10. Ethical and Professional Standards

Question: According to the Code of Ethics, which of the following statements is NOT correct? CFA Institute members are required to:

• A) comply with the CFA Institute Global Investment Performance Standards Correct
• B) use reasonable care and exercise independent professional judgment
• C) maintain and improve their competence and strive to maintain the competence of others in the profession

Page 1 | Status: ✅ Correct

Question: According to the CFA Institute Code of Ethics, CFA Institute members shall:

• A) preserve the confidentiality of information communicated by clients, prospects, or employers concerning investment matters Correct
• B) act with integrity, competence, diligence, respect, and in an ethical manner when dealing with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets
• C) maintain knowledge and comply with all applicable laws, rules and regulations

Page 1 | Status: ✅ Correct

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

• A) Exercise independent professional judgment
• B) Actively lobby for new laws to protect the public Correct
• C) Act with integrity

Page 1 | Status: ✅ Correct

Question: Which of the following is a component of the Code of Ethics?

• A) Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession Correct
• B) Members and candidates must not engage in conduct that compromises the integrity of the CFA designation or the security of the CFA examinations Your Answer
• C) Transactions for clients and employers have priority over transactions in which a member or candidate is the beneficial owner

Page 2 | Status: ❌ Incorrect

Question: All of the following are components of the Code of Ethics EXCEPT:

• A) demonstrating diligence, independence, and thoroughness when preparing investment reports Correct
• B) using reasonable care and exercising independent professional judgment Your Answer
• C) striving to maintain and improve their competence and the competence of others in the profession

Page 2 | Status: ❌ Incorrect

Question: The CFA Institute Code of Ethics least likely requires a Member or Candidate to:

• A) Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession Correct
• B) Strive to maintain and improve the competence of others in the profession Your Answer
• C) Understand and comply with all applicable laws, rules, and regulations

Page 2 | Status: ❌ Incorrect

Question: Which of the following is least likely to be a reason for imposing a suspension on a member or candidate?

• A) Discussing a question from the CFA exams on social media
• B) Failing to return the annual professional conduct statement Correct Your Answer
• C) Misdemeanor charge for possession of narcotics

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Question: According to the Code of Ethics, when practicing in a professional and ethical manner the goal is to:

• A) resolve conflicts between clients and employers
• B) reflect credit on members and the profession Correct Your Answer
• C) increase membership in CFA Institute

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Question: According to the Code of Ethics, a member reflects credit on the profession when a member:

• A) practices in a professional and ethical manner Correct
• B) consults with other members on a regular basis Your Answer
• C) places the clients first

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Question: The CFA Institute Code of Ethics specifies that CFA Institute Members and Candidates must do all of the following EXCEPT:

• A) use reasonable care and exercise independent professional judgment when engaging in professional activities Your Answer
• B) refrain from any conduct that compromises the reputation or integrity of the CFA designation Correct
• C) act with integrity, competence, diligence, respect, and in an ethical manner

Page 4 | Status: ❌ Incorrect

Question: Which of the following is least likely a component of the Code of Ethics? In dealing with the public, clients, prospects, employers, employees, and fellow members, CFA Institute members shall act with:

• A) respect Correct
• B) integrity Your Answer
• C) humility

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Question: Which of the following is least likely part of the CFA Institute Code of Ethics?

• A) Independent judgment Your Answer
• B) Contractual provisions Correct
• C) Competence

Page 4 | Status: ❌ Incorrect

Question: According to the Standards of Professional Conduct, investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner. This concept is most directly addressed in:

• A) Standard I, Professionalism
• B) Standard V, Investment Analysis, Recommendations, and Actions Correct
• C) Standard VI, Conflicts of Interest Your Answer

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Question: In accordance with Standard III (

• A) Submit to clients, at least quarterly, itemized statements detailing all of the period’s transactions Correct
• B) Vote all proxies on behalf of clients in a responsible manner
• C) Utilize client brokerage to the sole benefit of the client Your Answer

Page 5 | Status: ❌ Incorrect

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

• A) use particular care in determining applicable fiduciary duty
• B) use reasonable care and exercise independent professional judgment Correct
• C) not knowingly participate or assist in any violation of laws, rules, or regulations Your Answer

Page 6 | Status: ❌ Incorrect

Question: The first component of the Code of Ethics does NOT explicitly say that a CFA Institute member will act in a certain manner with respect to which of the following groups?

• A) Prospective clients
• B) CFA Institute members and candidates in the CFA Program Correct
• C) Colleagues Your Answer

Page 6 | Status: ❌ Incorrect

Question: John Elliot, CFA, says that in issues of ethics he always puts the clients first according to the guidelines in the Code of Ethics. In doing so he is:

• A) not correct, because no such ordering or priority is given in the Code Correct
• B) not correct, because his first duty is to the public
• C) correct

Page 7 | Status: ✅ Correct

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

• A) make reasonable efforts to detect and prevent violations by those who are under their supervision Correct
• B) disclose to their employer all matters that reasonably could be expected to interfere with their duty to their employer or ability to make unbiased and objective recommendations
• C) strive to maintain and improve their competence and the competence of others in the profession

Page 7 | Status: ✅ Correct

Question: Denise Weaver, CFA, manages a mutual fund and several pension plans. When Weaver receives a proxy for stock held by the mutual fund, she gives it to Susan Griffith, her administrative assistant, to vote according to the recommendations of the company's management. When the proxy is for a stock held by one of the pension plans, she asks Griffith to send the proxy on to the pension fund's sponsor to vote. Weaver has:

• A) not violated the Standards with her policies on voting proxies Correct
• B) violated the Standards by her policy on mutual fund proxies, but not her policy on pension fund proxies Your Answer
• C) violated the Standards by her policy on mutual fund and pension fund proxies

Page 1 | Status: ❌ Incorrect

Question: 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 Correct
• B) present the bottle of wine to her supervisor Your Answer
• C) inform her supervisor in writing that she received additional compensation in the form of the wine

Page 1 | Status: ❌ Incorrect

Question: While having a conversation with a prospective client, John Henry states that his performance across all of his past clients over the past five years was over 20%, which was 200 basis points higher than his benchmark. He tells the client that while the benchmark may rise or fall over time, his excess performance will remain consistent. Henry violated the Standards of Professional Conduct because:

• A) he cannot discuss performance without clearly stating that the composite does not conform to GIPS Your Answer
• B) the statement of excess performance is misleading with respect to its certainty Correct
• C) he cannot discuss prospective future performance in any manner

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Question: Under Standard IV(

• A) it is recommended that members deliver a copy of the Code and Standards to their employer Correct
• B) members are required to deliver a copy of the Code and Standards to their employer
• C) members are encouraged to leave an employer that does not adopt the Code and Standards as part of its policies and procedures Your Answer

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Question: Member compliance on issues relating to corporate governance or to soft dollars is primarily addressed by the Standard concerning:

• A) Disclosure of Referral Fees Correct
• B) Disclosure of Conflicts to Clients and Prospects
• C) Loyalty, Prudence, and Care Your Answer

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Question: If an analyst suspects a client or a colleague of planning or engaging in ongoing illegal activities, which of the statements about the actions that the analyst should take is most correct? According to the CFA Institute Standards of Professional Conduct, the analyst should:

• A) disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical
• B) consult counsel to determine the legality of the activity Correct
• C) consult counsel to determine the legality of the activity and disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical

Page 4 | Status: ✅ Correct

Question: Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really put in place to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is:

• A) an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as a CFA Institute member
• B) a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act Correct
• C) a suitable reaction, and he is in compliance with the Code and Standards

Page 4 | Status: ✅ Correct

Question: Janet Green, CFA, provides investment advice and other services to clients in several countries. She resides in Country A whose securities laws and regulations are less strict than the Code and Standards. She also conducts business with clients in Country B, which has no securities laws or regulations, and in Country C, which has securities laws and regulations that are stricter than the Code and Standards. Which of the following statements is CORRECT? According to CFA Institute Standards of Professional Conduct, Green must adhere to the Code and Standards in:

• A) Country A and Country B but the law in Country Correct
• B) Country A but the law in Country B and Country
• C) Country A, Country B, and Country C

Page 5 | Status: ✅ Correct

Question: Deloris Johnson, CFA, observed that her supervisor has violated a federal securities regulation. Johnson discussed the matter with her company's compliance department but they have taken no action. According to the CFA Institute Code and Standards of Professional Conduct, Johnson is required to:

• A) report the violation to securities regulators
• B) confront the supervisor and attempt to stop the violation Correct
• C)

Page 5 | Status: ✅ Correct

Question: The Securities and Exchange Board of India (SEBI) has just enacted a new stock-trading rule. SEBI will give brokers a 10-day grace period, during which violators of the rule will be immediately notified and given a chance to remedy their situation to comply with the new rule. If a CFA Institute member located in India or doing business in India unknowingly violates the rule and then remedies the situation within the 10-day grace period, has the member violated Standard I(A)?

• A) No, because the member remedied the situation Your Answer
• B) Yes, because the member did not maintain knowledge and know of the rule Correct
• C) No, because the member unknowingly broke the rule

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Question: According to the CFA Institute Standards of Professional Conduct, Standard I(A), Knowledge of the Law, members shall not knowingly participate or assist in any violations of laws, rules, or regulations. An analyst:

• A) must report all legal violations to the proper regulatory commission and is held responsible for participating in illegal acts when the law is evident to anyone knowing the law Your Answer
• B) is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and is held responsible for violations by others when the analyst is unaware of the facts giving rise to the violation Correct
• C) is held responsible for participating in illegal acts when the law is evident to anyone knowing the law and can participate in a violation by having knowledge of the violation and taking no action to stop it or disassociate from it

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Question: If a CFA Institute member knows that a fellow member has violated the Code and Standards, according to Standard I(

• A) required to dissociate from the activity and strongly encouraged to report it Correct
• B) strongly encouraged to dissociate from the activity
• C) required to report the activity Your Answer

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Question: According to CFA Institute Standards of Professional Conduct, which of the following is least likely a compliance procedure for maintaining independence and objectivity in making investment recommendations or taking investment action?

• A) Maintain files to support investment recommendations Correct
• B) Restrict special cost arrangements related to travel
• C) Create a restricted list so that the firm disseminates only factual information about a controversial company Your Answer

Page 7 | Status: ❌ Incorrect

Question: Which of the following statements about the CFA Institute Code and Standards is most accurate? The Code and Standards:

• A) do not require that members report legal violations to the appropriate governmental or regulatory organization
• B) require members to persuade the perpetrator to cease illegal activities Correct
• C) prohibit members from accepting gifts that create a conflict with their employer's interest

Page 8 | Status: ✅ Correct

Question: Sam Lecheval, a Level I CFA candidate, resides in a European Union (EU) country and does business in Japan. Lecheval is required to maintain knowledge of and comply with all applicable laws, rules, and regulations in:

• A) both the EU and Japan, but not the CFA Institute Standards of Professional Conduct
• B) the EU, Japan, and the CFA Institute Standards of Professional Conduct Correct
• C) the EU and the CFA Institute Standards of Professional Conduct, but not Japan

Page 8 | Status: ✅ Correct

Question: Kenny Barrett, CFA, is working in the Australian office of American Investments Co. From an informal conversation, Barrett learns that the company's most recent investment report was based on misappropriated information. No one at the Australian office expresses concern, however, because there has been no breach of Australian law. Barrett should:

• A) disassociate himself from the case with a written report to his supervisor
• B) do nothing because the branch is outside of U.S. jurisdiction Correct
• C) seek advice from company counsel to determine appropriate action

Page 9 | Status: ✅ Correct

Question: Nicholas Brynne, CFA, is a fixed-income analyst who trades in mortgage-backed securities (MBS). The MBS industry has seen sweeping regulatory changes since Brynne took his current position, and he now feels his understanding of applicable laws and regulatory standards is dated. To comply with the Code and Standards, Brynne is required to:

• A) have all trades reviewed by his compliance department until he has obtained an expert level of knowledge in compliance
• B) rely on his firm’s policies and procedures for guidance on legal and regulatory standards
• C) update his understanding of applicable laws and regulatory standards relating to his position Correct

Page 9 | Status: ✅ Correct

Question: Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman learns that Larry Smith, controller, is altering the accounting records. Knowing the data is incorrect, Feldman releases Smith's financial data to investors. This action:

• A) constitutes a violation of the Standard concerning duty to employer Correct
• B) constitutes a violation of Standard III(
• C) constitutes a violation of his fundamental responsibilities under the Code and Standards
• D) concerning performance presentation

Page 10 | Status: ✅ Correct

Question: Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250. Valdes is obligated to:

• A) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation
• B) disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity Correct
• C) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation

Page 10 | Status: ✅ Correct

Question: Travis Brown is a partner in a money management firm. He recently attended a seminar and learned about a quantitative model presented by Dixon. Upon returning to his office, Brown began testing the model and making a few minor alterations. He showed the model to his partners who were impressed and decided to promote the model as proof of the firm's value added. In the firm's next newsletter, Brown included a discussion of the model, the results, and financial data on several stocks selected by the model. These factual data were taken from Standard and Poor's publication. According to the CFA Institute Standards of Professional Conduct, which of the following actions is Brown required to take?

• A) Brown must credit S&P, no need to credit Dixon Correct
• B) Brown must credit both Dixon and S&P Your Answer
• C) Brown must credit Dixon, no need to credit S&P

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Question: A government committee has concluded that investment company fees should be disclosed to clients each quarter and has proposed new legislation to require this. Currently, the legal requirement is to report such data annually. In compliance with current legal requirements, Dolphin Investments discloses its fees annually. Eugene Shin, CFA, Dolphin's compliance officer, learns of the proposed changes but does not convert Dolphin's reporting to a quarterly basis. Shin's decision not to act:

• A) constitutes professional misconduct as defined in the Code and Standards
• B) is a violation of his duty to employer as defined in the Code and Standards Correct Your Answer
• C) is not a violation of the Code and Standards

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Question: A CFA Institute member is also a member and the portfolio manager of an environmentalist group. In its charter, the environmentalist group lists a group of companies its members should boycott. The CFA Institute member would violate Standard I(

• A) purchases stock of a boycotted firm for the group's portfolio Correct
• B) actively protests against a publicly traded firm boycotted by the group
• C) performs either of the activities listed here

Page 12 | Status: ✅ Correct

Question: Harold Klein, CFA, is an expert on ethical conduct in the investment banking industry and has been asked by an association of investment bankers to give a presentation on interpreting codes of ethics and standards of practice such as the CFA Institute Code of Ethics and Standards of Professional Conduct. In his presentation, Klein makes two key points: 1. Sound ethical judgment requires careful and thoughtful application of ethical standards which are precise and exacting in nature 2. An ethical professional must begin the ethical decision making process by determining the applicable code and standards that govern the situation. Determine whether Klein's statements are correct or incorrect and state your conclusion. Statement 1 Statement 2

• A) Incorrect Incorrect Correct
• B) Correct Correct
• C) Incorrect Correct

Page 12 | Status: ✅ Correct

Question: Rachel Young, CFA, is making preparations to start a competitive business before terminating her relationship with her employer, a large money management company. Young has used excerpts from research reports by others with only a slight change in wording without acknowledging the source. Which of these actions violate the Code and Standards?

• A) Only one of these actions Correct
• B) Both of these actions
• C) Neither of these actions Your Answer

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Question: An analyst has been writing research reports on a company for many years. As part of the analyst's continuing research efforts, the analyst allows the firm to fly him to the firm's headquarters and put him up in the guest quarters the company has for all corporate visitors. According to Standard I(B), Independence and Objectivity, this is:

• A) a violation no matter what the circumstances Correct
• B) a violation if the headquarters are within reasonable driving distance from the analyst's home
• C) not a violation under any circumstances Your Answer

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Question: A CFA Institute member conscientiously maintains records of changes in security regulations. The member notices that his colleagues do not, and does NOT say anything. Is this a violation of Standard I(A)?

• A) No, as long as the colleagues do not violate the new rules Your Answer
• B) Yes, and the member should disassociate from these colleagues Correct
• C) Yes, because the member is bound by the Code of Ethics

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

• A) seek legal advice to determine what actions should be taken Your Answer
• B) report the violation to the CFA Institute Professional Conduct Program Correct
• C) disassociate herself from the activity

Page 14 | Status: ❌ Incorrect

Question: To comply with the Standard on independence and objectivity, an analyst making investment recommendations:

• A) must use only his own research Your Answer
• B) may use outside research only after verifying its accuracy Correct
• C)

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Question: Allen Parsons, a CFA candidate, suspects a colleague at his firm of engaging in an illegal activity. Which of the following statements about procedures for compliance involving Standard I(A), Knowledge of the law is NOT correct? Parsons:

• A) is required to report this legal violation to the appropriate governmental or regulatory organizations Correct
• B) should urge his firm to attempt to persuade the perpetrator to cease such conduct
• C) should consult counsel to determine whether the conduct is, in fact, illegal

Page 15 | Status: ✅ Correct

Question: Jane Dawson, CFA, an analyst at a New York brokerage firm, suspects that Bob Boatman, CFA, another analyst at the same firm, has violated a state securities law. According to the CFA Institute Standards of Professional Conduct, Dawson is:

• A) required to report the suspected violation to CFA Institute Correct
• B) required to report the suspected violation to the appropriate state regulatory agency
• C) NOT required to report the violation to the appropriate governmental or regulatory organizations

Page 15 | Status: ✅ Correct

Question: A CFA Institute member works for Secure Securities, Inc., and plays rugby on the firm's rugby team. Secure Securities' team recently played the team of a rival firm. During the game, a fight broke out and the CFA Institute member was the instigator, but no one was seriously hurt. Is this a violation of I(

• A) No, because a fight at a rugby game is not a professional activity Correct
• B) Yes, because the member could have hurt someone in the fight Your Answer
• C) Yes, because the member is bound by the Code of Ethics

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Question: CFA Institute believes:

• A) that a maximum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct Correct
• B) that a minimum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct Your Answer
• C) that firms should comply with all domestic laws and regulations and that these laws also govern behavior in foreign markets, regardless of foreign laws and requirements

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Question: Georgia Jones, CFA, is an analyst for Johnson, Thomas & Co. She also serves as an outside director for Dewey Manufacturing, Inc. In the course of her duties, she begins to believe that Dewey's income statement for the most recent period may have been misstated. Georgia should do all of the following EXCEPT:

• A) inform the Securities and Exchange Commission Correct
• B) consult with Johnson, Thomas' legal counsel
• C) consult with Dewey Manufacturing's legal counsel

Page 17 | Status: ✅ Correct

Question: WEB, an investment-banking firm, is the principal underwriter for MTEX's upcoming debenture issue. Wendy Berry, CFA, an analyst with WEB, has found out from an employee in MTEX's programming department that a serious glitch was recently discovered in the software program of their major new product line. In fact, the glitch is so bad that most of their orders have been canceled. Berry checked the debenture's prospectus and found no mention of this development. The red herring prospectus has already been distributed. Berry's best course of action is to:

• A) notify potential investors of the omission on a fair and equitable basis
• B) inform her immediate supervisor at WEB of her discovery Correct
• C) take no action because this is material non-public information

Page 17 | Status: ✅ Correct

Question: Milton Baker, CFA, prepares a research report on the dynamics of a stock price. In his study, he uses a considerable number of information sources, both outside sources and his company's own research papers, prepared for both internal and public use. The report will first be distributed at the monthly department meeting and then later will be published on the company's Internet site. He thinks that he may have neglected to mention some of his sources in his reference list but decides that he needs to be concerned about full disclosure of his sources only for the public version of the report, so he will wait to revise his work until after the monthly meeting but before it is published on the internet site. Which Standards does Baker NOT comply with?

• A) Standard I(C), Misrepresentation, only Correct Your Answer
• B) Standard I(C), Misrepresentation, I(B), Independence and Objectivity, and I(A), Knowledge of the Law
• C) Standard I(C), Misrepresentation, and I(A), Knowledge of the Law

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Question: Which of the following statements regarding Standard II(A), Material, Nonpublic Information, is least accurate?

• A) If you receive the information in a public forum, it has been disseminated, and you can trade on it
• B) Material, non-public information regarding a tender offer may not be traded on Correct
• C) Information received from an insider who is not breaching his fiduciary responsibility may be traded on

Page 1 | Status: ✅ Correct

Question: Carl Weather, CFA, is the chief financial officer of Talbot Enterprises. Based on inside information about Talbot's favorable prospects, Weather concludes that Talbot's common stock price is substantially undervalued in the market. With the approval of Talbot's Board of Directors, Weather announces a program for his firm to repurchase $100 million of its own stock in the market. Talbot's stock price rises immediately after the announcement of the repurchase program. Reese Winter, a CFA Institute member, is Weather's assistant. While waiting in Weather's office, Winter reads an internal memo marked "confidential" from Talbot's chief accountant to Weather. The memo states that Talbot sustained an unexpected substantial profit during the past quarter, and its earnings projections show a substantial increase compared with previous estimates. Winter uses her cell phone to call her brother and discloses this information to him. Her brother immediately buys 1000 shares of Talbot's stock. Did the actions of Weather and Winter violate Standard II(A): Material Nonpublic Information? Weather Winter

• A) Yes Yes Correct
• B) No Yes
• C) Yes No

Page 1 | Status: ✅ Correct

Question: Greg Allen is a security analyst and visits David Dawson, the Chief Financial Officer of Edmonds Company. Dawson reveals a great deal of nonmaterial financial data to Allen, data that Dawson routinely reveals to all security analysts who visit him. From this data and other industry information, Allen conjectures that Edmonds is likely to make a tender offer for another company in the industry, a fact that if true would be considered material to the value of the company. Allen:

• A) can publish his conclusion in a research report Correct
• B) should send a copy of the report to Dawson for verification before disseminating the report to clients
• C) must not disseminate the information or use it for trading purposes until the tender offer is announced

Page 2 | Status: ✅ Correct

Question: Chuck Thomas is the trustee of a trust of which Jill Wyatt is the main beneficiary. Wyatt's husband is the president of a company. In emptying the recycling bin at home, Wyatt finds some papers that lead her to believe that her husband's company will make a tender offer to acquire another firm. Wyatt takes the information to Thomas, who uses it to purchase shares of the company for the trust, but does not further disclose the information. Thomas has:

• A) not violated any Standards
• B) violated the Standards concerning material nonpublic information Correct
• C) violated the Standards concerning loyalty, prudence, and care. Hunter Harrison, CFA, is president and chief investment officer (CIO) of Ironclad Investments, an investment adviser and pension consultant for medium and large corporate pension clients. Ironclad recently hired a compliance officer to update its compliance manual, which follows the CFA Institute Code and Standards. Harrison serves as a director on several non-profit and corporate boards of directors, some of which have their pension assets managed by Ironclad. Harrison oversees Ironclad's research analysts and portfolio

Page 2 | Status: ✅ Correct

Question: Regarding Myers' references of her status as a candidate in the CFA program, what Standard governs these actions and is she in compliance?

• A) Standard VII: Responsibilities as a CFA Member or CFA Candidate. Compliance: No
• B) Standard I: Professionalism. Compliance: No Correct
• C) Standard III: Duties to Clients. Compliance: No Your Answer

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Question: All of the following most likely apply to Myers' participation as a partner in the software company EXCEPT:

• A) - Disclosure of Conflicts Correct
• B) Standard VI( Your Answer
• C) Standard III(E) - Preservation of Confidentiality

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Question: A stockbroker who is a CFA Institute member is called on the telephone by the CEO of a large company. The CEO asks to buy shares of the CEO's company for the accounts of the CEO's children. In the course of the conversation, the CEO says this will really pay off when the upcoming takeover goes through. The stockbroker checks her sources and finds no information about the takeover. In this case the broker should:

• A) do neither of the actions listed here Correct
• B) only execute the order in compliance with Standard III(A), Loyalty, Prudence, and Care. Since the client is buying the stock for the children, there is not a problem
• C) execute the order for all clients as required by Standard III(B), Fair Dealing

Page 8 | Status: ✅ Correct

Question: Don Benjamin, CFA, is the compliance officer for a large brokerage firm. He wants to prevent the communication of material nonpublic information and other sensitive information from his firm's investment banking and corporate finance departments to its sales and research departments. The most common and widespread approach that Benjamin can use to prevent insider trading by employees is the:

• A) legal list Correct
• B) fire wall
• C) Wall Street Rule

Page 9 | Status: ✅ Correct

Question: The mosaic theory is the idea that an analyst can:

• A) base his recommendations on nonpublic material information only for the clients of the company, but not for the general public Correct
• B) make recommendations or trade based on several pieces of public or nonpublic information, each piece by itself being nonmaterial, but when compiled the information becomes material
• C) make investment recommendations on the basis of several pieces of nonpublic information as long as the aggregate information remains nonmaterial Your Answer

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Question: Greg Allen is a security analyst and visits David Dawson, the Chief Financial Officer of Edmonds Company. Dawson reveals a great deal of nonmaterial financial data to Allen, data that Dawson routinely reveals to all security analysts who visit him. From this data and other industry information, Allen conjectures that Edmonds is likely to make a tender offer for another company in the industry, a fact that if true would be considered material to the value of the company. Allen:

• A) can publish his conclusion in a research report Correct
• B) should send a copy of the report to Dawson for verification before disseminating the report to clients
• C) must not disseminate the information or use it for trading purposes until the tender offer is announced

Page 11 | Status: ✅ Correct

Question: An analyst is allowed to trade on information that he has predicted, such as a corporate action or event, using perceptive assembly and analysis of public information and nonmaterial nonpublic information. This is called the:

• A) deduction theory
• B) mosaic theory Correct
• C) assessment theory

Page 11 | Status: ✅ Correct

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

• A) transaction-based manipulation, but not information-based manipulation Correct
• B) both transaction-based manipulation and information-based manipulation
• C) information-based manipulation, but not transaction-based manipulation

Page 12 | Status: ✅ Correct

Question: An analyst manages the assets of a charitable organization. Her supervisor tells her to buy a certain stock because the company's chief executive, who is also a board member in the organization, told her the company's earnings will exceed the market forecast when they are released next week. The analyst objects, but the supervisor says this is what they have always done and sees no reason for changing now. The analyst complies with the request. The analyst violated the Standard(s) concerning:

• A) only loyalty
• B) only material nonpublic information Correct
• C) both loyalty and material nonpublic information

Page 12 | Status: ✅ Correct

Question: Steve Waters, a Level I CFA candidate, has decided to enter into a long position of Farmco stock. Since Farmco is thinly traded, Waters is concerned the order will overwhelm the liquidity of Farmco and the price will surge. Waters engages in a series of block trades in order to accomplish the purchase. According to Standard II(B), Market Manipulation, Waters has engaged in:

• A) neither transaction-based manipulation nor information-based manipulation Correct
• B) both transaction-based manipulation and information-based manipulation
• C)

Page 12 | Status: ✅ Correct

Question: Susan Nielsen, CFA, works for a rating agency which competes directly with S&P and Moody's. Her friend, Lance Parker, works for the same company but in a different department which is involved in advisory services for structured products. Nielsen frequently receives pressure from Parker to "put a positive face" on client ratings to help him sell advisory services. She is reluctant to discuss client ratings with Parker and tries to avoid the topic. She consults her company's compliance department and learns that there are no policies or procedures to discourage Nielsen and Parker from sharing information and is encouraged to consider his advice on company ratings. Nielsen should feel least obligated to:

• A) advise regulators of the potential conflict of interest and seek legal counsel
• B) advise her firm to develop firewalls Correct
• C) avoid talking with Parker about client ratings

Page 13 | Status: ✅ Correct

Question: While visiting the CSI Company, Mark Ramsey, CFA, overheard management make comments that were not public information, but were not really meaningful by themselves. However, when this information is combined with his own analysis and other outside sources, Ramsey decides to change his recommendation on CSI from buy to sell. According to CFA Institute Standards of Professional Conduct, Ramsey should:

• A) not issue his report until these comments are made public Correct
• B) report these events to his immediate supervisor and legal counsel, since they have become material in combination with his analysis
• C) issue his sell report because the facts are nonmaterial, but maintain a file of the facts and documents leading to this conclusion

Page 13 | Status: ✅ Correct

Question: In the course of reviewing the Corn Co., an analyst has received comments from management that, while not meaningful by themselves, when pieced together with data he has accumulated from outside sources, lead him to recommend placing Corn Co. on his firm's sell list. What should the analyst do?

• A) Not issue the report until the comments are publicly announced Correct
• B) Show his report to his own manager and counsel for their review since this information has become material once it was combined with his analysis
• C) The comments are non material and the report can be issued as long as he maintains a file of the facts as supplied by management

Page 14 | Status: ✅ Correct

Question: Dick Charles is a security analyst with a large brokerage company. Sean Donaldson is a money manager. They both listen in on a conference call for security analysts with the president of Stoppard, Inc., who states that in two days the company will be holding a press conference announcing a new product. Both Charles and Donaldson feel the news will increase the value of Stoppard.

• A) Charles must wait until after the press conference to disseminate the information to clients, and Donaldson must wait until after the press conference to purchase the stock for his clients Correct
• B) Charles must wait until after the press conference to disseminate the information to clients, but Donaldson can purchase the stock for his clients immediately
• C) Charles can disseminate the information to clients, and Donaldson can purchase the stock for his clients immediately

Page 14 | Status: ✅ Correct

Question: Lee Roth, who is an investment advisor, is riding in a taxi and finds a file of information labeled "Genco Valuation." The folder contains a great deal of financial data, projections and nonpublic information concerning the food products industry that lead Roth to believe that Genco will be worth 50% more than its current stock value. Roth also finds some correspondence that leads him to believe that the file belonged to Tom Hagan. Roth tries to find out where Hagan works so he can return the file. Roth can recommend Genco to his clients unless Hagan works for:

• A) the equity research department for a brokerage firm Correct
• B) the corporate finance department for Genco
• C) Roth cannot recommend Genco to his clients at this time. Christopher Lance, CFA, Chuck Cunningham, and Lucy Hunt, CFA, went to graduate school together and have remained close friends ever since. Lance and Hunt earned their CFA charters this past June and Cunningham is a Level III candidate. Lance, Cunningham, and Hunt have dinner every month at Cunningham's country club, one of the most prestigious in the metropolitan area where they live. Lance was a well-respected research analyst covering the pharmaceutical industry at an international broker-dealer before accepting a job as Vice President, Investor Relations, at IMed, a large multinational pharmaceutical company that he covered as an analyst. Since he started coverage of IMed, Lance had consistently been named "top analyst" of the pharmaceutical industry by Investment Professional, the leading journal of the investment industry

Page 15 | Status: ✅ Correct

Question: What Standard governs Lance's response to Cunningham's question and is he in compliance? Standard Compliance

• A) VII: Responsibilities as a CFA Institute Member or CFA Candidate Yes
• B) I: Professionalism Yes Correct
• C) III: Duties to Clients No

Page 17 | Status: ✅ Correct

Question: Dinners with Lance, Cunningham and Hunt at Cunningham's exclusive country club usually cost more than $200 per person. When he and Lance worked for the same broker-dealer and Hunt was a client, Cunningham has always paid the bill. Which Standard will Lance violate if he continues to allow Cunningham to pay for dinner?

• A) Standard I(B), Independence and Objectivity Correct
• B) Standard IV(B), Additional Compensation Arrangements
• C) Standard III(B), Fair Dealing

Page 18 | Status: ⏸️ Unattempted

Question: Lance is very nervous before the conference call. Norton, IMed's president, has told him that he must not disclose the decline in sales of Mediplex. During the call, Hunt asks Lance whether the rumors of the side effects of Mediplex are true and whether these rumors have negatively impacted sales. Lance assures Hunt that Mediplex sales are strong and that IMed is confident that sales will continue to rise for the remainder of the year. Which of the following best describes Lance's actions when he stated that sales of Mediplex were strong?

• A) Lance complied with Standard IV(A), Loyalty to Employer
• B) Lance violated Standard I(D), Misconduct Correct
• C) Lance violated Standard III(B), Fair Dealing

Page 18 | Status: ⏸️ Unattempted

Question: Lynne Jennings is a chemical industry research analyst for a large brokerage company. That industry is currently seeing an increase in mergers and acquisitions. While flying through Chicago, Jennings sees several senior officers who she knows are from the largest and fourth largest chemical companies walk into a conference room. She concludes that negotiations for an acquisition might be taking place. Jennings:

• A) may use this information to support an investment recommendation Correct
• B) should inform her compliance officer that she has material nonpublic information on firms she covers
• C) may not act or cause others to act on this information Your Answer

Page 19 | Status: ❌ Incorrect

Question: Paul Clark, CFA, has just learned from a financial analyst at Corvac Industries that orders for their core products are running ahead of last year's orders by 15%, information that has not been publicly disclosed by the company. Clark currently has a hold rating on Corvac based on his expectation of a 5% increase in revenues for the current year. Based on Standard II(

• A) encourage Corvac to publicly release the order information and not act on that information until it is publicly disclosed Correct
• B) disclose the information publicly prior to making any changes in his recommendation
• C) put Corvac on his firm’s restricted list and not make a recommendation until the increase in orders is publicly disclosed Your Answer

Page 19 | Status: ❌ Incorrect

Question: Regarding non-public information, which one of the following statements is NOT correct?

• A) A member can be summarily suspended for having received material non-public information
• B) An analyst may use some types of non-public information Correct Your Answer
• C) Disclosing material non-public information would have an impact on the price of a security or be of interest to a reasonable investor

Page 20 | Status: ❌ Incorrect

Question: A brokerage firm has a trading department and an investment-banking department. Often the investment-banking department receives material non-public information that would be valuable in advising the firm's brokerage clients. In order to comply with the Standards, the firm:

• A) should restrict employee trading in securities for which the firm is in possession of material non-public information Correct
• B) should record the exchange of information between the investment-banking department and the brokerage department Your Answer
• C) must divest one of the departments

Page 20 | Status: ❌ Incorrect

Question: Which one of the following least accurately describes the CFA Institute Standard about using material nonpublic information?

• A) An analyst may violate this Standard by passing information to others even when it has been obtained from outside the company
• B) An analyst may use nonmaterial nonpublic information as long as it has been developed under the Mosaic Theory Correct
• C) An analyst using material nonpublic information may be fined by CFA Institute

Page 21 | Status: ✅ Correct

Question: A stockbroker who is a member of CFA Institute has a part-time housekeeper who also works for the CEO of Festival, Inc. One day the housekeeper mentions to the broker that she saw the CEO of Festival having a conversation at his home with John Tater, who is a nationally known corporate lawyer and consultant. The stockbroker is restricted from trading on this information:

• A) for both of the reasons listed here
• B) if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-public information Correct
• C) only if the broker knows that the meeting is non-public information

Page 21 | Status: ✅ Correct

Question: An investment advisor goes straight from a research seminar to a meeting with a prospective new client with whom she has never been in contact. The advisor is very excited about the information she just received in the seminar and begins showing the prospect the new ideas her firm is coming up with. This is most likely a violation of:

• A) Standard III(B), Fair Dealing Correct
• B) Standard III(C), Suitability
• C) both of these

Page 1 | Status: ✅ Correct

Question: Albert Long, CFA, manages portfolios of high-net-worth individuals for HKB Corp. One of his close friends, who heads a local charity for homeless children, asks Long to give her a partial list of his clients so that she can contact them to make tax-deductible donations. Because Long knows that the charity provides much benefit to the community, he provides the requested list. Betty Short, CFA, also works for HKB Corp. She receives a letter from CFA Institute's Professional Conduct Program (PCP) requesting that she provide information about one of HKB's clients who is being investigated. Short complies with the request despite the confidential nature of the information requested by the PCP. With regard to Standard III(E) Preservation of Confidentiality:

• A) Both Long and Short violated the Standard Correct
• B) Long violated the Standard but Short did not
• C) Short violated the Standard but Long did not

Page 1 | Status: ✅ Correct

Question: Jordan Conomos is the new trustee for the Grant Trust, which has both current beneficiaries and remaindermen. Up until now, the trust has been entirely invested in long-term tax-free municipal bonds. Conomos decides to put 30 percent of the assets in common stocks, with the justification that taxes should be the concern of the trust beneficiaries and not the trust, and the trust needs some diversification and growth. Conomos is:

• A) not violating his fiduciary duty Correct
• B) violating his fiduciary duty by not considering taxes
• C) violating his fiduciary duty by not investing solely for the purposes of the current beneficiaries

Page 2 | Status: ✅ Correct

Question: Caroline Turner, an analyst for Lansing Asset Management, just completed an investment report in which she recommends changing a "buy" to a "sell" for Gallup Company. Her supervisor at Lansing approves of the change in recommendation. Turner wonders about whether she needs to disseminate this investment recommendation to Lansing's clients and if so, how to distribute this information. According to CFA Institute Standards of Professional Conduct, Turner is:

• A) required to design an equitable system to disseminate the change in a prior investment recommendation Correct
• B) not required to disseminate the change of recommendation from a buy to a sell because the change is not material
• C)

Page 2 | Status: ✅ Correct

Question: With regard to Global Investment Performance standards (GIPS), if the Chief Investment Officer of an investment advisory firm also is a CFA charterholder:

• A) the firm is required to comply with GIPS
• B) the charterholder is required to comply with GIPS Correct
• C) neither the firm nor the charterholder are required to comply with GIPS

Page 3 | Status: ⏸️ Unattempted

Question: With regard to disseminating investment recommendations, the recommended procedures for compliance with the Standard concerning fair dealing least likely state that members and candidates should:

• A) shorten the time frame between the decision to make an investment recommendation and its dissemination
• B) maximize the number of people who know an investment recommendation is going to be disseminated Correct
• C) maintain a list of clients and their holdings, to facilitate notifying them of changes in investment recommendations

Page 3 | Status: ⏸️ Unattempted

Question: Alan Cramer, CFA, practices in a country that does not regulate the investment of company retirement plans. He was retained by Bingham Companies to manage their corporate pension plan. Bingham's management has approached Cramer and requested that Cramer invest the entire plan in Bingham stock. Cramer may:

• A) invest a portion of the retirement plan in Bingham Company stock if the investment is prudent and if he keeps the overall portfolio properly diversified Correct
• B) invest all of the retirement plan assets in Bingham Company stock according to management's request only if Cramer can document that the investment is more prudent than any other investment opportunity he finds Your Answer
• C) not invest any of Bingham Company's retirement plan in its own stock regardless of the stock's prospects and in spite of management's request

Page 4 | Status: ❌ Incorrect

Question: Paul Salyer, a portfolio manager, is making a presentation to a prospective client. Paul says that as a new portfolio manager, he made an average annual rate of return of 50% in the last two years at his previous firm and that based on this, he can guarantee a 50% return to the client. Which of the following statements is in accordance with Standard III(D), Performance Presentation?

• A) Stating his past performance as long as it is fact
• B) Implying that he can guarantee a return Correct Your Answer
• C) Imputing his past performance to future performance

Page 4 | Status: ❌ Incorrect

Question: A member would most likely violate the Standard regarding duties to clients by:

• A) recommending purchase of securities without a reasonable inquiry into the investment experience of the client Correct
• B) executing a client order for a security the member believes is greatly overvalued
• C) adding a risky derivative security to the portfolio of a client with moderate risk tolerance

Page 5 | Status: ✅ Correct

Question: Calvin Doggett, CFA, has been contacted by the CFA Institute Professional Conduct Program (PCP) regarding allegations that he has taken investment actions that were unsuitable for his clients. Doggett is questioned by PCP concerning the identity of his clients he considered suitable for investing in a very risky start-up company that eventually went bankrupt. Doggett will:

• A) not violate the Code and Standards only if he reveals the financial condition and investment objectives of his clients on an anonymous basis and does not reveal the names of his clients to PCP Correct
• B) violate the Code and Standards by fully cooperating with a PCP investigation if it means revealing confidential information
• C) not violate the Code and Standards by revealing the names, financial condition and investment objectives of his clients to PCP

Page 5 | Status: ✅ Correct

Question: Janet Reilly has just approached Betty Miller, CFA, about purchasing 10,000 shares of Brookshire Co., a newly incorporated real estate development firm. Reilly is a retired schoolteacher living off the income from her late husband's life insurance policy. This investment will represent a significant shift in her investment portfolio. Miller believes this trade is unsuitable with respect to Reilly's investment policy statement. Consistent with the Standards, Miller should most appropriately:

• A) discuss with Reilly whether she wishes to update her investment policy statement Correct
• B) follow her firm’s procedures for obtaining Reilly’s approval to carry out the unsolicited trade request
• C) not accept the order, because it is not a suitable investment for Reilly

Page 6 | Status: ✅ Correct

Question: Lance Tuipulotu, CFA, manages investments for 400 individuals and families and often finds his resources stretched. When his largest investors petition him to include a 5% to 7% allocation of non-investment-grade bonds in their portfolios, he decides he needs additional help to meet the request. He considers various subadvisers who specialize in that asset class. To have a reasonable basis for selecting a subadviser, criteria that Tuipulotu should use should least likely include:

• A) their internal controls Correct
• B) consistently high historical returns
• C) adherence to their stated strategies Your Answer

Page 7 | Status: ❌ Incorrect

Question: Which of the following would be the least important proxy issue?

• A) Takeover defense and related actions
• B) Election of internal auditors Correct
• C) Compensation plans for officers Your Answer

Page 7 | Status: ❌ Incorrect

Question: An independent analyst has only one client. One of the client's largest holdings is a brokerage firm. Because of the large holding by his client, the brokerage firm recently began allowing the analyst to tap into the firm's computer network to use the firm's research facilities. This is allowable as long as the analyst:

• A) discloses the relationship to the client Correct
• B) does both of the actions listed here
• C) uses the resources to help manage the client's account

Page 8 | Status: ✅ Correct

Question: Which of the following statements is least accurate? It is permissible under the Standards to allocate trades:

• A) on a pro rata basis over all suitable accounts on the basis of an advance indication of interest and indicated order size
• B) on a pro rata basis over all accounts Correct
• C) on a pro rata basis over all suitable accounts based upon account value

Page 8 | Status: ✅ Correct

Question: Ned Brenan manages two dozen pension accounts, one of which earned over 25% during the past two years. Brenan tells prospective clients that based on past experience they can expect a 25% return on their funds. Which of the following statements is CORRECT?

• A) Brenan has not violated Standard of Professional Conduct III(D), Performance Presentation, but Brenan has violated Standard I(C), Misrepresentation
• B) Brenan has violated Standard of Professional Conduct III(D), Performance Presentation, but Brenan has not violated Standard I(C), Misrepresentation Correct
• C) Brenan has violated both Standard of Professional Conduct III(D), Performance Presentation, and Standard I(C), Misrepresentation

Page 9 | Status: ✅ Correct

Question: Scott Andrews, CFA, is a stockbroker selling an oversubscribed stock issue. Which of the following best describes Andrews' actions regarding this sale? Andrews:

• A) can only offer this security to clients for which it is appropriate on a first come first serve basis
• B) can offer this security on a prorated basis to all clients for which the security is appropriate Correct
• C) cannot offer an oversubscribed issue of stock to any clients

Page 9 | Status: ✅ Correct

Question: Paul Drake, CFA, is employed by Muskie Company to provide investment advice to participants in the firm's defined contribution pension plan. Muskie stock is one of the investment options in the plan. Drake feels that the stock is too risky for employees to own and starts advising them to pull out of the stock. The Treasurer of the company calls Drake and tells him that he will be fired if he continues making such advice because he is violating his fiduciary duty to the company. Drake should most appropriately:

• A) make sell recommendations but point out that the company Treasurer has a differing and valid point of view
• B) continue to advise employees to sell their stock Correct
• C)

Page 9 | Status: ✅ Correct

Question: When a firm seeks to allocate a disproportionate number of shares of a hot IPO to performance-based fee accounts this constitutes a violation of the Standard concerning:

• A) fiduciary duty Correct
• B) priority of transactions
• C) additional compensation arrangements Your Answer

Page 10 | Status: ❌ Incorrect

Question: In securing the shares for all accounts under her management, Linda Kammel of Northwest Futures purchased three blocks of shares at three different prices. She then allocated these shares by placing shares from the first block in accounts with surnames beginning with A-G. The second was allocated over accounts H-P, and the third over Q-Z. This action is:

• A) permissible only if the clients are informed of the allocation procedure Correct
• B) not permissible under the Code and Standards
• C) consistent with her responsibilities under the Code and Standards Your Answer

Page 10 | Status: ❌ Incorrect

Question: Greg Stiles, CFA, may withhold from CFA Institute information about a client acquired in the regular performance of his duties:

• A) for neither of the reasons listed Correct
• B) only if Stiles is a relative of the client
• C) only if Stiles has a special confidentiality agreement with the client Your Answer

Page 10 | Status: ❌ Incorrect

Question: Which of the following statements about soft dollars is least accurate?

• A) Soft dollars are assets of the client Correct
• B) Directed brokerage are soft dollars to be used for research that benefits the investment firm
• C) Soft dollars are third party research arrangements

Page 11 | Status: ⏸️ Unattempted

Question: Concerning Standard III(B), Fair Dealing, which of the following actions is NOT a valid procedure for compliance with the Standard?

• A) Communicate investment recommendations simultaneously within the firm and to customers, where possible Correct
• B) Limit the number of people that are involved and are privy to the fact that an investment recommendation is going to be disseminated
• C) Communicate investment recommendations to all customers including those accounts for which the securities are not eligible for purchase

Page 11 | Status: ⏸️ Unattempted

Question: Which of the following statements about a member's use of client brokerage commissions is NOT correct? Client brokerage commissions:

• A) may be directed to pay for the investment manager's operating expenses Correct
• B) should be used by the member to ensure that fairness to the client is maintained
• C) should be commensurate with the value of the brokerage and research services received

Page 11 | Status: ⏸️ Unattempted

Question: Regarding (1) not voting all client proxies, and (2) using a directed brokerage arrangement, a member would violate the Standards by:

• A) engaging in neither of these practices
• B) using a directed brokerage arrangement Correct
• C) not voting all proxies for client stocks

Page 12 | Status: ⏸️ Unattempted

Question: Alba Vasquez allocates trades of hot new IPOs as follows: m×p/(p+s) shares to performance- based fee accounts, m×s/(p+s) shares to standard fee accounts, where there are p suitable performance based fee accounts, s suitable standard fee accounts, and m shares available. This action is:

• A) not permissible since it effectively favors the performance-based fee accounts
• B) permissible since it effectively amounts to a strict pro rata basis of allocation Correct
• C) not permissible since it is based upon a formula that is not inherently fair. Chandra Patel, CFA, manages private client portfolios for QED Investment Advisers. Part of QED's firm-wide policy is to adhere to CFA Institute Standards of Professional Conduct in the management of all client portfolios, and to this end, the firm requires that client objectives, investment experience, and financial limitations be clearly established at the outset of the relationship. This information is updated at regular intervals not to exceed eighteen months. The information is maintained in a written investment policy statement (IPS) for each client. Anarudh Singh has been one of Patel's clients ever since she began managing money ten years ago. Shortly after his regular situational update, Singh calls to inform Patel that his uncle is ill, and it is not known how long he will survive. Singh expects to inherit "a sizeable sum of money," mainly in the form of municipal bonds. His existing portfolio allocation guidelines are for 75% to be invested in bonds. Singh believes that the expected inheritance will allow him to assume a more aggressive investment profile and asks Patel to begin moving toward a 75% allocation to equities. He is specifically interested in opening sizable positions in several technology firms, some of which have only recently become publicly traded companies. Patel agrees to begin making the changes to the portfolio and the next day begins selling bonds from the portfolio and purchasing stocks in the technology sector as well as in other sectors. After placing the trade orders, Patel sends Singh an email to

Page 13 | Status: ✅ Correct

Question: In light of Singh's comments during his telephone call to Patel prior to his uncle's death, which of the following actions that Patel can take comply with CFA Institute Standards of Professional Conduct?

• A) Patel must adhere to the existing portfolio strategy until she meets with Singh to develop a new portfolio strategy based upon updated financial information, but may place trades which are consistent with the existing strategy Correct
• B) Patel may change the current portfolio strategy and begin trading based upon Singh’s expectations because he advised her to do so
• C) Patel must not place any trades in the account until she meets with Singh to develop a new portfolio strategy based on the updated information

Page 15 | Status: ✅ Correct

Question: According to CFA Institute Standards of Professional Conduct, may Patel reallocate Singh's portfolio toward technology stocks after his Uncle dies, but before the meeting with Singh?

• A) No—Patel and Singh must meet and revise the IPS and portfolio strategy before reallocating Correct
• B) No—Patel must wait until the next annual meeting to reallocate
• C) Yes—the total value of the municipal bonds received into the account will be too large relative to the other assets in the portfolio

Page 15 | Status: ✅ Correct

Question: Which of the following is least accurate regarding the promotional announcement of Patel passing the Level III exam?

• A) The promotional announcement violates the restrictions on misrepresenting the meaning of the CFA designation Correct
• B) The promotional announcement assumes that passing of the Level III examination of the CFA program allows one to use the CFA designation
• C) The announcement violates the Code of Ethics because it implies that obtaining a CFA charter leads to superior performance Your Answer

Page 16 | Status: ❌ Incorrect

Question: With respect to the choice of broker, did Patel violate any CFA Institute Standards of Professional Conduct?

• A) Yes, since Patel is obligated to seek the best possible price and execution for all clients Correct
• B) Yes, since Patel failed to properly notify Singh that using TradeRight would lead to higher commissions and opportunity costs
• C) No Your Answer

Page 16 | Status: ❌ Incorrect

Question: Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund and is actively soliciting clients from competitor's firms. Client presentations are necessarily brief and often take place with the prospective client's current investment advisor in the room. The Code and Standards require that:

• A) member or candidate provide (on request) additional detail information which supports the abbreviated presentation Correct
• B) a prospective client’s current investment advisor not participate in meetings
• C) all client presentations provide a thorough review of all elements of the investment management process. Abbreviated presentations are forbidden

Page 17 | Status: ✅ Correct

Question: A company has a defined benefit plan that is currently under-funded. The plan sponsor has instructed the portfolio manager of the plan to invest more aggressively to bring the funding level up to an adequate amount. Which of the following statements best describes the course of action the portfolio manager should take? The portfolio manager should:

• A) not invest more aggressively since this may expose the plan to too much risk and may not be in the best interest of the plan's beneficiaries
• B) invest more aggressively because his fiduciary duties lie with the plan sponsor Correct
• C) not invest more aggressively because this is not the method used to increase the funding level of a plan

Page 17 | Status: ✅ Correct

Question: According to the Standard concerning loyalty, prudence, and care, brokerage is an asset of the:

• A) client Correct
• B) managing firm
• C) brokerage firm conducting the trades

Page 17 | Status: ✅ Correct

Question: Wanda Brunner, CFA, is reviewing a draft fund prospectus for her new "Leveraged Long Coffee" (LLC), a closed-end fund. LLC uses a of combination fundamental and technical trading models to evaluate individual securities. She notes the LLC prospectus has several disclosures which cause her to worry that prospective clients will avoid her fund. Disclosure 1: "LLC charges a flat 3.00% of assets under management." Disclosure 2: "LLC may invest up to 40% of the fund's assets in securities which are not related to coffee or other consumer products." Disclosure 3: "LLC relies only on fundamental valuation of individual securities." Which of the following standards will most likely be violated by distribution of the prospectus?

• A) Standard III(
• B) Standard III(
• C) Duties to Clients: Suitability because it misleads the reader as to the process by which securities are selected Correct

Page 18 | Status: ✅ Correct

Question: Pro rata allocation on the basis of an advance indication of interest means each account for which the shares are suitable:

• A) and which has expressed an advance indication of interest, shall receive w*m shares, where w is the account's proportional value of all such accounts and there are m shares available
• B) shall receive m/n shares, where there are m shares available and n such accounts
• C) and which has expressed an advance indication of interest, shall receive m/n fraction of their indication, where there are m shares available and indications of interest for n shares Correct

Page 18 | Status: ✅ Correct

Question: Perley & Sons is an investment advisor company that just signed a contract with full discretionary power for the management of assets for Bright Future, a charitable fund. Without consultation, portfolio manager Martin Brown, CFA, decides to trade the funds' assets through a brokerage firm that provides, as an additional benefit, research reports for companies in the microchip industry. These companies represent the main investment interest for most of the Perley & Sons clients. The Bright Future portfolio does not hold any equities in the microchip industry, and, because of its risk profile, is unlikely to ever do so. Which of the following activities represents a possible breach with the CFA Institute standards?

• A) Lack of action in consulting with the client before choosing the brokerage firm Correct
• B) Accepting research reports from the brokerage firm that do not benefit client portfolios Your Answer
• C) Exercising a selection principle that does not comply with the idea of best trade price and execution

Page 19 | Status: ❌ Incorrect

Question: Ed Staples, CFA, manages a pension fund sponsored by Hill Corporation. The Code and Standards most likely require Staples to:

• A) act solely in the interest of the ultimate beneficiaries Correct
• B) support the sponsor's management during proxy fights Your Answer
• C) base investment decisions on each beneficiary’s return requirements and risk tolerance

Page 19 | Status: ❌ Incorrect

Question: A CFA charterholder may disclose confidential information about a client when:

• A) the information is nonmaterial
• B) the CFA Institute Professional Conduct Program requests it Correct
• C) it is a necessary step in proceeding with research on client preferences

Page 20 | Status: ✅ Correct

Question: While servicing his clients' accounts, an analyst who is a CFA charterholder, determines that one client is probably involved in illegal activities. According to Standard III(E), Preservation of Confidentiality, the analyst may NOT do which of the following?

• A) Contact the appropriate governmental authorities about the determination Correct
• B) Contact CFA Institute about the determination
• C) There are no exceptions in this list

Page 20 | Status: ✅ Correct

Question: Greg Stiles, CFA, keeps a list of his clients' birthdays and has personally sent them a birthday card each year at the appropriate time. With respect to this action, which of the following may be a violation of Standard III(E), Preservation of Confidentiality?

• A) Hiring a company outside the firm to perform the task Correct
• B) Sending a gift along with the card
• C) The mere act of sending a birthday card each year

Page 20 | Status: ✅ Correct

Question: The following information pertains to the Galaxy Trust, a trust established by Stephen P. House and managed by Gamma Investment LLC: At the time the trust was established House provided $5 million in cash to fund the trust, but Gamma was aware that 93% of his personal assets were in the form of Oracle stock. Gamma has been asked to view his funds and the trust as a single entity for planning purposes, since House's will stipulates that all of his estate will pass to the trust upon his death. The investment policy statement, developed in September 1996, stipulates that the trust should maintain a short position in Oracle stock and use the proceeds to diversify the trust more adequately. House was able to sell all of his Oracle shares back to the corporation in January 1999 for cash. The policy statement redrawn in September 1999 continues to stipulate that the trust hold a short position in Oracle stock. House has given the portfolio manager in charge of the trust an all-expenses paid vacation package anywhere in the world each year at Christmas. The portfolio manager has reported this fact in writing to his immediate supervisor at Gamma. Which of the following is most correct? The investment manager is:

• A) not in violation of the Code and Standards for not properly updating the investment policy statement in light of the change in the circumstances and is not in violation with regard to the acceptance of the gift from House
• B) in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances but is not in violation with regard to the acceptance of the gift from House Correct
• C) in violation of the Code and Standards by not properly updating the investment policy statement in light of the change in the circumstances and is in violation with regard to the acceptance of the gift from House

Page 21 | Status: ✅ Correct

Question: Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Canadian Brokerage. Canadian provides Calaveccio with soft dollars to purchase research. He uses these soft dollars to get research reports from Canadian's research department regarding the issues currently held in the small cap portfolio, and also for firms he is contemplating adding to the portfolio. By using soft dollars in this manner, Calaveccio has:

• A) violated the Code and Standards by acquiring research on issues that the fund already holds but not by acquiring research on issues contemplated for purchase Correct
• B) violated the Code and Standards by acquiring research on issues contemplated for purchase but not by acquiring research on currently held issues
• C) not violated the Code and Standards

Page 22 | Status: ✅ Correct

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

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

Page 22 | Status: ✅ Correct

Question: Which of the following trade allocation procedures is improper? Allocation:

• A) based upon past participation in IPOs Correct
• B) on a strict pro rata basis over all suitable accounts
• C) based upon a predetermined formula

Page 23 | Status: ✅ Correct

Question: An analyst thinks that a major change in the tax law will benefit holders of utility company stocks. She immediately begins calling all her clients and telling them of the upside potential of investing in such assets now. Based upon this information, this is most likely:

• A) a violation of Standard III(C), Suitability Correct
• B) a violation of Standard V(A), Diligence and Reasonable Basis
• C) congruent with Standard V(A), Diligence and Reasonable Basis. In August 2005, the following events occurred related to Aggregate Opportunities, Inc.: Aug. 8: The Wall Street Journal reported that Aggregate Opportunities had inflated its 2004 earnings due to questionable accounting practices. The story was based on interviews with unnamed sources within Aggregate and its auditor, Millennium Partners. On that day the stock fell 42 percent to $12.50 from $21.55. Aug. 10: At 9 a.m., Aggregate revealed in a conference call to analysts a restatement of earnings for the previous three fiscal years that almost completely erased the reported net income for fiscal years 2002, 2003, and 2004. Aggregate's chief financial officer personally selected the small group of analysts participating in this call. Company officers said the restatement resulted from questionable accounting practices for off-balance sheet limited partnerships. At 1 p.m., the company issued a news release containing the information provided in the conference call. By the end of the trading day the stock had fallen 74 percent to $3.25. Aug. 11: At 10 a.m., Aggregate's Chief Financial Officer Buster Lockhart, CFA, publicly announced his resignation, and the Securities and Exchange Commission said it was pursuing an investigation

Page 23 | Status: ✅ Correct

Question: After changing her recommendation on Aggregate, Sanders:

• A) violated Standard VI(B): Priority of Transactions by trading Aggregate from her own account
• B) violated Standard II(A): Material Nonpublic Information by taking investment action based on information not accessible to the public Correct
• C) did not violate Standard II(A): Material Nonpublic Information because the information was disclosed to a select group of analysts Your Answer

Page 25 | Status: ❌ Incorrect

Question: In selling his fund's stake in Aggregate, Martinez:

• A) violated Standard III(A): Loyalty, Prudence, and Care by using information obtained from Watkins
• B) violated no standards Correct
• C) violated Standard II(A): Material Nonpublic Information by using information obtained from Watkins Your Answer

Page 25 | Status: ❌ Incorrect

Question: Which statement about violations of the Code and Standards is CORRECT?

• A) Henderson violated the reasonable-basis standard, but Sanders did not violate the Standard regarding use of material nonpublic information
• B) Aggregate’s CFO violated the market manipulation Standard, but Black did not violate the fiduciary-duties Standard Correct
• C)

Page 25 | Status: ✅ Correct

Question: Rickard Advisors recently had a trading error in a customer account that was subsequently discovered by Rickard. The firm felt embarrassed by the disclosure of this error, and, in order to induce the client to continue its relationship, Rickard offers the client preferential access to a new issue that is expected to be "hot." Which Standard is violated, if any?

• A) The Standard concerning Independence and Objectivity
• B) The Standard concerning Fiduciary Duty Correct
• C) The Standard concerning Fair Dealing

Page 26 | Status: ✅ Correct

Question: A money management firm creates a new high-yield bond fund. The firm accurately computed the returns from the past three years for each of the bonds in the fund. The firm uses the current portfolio weights to determine an average annual historical return equal to 18%. When the firm advertises the new fund at its issuance, they state an 18% annual historical return. With respect to performance presentation, this is:

• A) in compliance with the Standards
• B) a violation of the Standards because the advertisement implies the firm generated this return Correct
• C) a violation of the Standards because they prohibit advertising historical returns on high-risk assets

Page 26 | Status: ✅ Correct

Question: Which of the following statements regarding allocating trades is CORRECT? It is permissible under the Standards to allocate trades:

• A) based upon any method the firm deems suitable so long as the allocation procedure has been disclosed to all clients
• B) based upon compensation arrangements Correct
• C) on a pro-rata basis over all suitable accounts

Page 27 | Status: ✅ Correct

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

• A) a violation of Calaveccio's fiduciary duties
• B) a violation of Calaveccio's duty to his employer Correct
• C) permissible under CFA Institute Standards

Page 28 | Status: ⏸️ Unattempted

Question: Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with River City Brokerage. River City provides Calaveccio with soft dollars to purchase research. River City also deals in municipal bonds, some of which Calaveccio holds in his personal portfolio. He periodically uses the soft dollars to request research reports on various small cap stocks and also on the status of the municipal bond market and issues that he holds. These actions are:

• A) in violation of his fiduciary duties regarding both the small cap research and the municipal bond research
• B) not in violation of the Code and Standards Correct
• C) in violation of his fiduciary duties regarding the municipal bond research but not so regarding the research on the small cap issues

Page 28 | Status: ⏸️ Unattempted

Question: 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 prorated 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 confidential, 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 agreement, but cannot tell him why Correct
• 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 agreement

Page 29 | Status: ✅ Correct

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

• A) liquidate from her personal portfolio any stocks her godfather owns and verbally tell her supervisor about the tax services Correct
• B) have her godfather cease doing her taxes
• C) do neither of the actions listed here

Page 1 | Status: ⏸️ Unattempted

Question: Janet Thompson, CFA, is employed as an analyst by Nationwide Securities. According to CFA Institute Standards of Professional Conduct, which of the following statements about Thompson's duty to Nationwide is NOT correct? Thompson must refrain from:

• A) making arrangements to go into a competitive business before terminating her relationship with Nationwide Correct
• B) engaging in independent competitive activity that could conflict with the business of Nationwide unless she receives written consent
• C) engaging in any conduct that would injure Nationwide

Page 1 | Status: ⏸️ Unattempted

Question: Which of the following statements is most correct under the Code and Standards?

• A) CFA Institute members are prohibited from undertaking independent practice in competition with their employer
• B) Consent from the employer is necessary to permit independent practice that could result in compensation or other benefits in competition with the member's employer Correct
• C) Members are prohibited from making arrangements or preparations to go into competitive business before terminating their relationship with their employer

Page 2 | Status: ✅ Correct

Question: Karen Dalby, CFA, volunteers on her church's finance board but receives no cash compensation so she does not report the arrangement to her employer. Board compensation is limited to an annual retreat to Hawaii, but the accommodations are modest. Dalby does not enjoy the retreat and often considers skipping the event entirely. Dalby is most likely:

• A) "Loyalty."
• B) "Additional Compensation Arrangements." Correct
• C) in violation of Standard IV(

Page 2 | Status: ✅ Correct

Question: Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman is well-known in the high tech community in Boise, and Dragon.com has asked if he will help them organize their investor relations function on a consulting basis. They offer him an all-expenses-paid two-week holiday for two on Australia's Gold Coast in payment. Regarding this offer as a CFA Institute member Feldman is:

• A) not allowed to accept such an offer since it effectively places him in competition with his employer
• B) allowed to accept the offer only with written approval from zippy and from Dragon Correct
• C) allowed to accept the offer only with written approval from zippy Your Answer

Page 3 | Status: ❌ Incorrect

Question: A CFA Institute member, undertaking independent practice that could result in compensation or other benefit:

• A) must notify the entities for whom he plans to undertake independent practice of the compensation he receives from his employer Correct
• B) must notify his employer of the types of service to be rendered, the expected duration, and the expected compensation
• C) must notify his employer and clients of the types of service to be rendered and the expected compensation

Page 4 | Status: ✅ Correct

Question: A firm recently hired Hal Crane, CFA, to be a supervisor in the firm. Crane has reviewed the procedures for complying with the Code and Standards in the company. It is Crane's belief that the procedures need revision in order to be effective. Crane must:

• A) decline supervisory responsibilities in writing until the company adopts an adequate compliance system Correct
• B) exercise his supervisory responsibilities with the greater level of diligence required by the Code and Standards
• C) make reasonable efforts to encourage the company to adopt an adequate compliance system

Page 4 | Status: ✅ Correct

Question: Regarding the Paris trip, Lindquist:

• A) cannot accept the gift under any circumstances Correct
• 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 Your Answer

Page 6 | Status: ❌ Incorrect

Question: With regard to the Chandler portfolio, Lindquist violated:

• A) Standard III(A): Loyalty, Prudence, and Care, but not Standard I(D): Misconduct Correct
• 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 Your Answer

Page 6 | Status: ❌ Incorrect

Question: Which of the following standards is most likely violated in Lindquist's use of his experimental version of the Midwestern model?

• A) Standard I(C): Misrepresentation (plagiarism)
• B) Standard V(A): Diligence and Reasonable Basis Correct Your Answer
• C) Standard IV(C): Responsibilities of Supervisors

Page 7 | Status: ❌ Incorrect

Question: Lindquist's actions in advertising his investment performance:

• A) conform to standards concerning performance presentation as long as Lindquist does not claim compliance with CFA Institute Global Investment Performance Standards
• B) violate Standard III(D): Performance Presentation Correct Your Answer
• C) conform to all standards

Page 7 | Status: ❌ Incorrect

Question: Regarding the NCAA tickets, what action must Lindquist take to avoid a violation of Standard I(B): Independence and Objectivity?

• A) Informing his employer is sufficient Correct
• B) Obtain written consent from all parties involved Your Answer
• C)

Page 7 | Status: ❌ Incorrect

Question: Which of the following statements regarding employee/employer relationships is NOT correct?

• A) An employee is someone in the service of another Correct
• B) There must be monetary compensation for an employer/employee relationship to exist
• C) A written contract may or may not exist between employer and employee

Page 8 | Status: ✅ Correct

Question: Marc Feldman, a CFA Institute member, is treasurer of zippy.com, and is also Larry Goldman's boss. Feldman is informed of "accounting irregularities of an unknown origin" during an audit by zippy's external accounting firm. There are 3 individuals, including Goldman, handling the accounting function. According to the Code and Standards, Feldman should do all of the following EXCEPT:

• A) terminate the accounting staff immediately and issue a press release describing the situation Correct
• B) leave the staff in their current jobs and increase supervision while the external auditors complete their work
• C) conduct a thorough investigation of activities

Page 8 | Status: ✅ Correct

Question: Fernando Abrea, CFA was an analyst for Pacific Investments. In October he left Pacific and joined Global Securities as manager of a local office. Abrea's change of employment came about in the following manner: In April, Abrea contacted Global about a possible position he saw advertised in a financial publication and had exploratory meetings with Global. In July, Abrea submitted a strategic plan to Global and signed an agreement to join Global. He then contracted for office space on behalf of Global. On October 15, Abrea's resignation from Pacific became effective. He did not take any client lists from Pacific. On October 16, Abrea mailed a letter that explained his new undertaking with Global to prospective clients, including his former clients at Pacific. With respect to Standard IV(

• A) violated the Standard by contacting his former clients at Pacific Correct Your Answer
• B) did not violate the Standard
• C) violated the Standard by contracting for office space on behalf of Global

Page 9 | Status: ❌ Incorrect

Question: An analyst working at an investment firm has a client that rents limousines. The client tells the analyst that as long as he is the client's analyst, he can have free use of a limousine several times a year. The analyst needs to:

• A) do nothing since the offer is not linked to the performance of the client's portfolio Correct
• B) explicitly refuse such an offer Your Answer
• C) inform his supervisor in writing of the offer if the analyst intends to accept the offer

Page 10 | Status: ❌ Incorrect

Question: Bill Fence, CFA, supervises a group of research analysts, none of whom have earned the CFA designation (nor are they CFA candidates). On several occasions he has attempted to get his firm to adopt a compliance system to ensure that applicable laws and regulations are followed. However, the firm's principals have never adopted his recommendations. Fence should most appropriately:

• A) refuse supervisory responsibility Correct
• B) take no further action, because by encouraging his firm to adopt a compliance system he has fulfilled his obligations under the Code and Standards Your Answer
• C) report the inadequacy by submitting a complaint in writing to the CFA Institute Professional Conduct Program

Page 10 | Status: ❌ Incorrect

Question: Jess Green, CFA, is the research director for Castle Investment, Inc., and has supervisory responsibility over eight analysts, including three CFA charterholders. Castle has a compliance program in place. According to CFA Institute Standards of Professional Conduct, which of the following is least likely an action that Green should take to adhere to the compliance procedures involving responsibilities of supervisors? Green should:

• A) incorporate a professional conduct evaluation as part of the performance review only for the three CFA charterholders Correct
• B) issue periodic reminders of the procedures to all analysts under his supervision
• C) disseminate the contents of the compliance program to the eight analysts

Page 11 | Status: ✅ Correct

Question: Which of the following statements is most correct concerning a member's obligation to his or her employer under the Code and Standards?

• A) Members are prohibited from undertaking independent practice in competition with their employer Correct
• B) Members are prohibited from making arrangements or preparations to go into competitive business before terminating their relationship with their employer
• C) Consent from the employer is necessary to permit independent practice that could result in compensation or other benefits in competition with the member's employer

Page 11 | Status: ✅ Correct

Question: Sharon West is a CFA charterholder and trust officer for REO Trust Company. Soon after beginning work for REO, West finds that REO has been conducting all its securities transactions through her brother who is a registered representative. West's brother charges REO commissions that are equal to the lowest available from another broker. West's brother tells her that if she continues doing business with him, he will give her a substantial discount on all personal transactions she conducts through him. West:

• A) must reject the arrangement Correct
• B)
• C)

Page 11 | Status: ✅ Correct

Question: Brian Bellow, CFA, is a portfolio manager for Progressive Trust Company. Several friends have asked Bellow to review their investment portfolios. On his own time, Bellow examines their portfolios and makes several recommendations. He accepts no compensation from his friends for his investment advice. According to CFA Institute Standards of Professional Conduct, did Bellow violate his duty to Progressive Trust?

• A) No, because Bellow received no compensation for his services Correct
• B) Yes, because Bellow did not attempt to solicit his friends to become clients of his employer
• C) No, because Bellow provided no ongoing investment advice Your Answer

Page 12 | Status: ❌ Incorrect

Question: Which of the following statements is most accurate about the Standard concerning the responsibilities of supervisors?

• A) If a subordinate violates a securities law, her supervisor is in violation of the Standard Correct
• B) If a supervisor makes a reasonable effort to detect violations, but fails to detect a violation that occurs, she has violated the Standard
• C) If a supervisor does not make a reasonable effort to detect violations, she is in violation of the Standard even if no violations by her subordinates have occurred Your Answer

Page 12 | Status: ❌ Incorrect

Question: Brendan Duval works as a research analyst for Toby Securities. Duval recommends changing a recommendation from "sell" to "buy" on Dalton Company. His firm, which manages several mutual funds, may be interested in buying Dalton's stock. He also manages the retirement account that his parents established with Toby. Duval wants to buy shares of Dalton's stock because it is an appropriate investment for his parent's retirement account and obtains approval from his employer to do so. Duval is also thinking about personally investing in Dalton stock. According to CFA Institute Standards of Professional Conduct, which of the following best describes the priority of transactions? Duval should give:

• A) Toby's clients and his parent's account equal priority, followed by his employer, and then his personal account Correct
• B) priority to Toby's clients and his employer concurrently, followed by his parent's retirement account, and finally his personal account
• C) priority of transactions to Toby's clients, followed by his employer, then his parent's retirement account, and finally his personal account

Page 13 | Status: ✅ Correct

Question: Nick O'Donnell, CFA, unsuspectingly joins the research team at Wickett & Co., an investment banking firm controlled by organized crime. None of the managers at Wickett are CFA Institute members. Because of his tenuous situation at Wickett, O'Donnell begins making preparations for independent practice. He knows he will be terminated if he informs management at Wickett that he is preparing to leave. Consequently, he determines that "if he can just hang on for one year, he will likely have a client base sufficient for him to strike out on his own." This action is:

• A) not a violation of his duty to employer Correct
• B) a violation of his duty to disclose conflicts to his employer
• C) a violation of his fiduciary duties

Page 14 | Status: ✅ Correct

Question: Francisco Perez, CFA, is an equity research analyst for a long-term investment fund. The fund is seeking new clients, so Perez contacts old clients he knew through his former employer. Which of the following is most accurate?

• A) Perez is not prevented from soliciting clients as long as he is working from memory and publically available information rather than a list generated while he was still with the former employer
• B) Perez can only solicit clients after notifying his former employer Correct
• C) Perez cannot solicit clients from a former employer

Page 15 | Status: ✅ Correct

Question: Grant Starks, CFA, has been working for Advisors, Inc., for eight years. Starks is about to start his own money management business and has given his two-week notice of his resignation. A few days before his resignation takes effect, a current client of Advisors calls him at his office to inquire about some services for her account at Advisors. During the conversation, Starks tells the client that his new business will have lower commissions than Advisors. Starks has most likely violated the Standard concerning:

• A) loyalty Correct
• B) communication with clients and prospective clients
• C) disclosure of conflicts

Page 15 | Status: ✅ Correct

Question: Pamela Gee is a portfolio manager. She is planning to establish her own money management firm. She has already informed her employer, Branford, Inc., about her plans. In her remaining time at Branford, she may:

• A) solicit Branford colleagues but not Branford clients Your Answer
• B) inform her current clients about her resignation and let them know how to reach her
• C) start the registration of her new company Correct

Page 16 | Status: ❌ Incorrect

Question: Bill Valley has been working for Advisors, Inc., for several years, and he just joined CFA Institute. Valley's sister just received a large bonus in the form of stock options in Zephyr, Inc. Valley's sister knows nothing about financial assets and offers Valley a week at her holiday home each year in exchange for Valley monitoring Zephyr and the value of her stock options. In order to comply with the Code and Standards, Valley needs to inform Advisors of:

• A) nothing since no money is involved and it is a favor for a family member Your Answer
• B) the compensation in the form of the use of the holiday home only Correct
• C) both the use of the holiday home and his sister's options

Page 16 | Status: ❌ Incorrect

Question: John Hill, CFA, has been working for Advisors, Inc., for eight years. Hill is about to start his own money management business and has given his two weeks' notice of his resignation from Advisors. A few days before his resignation takes effect, Rod Bright, a former client of Advisors, calls Hill at his home about his new firm. Bright says that he is very happy that Hill is leaving Advisors because now he and Hill can resume a professional relationship. Bright says that he would never become a client of Advisors again. Hill promises to call Bright back after he has left Advisors but takes no further action. Hill does not tell Advisors about the call. Hill has most likely:

• A) violated the Standard concerning loyalty to employer Correct Your Answer
• B) not violated the Standards
• C)

Page 16 | Status: ❌ Incorrect

Question: Sue Parsons, CFA, works full-time as an investment advisor for the Malloy Group, an asset management firm. Parsons wants to engage in independent practice in which she would advise individual clients on their portfolios. She would conduct these investment activities only on weekends. She is currently only in the preparation stage and has not started independent practice yet. The Standard concerning loyalty:

• A) does not require Parsons to notify Malloy of preparing an independent practice Correct
• B) requires Parsons to obtain consent from both Malloy and the persons from whom she will engage in independent practice
• C) requires Parsons to notify Malloy that she is preparing to engage in independent practice. Mary Montpier, CFA, is an equity analyst located in the Malaysia office of World Class Advisers. The firm provides investment advice and financial-planning services globally to institutional and retail clients. The Malaysia office was opened last year to provide additional international investment opportunities for U.S. clients. Montpier covers small-cap stocks in the region. Montpier's supervisor, Rick Reynolds, CFA, works in New York. Jim Taylor is an analyst in New York who works at World Class Broker-Dealer, a sister company of World Class Advisers. Taylor covers healthcare and biotech stocks for the firm. Taylor recently completed Level I of the CFA examination and is registered for the Level II examination next year. Taylor works for John James, CFA. Through her interaction with other analysts in Malaysia, Montpier learns that the use of material, nonpublic information is common practice in analyst research reports and recommendations, which is not prohibited by law in Malaysia. Montpier has acquired material, nonpublic information on the research pipeline of Circuit Secrets, a Malaysian semiconductor company. The nonpublic information makes the company seem like a fine investment. After extensive research through traditional means, Circuit Secrets appeared to be fully valued relative to its growth potential until Montpier found the nonpublic information

Page 17 | Status: ✅ Correct

Question: Which of the following is a violation of the Code and Standards?

• A) Taylor sends out a resume referring to himself as a Level II CFA candidate and indicating his intention to take the Level II test in June
• B) Reynolds approves Montpier’s report on Circuit Secrets immediately, but tells his traders to wait a week before buying the stock themselves Correct
• C)

Page 18 | Status: ✅ Correct

Question: With regard to Standard VII(B)—Reference to CFA Institute, the CFA Designation, and the CFA Program:

• A) neither Montpier nor Taylor is in compliance Correct
• B) both Montpier and Taylor are in compliance
• C) only Taylor is in compliance

Page 19 | Status: ✅ Correct

Question: Which of the following statements regarding Standard IV(A)—Loyalty to Employer is CORRECT?

• A) Neither Taylor nor Montpier is in violation of the Standard Correct
• B) By accepting compensation for his role in the medical study, Taylor is violating the Standard
• C) Despite getting written permission from her client to consult, Montpier is not in compliance with the Standard

Page 19 | Status: ✅ Correct

Question: Taylor's actions regarding Breakthrough Corp.:

• A) violate Standard II(A)—Material Nonpublic Information because the information was not in the public domain Correct
• B) do not violate Standard II(A)—Material Nonpublic Information because he was only confirming what he already suspected
• C) did not violate Standard I(D)—Misconduct because he did not misappropriate the information

Page 19 | Status: ✅ Correct

Question: An analyst belongs to a nationally recognized charitable organization, which requires dues for membership. The analyst has worked out a deal that he provides money management advice in lieu of paying dues. For this arrangement to comply with the standards, the analyst needs consent from:

• A) both his supervisor in the organization and his regular place of work Correct
• B) his supervisor in the organization only
• C) his supervisor in his regular place of work only

Page 20 | Status: ⏸️ Unattempted

Question: Michel Marchant, CFA, recently became an independent money manager. After six months, he has only ten clients. To supplement his income, Marchant accepted employment as an advisor at Middleton Financial Advisors. According to Standard IV(

• A) inform his existing clients about his new employment at Middleton
• B) obtain permission from Middleton to continue his independent practice Correct
• C) attempt to bring his existing clients to Middleton

Page 20 | Status: ⏸️ Unattempted

Question: Ten years ago Lance Tuipuloto, CFA, met with Horace and Nichole Scadden to discuss potential investments, but these prospects never became clients. Tuipuloto now wants to destroy the records from the meeting with the prospective clients. Is this action in compliance with Standard V(C)?

• A) Yes; the prospects never became clients
• B) Yes; A sufficient number of years have passed since the meeting Correct
• C) No

Page 1 | Status: ✅ Correct

Question: An analyst receives a research report from a colleague. The colleague's report has an elaborate table with performance data on publicly traded stocks. The colleague says the data in the table consists of measures provided by Standard & Poor's. The analyst finds the table a useful reference for a report she is writing. She uses several pieces of data from the table. The analyst is potentially in violation of:

• A) Standard V(A), Diligence and Reasonable Basis, if she does not first verify the data in the table is accurate
• B) no particular standard because this is appropriate activity Correct
• C) Standard I(C), Misrepresentation, concerning the use of the work of others

Page 1 | Status: ✅ Correct

Question: Wanda Brunner, CFA, is preparing for her first meeting with the Johnsons—her firm's newest clients. She makes notes regarding disclosure of the investment process. These notes most likely include reminders to:

• A) anticipate changes in her clients’ investment objectives that could cause them to leave her firm Correct
• B) adequately disclose the basic security selection and portfolio construction process
• C)

Page 1 | Status: ✅ Correct

Question: According to the CFA Institute's Standards of Professional Conduct, Fleming's execution of Waverly's trade order after confirming the appropriateness of the trade is most likely in violation of:

• A) Standard I(C)—Misrepresentation for not disclosing to Waverly that he did not read the marketing materials, but is not in violation of Standard III(C)—Suitability because the client analyzed the investment thoroughly Your Answer
• B) Standard V(B)—Communication with Clients and Prospective Clients for not separating fact from opinion, but is not in violation of Standard I(C )— Misrepresentation because his guarantee of future investment performance was not a written representation
• C)

Page 3 | Status: ❌ Incorrect

Question: According to CFA Institute Standards of Professional Conduct, which of the following of Fleming's actions is most likely a violation of Standard I(C)—Misrepresentation? Fleming:

• A) tells the CIO of Crocket Foundation that shares of DCH’s IPO outperformed the S&P 500 by at least 15% in each of the last three years since the offering
• B) executes the trades on DCH Corp. per Waverly’s instructions without first referring to Waverly’s IPS
• C) tells the CIO of the Crockett Foundation that DCH’s secondary offering will earn at least the lowest return earned on its IPO shares over the last three years Correct

Page 4 | Status: ✅ Correct

Question: According to CFA Institute Standards of Professional Conduct, did Fleming's conversation with the CIO of the Crockett Foundation or his decision to sell GlobalBank's position in DCH stock most likely violate Standard II(B)—Market Manipulation? Conversation with CIO Sell decision

• A) Yes No Correct
• B) Yes Yes
• C) No Yes

Page 4 | Status: ✅ Correct

Question: Under the CFA Institute Code and Standards, it is the responsibility of the Director of Research, a CFA Institute member to:

• A) exercise reasonable supervision over those subject to their supervision or authority to prevent any violation of applicable statues, regulations or provisions of the Code and Standards
• B) both of these Correct
• C) not knowingly participate or assist in any violation of laws, rules, or regulations

Page 6 | Status: ✅ Correct

Question: Under the current circumstances, the Director of Research should:

• A) allow the report to be distributed, as is Correct
• B) require the report to be redone to ensure compliance with CFA Institute Standards
• C) require the report to be redone with a neutral or hold rating pending the outcome of the awarding of the investment banking business

Page 7 | Status: ⏸️ Unattempted

Question: The research report, as shown, has several aspects which violate CFA Institute Standards of Professional Conduct. Which of the following is NOT an apparent violation of CFA Institute Standards?

• A) The report does not adequately discuss the factors important to analysis, recommendations, or action
• B) The report violates guidelines on investment performance presentation Correct
• C) The report does not distinguish between fact and opinion

Page 7 | Status: ⏸️ Unattempted

Question: As to the process by which Brown's report in Exhibit B came into being, which of the following is least likely a procedural error in violation of CFA Institute Standards of Professional Conduct?

• A) Brown has violated the Standard relating to the prohibition against plagiarism Correct
• B) Brown has violated the Standard relating to disclosure of basic characteristics
• C) Brown has violated the Standard relating to independence and objectivity. Rajiv Singh, a CFA charterholder, works as an equity analyst with Horizon Investments, a large broker/dealer. After ski-resort developer HighLife misses a quarterly earnings target, Singh changes his recommendation on HighLife from buy to hold. Singh has been following HighLife for years. In several previous research reports on HighLife, Singh told clients that

Page 7 | Status: ⏸️ Unattempted

Question: Womack's trading actions are a violation of:

• A) Standard IV(A)—Loyalty to Employer and Standard III(B)—Fair Dealing Correct
• B)
• C)

Page 8 | Status: ⏸️ Unattempted

Question: With regard to his coverage of HighLife stock, Singh:

• A) did not violate the Standards for reasonable basis or research reports Correct
• B) violated the research reports Standard because he failed to differentiate between facts and opinions
• C) violated the reasonable basis Standard by downgrading a stock because it missed one quarterly earnings estimate

Page 9 | Status: ⏸️ Unattempted

Question: After Singh changed his investment recommendation for HighLife from a "buy" to a "hold," he violated:

• A) Standard I(C)—Misrepresentation by not exercising diligence and thoroughness in his research Correct
• B) Standard III(B)—Fair Dealing by not telling clients about the downgrade of HighLife in the wake of his promise to downgrade the stock if it missed estimates
• C) Standard V(A)—Loyalty, Prudence, and Care by not exercising reasonable care and prudent judgment in his research

Page 9 | Status: ⏸️ Unattempted

Question: Which of the following trade allocation procedures being considered for Horizon's trade allocation policy would NOT be consistent with Standard III(B)—Fair Dealing?

• A) Regular orders are processed and executed on a pro-rata basis Correct
• B)
• C)

Page 9 | Status: ⏸️ Unattempted

Question: Randal Brooks is the chief economist for a large brokerage firm. In the aftermath of a national tragedy, Brooks feels that it is very possible that the stock market will drop significantly and not recover for several years. However, he does not believe that this is the most likely scenario but merely that the risk of investing in equities has increased. He decides to write a market commentary to the brokerage clients that discusses the reasons why the market will remain stable and talks about why he, as a private citizen, feels patriotic. He does not mention the increase risk in equities. Brooks has:

• A) violated the Standards by not including all of the relevant factors in the research report, but not by making patriotic statements Correct
• B) violated the Standards by not including all of the relevant factors in the research report and making patriotic statements Your Answer
• C) not violated the Standards

Page 10 | Status: ❌ Incorrect

Question: Wes Smith, CFA, works for Advisors, Inc. In order to remain in compliance with Standard V(A), Diligence and Reasonable Basis, Smith may recommend a security in which of the following situations?

• A) For either of the reasons listed here
• B) Smith reads a favorable review of the security in a widely read periodical Correct Your Answer
• C) Advisors' research department recommends a stock. Lon Smith is an analyst in the Research Department of Lincoln & Co., a large investment bank. Smith has just completed a temporary assignment in Lincoln's Corporate Finance Department related to underwriting a debt offering for FinSoft, a computer software

Page 10 | Status: ❌ Incorrect

Question: Based on CFA Institute Standards of Professional Conduct, which of the following is least accurate?

• A) There is no breach of duty if traded on Smith's report because Jones did not conduct the research that produced the information Correct
• B) The information is material because the new software is likely to significantly increase FinSoft's future earnings
• C) There is misappropriation of information by Jones because the file is marked "Confidential / Corporate Finance Department."

Page 11 | Status: ✅ Correct

Question: Based on the information presented, Lincoln should adopt a set of guidelines on inside information that include each of the following EXCEPT:

• A) have in place a supervisor or compliance officer who has the authority and responsibility to decide whether information is material and nonpublic Correct
• B) prohibit exchange of personnel, even temporary, between investment banking and institutional money management departments
• C) develop criteria for identifying inside information

Page 12 | Status: ✅ Correct

Question: When recommending the purchase of FinSoft company shares to Bamyeh, Jones least likely violated the Standard relating to:

• A) diligence and reasonable basis Correct
• B) loyalty to employer
• C) integrity of capital markets

Page 12 | Status: ✅ Correct

Question: Using as his universe all companies in the steel industry, Reynold Anderson analyses the performance of stock prices for the industry. He succeeds in developing a regression model with excellent statistical control measures. The extrapolation from the model shows low risk variance of the securities in this industry. Without the inclusion of non-steel stocks in the portfolio, Anderson concludes that, based on these results, every portfolio can use the steel industry securities to diversify and lower its risk. He persuades his clients to change their current portfolios. Anderson states that, as the model's results show, some particular industries, such as car manufacturers, have underpriced stocks, and investors should take advantage of it. Anderson has violated the Standards because he:

• A) is not clear enough about the model results
• B) does not distinguish the opinion, based on his model, from the fact Correct
• C) does not consider the suitability of the investment Your Answer

Page 13 | Status: ❌ Incorrect

Question: Scott LaRue is a portfolio manager for Washington Advisors. Washington has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Washington model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research—an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as "buys" by the model. La Rue feels the model would be improved by adding some factors but he has not fully tested this new version of the model. LaRue discloses his model to his own clients but not to his supervisor. LaRue is:

• A) violating the Standards by not having a reasonable and adequate basis for his investment recommendation Correct
• B) not violating the Standards
• C)

Page 14 | Status: ✅ Correct

Question: In order to remain an active member of CFA Institute, Jones must annually:

• A) pay applicable membership dues and complete forty hours of continuing education
• B)
• C)

Page 15 | Status: ⏸️ Unattempted

Question: Which of the following statements regarding the research report on Sunrise Technologies after the company went public is CORRECT?

• A) Jones has violated the misrepresentation Standard with her aggressive growth prediction for Sunrise Technologies; Karloff has violated the plagiarism Standard by disseminating information he received in confidence
• B) Jones is in compliance with the objectivity Standard because she made her recommendation based facts, not conjecture; Karloff has violated the Standard regarding the use of material nonpublic information Correct
• C) Jones has violated the Standard on research reports because she failed to distinguish between fact and opinion; Karloff is in compliance with the supervisory- responsibilities Standard because he is keeping up with Jones’ actions and ensuring her report is accurate

Page 16 | Status: ✅ Correct

Question: According to CFA Institute Standards concerning fair dealing, Jones is required to do which of the following?

• A) Ensure that accounts belonging to her immediate family purchase securities only after other clients have had the chance to buy
• B) Disseminate new investment recommendations to all clients at the same time Correct
• C) Disclose to all clients whether different levels of service are offered

Page 16 | Status: ✅ Correct

Question: When Jones produced the research report on Sunrise Technologies before it went public, she violated:

• A) Standard V(B): Communication with Clients and Prospective Clients by leaving relevant facts out of the report, but not Standard III(A): Loyalty, Prudence, and Care because the CEO cannot pass his fiduciary duty on to her Correct
• B) Standard I(B): Independence and Objectivity because of her obedience to her CEO, and Standard II(A): Material Nonpublic Information because of Karloff’s involvement
• C) Standard V(A): Diligence and Reasonable Basis because her research report was not thorough, and Standard I(B): Independence and Objectivity because of her obedience to her CEO

Page 17 | Status: ✅ Correct

Question: Midland Investment Banking issues a prospectus for its open-end Midland Gold Fund. In the prospectus, the investment policy is disclosed as, "We will maintain an investment posture of 50% or more in gold stocks and/or bullion, depending upon market conditions." This policy is maintained until the price of gold falls by 20%, leaving the fund 40% invested in gold stocks and bullion. Management decides that since the allocation was affected by market conditions, no action to either change the investment policy or to rebalance the portfolio is required. This decision is:

• A) in violation of the Standard concerning disclosure of investment processes Correct
• B) under the circumstances, not in violation of the Code and Standards
• C) in violation of the Standard concerning fiduciary duties to clients

Page 17 | Status: ✅ Correct

Question: A manager of pooled funds must do all of the following to remain in compliance with the Standards EXCEPT:

• A) Notify potential investors of any changes in investment policy
• B) Print the investment policy statement in all quarterly reports Correct
• C) Disclose basic security selection processes

Page 18 | Status: ✅ Correct

Question: Lee Hurst, CFA, is an equity research analyst who has recently left a large firm to start independent practice. He is able to re-create several of his previous research reports, based on his clear recollection of supporting documentation he compiled at his previous employer. He publishes the reports and obtains several new clients. Hurst is most likely:

• A) in violation of the Standard concerning record retention Correct
• B) in violation of the Standard concerning diligence and reasonable basis
• C) not in violation of any Standard

Page 18 | Status: ✅ Correct

Question: In order to remain in compliance when managing private client accounts, members must do all of the following EXCEPT:

• A) Seek authorization for changes in investment policy
• B) Conduct regular reviews of client circumstances Correct
• C) Use a risk-factor model to assess the client's risk tolerance

Page 18 | Status: ✅ Correct

Question: An analyst finds a stock with historical returns that are not correlated with interest rate changes. The analyst writes a report for his clients that have large allocations in fixed- income instruments and emphasizes the observed lack of correlation. He feels the stock would be of little value to investors whose portfolios are composed primarily of equities. The clients with allocations of fixed income instruments are the only clients to see the report. According to Standard V(B), Communication with Clients and Prospective Clients, the analyst has:

• A) violated the Standard concerning fair dealings with all clients Correct
• B) not violated the Standard
• C) violated the article in the Standard concerning facts and opinions

Page 19 | Status: ✅ Correct

Question: An analyst writes a report and includes the forecasts of an econometric model developed by the firm's research department. The analyst identifies the source of the forecast and includes all the relevant statistics concerning the model. With respect to diligence and reasonable basis, the analyst has:

• A) violated the Standards by relying on model forecasts
• B) complied with the Standards
• C)

Page 19 | Status: ⏸️ Unattempted

Question: A manager of pooled funds must do all of the following to remain in compliance with the Standards EXCEPT:

• A) seek authorization for any proposed changes Correct
• B) seek authorization for any trade that involves more than 1 percent of the fund's assets
• C) disclose portfolio construction processes Your Answer

Page 20 | Status: ❌ Incorrect

Question: An analyst receives a report from his research department that summarizes and interprets a recent speech from the chairman of the U.S. Federal Reserve. The summary says that the chairman thinks inflation is under control. Based upon this summary, the analyst says in his next newsletter that inflation is under control. This is a violation of:

• A) none of the Standards listed here Correct
• B) Standard V(A), Diligence and Reasonable Basis, only
• C) Standard V(A), Diligence and Reasonable Basis, and Standard V(B), Communication with Clients and Prospective Clients Your Answer

Page 20 | Status: ❌ Incorrect

Question: According to CFA Institute Standards of Professional Conduct, members are least likely required to:

• A) distribute a detailed research report to clients with any recommendation Correct
• B) analyze the investment's basic characteristics before recommending a specific investment to a broad client group
• C)

Page 20 | Status: ✅ Correct

Question: With regard to Ferrazzo's purchase of Bradley stock, she violated:

• A) Standard III(E): Preservation of Confidentiality, but not Standard V(A): Diligence and Reasonable Basis Your Answer
• B) Standard V(A): Diligence and Reasonable Basis, but not Standard II(A): Material Nonpublic Information Correct
• C) Standard III(E): Preservation of Confidentiality and Standard II(A): Material Nonpublic Information

Page 22 | Status: ❌ Incorrect

Question: Regarding the high-tech stock model, which of the following actions is least likely to help Sandro avoid violating the standards regarding plagiarism and research reports?

• A) Acknowledging Wright’s development of the initial model Correct Your Answer
• B)
• C) Providing basic information about technology stocks in the research report.

Page 22 | Status: ❌ Incorrect

Question: The production of the advertising represented a violation of:

• A) Standard IV(A): Loyalty to Employer and Standard I(C): Misrepresentation Correct
• B) Standard IV(C):Responsibilities of Supervisors, but not Standard VII(B): Reference to CFA Institute, the CFA Designation, and the CFA Program Your Answer
• C) Standard VII(B): Reference to CFA Institute, the CFA Designation, and the CFA Program, and Standard I(C): Misrepresentation

Page 23 | Status: ❌ Incorrect

Question: Ferrazzo may use which of the following brokers?

• A) Blue and Green only
• B) White and Blue only Correct Your Answer
• C) Blue only

Page 23 | Status: ❌ Incorrect

Question: Which of the following statements regarding Alpha Co. is least accurate?

• A) Sandro has breached a fiduciary duty to her client
• B) The fair-dealing standard has not been violated Correct Your Answer
• C) Both Wilson and Sandro have a reasonable basis for their recommendations

Page 23 | Status: ❌ Incorrect

Question: Which of the following statements regarding Sandro's biography is least accurate?

• A) Sandro must disclose her stake in a thinly traded, family-owned construction company
• B) Sandro can begin using the CFA designation as soon as she receives her exam results Correct
• C) Sandro need not deliver a copy of the Code and Standards to Ferrazzo

Page 24 | Status: ✅ Correct

Question: Janice Melfi is a portfolio manager for Soprano Advisors. Soprano has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Soprano model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research—an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers use the model to assist them in making portfolio decisions, but, based on their own fundamental research, are allowed to purchase securities not recommended by the model. This fact is not disclosed to the clients, because the head of marketing does not think it is relevant. Which of the following statements regarding the portfolio manager's investment decisions is CORRECT?

• A) Melfi is violating the Standards by using two investment processes that are in conflict with each other
• B) Soprano is violating the Standards by not disclosing the fundamental research aspect of the investment process Correct
• C) There is no violation of the Standards

Page 24 | Status: ✅ Correct

Question: Four months ago Lance Tuipuloto, CFA, analyzed three equity securities for Janet Scadden. However, Scadden decided to invest in bonds instead. Tuipuloto now wants to destroy the records from the stock analysis. Is this action in compliance with Standard V(C)?

• A) Yes. Tuipuloto does not need to keep the records because his advice was not followed
• B) Yes. Tuipuloto only needs to keep the records for 90 days Correct
• C) No

Page 25 | Status: ✅ Correct

Question: Janet Coleman, CFA, is preparing a research report on Union Utilities. During the past year, three of the five utility companies in her region have cut their dividends by 50%, on average, to provide more internal funds for capital investment. Coleman reasons that the management of Union will be under pressure to cut its dividends within the next year to remain competitive. Coleman issues a research report in which she states: "Union will decrease its dividend from $2 to $1 a share by the second quarter to finance its investment opportunities. If investors buy the stock now at around $50 a share, their total return could exceed 20%." With regard to the Standard on communication with clients and prospective clients, Coleman:

• A) did not violate the Standard
• B) violated the Standard because she promised a specific return on an investment Correct
• C) violated the Standard because she failed to distinguish opinion from fact

Page 26 | Status: ✅ Correct

Question: Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients are equal in value. It is Hatfield's opinion that interest rates will fall in the near future. Based upon this, Hatfield begins increasing the bond allocation of each portfolio. In order to comply with Standard V(B), Communication with Clients and Prospective Clients, the analyst needs to:

• A) inform the clients of the change and tell them it is based upon an opinion and not a fact
• B) make sure that the change is identical for both clients Correct
• C) perform both of these functions

Page 26 | Status: ✅ Correct

Question: An analyst has several groups of clients who are categorized according to their specific needs. Compared to research reports distributed to all of the clients, reports for a specific group:

• A) are not permitted by the Code and Standards Your Answer
• B) are required to include more basic facts Correct
• C) may generally exclude more basic facts

Page 27 | Status: ❌ Incorrect

Question: An analyst has constructed an investment policy statement (IPS) and a portfolio for a new client, Stephanie Sasser. He has also provided written guidelines on the processes used to make investment management decisions. Six month later, Sasser questions the analyst about several portfolio holdings. Due to a large allocation in financial services stocks during a severe market downturn, her portfolio has underperformed the benchmark by a large margin. Although the analyst remembers discussing the over-allocation with Sasser, and receiving her approval, he is unable to find supporting documents. Which of the following Standards has the analyst most likely violated?

• A) Diligence and Reasonable Basis Your Answer
• B) Communications with Clients and Prospective Clients Correct
• C) Record Retention

Page 27 | Status: ❌ Incorrect

Question: The Konkol Company implements a new methodology for portfolio valuation that is licensed to them by ABC Statistics. To comply with the Code and standards, Konkol should:

• A) discuss the new methodology only with clients whose security selection process will change as a result Your Answer
• B) discuss the new methodology with its clients Correct
• C) not discuss the new methodology with clients because doing so would fail to preserve ABC’s confidentiality

Page 27 | Status: ❌ Incorrect

Question: In the process of recommending an investment, in order to comply with Standard V(A), Diligence and Reasonable Basis, a CFA Institute member must:

• A) do both of these Correct
• B) have a reasonable and adequate basis for the recommendation
• C) support a recommendation with appropriate research and investigation

Page 28 | Status: ✅ Correct

Question: Todd Gable, CFA, was attending a noon luncheon when he overheard two software executives talking about a common vendor, Datagen, about how wonderful they thought the company was, and about a rumor that a major brokerage firm was preparing to issue a strong buy recommendation on the stock. Gable returned to the office, checked a couple of online sources, and then placed an order to purchase Datagen in all of his discretionary portfolios. The orders were filled within an hour. Three days later, a brokerage house issued a strong buy recommendation and Datagen's share price went up 20%. Gable then obtained the brokerage house's research report on Datagen and quoted parts of it in a report to his clients. Gable has most likely violated the Standards by: Gable has:

• A) not having a reasonable basis for an investment action Correct
• B) using material nonpublic information
• C) using the recommendation of another brokerage firm in his report

Page 28 | Status: ✅ Correct

Question: An analyst has constructed an investment policy statement (IPS) and a portfolio for a new client, Susan Stevens. He has also provided written guidelines on the processes used to make investment management decisions. Six month later, Stevens questions the analyst about several portfolio holdings. Although the analyst cannot remember his reasoning for recommending specific securities, and cannot find supporting documents, he assures her that the recommendations were made within the limits of her IPS and the firm's stated processes for making investment management decisions. Stevens is not satisfied by this response, but leaves the portfolio unchanged. The analyst has most likely violated:

• A) Standard V(
• B) Standard V( Correct
• C) Record Retention

Page 29 | Status: ✅ Correct

Question: BlueRock Fund uses a proprietary asset selection model that it believes gives the firm a competitive advantage. The model is applied to a universe of all small-cap domestic equities and all publicly-traded corporate bonds. The asset allocations generated by this model range from +200 percent in small-cap equities/-100 percent in bonds to +200 percent in bonds/-100 percent in small-cap equities. Since the fund can invest in both equities and bonds, it is classified as a balanced fund. In the prospectus BlueRock describes the fund's investment policy as "a balanced fund, with 50 percent of the assets invested in bonds and 50 percent in equities, on average." On this basis, BlueRock is:

• A) in violation of CFA Institute Standards concerning the disclosure of security selection and portfolio construction processes
• B) in violation of the CFA Institute Standard concerning Fiduciary Duty Correct
• C) not in violation of any CFA Institute Standard

Page 30 | Status: ✅ Correct

Question: Victor Logan is a portfolio manager for McCoy Advisors, and Jack Brisco is the Director of Research for McCoy. Brisco has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the McCoy model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. Brisco frequently alters the model based on rigorous research—an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as "buys" by the model. Logan has conducted very thorough research on his own, using the same process that Brisco uses to validate his findings. Logan feels the model is missing some key elements that would further reduce the list of acceptable securities to purchase, however, Brisco has refused to look at Logan's research. Frustrated by this, Logan applies his own version of the model, with the justification that he is still only purchasing securities on the buy list. Because of the conflict with Brisco, he does not disclose the use of the model to anyone at McCoy or to clients. Which of the following statements regarding Logan and Brisco is CORRECT? Logan is:

• A) not violating the Standards by applying his version of the model, but is violating the Standards by not disclosing it to clients. Brisco is not violating the Standards Correct
• B) violating the Standards by applying his version of the model and by not disclosing it to clients. Brisco is violating the Standards by failing to consider Logan's research
• C) violating the Standards by applying his version of the model and by not disclosing it to clients. Brisco is not violating the Standards Your Answer

Page 31 | Status: ❌ Incorrect

Question: The following scenarios refer to two analysts who are employed at Global Securities, a large brokerage firm. Paula Linstrom, CFA, is instructed by her supervisor to write a research report on Delta Enterprises. Delta's stock is widely held by institutional and individual investors. Although Linstrom does not own any of Delta's stocks, she believes that one of her friends may own 10 shares of Delta. The stock currently sells for $25 per share. Linstrom does not believe that informing her employer about her friend's possible ownership of Delta shares is necessary. Hershel Wadel, a member of CFA Institute, is asked by his supervisor to write a research report on Gamma Company. Wadel's wife inherited 500 shares of Gamma Company from her father when he died five years ago. Gamma stock currently sells for $35 per share. Wadel does not believe that informing his employer about his wife's ownership of Gamma shares is necessary. According to CFA Institute Standards of Professional Conduct, which the following statements about Linstrom and Wadel's conduct is most accurate?

• A) Only one of these analysts must disclose a potential conflict of interest
• B) Both of these analysts must disclose a potential conflict of interest
• C) Neither of these analysts must disclose a potential conflict of interest

Page 1 | Status: ⏸️ Unattempted

Question: A firm 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
• C) A supervisory analyst who reviews all research reports prior to dissemination

Page 1 | Status: ⏸️ Unattempted

Question: Futura Investments Co. decides to diversify its current portfolio with stocks from three companies in a new segment of the biotechnology industry. William Burgin, CFA, is an analyst at Futura and had previously bought shares of the same three companies for his own portfolio, well before his employer started researching them. Burgin has already disclosed the composition of his personal portfolio to Futura Investments, to be in compliance with the Code & the Standards. Which of the following actions should Burgin take?

• A) Diversify his personal portfolio so, in this way, these stocks will no longer represent a substantial portion of the portfolio
• B) Hire a full discretionary power or blind trust manager for his portfolio
• C) Open an account that will be managed by someone else but will allow him to maintain his investment preferences

Page 2 | Status: ⏸️ Unattempted

Question: 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 Wonder Drug Company. Harrow serves on the board of Miracle and owns shares of Wonder. According to the Standards of Professional Conduct, which of the following actions is Harrow required to take when he writes the research reports?

• A) Harrow must disclose both his relationship with Miracle and his ownership of shares in Wonder
• B) Harrow must disclose his relationship with Miracle but not his ownership of shares in Wonder
• C) Harrow must disclose his ownership of shares in Wonder but not his relationship with Miracle

Page 2 | Status: ⏸️ Unattempted

Question: Abner Flome, CFA, is writing a research report on Paulsen Group, an investment advisory firm. Flome's brother-in-law holds shares of Paulsen stock. Flome has recently interviewed for a position with Paulsen and expects a second interview. According to the Standards, Flome's most appropriate action is to disclose in the research report:

• A) that he is being considered for a job at Paulsen
• B) his brother-in-law’s holding of Paulsen stock
• C) his brother-in-law’s holding of Paulsen stock and that he is being considered for a job at Paulsen

Page 3 | Status: ⏸️ Unattempted

Question: 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) discontinue his services for Smith
• B) only reveal to the prospects referred by Smith that he performs services for Smith
• C) reveal to the prospects referred by Smith that he performs services for Smith, along with the estimated value of those services

Page 3 | Status: ⏸️ Unattempted

Question: Regarding their research reports, which of the following statements about Linstrom and Wadel's conduct is CORRECT?

• A) Both Linstrom and Wadel violated Standard VI(A)—Disclosure of Conflicts
• B) Wadel violated Standard VI(A)—Disclosure of Conflicts, and Linstrom did not violate Standard VI(A)
• C) Wadel did not violate Standard VI(A)—Disclosure of Conflicts, and Linstrom did violate Standard VI(A)

Page 5 | Status: ⏸️ Unattempted

Question: What is the obligation, if any, to disclose Wadel's arrangement with Black?

• A) Wadel must disclose the arrangement to Platt but is not required to disclose the arrangement to his other clients
• B) Wadel need not disclose anything to his clients or to Platt because he is violating no fiduciary duty
• C) Wadel must disclose the arrangements to his clients and to Platt only if he believes it will create a conflict with his responsibilities to other clients

Page 5 | Status: ⏸️ Unattempted

Question: According to the Standards, how must Platt deal with the intern's alleged illegal activity?

• A) Initiate an investigation and place limits on the intern’s activities pending the outcome
• B) Report the intern’s behavior to the appropriate regulatory authority
• C) Tell the intern to stop the conduct

Page 6 | Status: ⏸️ Unattempted

Question: Platt is renouncing her U.S. citizenship and becoming a citizen of Xania. According to the Standards, if Platt renounces her U.S. citizenship, she may then:

• A) use material inside information when trading in Xania only if the information does not relate to a tender offer
• B) not use material inside information when trading in Xania
• C) not use material inside information unless trading Xanian stocks exclusively

Page 6 | Status: ⏸️ Unattempted

Question: An analyst likes to trade commodity futures in her own account. She does not deem any of her client accounts suitable for commodity futures trading. When she identifies a favorable commodity futures position, the Standard concerning priority of transactions suggests she should:

• A) refrain from acting until she notifies her supervisor
• B) first tell her clients about it before acting herself
• C) act on it on her own behalf as she sees fit

Page 6 | Status: ⏸️ Unattempted

Question: Steve Copper has worked as an independent consultant for the past ten years advising companies on various ways to increase their internal efficiency and thereby increase the firm's stock price as well. Copper recently accepted a job offer from an equity research firm as a senior stock analyst. One of the firms he will be responsible for researching, Johnson Machine 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 Standards of Professional Conduct, which of the following is the most appropriate action for Copper to take? Copper should:

• A) terminate the contract with JMT prior to issuing any research on the company
• B) disclose the consulting arrangement to clients considering JMT as an investment
• C) disclose the arrangement only if he plans to renew the contract in six months. Michael Pennington Case Scenario Michael Pennington is Senior Vice President of equity investments at Alpha Investment Advisors, Inc. (AIA). He manages a team of analysts and portfolio managers and is responsible for maintaining and developing client relationships. AIA is located in Belgium and provides investment management services to high net worth individuals. Pennington is also a Level III Candidate in the CFA Program. One of Pennington's clients is the Flanders family. Pennington had a long relationship with Helmut Flanders. Before Flanders's untimely death, he gave Pennington full discretion over

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Question: Standard VI(A), Disclosures of Conflicts, requires Pennington to disclose all matters, including beneficial ownership of securities of other investments, that could be expected to impair the member's ability to make unbiased and objective recommendations. Which of the following matters would least likely be disclosed to Elise?

• A) AIA has a soft dollar arrangement with a brokerage firm owned by Pennington’s sister
• B) Pennington owns shares in Allux
• C) Pennington played golf with Helmut Flanders on a regular basis and developed client relationships from those golf outings

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Question: Which of the following best describes Pennington's compliance with the CFA Institute Standards regarding his use of soft dollars? The purchase of:

• A) both research reports and carpeting are allowable uses of soft dollars
• B) research reports and attending the conference are allowable uses of soft dollars
• C) research reports is an allowable use of soft dollars

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

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

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Question: 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) may invest in the stock because the analyst would not purchase the stock for the bond portfolio he manages
• 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) is in violation of Standard IV(A), Loyalty to Employer, by spending time analyzing stocks when he should only analyze bonds

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Question: An analyst has the opportunity to offer 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 offers 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 if his brother is not a 'covered person'
• B)
• C)

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Question: Phil Trobb, CFA, is preparing a purchase recommendation on Aneas Lumber for his research firm. Which of the following least likely represents a conflict of interest that Trobb should disclose in his report?

• A) Trobb's research firm has a large stake of ownership in Aneas
• B) Trobb's cousin repairs machines for Aneas
• C) Aneas hires Trobb as a consultant to analyze Aneas' financial statements

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Question: Gordon McKinney, CFA, works in the trust department of a bank. The bank's trust account holds a large block of a particular company. McKinney learns from a market news service that this company is going to buy back one million shares at a 15% premium to the market price on a first-come-first-served basis. McKinney immediately tells his mother-in-law to tender her shares but waits until the end of the day to tender the trust's shares. McKinney has most likely violated the Standard concerning:

• A) material nonpublic information
• B) priority of transactions
• C) loyalty. Hunter Harrison, CFA, has recently been promoted to Chief Investment Officer (CIO) of Ironclad Investments, an investment adviser and pension consultant for medium and large corporate pension clients. Ironclad recently hired a compliance officer to update its compliance manual, which is consistent with the CFA Institute Code and Standards. Harrison serves as a director on several non-profit and corporate boards of directors, some of which have their pension assets managed by Ironclad. As part of his new job duties, Harrison will

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Question: Is it likely that Myers violated any CFA Institute Standards of Professional Conduct with respect to her disclosure of the partnership interest in the software company or did Harrison violate any standards with respect to the sale of Breakthrough stock? Partnership interest Breakthrough sale

• A) No Yes
• B) Yes Yes
• C) Yes No

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Question: Is it likely that Myers violated any CFA Institute Standards of Professional Conduct by selling the Breakthrough stock for her clients' accounts?

• A) Yes, because the information shared by Breakthrough's CEO was nonpublic
• B) No, because Myers is not considered an insider with respect to the information
• C) No, because Myers has a fiduciary duty to her clients

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Question: Which of the following least accurately describes Harrison's actions necessary for compliance with the Code and Standards regarding proxy voting? Harrison should:

• A) discard all proxies on behalf of Ironclad’s clients when there is a conflict of interest
• B) abstain from voting on matters affecting Internet and Wavelength to avoid conflicts of interest
• C) disclose all proxy voting policies to Ironclad’s clients including the treatment of routine and nonroutine issues

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Question: Jim Taylor works as a portfolio manager for Rose Capital and also serves as president of the Little League board of directors in his town. He receives no money from Little League, however the local golf club provides him with a free membership for volunteering his time on the Little League board. Taylor's involvement with Little League is in his company biography, but the club membership has not been disclosed to Rose or his clients. Taylor has:

• A) not violated the Standards
• B)
• C)

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Question: Will Lambert, CFA, is a financial analyst for Offshore Investments. He is preparing a purchase recommendation on Burch Corporation. According to the Standards of Professional Conduct, which of the following relationships with Burch is Lambert least likely required to disclose?

• A) His wife owns 2,000 shares of Burch
• B) His son-in-law was formerly employed by Burch
• C) He has a material beneficial ownership of Burch through a family trust

Page 15 | Status: ⏸️ Unattempted

Question: Toni Florence, CFA, CAIA, leases office space to her best friend, Tom Rigs. Florence is an independent investment advisor specializing in high net worth clients and Rigs is a licensed real estate broker. In lieu of paying rent, Rigs refers his real estate clients to Florence, but only with the clients' permission. For clients referred by Rigs, Florence:

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

Page 15 | Status: ⏸️ Unattempted

Question: Hartsburg's efforts to help Voltaire pass the CFA exam:

• A) conform to all relevant standards
• B) violate both Standard I(D): Misconduct and Standard VII(A): Conduct as Members and Candidates in the CFA Program
• C) conform to Standard I(D): Misconduct, but violate Standard VII(A): Conduct as Members and Candidates in the CFA Program

Page 17 | Status: ⏸️ Unattempted

Question: With respect to the allegation that Voltaire is front-running research recommendations, Hartsburg's first priority, under CFA Institute Standard IV(

• A) promptly initiate an investigation
• B) freeze Voltaire’s trading account and begin documenting her conduct as a precursor to possible termination
• C) report the situation to his supervisor

Page 17 | Status: ⏸️ Unattempted

Question: Dwight Dawson, a CFA charterholder and portfolio manager at Ascott Investments, was recently appointed to the investments committee at Brightwood College. He will receive no compensation from Brightwood for serving on this committee. Another person at Ascott manages part of Brightwood's endowment. Dawson does not inform Ascott's compliance office of his involvement with Brightwood, because he does not believe doing so is necessary. Brenda Hamilton, a CFA candidate, also works for Ascott as an investment analyst. Procedures established at Ascott prohibit personal trading in securities analyzed or recommended by Ascott. One of these securities is Horizon, a telecommunications firm. Hamilton buys 10 shares of Horizon for her infant son's trust account. She believes that reporting this purchase to Ascott's compliance officer is unnecessary because the amount of the transaction is small and is not for her own personal account. Did Dawson or Hamilton's actions violate CFA Institute Standards of Professional Conduct?

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

Page 18 | Status: ⏸️ Unattempted

Question: Harry Lee, CFA, is an equity research analyst for a long-term investment fund. His annual bonus is linked to the fund's three-year average gains. Under a new policy, the bonus criterion is changed to include a link to the fund's quarterly trading profits. According to the Code and Standards, best practices dictate:

• A) requiring Hurst to obtain permission from each client prior to implementation of the new policy
• B) updating disclosures when the policy change is implemented
• C) treating the policy change as proprietary information

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Question: If a CFA charterholder receives a referral fee, he must:

• A) disclose the nature of the fee arrangement to the client before entering into a formal agreement
• B) disclose the fee to the supervisor, in written form, as an additional benefit
• C) consult with the firm's compliance officer, and follow his or her instructions concerning disclosure

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Question: Standard VI(C), Referral Fees, requires the member to do all of the following EXCEPT:

• A) make required disclosures to the referred client before an agreement is made to provide services to the referred client
• B) disclose to the referred client the percentage of the member's business that comes from referrals
• C) disclose to the referred client how much the referral source was paid to refer the client

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Question: Rochester Frankfurt is a market maker in the stock of Byrne Brands, Inc. The chairman of Rochester Frankfurt serves on the board of directors of Byrne Brands. If an analyst at Rochester Frankfurt who is a CFA charterholder makes an investment recommendation on Byrne Brands, which of these two facts is the analyst required to disclose?

• A) Both of these facts
• B) Neither of these facts
• C) Only one of these facts

Page 20 | Status: ⏸️ Unattempted

Question: All of the following statements in promotion of your services are in violation of CFA Institute Standards of Practice handbook EXCEPT:

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

Page 1 | Status: ❌ Incorrect

Question: Which of the following statements regarding disciplinary procedures is least accurate?

• A) A review panel is created from Disciplinary Review Committee members Correct Your Answer
• B) If the CFA member or candidate rejects the sanction, the charges and sanctions may be reviewed
• C) The sanctions imposed by the Professional Conduct staff are final and conclusive

Page 1 | Status: ❌ Incorrect

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

• A) Baker and Chang Your Answer
• B) Anderson and Chang
• C)

Page 1 | Status: ❌ Incorrect

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

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

Page 2 | Status: ❌ Incorrect

Question: Which of the following is least likely a violation of the Standard concerning conduct as participants in CFA Institute programs?

• A) Disregarding the rules related to the administration of the CFA examination Correct
• B) Improperly using the CFA Designation to further professional goals
• C) Expressing opinions in disagreement with CFA Institute advocacy positions Your Answer

Page 2 | Status: ❌ Incorrect

Question: Ralph Lim and Susan Bland have both passed Level I of the CFA Program. Both are currently 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 Professional Conduct involving use of the professional designation:

• A) Bland violated the Standard, but Lim did not Correct
• B) Lim violated the Standard, but Bland did not
• C) Both Lim and Bland violated the Standard Your Answer

Page 2 | Status: ❌ Incorrect

Question: Nancy Arnold receives an undergraduate business degree with a management major and has completed all the requirements for the CFA designation. She is applying for employment at several brokerage firms. Her resume states, "I will soon be awarded the CFA charter by CFA Institute." Her resume also states that she and majored in finance. Arnold's statements violate:

• A) only the Standard on misrepresentation
• B) both the Standards on misrepresentation and reference to the CFA designation Correct
• C) only the Standard on reference to the CFA designation Your Answer

Page 3 | Status: ❌ Incorrect

Question: John Johnson, portfolio manager at Sunshine Investments, has passed all three levels of the CFA® Program and has completed his work experience requirements. He expects to receive his charter in the near future. He includes the following statement in his firm's brochure: "Johnson has passed all three levels of the exam and has completed the required work experience for the CFA Charter. He is eligible for the CFA Charter and expects to receive the charter in the near future. Over the years, he has demonstrated a superior performance and his CFA Charter will be rightfully awarded." Johnson has:

• A) violated CFA Institute Standards of Professional Conduct because he implied superior performance that would be linked to the CFA Charter Correct
• B) not violated CFA Institute Standards of Professional Conduct because he met all disclosure requirements
• C) violated CFA Institute Standards of Professional Conduct because he advertised the CFA Charter before actually obtaining it Your Answer

Page 3 | Status: ❌ Incorrect

Question: 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 firm'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) Both Albert and Tye have violated the Standards Correct
• B) Albert has violated the Standards but Tye has not
• C) Neither Albert nor Tye has violated the Standards

Page 4 | Status: ⏸️ Unattempted

Question: 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, C.F.A. Correct
• B) Robert Hopkins, Chartered Financial Analyst
• C) Robert Hopkins, cfa

Page 4 | Status: ⏸️ Unattempted

Question: A CFA charterholder coaches a fellow employee as that colleague studies for the CFA exams. The charterholder tells the colleague all that she remembers from her exams and how they were constructed. This is:

• A) not a violation of the standards Your Answer
• B) concerning use of the designation Correct
• C) a violation of Standard VII(
• D) concerning professional misconduct

Page 5 | Status: ❌ Incorrect

Question: 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 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 offer. 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) Neither Beckworth nor her assistant is in violation of Standard VII(A) Your Answer
• B) Beckworth is in violation of Standard VII(A), but her assistant is not in violation Correct
• C) Both Beckworth and her assistant are in violation of Standard VII(A)

Page 5 | Status: ❌ Incorrect

Question: Ron Vasquez is registered to sit for the Level II CFA exam. Unfortunately, Vasquez has failed the exam the past two years. In his frustration, Vasquez posted the following comment on a popular internet bulletin board: "I believe that CFA Institute is intentionally limiting the number of charterholders in order to increase its cash flow by continuing to fail candidates. Just look at the pass rates." With regard to the Standards concerning misconduct and conduct as participants in CFA Institute programs, Vasquez is:

• A) not in violation of either Standard Correct
• B) in violation of only one of these Standards Your Answer
• C) in violation of both of these Standards

Page 6 | Status: ❌ Incorrect

Question: Which of the following statements is a violation of the Standards if it is included on a CFA charterholder's resume?

• A) Earning the CFA designation indicates my desire to maintain high ethical standards
• B) To earn the CFA designation I had to pass three rigorous examinations Correct Your Answer
• C) Earning the CFA designation indicates my superior ability

Page 6 | Status: ❌ Incorrect

Question: Janet Olson, CFA, is an analyst at Quantech Associates. Olson attended a conference at which 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 used factual materials supplied by Moody's Investors Service, a recognized financial and statistical reporting service. Olson wrote a research report describing the revised model and its results and distributed the report to Quantech's clients. According to CFA Institute Standards of Professional Conduct, which of the following actions is Olson required to take? Olson is:

• A) 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 Investors Service as the source of the data Correct
• B) required to seek authorization from Wright to copy the spreadsheets and acknowledge Wright for developing the initial model and Moody's Investors Service as the source of the data
• C) 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 Wright for developing the initial model

Page 7 | Status: ✅ Correct

Question: Julie Stades retired several years ago and relinquished her membership in CFA Institute. She 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 violation of Standard VII(B)?

• A) Yes, because she is no longer an active member
• B) No, as long as she does not indicate she currently has the designation Correct
• C) Yes, she must state that she no longer holds the CFA designation

Page 7 | Status: ✅ Correct

Question: Claudel's statement about his education background is:

• A) truthful, but not in accord with the Code and Standards Correct
• B) truthful, and in accord with the Code and Standards Your Answer
• C) not truthful, and not in accord with the Code and Standards

Page 2 | Status: ❌ Incorrect

Question: Which of the following statements is CORRECT?

• A) Bonnet has violated Standard III(B): Fair Dealing, and Claudel has violated Standard I(B): Independence and Objectivity Correct
• B) Bonnet has violated Standard II(A): Material Nonpublic Information, and Claudel has not violated Standard III(A): Loyalty, Prudence, and Care Your Answer
• C) Bonnet has violated Standard IV(A): Loyalty to Employer, and Claudel has violated Standard I(A): Knowledge of the Law

Page 2 | Status: ❌ Incorrect

Question: Patricia Spraetz is the chief financial officer and compliance officer at Super Selection Investment Advisors. Super Selection is a medium-sized money management firm which has incorporated the CFA Institute Code of Ethics and Standards of Practice into the firm's compliance manual. Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is friendly with David James, president of AMD, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson has also served on AMD's board of directors. She has received options and fees as compensation. Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase AMD for her clients' portfolios. Which of the following statements concerning Super Selection is CORRECT?

• A) Spraetz, in her capacity as a supervisor, violated Standard IV( Your Answer
• B) Jackson did not violate the CFA Institute Code of Ethics and Standards since she is not a CFA charterholder Correct
• C) by not preventing violations by Jackson

Page 3 | Status: ❌ Incorrect

Question: Patricia Spraetz is the chief financial officer and compliance officer at Super Selection Investment Advisors. Super Selection is a medium-sized money management firm which has incorporated the CFA Institute Code of Ethics and Standards of Practice into the firm's compliance manual. Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is friendly with David James, president of AMD, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson has also served on AMD's board of directors but has never notified Super Selection of this fact. She has received options and fees as compensation. Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase AMD for her clients' portfolios. Which of the following statements is NOT correct?

• A) regarding Conflicts of interest by not disclosing her board membership and ownership of stock options to her employer Correct
• B) regarding Disclosure of Additional Compensation by not disclosing additional compensation in the form of cash and stock options received from AMD, as its board member to her employer
• C) Jackson violated Standard VI(

Page 4 | Status: ✅ Correct

Question: Karen Jackson is a portfolio manager. Jackson is friendly with David James, president of Acme Medical, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson has also served on Acme Medical's board of directors. She has received options and fees as compensation. Recently, the board of Acme Medical decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before Acme Medical's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that Acme Medical was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase Acme Medical for her clients' portfolios. Did Jackson violate Standard III(

• A) No Correct
• B) Yes, because she did not consider the appropriateness and suitability of investment recommendations or actions for each portfolio or client
• C) Yes, because she did not deal fairly with all clients

Page 5 | Status: ✅ Correct

Question: With regard to the Smith account, O'Brien's actions are best described as being in:

• A) - Loyalty, Prudence, and Care
• B) compliance with all applicable CFA Institute Standards Correct
• C) violation of Standard III(

Page 7 | Status: ✅ Correct

Question: Which of the following statements about O'Brien's use of convertible bonds is CORRECT?

• A) O’Brien’s lack of expertise in equity analysis, despite usage of the CFA mark, represents a violation of Standard VII(A): Conduct as Members and Candidates in the CFA Program Correct
• B) The use of convertible bonds in O’Brien’s high-yield fund violates Standard V(A): Diligence and Reasonable Basis
• C) Unless O’Brien makes arrangements for someone else to vote the proxies, he is in violation of Standard III(A): Loyalty, Prudence, and Care Your Answer

Page 8 | Status: ❌ Incorrect

Question: With regard to the Villa Real investment, O'Brien's actions:

• A) violate neither the reasonable-basis Standard nor the priority-of-transactions Standard
• B) violate the reasonable-basis Standard and the fiduciary-duties Standard Correct
• C) do not violate the fiduciary-duties Standard but do violate the priority-of- transactions Standard Your Answer

Page 8 | Status: ❌ Incorrect

Question: O'Brien's money-market allocations represent:

• A) reasonable actions, as they simply reflect the nature of his compensation
• B) a violation of Standard III(B): Fair Dealing Correct
• C) a breach of his fiduciary duty to mutual-fund account owners Your Answer

Page 8 | Status: ❌ Incorrect

Question: Sherman's attempt to lure away clients from Pearl while he was still employed at Pearl is:

• A) because they would have followed Sherman to his new firm anyway, and no harm to Pearl was done as a result Correct
• B) a violation of Standard IV(
• C) not a violation of Standard IV(

Page 10 | Status: ✅ Correct

Question: Jim Jones is an equity research analyst at Gamma funds. Because of his expertise in the telecommunications field, a Chinese telecommunications provider hires Jones as a consultant to help them identify potential investors. According to the Standards of Professional Conduct IV(

• A) describe to his employer in detail the activities related to this consulting arrangement Correct
• B) obtain verbal permission from his employer to engage in this consulting arrangement
• C) refuse this consulting arrangement

Page 10 | Status: ✅ Correct