard I(D), Misconduct? Roland Lawson, a
financial analyst:

A) committed perjury in connection with a lawsuit against his firm.

drinks excessively during business meetings with clients and returns to work
B)
under the influence of alcohol.

C) is arrested for participating in a nonviolent protest.

Question 20 - 94619

Andrea Waters is an investment analyst who has accumulated and analyzed several pieces of
nonpublic information through her contacts with drug firms. Although no one piece of the
information she collected is "material," Waters correctly concluded that the earnings of one
of the drug companies would be unexpectedly high in the coming year. According to CFA
Institute Standards of Professional Conduct, Waters:

A) cannot legally invest or make recommendations based on this information.

B) can use the information to make investment recommendations and decisions.

may use the information, but only after approval from a compliance officer or
C)
supervisor.

Question 21 - 93364

Mark Williamson is “bearish”• on ABC Manufacturing Company. Williamson is so

convinced that ABC is overpriced, two weeks ago, he shorted 100,000 shares. Today,
Williamson is “surfing”• several popular investment bulletin boards on the internet and
posting false derogatory comments about company management. According to Standard
II(B), Market Manipulation, Williamson has engaged in:

A) transaction-based manipulation, but not information-based manipulation.

B) both transaction-based manipulation and information-based manipulation.

 C) information-based manipulation, but not transaction-based manipulation.

Question 22 - 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) Only one of these purchases violates the Standard.

B) Both of these purchases violate the Standard.

C) Neither of these purchases violates the Standard.

Question 23 - 93522

Bjorn Sandvik, CFA, completes a research report with a buy recommendation for Acorn
Properties. In the early afternoon, Sandvik e-mails this recommendation to his clients who
had responded to his request that they provide Sandvik with their e-mail addresses. Later that
afternoon, the printed recommendation is forwarded to the postal service for normal delivery
to all customers, who receive the mailing 1 to 3 days later. Sandvik has:

violated the Code and Standards by sending the e-mail recommendation to only
A)
some of his clients.

violated the Code and Standards by sending the e-mail recommendation in

B)
advance of the printed report.

not violated the Code and Standards because he acted fairly in disseminating
C)
research information to his clients.

Question 24 - 94794

Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of
the two clients are equal in value. One of the clients gets married and the assets of the new
spouse and the client are combined. With the larger portfolio of the now married client,
Hatfield determines that they can assume a higher level of risk and begins a change in the
policy concerning that portfolio. Which of the following would violate Standard III(C),
Suitability?

A) Assess the return objectives of the newly married client and his spouse.
 B) Implement a similar policy for the other client who did not just get married.

C) Assess the time horizon of the newly married client and his spouse.

Question 25 - 94834

John Hill, CFA, has been working for Advisors, Inc., for eight years. Hill is about to start his
own money management business and has given his two-week notice of his resignation from
Advisors. A few days before his resignation takes effect, on his lunch hour, he takes out a
loan from a bank on behalf of his new business and uses the money to buy some office
equipment for his new business. Since he engaged in these transactions while still an
employee of Advisors, Hill violated Standard IV(A), Loyalty to Employer, by:

A) engaging in a financial transaction, like taking out a loan, only.

B) both taking out the loan and purchasing the office equipment.

C) neither of these actions.

Question 26 - 94702

Jill Marsh, CFA, works for Advisors where she manages various portfolios. Marsh’s
godfather is an accountant and has done Marsh’s tax returns every year as a birthday gift.
Marsh’s godfather has recently become a client of Advisors and asked specifically for Marsh
to manage his account. In order to comply Standard IV(B), Disclosure of Additional
Compensation Arrangements, she needs to:

A) do neither of the actions listed here.

B) have her godfather cease doing her taxes.

liquidate from her personal portfolio any stocks her godfather owns and verbally
C)
tell her supervisor about the tax services.

Question 27 - 95015

Carmen Jorgensen, CFA, is the chief compliance officer for Dalton Financial Network, a
regional brokerage firm. Dalton is divided into three regions, each of which has a regional
compliance officer. Martin Lund, CFA, is the regional compliance officer for Dalton’s South
Region.

Dalton has established procedures for proper allocation of trades to all clients. In October,
Fred Curry, CFA, a broker in the South Region, misallocated a trade in favor of certain of his
clients and to the detriment of others. It became evident that Lund had failed to review the
trades on a timely basis as called for in Dalton’s Procedures Manual.

After an investigation, it was concluded that Curry violated the Code and Standards by failing
to allocate trades properly and Lund violated the Code and Standards by failing to supervise
appropriately. It should also conclude that Jorgensen:

did not violate the Code and Standards because adequate procedures were in
A)
place, even though they weren't being followed.

violated the Code and Standards by failing to adequately supervise her regional
B)
compliance officer, Lund.

C) violated the Code and Standards by failing to establish proper procedures.

Question 28 - 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
B)
have increased dramatically in the previous year.

C) neither of these choices.

Question 29 - 94360

Bertrand Greene, CFA, is preparing a report on Blanding, Inc. Blanding's earnings have
increased in each of the last six years by an average of 11.8%. Based on his analysis, Greene
projects that Blanding's earnings will increase by 12.5% in each of the next two years. Greene
will violate the Code and Standards if he states:

A) "Blanding's earnings have been compounding at approximately 11.8% annually."

B) "Blanding's earnings will grow at 12.5% annually in each of the next two years."

"I expect Blanding's earnings growth to increase to 12.5% annually in the next
C)
two years."
Question 30 - 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) not in violation of any Standard.

B) in violation of Standard V(C) “Record Retention.”•

C) in violation of Standard V(A) "Diligent and Reasonable Basis."

Question 31 - 94318

Theresa Hatcher, CFA, is making arrangements to establish her own investment advisory
business before terminating her relationship with her current employer, Elite Brokers, Inc.
Elite is a small company consisting of only six investment professionals and a small support
staff. According to CFA Institute Standards of Professional Conduct, which of the following
activities is least likely a violation of Hatcher's duty to Elite?

A) Hatcher solicits Elite's clients before her termination of employment at Elite.

Hatcher engages in secret negotiations with two other investment professionals

B)
and her administrative assistant to leave Elite in order to join her new business.

C) Hatcher leases office space, furniture, and other equipment for her new business.

Question 32 - 94387

Jill Marsh, CFA, works for Advisors where she manages a portfolio for a wealthy family.
Marsh earns 1% of the portfolio’s value each year in the form of a commission from
Advisors. The family just told her that any year the portfolio she manages earns more than a
10% return, the family will give her the use of the family’s vacation home for one week.
Hirsh will comply with Standard IV(B), Additional Compensation Arrangements, if she:

A) does nothing with respect to this.

delivers a typed memo to her supervisor about the vacation home the first time
B)
she uses it.

C) sends an e-mail to her supervisor about the vacation home.

Question 33 - 94507

A firm recently hired Jill Taylor to be a managing supervisor in the firm. Taylor knows that
all of her subordinate supervisors are members of CFA Institute and that they have a
compliance system in place with respect to the Code and Standards. Under these conditions
Taylor needs to:

A) neither of these choices.

rely on the current compliance system since the subordinate supervisors are
B)
subject to the Code and Standards.

C) review the compliance system for its adequacy.

Question 34 - 127427

Susan Tigra, CFA, is a portfolio co-manager for the Sandia Energy pension fund. Sandra
Bulow, a research analyst under Tigra’s supervision, creates a new trading model and
immediately begins to trade. Susan stops Bulow from trading, but notes that the firm has no
guidelines for testing new models. Tigra should most likely:

encourage her firm to develop detailed, written guidance that establishes

A) minimum levels of testing for all computer-based models as recommended by
Standard V(A) "Diligence and Reasonable Basis."

encourage her firm to develop detailed, written guidance that establishes

B) minimum levels of testing for all computer-based models as required by Standard
III(C) "Suitability."

report Bulow to the firm’s compliance department for violation of Standard V(A)
C)
"Diligence and Reasonable Basis."

Question 35 - 93526

Robert Hamilton, a CFA candidate, is preparing a research report on Pets-R-Us for public
distribution. Hamilton's preliminary report contains unfavorable earnings forecasts for the
next four quarters. As part of his analysis, Hamilton met with Linda Brisson, the president of
Pets-R-Us, and asked her to review the preliminary report for factual inaccuracies. Brisson
revised Hamilton's earnings forecasts so that the quarterly earnings showed an upward trend
and resulted in positive earnings by the fourth quarter. Hamilton included the revised
earnings figures in his report without further review. Although the final report included the
basic characteristics of Pets-R-Us, it emphasized certain areas such as projected quarterly
earnings but only briefly touched on others. According to CFA Institute Standards of
Professional Conduct on research reports, Hamilton:

violated the Standard because the report did not give similar attention to all areas
A)
but instead emphasized quarterly earnings at the expense of other areas.

B) did not violate the Standard.

violated the Standard because he did not thoroughly review and analyze any
C)
information provided by Brisson.

Question 36 - 94887

Ethyl Redd recently joined Bloomington Investments as a research analyst. After spending an
afternoon looking through the research team’s archives, Redd is not sure Bloomington
maintains the records that support the team’s analysis and recommendations for the minimum
7-year period called for by Standard V(C), Record Retention. What is Redd’s most
appropriate course of action?

Decline to participate in any new research until she can verify that the firm is in
A)
compliance with the Standard.

Keep her own copies of the relevant records and maintain them at home for a
B)
minimum 7-year holding period.

Review the firm’s record retention procedures with her supervisor or compliance
C) officer to ensure that they comply with the Standard, or suggest ways to bring
them into compliance.

Question 37 - 94585

Dwight Dawson, a CFA charterholder and portfolio manager at Ascott Investments, was
recently appointed to the investments committee at Brightwood College. He will receive no
compensation from Brightwood for serving on this committee. Another person at Ascott
manages part of Brightwood’s endowment. Dawson does not inform Ascott’s compliance
office of his involvement with Brightwood, because he does not believe doing so is
necessary.

Brenda Hamilton, a CFA candidate, also works for Ascott as an investment analyst.
Procedures established at Ascott prohibit personal trading in securities analyzed or
recommended by Ascott. One of these securities is Horizon, a telecommunications firm.
Hamilton buys 10 shares of Horizon for her infant son’s trust account. She believes that
reporting this purchase to Ascott’s compliance officer is unnecessary because the amount of
the transaction is small and is not for her own personal account.

Did Dawson or Hamilton’s actions violate CFA Institute Standards of Professional Conduct?

A) Dawson: No, Hamilton: No.

B) Dawson: Yes, Hamilton: Yes.

C) Dawson: No, Hamilton: Yes.

Question 38 - 94966

An analyst has a large personal holding of a security, and he has just determined that market
conditions warrant selling this security. The analyst contacts clients who have a position in
the security and advises them to sell some or all of the security. After waiting 24 hours, he
sells the security from his personal accounts. This is:

A) a violation of Standard VI(B), Priority of Transactions.

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

C) congruent with Standard VI(B), Priority of Transactions.

Question 39 - 94939

Joe James, CAIA, CPA, is a CFA Level II candidate living in Boston. In the course of his
accounting practice, James often refers clients to a local law firm specializing in estate
planning. James does not violate client confidentiality and does not receive compensation for
the referral. However, the law firm often gives James tickets to the theater and major sporting
events.

Which of the following statements regarding disclosure is CORRECT? James:

need not disclose the benefits received for referring clients because no
A)
compensation is received.

B) must disclose the benefits received for referring clients to the law firm.

need not disclose the benefits received for referring clients because the clients
C)
were developed in the course of his accounting practice.

Question 40 - 94701
Ron Vasquez is registered to sit for the CFA Level II exam. Unfortunately, Vasquez has
failed the exam the past two years. In his frustration, Vasquez posted the following comment
on a popular internet bulletin board: “I believe that CFA Institute is intentionally limiting the
number of charterholders in order to increase its cash flow by continuing to fail candidates.
Just look at the pass rates.”•

Which of the following statements regarding Vasquez’s conduct is CORRECT? Vasquez is:

in violation of Standard VII(A), Conduct as Members and Candidates in the CFA

A)
Program, but not in violation of Standard I(D), Misconduct.

in violation of both Standard I(D), Misconduct and Standard VII(A), Conduct as

B)
Members and Candidates in the CFA Program.

not in violation of Standard I(D), Misconduct or Standard VII(A), Conduct as

C)
Members and Candidates in the CFA Program.

Question 41 - 94843

Anderson, Baker and Chang all received their CFA charters and ordered new business
cards. Their business cards are as follows:

G. J. Anderson, CFA
B. K. Baker, Chartered Financial Analyst
M. S. Chang, C.F.A

Which of the business cards use the CFA marks improperly?

A) Chang.

B) Anderson and Chang.

C) Baker and Chang.

Question 42 - 94910

Which of the following statements regarding CFA Institute Global Investment Performance
Standards (GIPS) is CORRECT? A firm that employs members of CFA Institute:

A) is not required to conform to the GIPS.

must choose to comply with either the Performance Presentation Standards (PPS)
B)
or GIPS.
 C) must comply with the GIPS only within the United States.

Question 43 - 149978

Lora Murphy has an account at Ferrell Investments, a GIPS-compliant firm. Murphy invests
in small-cap value stocks and pays Ferrell a standard fee to execute her buy and sell orders.
According to GIPS, is Ferrell required to include Murphy’s portfolio in their small-cap value
stock composite?

A) Yes, because the portfolio is fee-paying.

B) No, because the portfolio is non-discretionary.

C) No, because constructing composites is voluntary.

Question 44 - 94959

When verifying a firm’s compliance with Global Performance Investment Standards (GIPS),
the verifier must:

disclose whether the verification was performed by the firm’s internal auditors or
A)
a third party.

attest that the firm’s processes and procedures are established to present
B)
performance in accordance with GIPS requirements.

C) clearly identify the composites for which verification has been performed.

Question 45 - 94909

Which of the following best describes the underlying principles upon which the Global
Investment Performance Standards (GIPS) are based?

A) Fair and consistent application of a global set of regulatory requirements.

B) Full disclosure and fair representation of performance results.

Uniformity and consistent application of standards for the global regulation of the
C)
securities industry.