2019 CFA level 3 qbank r 1 2 CFA ins code of ethics and standards of prof conduct standards I–VII 3 questions

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Learning Management System

Question #1 of 62
David Lynch is an individual investment advisor who uses mutual funds for his clients. He
typically chooses funds from a list of 40 funds that he has thoroughly researched. The Palmers,
a married couple that are a client, asked him to consider the Twin Peaks fund for their
portfolio. Lynch had not previously considered the fund because when he rst conducted his
research three years ago, Twin Peaks was too small to be considered. However, the fund has
now grown in value, and after doing thorough research on the fund, he nds the fund has
suitable characteristics to be included in his acceptable list of funds. He puts the fund in the

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Palmers' portfolio but not in any of his other clients' portfolios. The fund ends up being the best

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performing fund of any of the funds on his list. Has Lynch violated any Standards? Lynch has:

A) violated the Standards by not dealing fairly with clients.
B) not violated the Standards.

Question #2 of 62

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C) violated the Standards by not disclosing con icts to clients.

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During 2004 Nancy Arnold received an undergraduate business degree with a management

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major and completed all requirements for the CFA designation imposed by CFA Institute. She is

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applying for employment at several brokerage rms. Her resume states, "I was awarded the
CFA degree in 2004 by CFA Institute." Her resume also states that she graduated "with honors"
and majored in nance. Her grade point average was 3.48 but "with honors" requires a 3.50

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grade point average.

Which of the following statements about Standard VII(B), Reference to CFA Institute, the CFA
Designation, and the CFA Program, and Standard I(C), Misrepresentation, is CORRECT? Arnold:

A) violated both Standard VII(B) and Standard I(C).
B) violated Standard I(C) but she did not violate Standard VII(B).
C) did not violate either Standard VII(B) or Standard I(C).

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Question #3 of 62
A rm produces regular proprietary research reports on various companies. According to
Standard VI(B), Priority of Transactions, which of the following would be an "access person?"

A) An independent auditor with access to material, non-public information on a company
being analyzed.
B) A person working in the mail room.

Question #4 of 62

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C) A supervisory analyst who reviews all research reports prior to dissemination.

Ray Stone, CFA, follows the Amity Paving Company for his employer, Rubbell Securities. Which
of the following scenarios is Stone least likely to have to disclose?

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A) Stone's ownership of Amity securities.

B) Rubbell's broker-dealer relationship with Amity.

C) The fact that Stone's son worked at Amity as a laborer during the summer while in

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school.

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Question #5 of 62

Ryan Brown, CFA, is an analyst with a large insurance company. His personal portfolio includes

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a signi cant investment in QRS common stock that his rm does not currently follow. The
director of the research department asked Brown to analyze QRS and write a report about its
investment potential. Based on CFA Institute Standards of Professional Conduct, Brown is
required to:

A) disclose the ownership of the stock to his employer and in the report.
B) sell his shares of QRS before completing the report.
C) decline to write the report without speci c approval of his supervisor.

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Question #6 of 62
A CFA Institute member puts the following statement on her resume: "I passed each level of the
CFA exam on the rst try." Is this a violation of Standard VII(B)?

A) Yes, because saying she passed exams on the rst try is not appropriate.
B) Yes, because she incorrectly refers to the CFA exam.
C) No, because it is a statement of fact.

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Question #7 of 62

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

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manages part of Brightwood's endowment. Dawson does not inform Ascott's compliance o ce
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 rm. Hamilton buys 10 shares

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of Horizon for her infant son's trust account. She believes that reporting this purchase to

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Ascott's compliance o cer is unnecessary because the amount of the transaction is small and

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is not for her own personal account.
Did Dawson or Hamilton's actions violate CFA Institute Standards of Professional Conduct?

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A) Dawson: No, Hamilton: No.
B) Dawson: No, Hamilton: Yes.
C) Dawson: Yes, Hamilton: Yes.

Question #8 of 62

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An analyst has the opportunity to o er his clients shares in a "hot new issue." One of the
analyst's clients is his brother. When the new issue comes out, for those clients he deems it
would be appropriate, he o ers them an equal share. He includes his brother in that group.
With respect to Standard VI(B), Priority of Transactions, this is:

A) congruent with the Standard even if he has a direct personal interest in his brother's
account.
B) congruent with the Standard if his brother is not a 'covered person'.
C) congruent with the Standard as long as he does not have a direct personal interest in

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his brother's account.

Question #9 of 62

The following scenarios involve two analysts at Dupree Asset Management, a small New York-

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based company with about $150 million in assets under management. Dupree restricts
personal trading of stocks analyzed, corporate directorships, trustee positions, and other
special relationships that could reasonably be considered a con ict of interest with their
responsibilities to their employer.

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Ray Bolt, CFA, is a senior investment analyst. Bolt was recently elected to the board of
trustees of his alma mater, Midwest University, and was appointed as the chairman of

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the University's endowment committee. Midwest has more than $2 billion in its

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endowment. Bolt must travel from New York to Chicago eight times a year to attend
meetings of the board of trustees and endowment committee. Bolt did not inform
Dupree of his involvement with Midwest University.

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Wanda Delvecco, a candidate in the CFA Program, is a junior investment analyst. She
recently wrote a research report on Aveco Communications and recommended the stock
for Dupree's "buy" list. Delvecco bought 200 shares of Aveco stock for her personal
account 12 months before she wrote her research report. Over the past 12 months, the
stock's price has been in the $20-42 price range. Delvecco has not informed Dupree of

her ownership of Aveco stock.

According to CFA Institute Standards of Professional Conduct, which the following statements
about Bolt and Delvecco's actions is CORRECT?

A) Neither Bolt nor Delvecco violated the Standards.
B) Both Bolt and Delvecco violated the Standards.
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C) Delvecco violated the Standards, but Bolt did not.

Question #10 of 62
Wes Smith, CFA, refers many of his clients to Bill Towers, CPA, for accounting services. In return,
Towers performs routine services for Smith, such as his tax returns, for no charge. Towers has
just become a member of CFA Institute. With this development, Towers must:

A) reveal to the prospects referred by Smith that he performs services for Smith, along

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with the estimated value of those services.

Question #11 of 62

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C) discontinue his services for Smith.

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B) only reveal to the prospects referred by Smith that he performs services for Smith.

Ted Willis received his CFA designation in 1998 and was employed as an investment counselor
until 2003. During the past several years, Willis has been out of work because of a serious

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illness. He also failed to pay his annual CFA Institute dues during the current year. Willis has

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now recovered and accepted a position with an investment advisory rm. His new business
card says, "Ted Willis, CFA." As part of his job with his new rm, Willis uses PowerPoint® to

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make presentations to groups of prospective clients.  He obtained some of these PowerPoint®
slides from web sites, but removed the copyright notice before showing the slides to

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prospective clients.

Which of the following statements about Standard VII(B), Reference to CFA Institute, the CFA
Designation, and the CFA Program, and Standard I(C), Misrepresentation, is most accurate?
Willis:

A) did not violate either Standard VII(B) or Standard I(C).
B) violated both Standard VII(B) and Standard I(C).
C) violated Standard VII(B) but he did not violate Standard I(C).

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Question #12 of 62
June Carter passed Level III of the CFA examination in June but will not complete her work
experience requirement until August of next year. Carter can state on her resume that she:

A) passed Levels I, II, and III of the CFA examination.
B) will be a CFA charterholder in August of next year as long as she is on track to complete
her work experience.

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C) is a CFA in waiting.

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Question #13 of 62

Arthur Harrow, CFA, is a pharmaceuticals analyst at Dominion Asset Management. His
supervisor directs him to prepare separate research reports on Miracle Drug Company and

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Wonder Drug Company. Harrow serves on the board of Miracle and owns 2000 shares of
Wonder, which is currently trading at $25 per share. According to CFA Institute Standards of
Professional Conduct, which of the following actions, if any, is Harrow required to take if he
writes the research reports?

of shares in Wonder.

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A) Harrow must disclose to Dominion both his relationship with Miracle and his ownership

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B) Harrow must disclose to Dominion his ownership of shares in Wonder but not his

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relationship with Miracle.

C) Harrow must disclose to Dominion his relationship with Miracle but not his ownership

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of shares in Wonder.

Question #14 of 62

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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 con dential, 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:

A) inform her supervisor that she cannot work on the portfolio because of a legal

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agreement, but cannot tell him why.

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B) work on the portfolio because she did not personally work on the portfolio when she
was at Howe.

C) inform her supervisor that she cannot work on the portfolio because of a non-compete

Question #15 of 62

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agreement.

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When an analyst makes an investment recommendation, which of the following statements

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must be disclosed to clients?

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A) An employee of the rm holds a directorship with the recommended company.
B) The rm is a market maker in the stock of the recommended company.

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C) Both of these statements must be disclosed to clients.

Question #16 of 62
Jim Bennett, CFA, leases o ce space to his best friend, Steve Waters. Bennett is an independent
investment advisor specializing in high net worth clients and Waters is a licensed life insurance
underwriter. In lieu of paying rent, Waters refers his insurance clients to Bennett, but only with
the clients' permission. For clients referred by Waters, Bennett:

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A) need not disclose the referral fee if Waters discloses the lease arrangement to the
clients rst.
B) must disclose the terms of the lease arrangement.
C) need not disclose the terms of the lease arrangement because Waters obtained the
clients’ permission for the referral.

Question #17 of 62

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For the past 5 years, Karen Beckworth, CFA, has served as a proctor for the CFA exam.
Beckworth tells her assistant, a Level III CFA candidate, that she normally receives the

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examinations on the Thursday before the exam. Given the low pass rate at Level III, Beckworth
asks her assistant if he would like an advance copy of the next exam. Beckworth's assistant
declines the o er.

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Beckworth's assistant has been very vocal about expressing his opinions about the low pass
rate. The assistant claims, "there are too many charterholders and CFA Institute is deliberately
failing candidates because the prestige of the CFA charter is becoming diluted."
With regard to Standard VII(A) Conduct as Participants in CFA Institute Programs, which of the

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following statements concerning Beckworth's and her assistant's behavior is most accurate?

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A) Both Beckworth and her assistant are in violation of Standard VII(A).

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B) Beckworth is in violation of Standard VII(A), but her assistant is not in violation.

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C) Neither Beckworth nor her assistant is in violation of Standard VII(A).

Question #18 of 62
Nichole Zeller and Randy To er have both passed Level II of the CFA Exam Program and have
registered for Level III. Zeller circulates a resume stating that she is a candidate for the CFA
designation and has passed Level II of the CFA program. To er circulates a resume stating that
he is a CFA II. Which of the following statements is CORRECT?

A) Both Zeller and To er have violated the Code of Standards.
B) Only To er has violated the Code of Standards.
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C) Only Zeller has violated the Code of Standards.

Question #19 of 62
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

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

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

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security from his personal accounts. This is:

Question #20 of 62

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

A member or candidate that receives consideration from others for the recommendation of

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products or services, must disclose the estimated dollar value of the consideration paid in:

B) cash only.

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A) cash, soft dollars, or in kind.

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C) cash or soft dollars only.

Question #21 of 62
An analyst who is a member of CFA Institute has composed an introductory information packet
for her new clients, which includes information on fees she receives for referring clients to
other professionals and those she pays for having clients referred to her. With respect to
Standard VI(C), Referral Fees, this action:

A) may not satisfy the Standard if such information is only provided after the receivers of
the information have become clients.
B) is not addressed in the Standard.
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C) exceeds the requirement of the Standard because she does not need to reveal the fees
she pays to those that refer clients to her.

Question #22 of 62
Joe James, CAIA, CPA, is a Level II CFA candidate living in Boston. In the course of his accounting
practice, James often refers clients to a local law rm specializing in estate planning. James does
not violate client con dentiality and does not receive compensation for the referral. However,

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the law rm often gives James tickets to the theater and major sporting events.

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

A) must disclose the bene ts received for referring clients to the law rm.

B) need not disclose the bene ts received for referring clients because the clients were
developed in the course of his accounting practice.

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C) need not disclose the bene ts received for referring clients because no compensation is

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received.

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Question #23 of 62

EXCEPT:

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All of the following are required for a CFA Institute member to maintain his or her active status

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A) Passing each exam in no more than two tries.
B) remit a completed Professional Conduct Statement on an annual basis.
C) paying membership dues to CFA Institute on an annual basis.

Question #24 of 62

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Lance Tuipulotu, CFA, is a portfolio manager for an investment advisory rm. He plans to sell
10,000 shares of Park N'Wreck, Inc. to nance his daughter's new restaurant venture, but his
rm recently upgraded the stock to "strong buy." In order to remain in compliance with
Standard VI(B) "Priority of Transactions," Tuipulotu must:

A) delay selling the shares until a rm client makes an o setting purchase to avoid having
a market impact.
B) not sell the shares of Park N’Wreck.

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C) notify his rm of his intention to sell the shares before selling the shares.

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Question #25 of 62

All of the following are violations of conduct as members and candidates in the CFA Program,
EXCEPT:

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A) providing con dential program information to the public.

B) disregarding the rules related to the administration of the CFA examination.

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C) expressing opinions in disagreement with CFA Institute advocacy positions.

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Question #26 of 62

All of the following statements in promotion of your services are in violation of CFA Institute

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Standards of Practice handbook EXCEPT:

A) based upon my research, you will achieve a 20% compound annual rate of return on
small cap stocks over the next 5 years.
B) I guarantee under my management that you will receive returns in excess of the market
index average.
C) I passed Level II of the CFA Program in 2003.

Question #27 of 62
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An analyst routinely has the opportunity to o er his clients the opportunity to purchase "hot
new issues." He tells his clients that he will distribute each issue equally among those
interested, with himself included in the distribution. The clients do not object to this. With

respect to Standard VI(B), Priority of Transactions, this:

A) cannot be a violation because the clients know of the practice and agree.
B) may be a violation because it is impossible to distribute hot new issues equally.

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C) may be a violation despite the clients' approval.

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Question #28 of 62

Will Lambert, CFA, is a nancial analyst for O shore Investments. He is preparing a purchase
recommendation on Burch Corporation. According to CFA Institute Standards of Professional
Conduct, which of the following relationships with Burch is Lambert least likely required to

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disclose?

A) his son-in-law was formerly employed by Burch.
B) his wife owns 2,000 shares of Burch.

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C) he has a material bene cial ownership of Burch through a family trust.

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Question #29 of 62

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Standard VI(B), Priority of Transactions, applies to transactions an analyst takes on behalf of:

A) both of these.
B) his clients.
C) his employer.

Question #30 of 62

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Judy Albert and Bob Tye, who recently started their own investment advisory business, plan to
take the Level III CFA examination next year. Albert's business card reads, "Judy Albert, CFA
Candidate." Tye has not put anything about the CFA on his business card. However, the rm's
promotional materials describe the CFA requirements and indicate that Tye participates in the

CFA program and has completed Levels I and II. According to CFA Institute Standards of
Professional Conduct:

A) Neither Albert nor Tye has violated the Standards.
B) Both Albert and Tye have violated the Standards.

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C) Albert has violated the Standards but Tye has not.

Question #31 of 62

Stephanie Irons, Level II CFA candidate, regularly posts in Internet chat rooms dedicated to

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candidates studying for the Level II exam. Throughout the season, she and other candidates
discuss curriculum content in great detail. Three days after the exam, she returns to the site
and vents her frustrations over complicated exam questions by posting questions she
remembers on the site, and asking others for their responses and reasoning. Other candidates
follow suit and post the questions they remember. Within a week, Irons and her fellow

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candidates are able to reconstruct about 85% of the exam from their collective memory. Irons

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and her fellow candidates are most likely:

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A) in violation of Standard VII(A) the Code and Standards for discussing curriculum content
in a public forum prior to the exam.

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B) not in violation because the information about the actual exam contents was posted
after the conclusion of the exam.
C) in violation of Standard VII(A) the Code and Standards for providing con dential
information about the exam.

Question #32 of 62

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Ken James has been an independent nancial 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:

A) must cease distributing the cards with the CFA designation and the existing
promotional materials.
B) can continue to use the existing promotional materials, and can use the cards until his
supply runs out—his new cards cannot have the designation.
C) must cease distributing the cards with the CFA designation, but can continue to use the

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existing promotional materials.

Question #33 of 62

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Bill Valley has been working for Advisors, Inc., for several years, and he just joined CFA Institute.
Valley routinely writes research reports on Pharmaceutical rms. Valley has recently been
asked to serve on the board of directors of an organization that promotes the search for a cure
of a certain cancer. Serving on the board is an unpaid position without any direct bene ts other

Con icts, Valley needs to:

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than meeting new people and potential clients. To comply with Standard VI, Disclosure of

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B) do nothing.

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A) only disclose the position on the board to his supervisor.

C) both disclose the position on the board to his supervisor and describe his

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responsibilities on the board.

Question #34 of 62
Lee Hurst, CFA, is an equity research analyst for a long-term investment fund. His annual bonus
is linked to quarterly trading pro ts. Under a new policy, the quarterly assessment period is
switched to a monthly assessment period. According to the Code and Standards, best practices
dictate:

A) updating disclosures when the policy change is implemented.
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B) requiring Hurst to obtain permission from each client prior to implementation of the
new policy.
C) keeping the policy change private as a trade secret.

Question #35 of 62
Steve Copper has worked as an independent consultant for the past ten years advising
companies on various ways to increase their internal e ciency and thereby increase the rm's

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stock price as well. Copper recently accepted a job o er from an equity research rm as a
senior stock analyst. One of the rms he will be responsible for researching, Johnson Machine

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Tools (JMT), is also one of his consulting clients. Copper currently has a contract with JMT to
provide consulting services for another six months which he plans to honor even though there
are no penalties in the contract for early termination on his part. According to CFA Institute

Copper to take? Copper should:

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Standards of Professional Conduct, which of the following is the most appropriate action for

A) terminate the contract with JMT prior to issuing any research on the company.
B) disclose the arrangement only if he plans to renew the contract in six months.

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C) disclose the consulting arrangement to clients considering JMT as an investment.

Question #36 of 62

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Stephanie Orange, Level II CFA candidate, posts blogs for her exam study group three days
after the exam to vent her frustrations over the exam. However, to avoid disclosing what was
actually on the exam, she only discusses topic areas she thought would be on the exam that
were not. She writes "...the topics selected were unnecessarily obscure. Important items like
FCF, DDM, and Residual Income were ignored completely..." Orange is most likely:

A) not in violation because the information about the actual exam contents was posted
only after the conclusion of the exam.
B) in violation of Standard VII(A) "the Code and Standards" for providing con dential
information about the exam.
C) not in violation because the information was only about what was not on the exam.
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Question #37 of 62
Which of the following statements is a violation of Standard VII(B) if it is included on a CFA
charterholder's resume?

A) My earning the CFA designation indicates my superior ability.
B) My earning the CFA designation indicates my desire to maintain high standards.

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C) Both of these are violations of Standard VII(B).

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Question #38 of 62

Steve Jones is a member of CFA Institute but has not earned the CFA designation yet. CFA

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Institute is investigating Jones' activities. If Jones declines to cooperate, he:

A) may not be suspended because cooperating could be self incriminating.
B) may be suspended from membership.

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C) may not be suspended because he does not have the CFA designation yet.

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Question #39 of 62

When Wes Smith rst joined Advisors, Inc., he was excited that all the analysts at the rm had

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the CFA designation. In letters to prospective clients, he states that this ensures that Advisors
can provide better service than their competitors. With respect to Standard VII(B), Reference to
CFA Institute, the CFA Designation, and the CFA Program, this is:

A) a violation for both mentioning the CFA designation and saying the rm can guarantee
better service.
B) a violation because he mentions the CFA designation in the letter.
C) a violation because he cannot guarantee better service.

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Question #40 of 62
Lindsay Gordon is a Level II CFA candidate living in San Francisco. Gordon's best friend, Steve
Haney, also a Level II candidate, is living in Munich. Because of the time di erence 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 most accurate?

A) Neither Gordon nor Haney is in violation of the Code and Standards.
B) Both Gordon and Haney are in violation of the Code and Standards.

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C) Gordon is in violation of the Code and Standards, but Haney is not in violation.

Question #41 of 62

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Which of the following is least likely a violation of Standard VII(A), Conduct as Participants in
CFA Institute Programs?

A) Improperly using the CFA Designation to further professional goals.
B) Expressing opinions in disagreement with CFA Institute advocacy positions.

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C) Disregarding the rules related to the administration of the CFA examination.

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Question #42 of 62

Judy Gonzales is a portfolio manager with Brenly Capital and works on Johnson Company's
account. Brenly has a policy against accepting gifts over $25 from clients. The Johnson portfolio
has a fantastic year, and in appreciation, the pension fund manager sent Gonzales a rare bottle
of wine. Gonzales should:

A) return the bottle to the client explaining Brenly's policy.
B) inform her supervisor in writing that she received additional compensation in the form
of the wine.
C) present the bottle of wine to her supervisor.

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Question #43 of 62
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. Rock's wife has an account at Best Trade Co. that contains Biomed
stock. According to the Code and Standards, trading on Rock's wife's account can begin:

A) as soon as the information is disseminated to all clients.
B) only after Rock, as a bene cial owner, has given an appropriate amount of time for
clients and his employer to act.

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C) only after the recommendation is announced to the general public.

Question #44 of 62

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Wes Smith, CFA, refers many of his clients to Bill Towers, CPA, for accounting services. In return,
Towers performs routine services for Smith, such as his tax returns, for no charge. With respect

to this relationship, Smith:

A) is in violation of both Standard V(B) and III(B).

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B) is only in violation of Standard III(B), Fair Dealing, by not putting the client rst.

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C) must disclose to his clients that Towers provides services for Smith's personal bene t.

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Question #45 of 62

While on a business trip, John Hayes, CFA, found a notebook that had apparently been left in
the waiting area of an airport. Hayes opened the notebook and read the title: Con dential:
Level II CFA Examination. Before returning the notebook to CFA Institute, he made a copy and
gave it to Linda Sacket, one of his rm's analysts, who was a candidate for Level II of the CFA
examination. Sacket read the questions and guideline answers before taking the Level II
examination. According to the CFA Institute Standards of Professional Conduct:

A) Sacket violated the Standards, but Hayes did not.
B) Hayes violated the Standards, but Sacket did not.
C) both Hayes and Sacket violated the Standards.
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Question #46 of 62
An analyst likes to trade options in her own account. She does not deem any of her client
accounts suitable for option trading. When she nds a favorable options position, in
accordance to Standard VI(B), Priority of Transactions, she should:

A) act on it on her own behalf as she sees t.
B) rst tell her clients about it before acting herself.

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C) refrain from acting until she noti es her supervisor.

Question #47 of 62

Janet Olson, CFA, is an analyst at Quantech Associates. Olson attended a conference at which

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Brian Wright presented several proprietary computerized spreadsheets that he had developed
to value high-tech stocks. While at the conference, Olson copied the spreadsheets without
Wright's knowledge. Later, Olson made several minor changes to Wright's initial model. After
testing the revised model, Olson was impressed with the results. As inputs for the model, she

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used factual materials supplied by Moody's Investors Service, a recognized nancial and
statistical reporting service. Olson wrote a research report describing the revised model and its

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results and distributed the report to Quantech's clients. According to CFA Institute Standards of

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Professional Conduct, which of the following actions is Olson required to take? Olson is:

A) required to seek authorization from Wright to copy the spreadsheets and acknowledge

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Wright for developing the initial model and Moody's Investors Service as the source of
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B) required to acknowledge Moody's Investors Service as the source of the data but is not
required to seek authorization from Wright to copy the spreadsheets or to acknowledge
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C) required to seek the authorization from Wright to copy the spreadsheets, acknowledge
Wright for developing the initial model but is not required to acknowledge Moody's
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Question #48 of 62
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Phil Trobb, CFA, is preparing a purchase recommendation on Aneas Lumber for his research
rm. All of the following are potential con icts of interest EXCEPT:

A) Trobb's research rm has a large stake of ownership in Aneas Lumber.
B) Aneas hires Trobb as a consultant to analyze Aneas' nancial statements.
C) Trobb's cousin repairs machines for Aneas.

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Question #49 of 62

Which of the following actions would be a violation of the Standard VII(A) Conduct as

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Participants in CFA Institute Programs?

A) Exaggerating the implications of holding the CFA designation.

B) Using the CFA designation without submitting a Professional Conduct Statement and

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paying annual dues.

C) Misrepresenting information on the Professional Conduct Statement.

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Question #50 of 62

Ralph Lim and Susan Bland have both passed Level I of the CFA Program. Both are currently

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enrolled to sit for Level II. Lim's business card reads, "Ralph Lim, CFA Level I." Bland's resume
states, "Level II Candidate in the CFA Program." According to CFA Institute Standards of

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Professional Conduct involving use of the professional designation:

A) Both Lim and Bland violated the Standard.
B) Bland violated the Standard, but Lim did not.
C) Lim violated the Standard, but Bland did not.

Question #51 of 62

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Robert Hopkins has earned the right to use the CFA designation and wants to indicate this on
his business card. According to CFA Institute Standards of Professional Conduct, which of the
following is the proper use of the professional designation on his business card?

A) Robert Hopkins, cfa.
B) Robert Hopkins, Chartered Financial Analyst.
C) Robert Hopkins, C.F.A.

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Question #52 of 62

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Which of the following statements about Standard VI(C), Referral Fees, is CORRECT?

A) Referral fees may be disclosed before or after proceeding with an agreement for
service.

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B) Referral fees must be disclosed before proceeding with an agreement for service.
C) Referral fees must be disclosed after proceeding with an agreement for service.

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Question #53 of 62

Julie Stades retired several years ago and relinquished her membership in CFA Institute. She

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had the CFA designation up until then. She has decided to go back to work and puts the

following statement on her resume: "I earned the CFA designation 10 years ago." Is this a

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violation of Standard VII(B)?

A) Yes, she has used the letters "CFA" in an undigni ed manner.
B) Yes, because she uses "CFA" as a noun.
C) No, as long as she does not indicate she currently has the designation.

Question #54 of 62

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An analyst, who is a CFA Institute member, manages a high-grade bond mutual fund. This is his
only professional responsibility. When the analyst comes across a speculative stock investment
that he feels is a good investment for his personal portfolio, the analyst:

A) is in violation of Standard IV(A), Loyalty to Employer, by spending time analyzing stocks
when he should only analyze bonds.
B) must notify his supervisor about the stock according to Standard VI(B), Priority of
Transactions, to see if it is appropriate for the portfolio that he manages.
C) may invest in the stock because the analyst would not purchase the stock for the bond

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portfolio he manages.

Question #55 of 62

Ron Vasquez is registered to sit for the Level II CFA exam. Unfortunately, Vasquez has failed the

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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 ow by continuing to fail candidates. Just look at
the pass rates."

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Which of the following statements regarding Vasquez's conduct is most accurate? Vasquez is:

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

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Participants in CFA Institute Programs.
B) in violation of Standard VII(A) Conduct as Participants in CFA Institute Programs, but not
in violation of Standard I(D) Misconduct.

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C) not in violation of Standard I(D) Misconduct or Standard VII(A) Conduct as Participants in
CFA Institute Programs

Tucson Financial Advisors (TFA) has determined that it needs to have the ability to conduct inhouse research to support its other activities. To this end, TFA has recently hired Alba
Hernandez, a CFA charterholder in good standing, as an investment analyst. Hernandez
becomes the rst full-time employee of TFA to have the CFA designation. When she is hired, her
supervisor tells her that TFA is familiar with the CFA Institute Code and Standards, but that the
company does not feel that they are important. TFA is a well-respected rm with a reputation

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for integrity that predates the CFA program. TFA tells her that they do not plan to use
Hernandez's a liation with CFA Institute in any of their literature or advertisements.
Prior to her employment with TFA, Hernandez was an independent contractor, providing
nancial advice for a fee to private clients. She continues to do so but has informed these
clients not to reveal this fact to TFA. Some of her private clients would be considered viable
prospects by TFA, while others would not meet TFA's $1 million net worth criterion. Hernandez

routinely uses TFA's data and other research materials in servicing her private clients.
Throughout the year, Hernandez holds a "quarterly investment forum" under the guidance of
TFA. Prospects nd out about the meetings via private mailings from TFA, which Hernandez

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supervises. In composing the mailing list, Hernandez is aware that many of the clients do not
meet TFA's $1 million net worth criterion. After each forum, Hernandez often contacts those

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attendees that do not meet TFA's criterion, and she solicits them to become clients in her
private practice.

ChemMex is a large conglomerate headquartered in Monterrey, Mexico. At present, ChemMex

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is planning an IPO in the U.S. TFA is seeking the mandate for the IPO, and has asked Hernandez
to meet with management to present a proposal. Hernandez's uncle, Hector Lopez, is CFO and
treasurer of ChemMex. In recent years, Lopez has given ChemMex securities to his nieces and
nephews as Christmas gifts. TFA is not aware of Hernandez's nancial interests and personal
connections with ChemMex.

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Hernandez is putting together a research report on CoppOre, a rm that mines copper in a

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developing country. She obtains insider information that states a rival rm in that country will
soon make a tender o er for CoppOre. Hernandez knows the laws in that country very well and

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knows that trading on inside information is not illegal there. Hernandez plans to write the
research report exaggerating the facts on positive points in order to encourage her clients to

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purchase shares in CoppOre, but she does not plan to explicitly say that CoppOre will soon be
bought out in a tender o er. In doing so, the clients will be encouraged to buy CoppOre stock
while not knowing about the tender o er. Hernandez feels that this is part of her duciary duty
and explains her plan to TFA management. The managers of TFA tell her to do what she thinks
is in the best interest of the clients.

Question #56 of 62
Concerning her private clients, Hernandez:

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A) must obtain written consent from TFA only if the private practice was not disclosed
orally during the hiring process.
B) must discontinue her independent practice.
C) must obtain written consent from TFA to continue the relationship.

Question #57 of 62
With respect to the prospects she invites to the "quarterly investment forum" and then solicits

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A) not in violation of any Code or Standard.

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for her private practice, Hernandez is:

B) in violation Standard VI(A) concerning disclosure of con icts.

Question #58 of 62

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C) in violation of Standard I(D) concerning professional misconduct.

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With respect to the proposal for the IPO mandate of ChemMex, Hernandez:

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A) is not allowed to meet with ChemMex o cials.
B) may meet with ChemMex o cials and be involved with the IPO, as long as she discloses

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the material facts of the situation to TFA.

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C) may meet with ChemMex o cials, but cannot be otherwise involved with the IPO.

Question #59 of 62
With respect to the recommendation that Hernandez writes for CoppOre, Hernandez may:

A) proceed with the recommendation as long as she does not exaggerate facts and
mention the tender o er, but must make an e ort to achieve public dissemination of
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B) not proceed with the recommendation with either the exaggerated information or the
information of the tender o er.
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C) proceed with the recommendation as long as she does not exaggerate facts and
mention the tender o er, but does not have to make an e ort to achieve public
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Question #60 of 62
All of the following are violations of the Code and Standards EXCEPT:

A) Hernandez not informing TFA of her private practice and getting written permission for

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it.
B) TFA’s management not making any special e ort to include Hernandez’s holding the

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CFA designation in their literature and advertisements.

Question #61 of 62

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C) Hernandez using TFA data and research for her private practice.

Upon her arrival at TFA, as a CFA charterholder, Hernandez:

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A) is required to deliver a copy of the Code and Standards to her employer and provide

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them with written noti cation of her obligation to comply.
B) is not required to deliver a copy of the Code and Standards to her employer.

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C) is only required to provide her employer with written noti cation of her obligation to
comply because she has been told her supervisors are aware of the Code and
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Question #62 of 62
Standard VI(C), Referral Fees, is applicable to:

A) all consideration received or paid for the recommendation of products or services.
B) only consideration paid in soft dollars for the recommendation of products or services.
C) only cash consideration received for the recommendation of products or services.

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