CFA lv 1 mock Exam with precise answers ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
and rationales ||\\//||
Jack Fahey, CFA, is a portfolio manager of Pacific Sunrise Investments, which does not
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
claim compliance with the Global Investment Performance Standards (GIPS). When
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
presenting the historical performance of his small-cap growth composite, Fahey notes that ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
only fee-paying accounts are included, but he does not mention that both discretionary and
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
non-discretionary accounts are included. Has Fahey most likely violated the Standards? ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Yes, with respect to performance presentation only
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Yes, with respect to both performance presentation and misrepresenation
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
No, because Pacific Sunrise Investments does not claim compliance with GIPS - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔B)
According to Standard I(C) - Misrepresentation, members and candidates "must not ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
knowingly make any misrepresentations relating to investment analysis, recommendations, ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
actions, or other professional activities." ||\\//|| ||\\//|| ||\\//|| ||\\//||
Standard III(D) - Performance Presentation requires members and candidates to make ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
reasonable efforts to present performance information in a manner that is "fair, accurate, ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
and complete." ||\\//||
In this example, Fahey violates both of these Standards by failing to note that the small-cap
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
growth composite includes both discretionary and non-discretionary accounts, as the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
composite's performance may misrepresent his abilities as a portfolio manager. The ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
compliance status of Fahey's firm with GIPS is irrelevant to whether he has personally ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
violated these Standards. ||\\//|| ||\\//||
,Ralph Sheppard, CFA, is both an equity analyst covering the consumer goods sector and an
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
avid chef in his spare time. On Tuesday evenings, with his employer's written consent,
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Sheppard teaches a class at a local culinary school, for which he is compensated at the ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
standard rate paid to all instructors. Recently, the culinary school where Sheppard teaches ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
was chosen to test prototypes of a new line of kitchen appliances being developed by
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Cuisineware, a manufacturer that Sheppard has covered for over a decade in his role as an ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
analyst. After using the prototypes for the first time, Sheppard is convinced there will be
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
significant demand for this new line of appliances. The next morning, he makes an upward ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
revision to his previously published price target for Cuisineware's stock, but he does not
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
disclose that he has tested the company's prototypes. Sheppard has most likely violated the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
CFA Standards with respect to:
||\\//|| ||\\//|| ||\\//|| ||\\//||
dis - correct answer✔✔B)
||\\//|| ||\\//|| ||\\//||
Sheppard has violated Standard V(A) - Diligence and Reasonable Basis, which requires ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
members and candidates to have a "reasonable and adequate basis, supported by ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
appropriate research and investigation, for any investment analysis, recommendation, or ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
action." In this example, Sheppard does not have a reasonable and adequate basis for
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
increasing the price target for Cuisineware's stock simply because he is familiar with the ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
company and has tested the prototypes for its new line of appliances. ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
However, working at a culinary school that was chosen to test Cuisineware's prototypes ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
does not constitute a benefit that must be disclosed according to Standard VI(A) -
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Disclosure of Conflicts. ||\\//|| ||\\//||
ucas Stamford, CFA, and Tamara Howarth, CFA, are money managers with a large
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
investment firm. Both receive quarterly bonuses from their employer for each of their ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
clients whose portfolio outperforms its benchmark. Additionally, both receive quarterly
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
bonuses based on client reports on service quality. Howarth discloses the details of both of
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
these bonuses to clients and prospective clients orally and in writing, whereas Stamford
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
only discloses the details of the bonus based on outperforming a benchmark. Which of the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
following statements is most likely correct? ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
,Howarth and Stamford have both violated the CFA Standards ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Howarth and Stamford have both adhered to the CFA Standards ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Howarth has adhered to the CFA Standards, but Stamford has not - correct answer✔✔B)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Standard VI(A) - Disclosure of Conflicts requires members and candidates to make "full and
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
fair disclosure of all matters that could reasonably be expected to impair their
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
independence and objectivity." In this example, both Howard and Stamford have adhered to ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
this Standard because they have disclosed the details of their bonuses based on short-term
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
investment performance to their clients and prospective clients. Stamford does not violated ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
this Standard by failing to disclose the details of a bonus based on client reports on service
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
quality.
Carla Pollini, CFA, is responsible for recommending third-party managers for a defined
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
benefit pension plan. While reviewing several proposals for the plan's latest allocation,
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Pollini learns that Roberto Lacobucci, manager of the Eurasian Equity Fund, directs a
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
percentage of the fund's profits to an animal sanctuary. After concluding her review of ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
several funds, Pollini recommends that the plan's trustees choose the Eurasian Equity Fund.
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Her methodology for ranking the various proposals includes consideration of each fund's
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
commitment to environmental, social, and governance (ESG) factors. Pollini does not ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
disclose to the trustees that she made a personal donation to the animal sanctuary that is
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
supported by the Eurasia Equity Fund. Has Pollini most likely violated the Standards?||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
No
Yes, with respect to disclosure of conflicts
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
, Yes, with respect to both disclosure of conflicts and independence and objectivity - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔No.
Pollini would have violated Standard I(B) - Independence and Objectivity if she had
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
solicited a donation from Lacobucci for one of her preferred charities when deciding ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
whether to recommend his fund to the pension plan's trustees. However, she does not ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
compromise her independence or objectivity by making a personal donation to a charity ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
that she learned about while conducting due diligence as part of her professional
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
responsibilities. Even if Lacobucci had solicited the donation, and there's no evidence that ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
he did, Pollini would not violate the Standards by making a donation because she would not
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
be using her position as the person responsible for recommending funds to benefit
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
personally.
Neither has Pollini violated Standard VI(A) - Disclosure of Conflicts. The fact that she has
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
decided to personally support the same charity as Lacobucci is not something that could
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
reasonably be expected to impair her independence and objectivity. She would have to be ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
the president or director for there to be a clear conflict.
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Robert Choi, CFA, works for Challenger Asset Management, which offers its clients ten
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
emerging market equity funds. All ten funds had negative five-year returns, although each ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
has outperformed its benchmark. Choi approves an advertisement that includes a statement
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
that the company's funds have provided investors with "positive excess returns" for
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
investors seeking exposure to these markets. Each fund's five-year returns are presented ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
alongside the returns of their relevant benchmark and a website where potential clients can ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
obtain more detailed information is listed. Has Choi most likely violated the Standards?
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
No
Yes, by failing to provide sufficient information
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Yes, by misleading potential clients with the implication that returns have been positive -
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
correct answer✔✔No. ||\\//||
and rationales ||\\//||
Jack Fahey, CFA, is a portfolio manager of Pacific Sunrise Investments, which does not
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
claim compliance with the Global Investment Performance Standards (GIPS). When
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
presenting the historical performance of his small-cap growth composite, Fahey notes that ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
only fee-paying accounts are included, but he does not mention that both discretionary and
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
non-discretionary accounts are included. Has Fahey most likely violated the Standards? ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Yes, with respect to performance presentation only
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Yes, with respect to both performance presentation and misrepresenation
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
No, because Pacific Sunrise Investments does not claim compliance with GIPS - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔B)
According to Standard I(C) - Misrepresentation, members and candidates "must not ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
knowingly make any misrepresentations relating to investment analysis, recommendations, ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
actions, or other professional activities." ||\\//|| ||\\//|| ||\\//|| ||\\//||
Standard III(D) - Performance Presentation requires members and candidates to make ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
reasonable efforts to present performance information in a manner that is "fair, accurate, ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
and complete." ||\\//||
In this example, Fahey violates both of these Standards by failing to note that the small-cap
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
growth composite includes both discretionary and non-discretionary accounts, as the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
composite's performance may misrepresent his abilities as a portfolio manager. The ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
compliance status of Fahey's firm with GIPS is irrelevant to whether he has personally ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
violated these Standards. ||\\//|| ||\\//||
,Ralph Sheppard, CFA, is both an equity analyst covering the consumer goods sector and an
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
avid chef in his spare time. On Tuesday evenings, with his employer's written consent,
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Sheppard teaches a class at a local culinary school, for which he is compensated at the ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
standard rate paid to all instructors. Recently, the culinary school where Sheppard teaches ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
was chosen to test prototypes of a new line of kitchen appliances being developed by
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Cuisineware, a manufacturer that Sheppard has covered for over a decade in his role as an ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
analyst. After using the prototypes for the first time, Sheppard is convinced there will be
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
significant demand for this new line of appliances. The next morning, he makes an upward ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
revision to his previously published price target for Cuisineware's stock, but he does not
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
disclose that he has tested the company's prototypes. Sheppard has most likely violated the
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
CFA Standards with respect to:
||\\//|| ||\\//|| ||\\//|| ||\\//||
dis - correct answer✔✔B)
||\\//|| ||\\//|| ||\\//||
Sheppard has violated Standard V(A) - Diligence and Reasonable Basis, which requires ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
members and candidates to have a "reasonable and adequate basis, supported by ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
appropriate research and investigation, for any investment analysis, recommendation, or ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
action." In this example, Sheppard does not have a reasonable and adequate basis for
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increasing the price target for Cuisineware's stock simply because he is familiar with the ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
company and has tested the prototypes for its new line of appliances. ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
However, working at a culinary school that was chosen to test Cuisineware's prototypes ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
does not constitute a benefit that must be disclosed according to Standard VI(A) -
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Disclosure of Conflicts. ||\\//|| ||\\//||
ucas Stamford, CFA, and Tamara Howarth, CFA, are money managers with a large
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investment firm. Both receive quarterly bonuses from their employer for each of their ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
clients whose portfolio outperforms its benchmark. Additionally, both receive quarterly
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bonuses based on client reports on service quality. Howarth discloses the details of both of
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these bonuses to clients and prospective clients orally and in writing, whereas Stamford
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only discloses the details of the bonus based on outperforming a benchmark. Which of the
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following statements is most likely correct? ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
,Howarth and Stamford have both violated the CFA Standards ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Howarth and Stamford have both adhered to the CFA Standards ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Howarth has adhered to the CFA Standards, but Stamford has not - correct answer✔✔B)
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Standard VI(A) - Disclosure of Conflicts requires members and candidates to make "full and
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fair disclosure of all matters that could reasonably be expected to impair their
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independence and objectivity." In this example, both Howard and Stamford have adhered to ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
this Standard because they have disclosed the details of their bonuses based on short-term
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investment performance to their clients and prospective clients. Stamford does not violated ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
this Standard by failing to disclose the details of a bonus based on client reports on service
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quality.
Carla Pollini, CFA, is responsible for recommending third-party managers for a defined
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benefit pension plan. While reviewing several proposals for the plan's latest allocation,
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Pollini learns that Roberto Lacobucci, manager of the Eurasian Equity Fund, directs a
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percentage of the fund's profits to an animal sanctuary. After concluding her review of ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
several funds, Pollini recommends that the plan's trustees choose the Eurasian Equity Fund.
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Her methodology for ranking the various proposals includes consideration of each fund's
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commitment to environmental, social, and governance (ESG) factors. Pollini does not ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
disclose to the trustees that she made a personal donation to the animal sanctuary that is
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supported by the Eurasia Equity Fund. Has Pollini most likely violated the Standards?||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
No
Yes, with respect to disclosure of conflicts
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, Yes, with respect to both disclosure of conflicts and independence and objectivity - correct
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answer✔✔No.
Pollini would have violated Standard I(B) - Independence and Objectivity if she had
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solicited a donation from Lacobucci for one of her preferred charities when deciding ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
whether to recommend his fund to the pension plan's trustees. However, she does not ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
compromise her independence or objectivity by making a personal donation to a charity ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
that she learned about while conducting due diligence as part of her professional
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responsibilities. Even if Lacobucci had solicited the donation, and there's no evidence that ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
he did, Pollini would not violate the Standards by making a donation because she would not
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be using her position as the person responsible for recommending funds to benefit
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personally.
Neither has Pollini violated Standard VI(A) - Disclosure of Conflicts. The fact that she has
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decided to personally support the same charity as Lacobucci is not something that could
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reasonably be expected to impair her independence and objectivity. She would have to be ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
the president or director for there to be a clear conflict.
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Robert Choi, CFA, works for Challenger Asset Management, which offers its clients ten
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emerging market equity funds. All ten funds had negative five-year returns, although each ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
has outperformed its benchmark. Choi approves an advertisement that includes a statement
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that the company's funds have provided investors with "positive excess returns" for
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investors seeking exposure to these markets. Each fund's five-year returns are presented ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
alongside the returns of their relevant benchmark and a website where potential clients can ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
obtain more detailed information is listed. Has Choi most likely violated the Standards?
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No
Yes, by failing to provide sufficient information
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Yes, by misleading potential clients with the implication that returns have been positive -
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correct answer✔✔No. ||\\//||
