CFA mock B Pm
To project the assets and liabilities of a pension plan using a number of different assumptions, the most appropriate method to employ is: Monte Carlo simulation because it can evaluate the effect of changes in assumptions. Monte Carlo simulation because it can provide more insights into cause and effect relationships than analytical methods. historical simulation because risk not represented in the time period observed can be integrated in the simulation.
Monte Carlo simulation because it can evaluate the effect of changes in assumptions. A is correct. Monte Carlo simulation is better suited to hypothetical "what if" analysis than historical simulation. To model a pension plan's status under a number of different hypothetical assumptions affecting the assets and liabilities, Monte Carlo simulation is the most appropriate method B is incorrect because Monte Carlo simulation is not an analytical method that can provide great insights into cause and effect relationships. It is a complement to analytical methods. C is incorrect because historical simulation is not as well suited to hypothetical "what if" analysis as is Monte Carlo simulation. While historical simulation is easier to model because it relies on data from the past to predict future probability distributions, it is not as well suited for meeting the goal of projecting the plan's assets and liabilities under different assumptions.
Overloading distribution channels ("channel stuffing") would understate: inventories. accounts receivable. revenues.
A is correct. "Channel stuffing," or inducing customers to buy more than usual, will produce an overstatement of revenues, which may be corrected in future periods if product is returned. Returned product in future periods would tend to understate inventories in the current period. B is incorrect because "channel stuffing," or inducing customers to buy more than usual, will most likely produce a higher ratio of accounts receivable to revenues because of an overstatement of accounts receivable. C is incorrect because "channel stuffing," or inducing customers to buy more than usual, will produce an overstatement of revenues.
A company has consistently and significantly increased its cash balance over the past three years. The least likely explanation for the increase in cash is a: forthcoming issue of new equity. potential acquisition. planned increase in the dividend.
A is correct. A new equity issue will provide additional cash, so it does not explain an increase in cash holdings prior to the issue. B is incorrect. A company might increase its cash to build a "war chest" in order to make an acquisition. C is incorrect. A company might increase its cash to pay a larger dividend.
Which of the following is most likely required to comply with the GIPS standards regarding input data? Portfolio valuations must: use accrual accounting for all interest earning investments. be obtained from independent third parties. use fair value for periods on or after 1 January 2015.
A is correct. GIPS Standard 1 Input Data states that accrual accounting must be used for fixed-income securities and for all other investments that earn interest income. The value of fixed-income securities must include accrued income. B is incorrect. Obtaining valuations from an independent third party is a recommendation for Standard 1 Input Data, not a requirement. C is incorrect. Portfolio valuations must use fair market values for periods on or after 1 January 2011.
Quantitative easing addresses the monetary policy challenges most likely caused by: expected periods of deflation. actions of bond market vigilantes. inflationary demand shocks or supply shocks.
A is correct. In a deflationary environment, reducing rates below zero may become ineffective and result in a liquidity trap. The next step to deter deflation is quantitative easing. B is incorrect. Bond market vigilantes act on long-term rates when they determine that the central bank lacks credibility or is ineffective in its policy implementation. C is incorrect. Demand shocks and supply shocks that cause increases in inflation would not be addressed by quantitative easing. Such an action would exacerbate inflation.
Information about the coupon rates on the various long-term fixed-rate debt issues of a company can most likely be found in the: notes to the financial statements. non-current liabilities section of the balance sheet. Management Discussion and Analysis (MD&A).
A is correct. Information about the coupon rates on the various long-term fixed-rate debt issues can usually be found in the notes to the financial statements. The MD&A is more likely to discuss interest rate trends and/or current financing costs but not specific information on individual debt issues. B is incorrect. Only the carrying amount can be found in the non-current liabilities section of the balance sheet. C is incorrect. Financing strategies and market trends can be found in the MD&A.
Which is least likely an example of a principal-agency conflict? Management agreeing to a takeover by a third party at a premium Management entering a related-party transaction with a key supplier Impact on minority shareholders of a company adopting straight voting
A is correct. Management agreeing to a takeover by a third party at a significant premium is not likely an indication of a principal-agency conflict. Because the takeover is by a third party at a significant premium, this is a benefit to shareholders. Although management may also benefit, it is not an example of an agency conflict. Straight voting means one share, one vote, which leaves minority shareholders with much less representation and can be an example of an agency conflict. Management entering into a related-party transaction is an example of a conflict; because of the nature of the relationship with the supplier, it may not be in the best interests of shareholders. B is incorrect. Management entering into a related-party transaction is an example of a conflict; because of the nature of the relationship with the supplier, it may not be in the best interests of shareholders. C is incorrect. Straight voting means one share, one vote, which leaves minority shareholders with much less representation and can be an example of an agency conflict.
Which of the following multiples is most useful when comparing companies with significant differences in capital structure? EV/EBITDA Price-to-book ratio Price-to-cash flow ratio
A is correct. The EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation, and amortization) approach is most useful when comparing companies with significant differences in capital structure. EBITDA is computed prior to payment to any of the company's financial stakeholders and is not affected by the amount of debt leverage. B is incorrect. The EV/EBITDA approach is most useful when comparing companies with significant differences in capital structure. C is incorrect. The EV/EBITDA approach is most useful when comparing companies with significant differences in capital structure.
The management fee of a private equity fund that has not yet invested all of its committed capital is most likely based on: committed capital. remaining capital. invested capital.
A is correct. The management fee of private equity funds is based on committed capital until the committed capital is fully drawn down and invested. This approach is in contrast to hedge funds, for which the management fee is based on invested capital. B is incorrect. The management fee is based on committed capital and not remaining capital. Remaining capital serves as base for the fee once the committed capital is fully invested. C is incorrect. The management fee is based on committed capital and not invested capital. This is an important distinction from hedge funds.
Which of the following is not part of the nine major sections of the GIPS standards? Performance Fees Disclosure Input Data
A is correct. The nine major sections of the GIPS standards do not include performance fees. The nine major sections are fundamentals of compliance, input data, calculation methodology, composite construction, disclosure, presentation and reporting, real estate, private equity, and wrap fee/separately managed account portfolios. B is incorrect because input data is one of the nine major sections of the GIPS standards. C is incorrect because disclosure is one of the nine major sections of the GIPS standards.
Which of the following statements about peer groups is most accurate? A peer group is constructed through a process: that starts with an existing commercially classified system that is then narrowed. that locates a group of companies whose valuation is influenced by diverse factors. where management should refrain from participating to maintain objectivity in the process.
A is correct. The process consists of initially examining commercial classification systems and then refining it to the companies operating in the chosen industry. B is incorrect because the process includes looking for similar, not diverse, factors. C is incorrect because management should be part of the process.
If two events, A and B, are independent, and the probability of A does not equal the probability of B [i.e., P(A) ≠ P(B)], then the probability of event A given that event B has occurred [i.e., P(A | B)] is best described as: P(A). P(B). P(B | A).
A is correct. Two events, A and B, are independent if and only if P(A | B) = P(A) or, equivalently, P(B | A) = P(B). The wording of the question precludes P(A) = P(B); therefore, P(B) and P(B | A) cannot be correct. B is incorrect. Two events A and B are independent if and only if P(A | B) = P(A) or, equivalently, P(B | A) = P(B). As P(A) ≠ P(B), B cannot be correct. C is incorrect. Two events A and B are independent if and only if P(A | B) = P(A) or, equivalently, P(B | A) = P(B). As P(A) ≠ P(B) and given that P(B) = P(B | A), C cannot be correct.
Verification of compliance with the GIPS standards most likely requires: an independent third party to carry out the verification. an assurance that the composite presentations are accurate. verification for each specific composite under review.
A is correct. While a firm is responsible for their own compliance claim, they cannot perform their own verification. An independent third party must undertake the verification. B is incorrect because verification does not ensure the accuracy of any specific composite presentation. C is incorrect because verification is performed with respect to an entire firm, not on specific composites.
Fundamental Asset Managers claims compliance with the CFA Institute Global Investment Performance Standards (GIPS) and manages both discretionary and non-discretionary accounts. When constructing a single composite for Fundamental, Juma Dzuya includes all discretionary, fee-paying accounts with both value and growth strategies. Does the composite constructed by Dzuya most likely meet GIPS criteria? Yes. No, because of non-similar investment strategies. No, because non-discretionary accounts are not included.
B is correct because a composite must include all actual, fee-paying, discretionary portfolios managed in accordance with the same investment mandate, objective, or strategy (Standards IV Composites). By including both the value and growth portfolios, the composite is made up of portfolios with different investment mandates or strategies. A is incorrect because the composite is made up of portfolios with different mandates or strategies, e.g., growth and value. C is incorrect because non-discretionary accounts should not be included, i.e., only discretionary accounts should be included in composites to comply with GIPS. Introduction to the Global Investment Performance S
Which of the following least likely reflects the two primary principles of the CFA Institute Rules of Procedure for Proceedings Related to Professional Conduct? Confidentiality of proceedings Public disclosure of disciplinary sanctions Fair process to the member and candidate
B is correct because the two principles of the Rules of Procedure for Proceedings Related to Professional Conduct are confidentiality of proceedings and fair process to the member and candidate.
A man travels every weekend to visit his children. Normally, he takes the bus, which costs $40 one way and takes three hours because of scheduled stops along the way. There is a direct train that does the trip in 1 hour and 45 minutes but costs $60 one way. In order to encourage business, the bus company has just announced package deals through which a customer can buy three trips for the price of two. He intends to take advantage of the package deal for three weekends in a month and then use the train for the remaining weekend. For this person, bus travel is bestdescribed as what type of economic good? Veblen Inferior Normal
B is correct. After the price of the bus travel falls, he expects to use the bus less—only three weekends a month instead of four—and use the train more. The fact that he will consume less of the good (bus travel) when the price falls indicates that it is an inferior good to him. A is incorrect. A Veblen good applies to luxury items for which demand for the item increases as the price increases owing to its high status. C is incorrect. If bus travel were a normal good, he would use it more, not less, when the price falls.
Which of the following statements concerning a security market index is most accurate? Estimated market prices of constituent securities are not used to calculate the index value. The divisor will be adjusted to prevent changes not related to prices of constituent securities. At inception, the total return version of an index will be greater than the price version of an index.
B is correct. An index provider will adjust the value of the divisor as necessary to avoid changes in the index value that are unrelated to changes in the prices of constituent securities. A is incorrect. The value of an index is calculated using either the actual or estimated market prices of the individual securities. C is incorrect. At inception, the value of a total return index will be equal to the price index.
A company's series B, 8% preferred stock has the following features: A par value of $50, and it pays quarterly dividends. Its current market value is $35. The shares are retractable (at par) with the retraction date set for three years from today. Similarly rated preferred issues have an estimated nominal required rate of return of 12%. Analysts expect a sustainable growth rate of 4% for the company's earnings. The intrinsic value estimate of a share of this preferred issue is closest to: $33.33. $45.02. $52.00.
B is correct. Because the current market value is well below the retraction price, retraction is likely, and the preferred share will be priced on the basis of its retraction feature. Quarterly dividend = ($50 × 0.08)/4 = $1 a share Quarterly required return = 12%/4 = 3% = $45.02 Using a financial calculator: PMT = $1; N = 12; FV = $50; I = 3%; Compute PV = $45.02. A is incorrect. It is simply the perpetual cash flow model to find a preferred stock's intrinsic value: Annual dividend/required return = $4/0.12 = $33.33; C is incorrect. It incorrectly applies constant growth model to preferred stock valuation. V 0 = 4(1.04)/(0.12 - 0.04) = $52.00
Forward rate agreements are most likely used to hedge an exposure in the: foreign exchange market. money market. equity market.
B is correct. Forward rate agreements are used to hedge interest rate exposure present in the money market. A is incorrect. Forward rate agreements are used to hedge interest rate exposure and not foreign exchange exposure. C is incorrect. Forward rate agreements are used to hedge interest rate exposure and not equity exposure.
In a country with a high level of income, as domestic income rises, it is most likely that an increase will occur in: the fiscal balance. private saving and investment. the trade balance.
B is correct. In a country with a high level of income, as domestic income rises, private saving and investment will increase. A is incorrect. The fiscal balance is given by G - T. An increase in domestic income leads to an increase in net taxes. Government's fiscal balance will decrease (smaller deficit or larger surplus). C is incorrect. The trade balance is given by X - M. An increase in domestic income leads to an increase in imports and lower net exports. The trade balance will decrease.
An investor writes a put option on FTSE 100 Index futures. Which of the following best describes the investor's position with respect to the put contract and her exposure to the underlying index future, respectively? Long, short Short, long Short, short
B is correct. The investor has written a put contract, which means she is short the option. She, therefore, must satisfy the obligation to purchase the asset if requested to do so by the put owner. The investor has a long exposure to the risk of the underlying index future because she benefits when its quoted price increases—that is, when the put declines in value (or suffers a loss when its quoted price decreases as the put increases in value). A is incorrect. The investor has a short position in the put contract, not a long position, because she suffers a loss when the quoted price of the contract increases. The investor has a long exposure to the underlying index future, not a short position, because she benefits when its quoted price increases (or suffers a loss when its quoted price decreases). C is incorrect. The investor has a long exposure to the underlying index future, not a short position, because she benefits when its quoted price increases (or suffers a loss when its quoted price decreases).
As a monetary policy tool, quantitative easing (QE) will most likely help revive an ailing economy in which of the following environments? Deflationary trap Declining bank reserves and economic activity Liquidity trap
B is correct. Quantitative easing (QE) is an "unconventional" approach to monetary policy and is operationally similar to open market purchase operations but conducted on a much larger scale. The additional reserves created by central banks in a policy of quantitative easing can be used to buy any assets. The idea is that this additional reserve will kick-start lending, causing broad money growth to expand, which will eventually lead to an increase in real economic activity. A is incorrect. Deflation is a pervasive and persistent fall in a general price index and is more difficult for conventional monetary policy to deal with than inflation. This is because once the monetary authority has cut nominal interest rates to zero to stimulate the economy, it cannot cut them any further. It is at this point that the economic conditions for a liquidity trap arise. Deflation raises the real value of debt, while the persistent fall in prices can encourage consumers to put off current consumption, leading to a fall in demand that leads to further deflationary pressure. Thus a deflationary "trap" can develop, which is characterized by weak consumption growth, falling prices, and increases in real debt levels. C is incorrect. A liquidity trap is associated with occasions where the demand for money becomes infinitely elastic—that is, where the demand curve is horizontal and individuals are willing to hold additional money balances without any change in the interest rate—so that further injections of money into the economy will not serve to further lower interest rates or affect real activity. In this extreme circumstance, monetary policy can become completely ineffective.
Risk budgeting most likely: limits the cost of hedging a portfolio. can be defined by a measure such as beta or scenario loss. focuses on the appetite for risk and what exposures are acceptable.
B is correct. Risk budgeting quantifies and allocates the tolerable risk according to specific metrics. A risk budget can be multidimensional or a simple, one-dimensional risk measure, such as standard deviation, beta, value at risk, or scenario loss, among others. A is incorrect. Limiting the amount invested for hedging purposes is not a result of a market-benchmarked choice of risk intensity. C is incorrect. Risk tolerance focuses on the appetite for risk.
Which of the following situations is the least likely reason why the marginal cost of capital schedule for a company rises as additional funds are raised? The company seeks to issue less senior debt because it violates the debt incurrence test of an existing debt covenant. The cost of additional funds from various sources rises as higher levels of financing are achieved. The company deviates from its target capital structure because of the economies of scale associated with flotation costs and market conditions.
B is correct. The WACC does not necessarily increase as more funds are being raised. Higher amounts of funding would not change the WACC if everything were in proportion to the old target capital structure. It is the changes in relative proportions of sources of funding that could make a difference because of interest deductibility and financial risk. A is incorrect. The debt incurrence test may restrict a company's ability to incur additional debt at the same seniority based on financial tests or conditions. They will have to issue a less senior debt (or even equity) which would have higher cost. C is incorrect. A company does not necessarily raise more funds according to its target capital structure because of the economies of scale in raising new capital and market conditions. These short-run deviations are due to the "lumpiness" of security issuance. The marginal cost of capital may increase, reflecting these deviations.
Which of the following long-term debt information is presented both on the balance sheet and in the notes to the financial statements? Maturity dates Current maturities of long-term debt Effective interest rate
B is correct. The portion of long-term debt due in the next twelve months is shown as a current liability on the balance sheet. The amount of scheduled debt repayments for the next five years, including an adjustment for long term debt currently coming due, is also shown in the notes to the financial statements. A is incorrect because maturity dates for debt are provided in the notes to the financial statements (but not on the balance sheet). C is incorrect because the notes to the financial statement generally include stated and effective interest rates, maturity dates, restrictions imposed by creditors (covenants), and collateral pledged (if any). This information is not found on the balance sheet.
An investor is least likely exposed to reinvestment risk from owning a(n): amortizing security. zero-coupon bond. callable bond.
B is correct. There are no interim cash flows for a zero-coupon bond until the maturity. A is incorrect because the investor has to reinvest the amortized principle before the maturity. C is incorrect because when a callable bond is called before the maturity, the investor is facing the reinvestment risk between the call date to the maturity.
A company that prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) is attempting to produce lighter and longer-lasting batteries for portable electronic devices. The most appropriate accounting treatment for the related costs incurred in this project is to: capitalize costs directly related to the development. expense costs until technical feasibility has been established. expense them as incurred.
B is correct. Under IFRS, research and development costs are expensed until certain criteria, including demonstration of technical feasibility, have been met. A is incorrect. Costs can only be capitalized once certain criteria, including the establishment of technical feasibility, have been met. C is incorrect. Costs can only be capitalized once certain criteria, including the establishment of technical feasibility, have been met. note: D can be capitalised when feasibility met (IFRS) gaap generally expenses. unless software.
The effective annualized cost (%) of a banker's acceptance that has an all-inclusive annual rate of 5.25% for a one-month loan of $2,000,000 is closest to: 5.54%. 5.38%. 5.27%.
C 5.27 {2000000/[(1-(5.25%/12))*2000000]}*12 is the answer
David Donnigan enrolled to take the Level II CFA examination in the current year, however he did not take the exam. Donnigan advised his employer he passed Level II. Subsequently, he registered to take the Level II exam the next year. Which CFA Institute Standard of Professional Conduct did Donnigan least likely violate? Duty to employer Professional misconduct Referencing Candidacy in the CFA Program
C is correct because as he registered to take the exam in the next year he still qualifies to state he is a candidate in the CFA Program. He would not, however, be authorized to reference that he is a Level III candidate and if asked would need to specify that he is a Level II candidate. A is incorrect because Standard IV(A) requires members and candidates to protect the interests of their firm by refraining from any conduct that would injure the firm, deprive it of profit, or deprive it of the member's or candidate's skills and ability. Lying about passing the CFA examination could cause the firm to misrepresent Donnigan's progression in the CFA program to a client, leading to reputational damage if discovered. B is incorrect as he lied to his employer about passing the examination, which is a professional misconduct violation. Members should not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation [Standard I(D)].
Which is most likely considered a "pull" on liquidity? Increased difficulty in collecting receivables Obsolete inventory Reduction in a line of credit
C is correct. A "pull" on liquidity occurs when disbursements are made too quickly (e.g., current liabilities are paid instead of being held or when credit availability is reduced or limited). A "drag" on liquidity occurs when receipts lag (i.e., non-cash current assets do not convert to cash quickly). Consequently, a reduction in a credit line is a "pull" on liquidity. B is incorrect because it is a "drag" on liquidity. A is incorrect because it is a "drag" on liquidity. It is a result of increased assets.
A country in fiscal balance with a trade surplus will most likely: sell assets to foreigners to reduce the imbalance. increase the imbalance by lending to foreign countries. have an excess of domestic saving relative to investment spending.
C is correct. A trade surplus arises when exports exceed imports—that is, X > M. A fiscal balance arises when government spending equals taxation—that is, G = T. Since X - M = (S - I) + (T - G), if T = G, then a trade surplus can arise only when there is an excess of domestic saving over investment spending. A is incorrect. A country with a trade surplus will buy assets from foreigners to reduce the imbalance. B is incorrect. A country with a trade surplus will decrease the imbalance by lending to foreign countries.
It is most likely that the distance between the outer bands of Bollinger Bands will be farthest apart when the moving average period is longer. trading volume is higher. price volatility is higher.
C is correct. Bollinger Bands consist of a moving average price plus a higher line representing the moving average plus a set number of standard deviations from the average price and a lower line that is the moving average minus the same set number of standard deviations. Higher price volatility increases the standard deviation, making the bands wider. A is incorrect. The length of time used to determine the moving average price affects the center line that the bands are based on, but not the width of the bands. B is incorrect. Trading volume does not directly affect the bands, only average price and price volatility.
Firms with which of the following characteristics are most likely candidates for a management buyout (MBO)? Firms with low levels of cash flow Firms with high dividend payout ratios Firms with large amounts of undervalued assets
C is correct. Companies with large amounts of undervalued assets (which can be sold to reduce debt) that generate high levels of cash flow (which are used to make interest and principal payments on the debt) are likely candidates for MBO transactions. B is incorrect. A high dividend payout ratio is not a preferred characteristic for MBO. A is incorrect. Companies with low levels of cash flow are not preferred candidates for MBO.
Which of the following best distinguishes ethical conduct from legal conduct? Ethical conduct typically: is narrow in scope. follows an existing market practice. considers and benefits multiple stakeholders.
C is correct. Ethical conduct typically considers and provides benefits to multiple stakeholders. Ethical conduct requires actively considering the interests of all stakeholders and tries to benefit multiple stakeholders, including clients, employers, and all market participants, and minimizes risks. A is incorrect. As opposed to ethical conduct, legal conduct is based on legal requirements that are typically narrow in scope. Regulators' and legislatures' responses typically take significant time, during which the problematic practice may continue or even become more common. Once enacted, a new regulation or law may be vague, conflicting, or too narrow in scope. B is incorrect because legal conduct, as opposed to ethical conduct, typically follows market practices. Regulators may proactively design laws and regulations to address existing or anticipated practices that may adversely affect the fairness and efficiency of markets or reactively design laws and regulations in response to a crisis.
Updated information on a company's performance and financial position since the last annual report is most likely found in: management discussion and analysis. proxy statements. interim reports.
C is correct. Interim reports, either quarterly or semi-annual, contain updated information on a company's performance and financial position since the last annual report. A is incorrect. The MD&A is part of the annual report and is not an update since the last annual report B is incorrect. Proxy statements contain information about matters that will be put to a vote at shareholders' meetings.
The difference between what a company owns and what it owes is best described as: market value. working capital. shareholders' equity.
C is correct. Shareholders' equity is determined by subtracting the liabilities of a company from its assets. A company owes liabilities, while it owns assets. A is incorrect because the balance sheet amounts of equity (assets, net of liabilities) should not be viewed as a measure of either the market value or the intrinsic value of a company's equity. B is incorrect because working capital is the excess of current assets over current liabilities. The calculation of working capital does not account for non-current assets and non-current liabilities, which are other elements of what a company owns and owes.
The best measure of the percentage of the outstanding mortgage balance prepaid in a given year is the: single monthly mortality rate. weighted average life. conditional prepayment rate.
C is correct. The conditional prepayment rate (CPR) is the annualized single monthly mortality (SMM) rate and is used to describe the assumed prepayment for a pool of mortgage loans by the end of the year. A is incorrect because the SMM rate represents the percentage of the outstanding mortgage balance prepaid in the current month. B is incorrect because the weighted average life is used to assess the sensitivity of the securitized bonds to interest rate movements. It is the average time to receipt of all principal repayments (scheduled principal repayments and projected prepayments).
The effective convexity of a bond is a measurement of the effect of a change in: horizon yield. the yield to maturity. a benchmark yield curve
C is correct. The effective convexity of a bond is a curve convexity statistic that measures the secondary effect of a change in a benchmark yield curve. A is incorrect because effective convexity measures the effect of a change in a benchmark yield curve, not the effect of a change in the horizon yield. B is incorrect because approximate convexity measures the effect of a change in the yield to maturity, whereas effective convexity measures the effect of a change in a benchmark yield curve.
The distribution of all the distinct possible values for a statistic when calculated from samples of the same size randomly drawn from the same population is most accurately referred to as: a discrete uniform distribution. a multivariate normal distribution. the sampling distribution of a statistic.
C is correct. The sampling distribution of a statistic (like a sample mean) is defined as the probability distribution of a given sample statistic when samples of the same size are randomly drawn from the same population. A is incorrect. Discrete uniform distribution refers to the distribution of equally likely outcomes. B is incorrect. Multivariate normal distribution specifies the probabilities for a group of related random variables.
Tim Herndon, CFA, is a senior analyst working with Brad Welch, CFA. They work for a large brokerage firm and co-author all their research reports. Herndon believes Welch is in violation of the CFA Institute Standards of Professional Conduct concerning reasonable basis for a company under their coverage. Herndon has had several discussions with Welch, as his supervisor, and has discussed the issue with the firm's compliance department. Both Welch and the compliance department appear to have dismissed his concerns. Which of the following actions should Herndon most likely take to avoid being in violation of the CFA Institute Standards of Professional Conduct? Threaten to leave the firm. Continue discussing the matter with Welch. Have his name removed from further research reports.
C is correct. To avoid violating the CFA Institute Standards of Professional Conduct, Herndon should have his name removed from further research reports. If a member or candidate has reasonable grounds to believe his or her employer's activities are illegal or unethical, the member or candidate must dissociate, or separate, from the activity. Inaction combined with continuing association with those involved in the unethical conduct may be construed as participation or assistance in the unethical behavior. A is incorrect. Threatening to leave the firm will not accomplish the dissociation necessary to avoid violation of the CFA Institute Standards of Professional Conduct. In extreme cases, dissociation may require a member or candidate to actually leave his or her employment, not threaten to leave it. B is incorrect. Continuing to discuss the matter with Welch will not accomplish the dissociation necessary to avoid violating the CFA Institute Standards of Professional Conduct. Herndon has discussed the matter with Welch on several occasions, and each time Welch appears to have dismissed his concerns. There is no evidence further discussion will be successful. He would be better served to report his concerns to the firm's chief compliance officer.
To test whether a particular portfolio's volatility has changed following the global financial crisis of 2008, an analyst must compare the portfolio's mean monthly returns and the variances of returns of the pre- and post-crisis periods. The most appropriate test is the: chi-square test. F-test. t-statistic.
F test
Sisse Brimberg, CFA, is responsible for performance presentations at her investment firm. The presentation that Sisse uses states that when making performance presentations her firm: deducts all fees and taxes; uses actual and simulated performance results; and bases the performance on a representative individual account. Based on the above information, which of the following is the most appropriate recommendation to help Brimberg meet the CFA Institute Standards of Professional Conduct in her performance presentations? She should present performance based on: a gross of fee basis. actual not simulated results. a weighted composite for all similar discretionary portfolios.
WTD COMPOSITE FOR SIMILAR.. C is correct because in order to meet their obligations under Standard III(D), members should present the performance of the weighted composite of similar portfolios rather than using a single representative or all accounts, so this is the best selection of the options provided. A is incorrect as either gross or net of fee performance may be disclosed. B is incorrect since the use of simulated results is permitted as long as it is disclosed.
Delaney O'Keefe, a CFA candidate, is a portfolio manager at Bahati Management Company. The company is considering investing offshore for the first time, particularly in North America, on behalf of their clientele, all of whom are high-net-worth individuals. O'Keefe does not have experience in offshore investments, so she hires Mark Carlson, CFA, of Carlson Consulting on the sole basis that he has a CFA charter, to undertake due diligence exercises on the top ten portfolio managers in North America, ranked by Assets under Management (AUM). To avoid violating any Code and Standards, O'Keefe should most likely undertake: a sampling of the suitability of North America for clients. the due diligence exercise on the top ten asset managers herself. a due diligence exercise on Mark Carlson and Carlson Consulting
a due diligence exercise on Mark Carlson and Carlson Consulting C is correct because O'Keefe can delegate a due diligence exercise to a third party but must ensure the person or company hired to do so is competent with the skills necessary to undertake a thorough and appropriate analysis. While Carlson may be qualified to undertake this assignment, O'Keefe needs to take the necessary steps to ensure that this is the case. Just because a person has a CFA charter does not necessarily mean they are appropriate for the assignment. A is incorrect. O'Keefe should undertake an analysis of all of the clients in terms of suitability, not just a sampling. B is incorrect because O'Keefe can delegate a due diligence exercise to a third party as long as she is diligent in assessing who should be appointed to undertake the assignment.
Rodney Rodrigues, CFA, is responsible for identifying professionals to manage specific asset classes for his firm. In selecting external advisers or subadvisers, Rodrigues reviews the adviser's investment process, established code of ethics, the quality of the published return information, and the compliance and integrated control framework of the organization. In completing his review, Rodrigues most likely violated the CFA Institute Standards of Professional Conduct with regards to his due diligence on: adherence to strategy. performance measures. internal control procedures.
adherence to strategy A is correct because Standard V(A)-Diligence and Reasonable Basis applies to the level of review necessary in selecting an external adviser or subadviser and would at minimum include reviewing the adviser's adherence to its stated strategy. B is incorrect because Standard V(A)-Diligence and Reasonable Basis would include reviewing this area. C is incorrect because Standard V(A)-Diligence and Reasonable Basis would include reviewing this area.
https://imgur.com/a/RZkBLm1
https://imgur.com/a/6ZAI3sE C IS CORRECT (200-185)/ (60+45) / (25 +18)^.5
https://imgur.com/a/WrDrxHj
https://imgur.com/a/HSBYiqH cash paid = interest tax expense - decrease in Prepaid insurance expenses (assets) - increase in Accrued utilities payable (liabilities).
When rolling two six-sided dice and summing their outcomes, which of the following sums is most likely to occur? Nine Five Six
https://imgur.com/a/MbAaZig
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Under US GAAP, for reporting periods after 15 December 2015, unusual or infrequent items are shown on the income statement separately: below continuing operations. below discontinued operations. as part of continuing operations.
part of cont ops C is correct. Under US GAAP, material items that are unusual or infrequent and that are both as of reporting periods beginning after 15 December 2015 are shown as part of a company's continuing operations but are presented separately. A is incorrect because, under US GAAP, unusual or infrequent items are not shown below continuing operations; rather, they are shown as part of a company's continuing operations but are presented separately. B is incorrect because, under US GAAP, unusual or infrequent items are not shown below discontinued operations; rather, they are shown as part of a company's continuing operations but are presented separately.
