Question #13 - Reading 42.4 Standards of Professional Conduct Guidance for Standards IV

Reading: Reading 42.4 Standards of Professional Conduct Guidance for Standards IV

PDF File: Reading 42.4 Standards of Professional Conduct Guidance for Standards IV.pdf

Page: 6

Status: Incorrect

Correct Answer: A

Your Answer: C

Shared Context

- Regarding the Paris trip, Lindquist: A) cannot accept the gift under any circumstances. B) cannot accept the gift without disclosing it to his employer. C) can accept the gift if he determines, in consultation with his employer, that accepting the gift would not compromise his objectivity.

Question

With regard to the Chandler portfolio, Lindquist violated:

Answer Choices:

A. Standard III(A): Loyalty, Prudence, and Care, but not Standard I(D): Misconduct

B. neither Standard III(C): Suitability, nor Standard III(A): Loyalty, Prudence, and Care

C. Standard III(C): Suitability, but not Standard III(A): Loyalty, Prudence, and Care

Explanation

Lindquist's actions conform to Standard III(C): Suitability, Standard V(A): Diligence and Reasonable Basis, and Standard III(A): Loyalty, Prudence, and Care. Lindquist must take into account the risk level of the portfolio in its entirety, not individual securities within the portfolio. Although purchasing index put options is, by itself, inherently risky, in the context of a diversified portfolio it may well conform to a conservative client's risk tolerance by hedging some of the risk of owning equities. Lindquist may rightly determine that such a strategy is consistent with Chandler's investment policy statement. If properly constructed originally and properly explained to the client, no change in the investment policy statement is needed. (Module 42.7, LOS 42: IV(B))

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