CFA L1 Ethics Questions

By AnalystPrep.
com
CFA LEVEL 1 – ETHICAL By AnalystPrep.com
AND PROFESSIONAL
STANDARDS
© 2019 AnalystPrep.com. All rights reserved

1. Which of the following forms of referral fees, compensation, consideration or benefit earned
in the course of issuing a recommendation must be disclosed?
A. Only cash considerations should be disclosed.

B. Only considerations in the form of cash or soft dollars must be disclosed.
C. Considerations in the form of cash, soft dollars or in kind must be disclosed.
2. Illeana Cruze, CFA, is a portfolio manager at Alpha Sense and manages a mutual fund and a
pension plan. On receipt of proxies for the mutual fund, Cruze hands it over to her
administrative assistant, Tom Hillman. Cruze says that she does not have enough time to
handle proxies herself because of other commitments. When the proxies are for stocks owned
by the pension plan, she asks Hillman to send it to the sponsor of the plan. Which of the
following statements is most likely accurate?
A. Cruze’s policy on mutual fund proxies is a violation, but her policy on pension plan
proxies is not a violation.
B. Cruze’s policy is not a violation.
C. Cruze’s policy on both the mutual fund as well as the pension plan proxies is a violation.
3. Robert Galvin, CFA, is a money manager and takes care of choosing assets for Retire Smart’s
pension fund. The director of Retire Smart’s Pension Fund directs Galvin to use a particular
broker for the trade in the pension fund with the intention of obtaining research with soft
dollars earned from the broker. Galvin follows the instructions of the director as there is no
significant difference in the price and execution. Galvin has most likely:
A. Not violated any standard if the research benefits the plan beneficiaries.
B. Not violated any standard if the research benefits Retire Smart.
C. Violated the Standard III(A) – Loyalty Prudence and Care.
4. Blair Noir, CFA, is an analyst in the healthcare sector. Noir recently attended a meeting with
the management of a company under her coverage. In the meeting, management expressed
extremely positive views about a drug that is in the development stage. Based on the views of
management, Noir stated in her report: “In the coming years, the Company is going to see a
significant growth in sales.” Which of the following statements is correct regarding Standard
V(B) – Communication with Clients and Prospective Clients?

A. Noir is not in violation of Standard V(B) – Communication with Clients and Prospective
Clients as she had a reasonable basis for her statement.
B. Since Noir did not verify the statement of the management, she has violated Standard
V(B) – Communication with Clients and Prospective Clients.
C. Noir has violated Standard V(B) – Communication with Clients and Prospective Clients
as she presented the optimism of management as a certain event.
5. Mandy Elmar, CFA, has been conducting research on Xoom Corp. Elmar was almost done
with her research and was planning to get the report typed today and delivered to the clients
the next day. However, this morning, Elmar lost her folder which had all the documents related
to Xoom Corp. In a panicked state she called the management of Xoom Corp who sent her their
projections of the company. Although Elmar did not remember the exact forecast from her
report she knew they were lower than management’s projections. Therefore, Elmar reduced the
forecast provided by the management of Xoom by 15%. She also used graphs and charts from
another report a colleague performed on Xoom 2 years earlier. Elmar managed to finish the
report and submitted it on time to the clients. Elmar has most likely:
A. Violated Standard V(A) – Diligence and Reasonable Basis, Standard I-B: Independence
and Objectivity and Standard III(E) – Preservation Of Confidentiality.
B. Violated Standard I(C) – Misrepresentation, Standard III-D: Performance Presentation
and Standard III(E) – Preservation Of Confidentiality.
C. Violated Standard V(A) – Diligence and Reasonable Basis, Standard I(C) –
Misrepresentation and Standard V(C) – Record retention.
6. Ronda Bayes, CFA, recently joined Skylark Investments. Which of the following
recommendations from the directors of Skylark is not in line with the recommendations of the
CFA Institute standards?
A. Bayes should be made aware that dishonest personal behavior reflects poorly on the
profession.
B. Bayes should write a personal ethical statement.
C. A background check should be conducted on Bayes.

7. A mutual fund follows a strategy where it invests in treasury securities along with extremely
risky securities. Treasury investments are made such that 95% of the fund value should be
recovered from the treasury securities at the end of the investment horizon. The mutual fund is
planning to include one of the following statements in its communication with its clients:
I. Since the fund is backed by treasury securities, the investors will get guaranteed returns.
II. There is no default risk on the investments made by the fund.
Which of the statements is a violation of Standard I(C) – Misrepresentation?
A. Only statement I.
B. Both statement I & II.
C. Only statement II.
8. When introducing herself to a potential client, Jhansu Haldon usually says “I was awarded a
CFA degree in 2015.” Haldon has:
A. Not violated any standard in mentioning this.

B. Has violated Standard VII(B) – Reference to CFA Institute, the CFA® designation, and
the CFA® Program
C. Has violated Standard VII(A) – Conduct as Members and Candidates in the CFA®
Program.
9. Which of the following is least likely a motivation for the creation of the GIPS?
A. Increasing the intervention of the government in the investment industry

B. Standardizing the performance presentation for facilitating comparison
C. Improving the services offered to clients

10. Jennifer Lively, CFA, manages accounts for WS Capital. When transacting any trades in her
client’s accounts, Lively ensures that she does not trade in her mother’s account, who is also a
client, until all the other clients have been given the opportunity to trade. Is Lively’s approach
to trading in her mother’s account in line with Standard VI (B) – Priority of Transaction?
A. No, Lively should not trade in her mother’s account at all.

B. Yes, Lively gives enough opportunity to all her client to trade before trading in her
mother’s account.
C. No, Lively should treat her mother’s account like any other client account.
11. Justin Scott, CFA, is an analyst and covers Amond Corp. In one of his recent meetings with
the management of Amond Corp, Scott received non-material financial data. Using this
information provided by management and his knowledge of the industry and competitors,
Scott is of the opinion that Amond is likely to make a tender offer to one of its competitors. If
Scott’s analysis is correct, this will impact Amond Corp shareholder’s materially. Which of the
following statements is most likely accurate?
A. Scott should publish the report.

B. Scott should send a copy of the report to the Management of Amond Corp for
verification.
C. Scott should not disseminate any information until the tender offer is public.
12. John Reed, CFA, is managing the portfolio of Brandy Anniston, a wealthy client. Mrs
Anniston is part of the mailing list of the company and is also informed that she should get in
touch with her investment manager whenever there is a significant change in circumstances. It
has been more than 2 years since Reed and Anniston have spoken. Is Reed in violation of
Standard III(C) – Suitability?
A. No, as there has been no significant change in Anniston’s financial situation.

B. Yes, Reed has violated the Standard III(C) – Suitability.
C. No, the case presented does not involve Standard III(C) – Suitability.

13. Vin Wisely, CFA, is employed by Wise Corp to provide investment advice to pension plan
participants. Wisely realizes that the stock of Wise Corp is one of the investment options for the
plan participants. However, he believes that investing in Wise Corp stock is too risky for a
pension plan and advises the employees not to invest in Wise Corp. The company treasurer tells
Wisely that he is violating his fiduciary duty to the Company by giving such advice and that he
could also lose his job if he continues. Wisely should most likely:
A. Inform employees about the conflict of interest and stop advising them on the stock of
Wisely Corp.
B. Continue to advise employees to sell the stock of Wise Corp.
C. Continue giving his ‘’Sell’’ recommendation but mentioning the differing opinion of the
treasurer.
14. Eva Watson, CFA, is a manager at Fern Investments. Watson’s compensation includes a base
salary and a percentage of fees generated by the firm. It also includes a performance bonus if
the clients’ return is 200 bps higher than the benchmark. In a meeting with a prospective client,
Eva did not disclose the compensation arrangement. Eva has most likely:
A. Not violated Standard VI(A) – Disclosure of Conflicts by not disclosing the

compensation.
B. Violated Standard VI(A) – Disclosure of Conflicts by not disclosing the performance
bonus.
C. Not violated Standard VI(A) – Disclosure of Conflicts by not disclosing the bonus
arrangement as there is no inherent conflict of interest in the bonus.
15. Financial advisors at Asda manage individual client’s investments. To identify the most
appropriate portfolio for any client, Asda uses a model that analyzes a range of simulated
portfolios and comes up with a probability of achieving different levels of returns. A portfolio
that gives the highest probability of achieving the minimum required return specified by the
client is then selected. Advisors at Asda are:
A. Violating Standard I (C) – Misrepresentation.

B. Violating Standard III (C) – Suitability.
C. Not violating any standard.

16. Paul Teshima is preparing a research report on a new drug called ABXV IV in the oncology
industry. He gets in touch with a few scientists and medical professionals working in the field
of oncology, and obtains information about some competing oncology treatments. Most of these
drugs are in the pre-clinical development phase, which is public information. Teshima
concludes in his research report that ABXV IV might have some competing drugs coming into
the market in the next few years if the pre-clinical and clinical trials prove to be successful. Has
Teshima violated any Standard of Professional Conduct?
A. Yes, Teshima has violated the Standards by relying on material non-public information.
B. Yes, Teshima has violated the Standards by not performing due diligence to confirm the
reliability of the information.
C. No, Teshima did not violate any Standards.
17. Lucas Boski currently works at Wealth Succession Management Firm. Boski decides to leave
his current employer to join a competing firm, MoneySimple. Which of the following is most
likely accurate with regards to what Boski can do?
A. It is permissible for Boski to take a list of clients' details as long as the employee believes
that he might have been able to replicate the list from private records and public records.
B. It is permissible for Boski to take a list of clients' details as long as the employee believes
that he might have been able to replicate the list only from public records.
C. It is permissible for Boski to contract the old employer’s clients in an attempt to gain
business for his new employer in all circumstances.
18. Consider the following statements about the role of composites in performance presentation:
Statement I: Composites help in presenting a firm’s performance under various asset classes.
Statement II: Composites help to evaluate a firm’s performance in a single statistic that enables
comparison across firms.
Statement III: Composites help the investor to evaluate if a firm is GIPS compliant.
Which of the above statement/statements about composite is/are most likely accurate?
A. I only
B. I & II only
C. I, II & III

19. Which of the following statements are components of the CFA Institute Code of Ethics?
I. Act with integrity, competence, diligence, respect, and in an ethical manner with the public,
clients, prospective clients, employers, employees, colleagues in the investment profession, and
other participants in the global capital markets.
II. Preserve the confidentiality of information communicated by clients, prospects or employers

about the investment matters.
III. Practice and encourage others to practice in a professional and ethical manner that will
reflect credit on themselves and the profession.
A. Only I
B. Only I & III
C. I, II & III
20. David Liam, CFA, manages portfolios for several wealthy clients. Liam met with Mr. Goel,
one of his clients, over lunch. Liam advises Mr. Goel to double his investment in JKF Corp as
the operational restructuring is expected to bring in higher profitability. In order not to violate
Standard V – Investment Analysis, Recommendation and Action, what should Liam most likely
do when he reaches his office?
A. David Liam should identify other clients for whom investment in JKF is suitable and
should inform them about the expected increase in profitability.
B. David Liam should first verify the suitability of the investment and then execute the
order.
C. David Liam should record the details of his meeting and investment recommendation.
21. Amir Karimili, CFA, has been very vocal about his views on the CFA® exam testing policies.
Karimili claims that “Because there are a lot of CFA® charterholders, CFA Institute deliberately
fails students to save the prestige of CFA® charter from dilution.” Which of the following is
most accurate about Karimili’s behavior?

A. Karimili has violated Standard VII(A) – Conduct as Members and Candidates in
the CFA® Program.
B. Karimili has violated Standard V(B) – Communication with Clients and
Prospective Clients.
C. Karimili has not violated any standard.
22. When a firm is being verified for Compliance with GIPS, which of the following is a verifier
most likely to do?
I. A verifier must attest that the procedures and processes followed by the firm for performance
presentation are in accordance with GIPS.
II. A verifier should clearly distinguish the composites for which the verification is done and not
done.
A. Only I
B. Only II
C. Both I & II
23. Leena McCaroll and Eric Smith are both friends and work for the same investment
management firm. McCaroll is a CFA® level II candidate. While introducing herself to the
clients, she usually mentions that she expects to pass the CFA® level II exam in June. Eric
Smith, on his business card, mentions that he has passed both level I and II CFA® exams at his
first attempts, which is a fact. Are Leena McCaroll and Eric Smith in violation of any standard?
A. Both Leena McCaroll and Eric Smith are in violation of Standard VII(B) – Reference to
CFA Institute, the CFA Designation and the CFA® Program.
B. Only Leena McCaroll is in violation of Standard VII(B) – Reference to CFA Institute, the
CFA Designation and the CFA® Program.
C. Neither Leena McCaroll nor Eric Smith is in violation of any standard.

24. Ravi Mehra is an Indian citizen working in India for the US branch of a Canadian bank.
Referral fees are allowed in the U.S. and in Canada but not in India. What should Ravi Mehra,
CFA, do if his company offers referral fees?
A. Mehra should accept the referral fees and disclose the referral fees.
B. Mehra should accept the referral fees, and there is no requirement to make any
disclosure as referral fees are allowed in US and Canada.
C. Mehra should not accept the referral fees.
25. Aly Nabil, CFA, covers the real estate sector of Middle East. Emar Group, a Real Estate
company in Dubai, has gotten a few phone calls by Nabil who is trying to estimate the value of
the company. Emar runs 878 Hotel in Dubai and recently offered Nabil to have a trip to Dubai
and stay at 878 at the expense of Emar Group. Which of the following is the most appropriate
action that Nabil should take so that he does not violate any standard?
A. Aly should accept the offer and inform his supervisor about the offer.
B. Aly should decline the offer.
C. Aly should accept the offer and mention it in his research report.
26. Laura Haldon, CFA, has been working for a full-service brokerage firm. She recently met
with a client and, after understanding all the requirements, informed him that her firm can
provide the services he needs. Given the abovementioned information, has Haldon violated
Standard I (C)– Misrepresentation?
A. Yes, Haldon cannot make such commitments.

B. No, Haldon is not in violation as this was only an oral communication.
C. No, Haldon is not in violation if her commitment was based on facts.
27. Marco Triaelli, CFA, works for a large bank in New York City. He has recently been arrested
for participating in a non-violent protest against capitalism. Has Triaelli violated any standard?
A. Yes, Triaelli has violated Standard I(D) – Professional Misconduct.

B. Yes, Triaelli has violated Standard IV(A) – Duties to Employer.
C. No, Triaelli has not violated any standard.

28. Robert Walker, CFA, decided to buy the stock of Raymond Inc. However, since the stock is
thinly traded, Walker is worried that buying the stock in large volume will result in a price
surge. In order to avoid the surge in price, Walker decides to do the transaction by getting into a
series of block trades. Walker has most likely:
A. Violated Standard II(B) – Market manipulation by getting into a transaction-based

manipulation.
B. Not violated any standard.
C. Violated Standard II(B) – Market Manipulation by getting into an information-based
manipulation.
29. Which of the following is least likely expected from a member with fiduciary responsibility
for a pension plan?
A. The member should make judgments from the perspective of the total portfolio.
B. In the case of a proxy fight, the member should provide support to the sponsor’s
management.
C. The member should always act in the interest of plan participants.
30. Aisun Almas, CFA, has been managing the portfolio of Mrs. Sanem for the past year. Almas
was able to earn good returns for Mrs. Sanem and requested that Mrs. Sanem tell her friends
about the above average returns that she was able to earn on her portfolio. Is Almas violating
Standard III(D) – Performance Presentation?
A. No, Almas is not violating the standard.

B. Yes, Almas is violating the standard as she cannot request that her client talk about the
portfolio performance to others.
C. Yes, Almas is violating the standard as the message does not pass the test of
completeness.

31. John Powell, CFA, is a research analyst covering the pharmaceutical sector. Powell is asked
to initiate coverage on a small-cap local pharmaceutical company. Powell writes and publishes
the report, but fails to disclose in the report that his uncle works for the pharmaceutical
company. Has Powell violated the Code and Standards?
A. Yes, Powell has violated the Standard on Disclosure of Conflicts, but not the Standard
on Confidentiality.
B. Yes, Powell has violated the Standard on Disclosure of Conflicts and the Standard on
Confidentiality.
C. No, Powell might not have violated the Code and Standards.
32. Dan Walton, CFA, is a supervisor of a research analyst team at Pioneer Investing. Walton
notices that Eva Peters developed a new model and started trading based on the new model
without testing the model. Walton asks Peters to stop trading immediately. When Walton
enquired further into the situation, he realized that the company has no policy or guidelines for
the testing of new models. What should Walton do in this situation?
A. Walton should report Peters to the Compliance Team.

B. Walton should encourage the firm to develop guidelines for the testing of new models.
C. Walton should fire Peters for not testing the model.
33. Raymond Investing wants to be GIPS compliant by the end of the financial quarter. Which of
the following actions of Raymond Investing will most likely result in non-compliance?
A. Raymond Investing defines its firm as “Investment Management Firm registered with
the SEC.”
B. Raymond Investing makes a separate disclosure of the non-fee-paying account included
in the composite.
C. Raymond Investing makes complete disclosure of all the assets under active
management.
34. Which of the following is least likely required to be disclosed according to Standard VI (A) –
Disclosure of Conflicts?
A. Real Estate holdings

B. Beneficial Ownership of Securities
C. Directorship in a company

35. With respect to referral fees, which of the following statements is most likely accurate?
A. A member is required to disclose only the fees he receives.

B. A member is required to disclose only the fees that he pays.
C. A member is required to disclose, both, fees received as well as paid.
36. Martina Hinges, CFA, is a portfolio manager. In her free time, Hinges reviews the
investment of her friend Serena Walls. Hinges did not charge any fees for Walls. According to
the standard of professional conduct, did Hinges violate her duty of loyalty to her employer?
A. No, because Hinges did not charge any fees.

B. No, because this was just a one-time exercise.
C. Yes, because Hinges used her expertise for someone other than her employer.
37. John Richards, a market analyst, is working on a regression model to establish valuations of
stocks in the banking industry. Without even finishing his model, Richards sees a stock that
seems to be undervalued and sends his recommendation to buy this stock. Which of the
following standards has Richards violated?
A. Standard III(A) – Loyalty, Prudence, and Care

B. Standard I(B) – Independence and Objectivity
C. Standard V(A) – Diligence and Reasonable Basis
38. The Bazov Investment Company, located in Split, Croatia, is in the process of adopting the
Global Investment Performance Standards for the current fiscal year. One of the GIPS standards
is in direct conflict with Croatian investment reporting regulations. In order to be in full
compliance with the GIPS, the Bazov Investment Company must:
A. Comply with the local regulation and make full disclosure of the conflict.
B. Comply with the GIPS standard and make full disclosure of the conflict.
C. Choose either the GIPS standard or the local regulation, whichever is the more
conservative approach, and make full disclosure of the conflict.

39. Jonathan Brooks, CFA, is a stockbroker in Hong Kong. Yi, his neighbor and well-known
financial blogger, tells him that he is about to publish information about a firm that is under a
lot of pressure from its creditor. Brooks should most likely:
A. Sell the stock, given this information.

B. Buy the stock, since this information is soon to be published.
C. Not trade the stock before the release of this information.
40. Which of the following statements is most likely true?
A. Members cannot pursue a competing independent practice that could result in

compensation or other benefits.
B. Members and candidates are required to disclose any compensation arrangement to
their employers that involves performing competing tasks or services that their
employers can charge for, only if they occur during work hours.
C. Members can pursue a competing independent practice that could result in
compensation or other benefits as long as they have the written consent of their
employer.
41. Robert Zane, CFA, was retained by Alpha Beta Management (ABM) to manage their
corporate pension plan. ABM has approached Zane and requested that Zane invests 50% of the
entire plan in ABM stocks. Since the country in which Zane practices does not regulate the
investments of company retirement plans, Zane may:
A. Invest 50% of all of the retirement plan assets in ABM stock in line with the
management's request only if he can document that the investment is more prudent than
any other investment opportunity he might find.
B. Invest a portion of the retirement plan in ABM stock if the investment is prudent and if
he keeps the overall portfolio properly diversified.
C. Disregard the management’s request and fail to invest any funds in ABM stock,
regardless of the stock's prospects.

42. Which of the following is least likely accurate?
A. It is not the supervisor's responsibility to ensure that investment reports of a research

effort are compliant with the Code and Standards.
B. A violation of ethical standards reflects not only the conduct of an employee but also
that of their supervisor.
C. Reasonable supervision is typically determined as a function of the number of
employees supervised and the specific jobs being done.
43. Which one of the following statements is most likely incorrect in the context of survivorship
bias?
A. Many losing funds are closed and merged into other funds to hide poor performance.
B. Survivorship bias results in an overestimation of past returns of mutual funds.
C. Survivorship bias is not an important issue to take into account when analyzing past
performance.
44. Which of the following statement regarding the GIPS is least likely accurate?
A. Firms must meet all requirements in order to claim compliance with the GIPS standards.
B. Firms must meet all recommendations in order to claim compliance with the GIPS
standards.
C. Firms must encourage compliance to recommendations.
45. Marco Rubio is a CFA member working as an equity analyst at Bright Stock Brokers. After
thorough analysis, he has concluded that the stock of M & M is overpriced at its current level.
However, he is aware that the investment banking division of his firm is in talks with M & M to
underwrite a rights issue, and is concerned that a negative research report might hurt the good
relationship between the two entities and possibly scuttle the underwriting plans. Rubio needs
to write a report right away. Which of the following outlines the best course of action for Mr.
Rubio?
A. Write a favorable report that excludes his findings but make an effort to disclose them
privately to the CEO of his firm
B. Write a report outlining his findings based solely on company fundamentals

C. Write a report honestly outlining his findings but only after consulting with a fellow
CFA member who happens to be a minor shareholder at M & M
46. Which of the following is most likely incorrect?
A. A standard of fairness and loyalty to clients requires IPO distributions to the most
important clients or the people providing the firm with the most revenue.
B. Discriminating against non-email clients violates the standard on fair dealing.
C. Given a new recommendation, the firm should not trade until all clients have a fair
chance to receive the new recommendation.
47. Which of the following is most likely incorrect?
A. "Firewall" is a common term applied to the barriers created to prevent sensitive

information from being disseminated between departments of a firm.
B. A compliance program is incomplete if all it does is create awareness of the definition of
insider trading and the fines and jail sentences to which the employee could be liable.
C. Material Public Information may consist of discussions with management that may
reveal information that isn't obviously material, but that may give valuable clues.
48. Josianne Feng, CFA, is a new fund manager charged with the management of 50 stocks.
What should be her policy for proxy voting?
A. The manager should never vote since the manager’s votes don’t always represent the
opinion of the clients.
B. The manager has a responsibility to investors to vote the shares to the benefit of the
investors but can skip routine votes that would require too much time on a cost-benefit
basis.
C. The manager has the responsibility to always vote but not to disclose the proxy voting
policy to all the clients, since that’s part of confidential information.

49. Rob Harrington, a stock broker, works for a large New York bank. His long term friend, and
also stock trader at the same bank, calls him one evening to ask him if there are any clients
interested in stock PTLN. Since there are no policies or procedures to discourage employees
from sharing information, Harrington should most likely:
A. Disclose the information.

B. Advise his firm to develop firewalls to allow the different departments to function
independently.
C. Advise regulators of the potential conflict of interest and seek legal counsel.
50. A stock broker learns through his son, working at ACIA Corp, that his firm is altering its
accounting records. He decides to advise his clients to sell the stock of ACIA Corp. Is this a
violation of the Code and Standards? Why?
A. Yes, it constitutes the use of material non-public information.

B. Yes, it constitutes the use of material public information.
C. No, it constitutes the use of material public information.
51. In the context of Global Investment Performance Standards, composites refer to:
A. The aggregate of portfolios managed with the same investment mandate.

B. The combined fees of portfolios managed with the same investment mandate.
C. The verification standards that apply to portfolios managed with the same investment
mandate.
52. Jared Blain is a Los Angeles stockbroker and analyst. He recently used a discounted cash
flow (DCF) model to analyze stocks in the semiconductor industry. After publishing his results
on his blog, he calls one of his best clients and tells him to buy YYU since it is undervalued by
50% without mentioning the model he used. Blain has most likely violated the Standards
because:
A. He does not distinguish between opinion and fact.

B. His model is probably wrong.
C. He cannot work as a stock broker and analyst at the same time.

53. Chris Heinz works for a brokerage company. On Tuesday, one of his analysts mails all
investors a recommendation to buy the stock of AERD. The following day, Heinz receives a call
from one of his clients to sell AERD at market price. What should he most likely do?
A. Accept the sell order.

B. Not accept the order, because it’s contrary to the firm’s recommendation.
C. Advise the customer of the change in recommendation before accepting the order.
54. To comply with the Global Investment Performance Standards, verification is:
A. Voluntary and must be performed by a third party.

B. Obligatory and must be performed by a third party.
C. Obligatory and must not be performed by a third party.
55. Billy Perignon is scheduled to have dinner with a client whose portfolio he manages.
Perignon plans to advise the client to add 5000 shares to his current EER position. Before the
meeting, and in accordance with Standard (V) – Investment Analysis, Recommendations and
Actions, Perignon should:
A. Exercise diligence, independence, and thoroughness in analyzing the investment.

B. Plan to document the details of the conversation with the client with regard to his
investment recommendation.
C. Identify other clients for whom EER may be a suitable investment and notify them
immediately of his recommendation.
56. A CFA® charterholder gathers the opening prices of stock ABC from a widely read
publication. The CFA® charterholder uses the data as part of a report he is preparing but fails to
disclose the data source in the report. This is:
A. A violation of Standard I(C) – Misrepresentation.

B. Not a violation of Standard I(C) – Misrepresentation - if the data can be gathered from
several public sources.
C. Not a violation of Standard I(C) – Misrepresentation - if the data cannot be gathered
from several public sources.

57. According to the Code of Ethics, a member reflects credit on the profession when they:
A. Places the clients first.

B. Consults with other members on a regular basis.
C. Practices in a professional and ethical manner.
58. According to the CFA Institute Code of Ethics, CFA Institute Members and Candidates must
do all of the following, except:
A. Exercise independent judgment.

B. Act with integrity and dignity.
C. Not knowingly violate the securities acts and laws.
59. Which of the following is not a possible disciplinary sanction with respect to the CFA
Institute enforcement of the Code and Standards?
A. Payment of a fine.
B. Suspension of a candidate from further participation in the CFA program.
C. Private censure.
60. If a firm has been in existence for less than five years, it:
A. Can claim GIPS compliance if it presents GIPS-compliant performance data since its
inception.
B. Can claim GIPS compliance only if the firm’s manager is a CFA charterholder.
C. Cannot claim GIPS compliance since the GIPS-compliant performance data is
insufficient.

61. Mark Roberts works as a portfolio analyst at First Community Trust. He is charged with
managing the account of one Sarah Sanders, a client. Ms Sanders pays First Community Trust a
fee based on the performance of assets in her portfolio, and Mr. Roberts is paid a salary by his
employer. Sarah Sanders offers Mr. Roberts an all-expenses-paid trip to Las Vegas, including
free accommodation and use of her yacht, provided that she earns at least 20% yearly pre-tax
profit from her portfolio. What should Mr. Roberts do with regard to the offer?
A. Accept the offer but only after assessing the likelihood of the proposed level of
performance.
B. Wait until the yearly results are out before accepting the offer, and then inform his
employer of the arrangement only if the results meet Ms Sanders’ preset condition.
C. Immediately inform his employer of the arrangement before accepting it.
62. Zeng Yi, CFA, is an analyst at Power Stocks Inc. The company is going to announce a change
in recommendation from a hold to a sell on YYZ stock the next morning. Yi happens to be a
member of the team that reached the decision on YYZ. Yi’s father has an account at Power
Stocks Inc. that contains YYZ stock. According to the Code and Standards, trading on Yi’s
father’s account can begin:
A. As soon as the information is disseminated to all clients.

B. Only after the recommendation is announced to the general public.
C. Only after Yi, as a beneficial owner, has given an appropriate amount of time for his
clients and his employer to act.
63. Which of these gifts are more likely to affect a member’s independence and objectivity?
A. Gifts from a company

B. Gifts from a client
C. All gifts are regarded as the same by the Code and Standards
64. A financial analyst and CFA member sends a research report on a company to his
supervisor. The supervisor approves the report, but the analyst soon finds out that the
supervisor plans to release a version of the report that shows stronger earnings estimates than
the original report, without a reasonable and adequate basis. In response to this, the analyst
should most likely:

A. Insist that the supervisor changes the earnings forecast or remove his/her name from the
report.
B. Take up the issue with regulatory authorities.
C. Both A and B.
65. Jonathan Ingram, CFA, is a research analyst following Mountain Corp. All the information
he has gathered suggests Mountain’s stock should be rated “weak hold." During a recent dinner
with a friend, Ingram overheard another experienced analyst saying that the stock should be
rated "buy." He returns to his office the next day and issues a "buy" recommendation. Ingram:
A. Has not violated CFA Institute Standards of Professional Conduct.

B. Has violated CFA Institute Standards of Professional Conduct because he used Material
Nonpublic Information.
C. Has violated CFA Institute Standards of Professional Conduct because he did not have a
reasonable and adequate basis for making his recommendation.
66. If a supervisor makes a reasonable effort to detect violations by their subordinates but fails
to detect a violation that occurs, he:
A. Is in compliance with Standard IV(C) – Responsibilities of Supervisors.

B. Is always in violation of Standard IV(C) – Responsibilities of Supervisors.
C. Is only in violation of Standard IV(C) – Responsibilities of Supervisors if the violation
that occurs is punishable by law.
67. Marc Jacobs, CFA, is an investment analyst. During a meeting with a potential client, Jacobs
states that "You can be sure our investments will always outperform the market because of our
well-trained research analysts." Jacobs knows that this statement is:
A. Not in violation of the Code and Standards.

B. A violation of the Standards concerning performance presentation.
C. A violation of the Standards concerning prohibition against misrepresentation.

68. Misrepresentation of qualifications, academic and professional credentials, and services that
can be performed by the firm are all expressly prohibited by:
A. Standard I(A) – Knowledge of the Law.

B. Standard I(C) – Misrepresentation.
C. Standard I(D) – Misconduct.
69. John Rose owns a brokerage firm. He has received an allocation of shares from an IPO. He
intends to allocate the shares across all accounts he manages. One of those accounts is owned by
his cousin. John allocates a large number of shares to his cousin’s account, and ultimately fails
to make allocations to a number of other eligible clients. Which of the following is most likely
true?
A. The member has not violated any Standards.

B. The member has violated Standard V(A) – Diligence and Reasonable Basis.
C. The member has violated Standard VI(B) – Priority of transactions.
70. Which of the following is the least severe disciplinary sanction that the Designated Officer
may take as a result of an investigation?
A. Suspension of the CFA® designation

B. Public censure
C. Revocation of the CFA® designation
71. Nazar Khan, CFA, made a brochure to advertise his business. The brochure includes the
following disclosure:
"I am a CFA, so I am a member of the most prestigious professional group within the
investment management business. In order to become a CFA charterholder, I had to complete a
comprehensive program of study sponsored by the CFA Institute.”
Khan is least likely to have violated the CFA Institute Standards of Professional Conduct related
to referencing the:
A. CFA Institute.
B. CFA Program.
C. CFA Designation.

72. As a CFA member, failure to return the annual professional conduct statement is:
A. Grounds for a summary suspension.

B. Not grounds for a summary suspension.
C. Punishable by criminal law.
73. Jason Briggs works as the chief analyst at Crescent Investment Bank. After issuing a general
recommendation to all clients, Briggs goes ahead and invites the bank’s largest institutional
investors for further discussions regarding the recommendation.
Which of the following CFA Institute Standards of Professional Conduct has Mr. Briggsmost
likely violated?
A. Fair dealing
B. Communication with clients
C. Neither A nor B
74. Renee Irving is part of a team of five analysts who are developing a research report on a
pharmaceutical company. Irving strongly believes the stock should be rated as a ‘weak hold’.
Her recommendation is based on a discussion with a medical expert who believes the
company’s latest drug has more side-effects than originally claimed. Her team members are of
the collective opinion that her recommendation is too conservative and that a ‘hold’
recommendation is more appropriate given that the drug has provided promising results in
numeroustrial runs. Irving does not agree with the group’s recommendation.
Irving’s best course of action would be to:
A. Request for a change in assignment.

B. Request her name to be withdrawn from the report.
C. Continue identifying herself with the report and disclose her difference in opinion.
75. Catherine Tike serves at a brokerage firm. The firm executes trades for client accounts
directed to it by Kyle Investments, an investment management firm. Tike has had an excellent
performance year, generating substantial capital gains for several client accounts. In
appreciation of her exceptional performance, Kyle’s CEO offers Ms. Tike a fully paid cruise trip
to the Maldives.

According to the Standards of Practice Handbook, Tike should:
A. Decline the offer, as the additional compensation is excessive.

B. Accept the offer and notify her employer immediately afterwards.
C. Obtain written consent from her employer before accepting the offer.
76. For periods beginning on or after January 1, 2011, the GIPS standards require portfolios to be
valued on the basis of:
A. Fair value.
B. Original cost.
C. Present value.
77. Walter Stewart is the chief investment manager at Carl & Mathews, which is renowned for
its asset management services. While attending an official investment conference, Stewart
engages in a discussion with Marie Lance, a philanthropist who is seeking to establish an
investment fund for a charitable foundation. Stewart casually mentions that, at some time in the
past, one of her former clients had been seeking to donate a significant sum of money to a cause
like Lance’s. Stewart also offers to ask the client to get in touch with Lance. Is Stewart in
violation of the CFA Institute Standards of Professional Conduct concerning client
confidentiality?
A. Yes.
B. No, because he has not revealed the identity of the client.
C. No, because information concerning former clients is no longer confidential.
78. Jewel Knowles is a research analyst at Trimont Limited. During the course of her research,
Knowles comes across an unpublished research report in the firm’s electronic database which is
not password-protected. The report concerns ADP, a biotechnology firm, which is developing
lab equipment using in-house technology.
In the report, the writer recommends a strong buy based on personal observations, ADP’s
financial projections, discussions with company executives, and analysis of industry data. A
footnote at the end of the report reveals the report is to be released when ADP launches a
prototype of the equipment in the market.

After reading the report, Knowles decides to add ADP shares to her investment portfolio.
Can Knowles purchase the stock?
A. No, she is not permitted to act on material non-public information.

B. Yes, she can act on a recommendation prepared using the mosaic theory.
C. Yes, but she will have to seek her supervisor’s consent prior to the purchase.
79. Upon reviewing the materials received during the investigation of a professional conduct
inquiry, a designated officer’s preliminary course of action would be to:
A. Revoke the member’s CFA charter.

B. Suspend the member’s membership.
C. Propose a sanction which can be rejected by the member.
80. Base Corp. resides in a country that enacted laws and regulations for calculating and
presenting investment performance fifteen years ago. By complying with local laws and
regulations, Base Corp:
A. Cannot claim compliance with the GIPS standards.

B. Has automatically complied with the GIPS standards.
C. Can also comply with the GIPS standards but must give priority to the former in the
event of conflict between the two.
81. Francis Meyer is a derivatives trader at Walsh & Spencer. Meyer has put Laura Peterson - a
trader serving the firm and reporting to Meyer - in charge of monitoring trades executed for
client accounts with a low risk tolerance. Due to a hectic work schedule, Peterson inadvertently
overlooks an accidental allocation of ahigh risk equity stock to the accounts. With respect to the
CFA Institute Standards of Professional Conduct concerning responsibility of supervisors,
Meyer is:
A. Not in violation, as Peterson’s conduct is not covered by the standards.

B. Not in violation once she has delegated her supervisory responsibilities to Peterson.
C. In violation because she remains responsible for her supervisory duties despite the
delegation.

82. Wallace Associates is a sell-side research firm with clients primarily from the financial
services sector. Midland Trust is Wallace Associates’ most recent client.
Sarah Parker, a research analyst, has been assigned Midland Trust. Parker is compensated with
a basic research fee and agent options, which allow her to purchase 2% of her client’s common
shares if the stock performs well. After conducting thorough research using public sources, she
determines that a buy recommendation will be most appropriate. She includes a small footnote
at the end of the report that discloses the volume and expiration date of the options she is
eligible for. According to the Standards of Practice Handbook, Parker is in:
A. Violation because her disclosure is not prominent.

B. Compliance because she has disclosed the extent of her participation in the options.
C. Violation because the acceptance of the agency options may impair her independence
and objectivity.
83. The Since Inception Internal Rate of Return (SI-IRR) for real estate closed-end fund
composites is recommended to be calculated using:
A. Daily cash flows.

B. Earnings before taxes.
C. Earnings before depreciation and taxes
84. In order to comply with the CFA Institute Code of Ethics, members andcandidates must:
A. Promote the integrity of the legal system.

B. Maintain their duty of loyalty towards clients, prospects and employers.
C. Place the integrity of the investment profession above their personal interests.
85. Gus Horace is a real estate advisor situated in a developing country. Horace is attempting to
sell agricultural land, on behalf of the landowner, to a restaurant chain seeking to grow its own
produce. The land lies parallel to a river where industrial waste is frequently dumped. In
marketing the land to the potential client, Horace states,
“This is a purchase you will not regret. You should more than likely expect to enjoy a healthy
crop in your first year of farming.”

Horace does not disclose the fact that the original landowner is an acquaintance of his. Horace
is most likely in violation of the standard relating to:
A. Fair dealing.
B. Misconduct.
C. Loyalty, prudence and care.
86. Janice Hart is a research analyst at Time Associates, an investment banking firm. She has
been asked to write a research report on Blue Inc. Time was the chief underwriter of Blue Inc.’s
stock when it had undertaken an IPO two years ago. In addition, two of Time’s directors
continue to hold a significant proportion of Blue Inc. shares.
Hart’s best course of action will be to:
A. Decline writing the research report due to the presence of a conflict of interest.
B. Write the research report and disclose the special relationship to clients on a request
basis.
C. Write the research report and include a disclosure of the special relationship between
Time Associates and Blue Inc.
87. According to the Fundamentals of Compliance section of the Global Investment

Performance Standards, total firm assets must:
A. Not include assets assigned to a sub-advisor.

B. Include non-discretionary and discretionary assets.
C. Be included in composites on the basis of their respective book values.
88. The CFA Institute Code of Ethics requires members and candidates to:
A. Encourage others to practice in a professional and ethical manner that will reflect credit
on the profession.
B. Ensure the preservation of capital market integrity is given priority over protecting
employer interests.
C. Use reasonable care and judgment to achieve and maintain independence and
objectivity in their professional activities.

89. According to the CFA Institute Standards of Professional Conduct concerning disclosure of
conflicts, potential conflict situations that could prohibit a member or candidate from fulfilling
their duties to the employer should be dealt with by:
A. Documenting the conflict.

B. Reporting it to the employer.
C. Disassociating from the situation.
90. Nelson Won, CFA, is a tax advisor at a financial services firm. His recent article - how tax
minimization strategies can be effectively implemented for client portfolios with high tax
brackets - has increased his popularity in the industry. Won is offered an opportunity to deliver
a lecture on tax minimization strategies to employees of an investment management firm in
New Zealand. The firm offers to pay for his travel expenses and hotel accommodation. Won
accepts the offer, informs his employer, and travels to New Zealand with the trip fully paid by
his employer. At the conclusion of the lecture, Won is invited to a game of golf at an exclusive
club by the senior investment manager. He accepts the offer and informs his supervisor of the
invitation upon his return. According to the Standards of Practice Handbook, Won is most
likely:
A. In violation; he should have paid for the New Zealand trip out of his own pocket.
B. In violation; he did not seek written permission prior to accepting the golf game offer.
C. In compliance; details of the golf game were not available to him before departing for
New Zealand.
91. Joyce Parker is a portfolio manager at AM Associates. Parker is calculating the return
generated on one of her client’s accounts for the current fiscal year. She calculates the net-of-fees
return but does not subtract investment management fees - rendering the calculated return
noncompliant with the GIPS standards. AM Associates has complied with the GIPS standards
since establishment, even though local laws do not mandate firms to do so. Is Parker in
violation of the CFA Institute Standards of Professional Conduct?
A. Yes.
B. No, she has not violated any law.
C. No, failure to comply with the GIPS standards does not result in a violation of the code
of Professional Conduct.

92. With the permission of her former employer, Taylor Reed shares information concerning her
achievements with her new employer. She writes a short summary, highlighting the results she
has achieved over the past ten years and the names of several important clients for whom she
executed trades. However, Taylor forgets to mention her association with her former employer
but takes caution not to share additional client information. Taylor is in violation of the CFA
Institute Standards of Professional Conduct relating to:
A. Record retention.
B. Misrepresentation.
C. Loyalty to employer.
93. Which of the following is a desirable practice of a firm which has a firewall policy
implemented for its research and investment banking divisions?
A. Prohibiting communication between research and investment banking personnel.

B. Basing the research analyst’s compensation on a flat rate without any contingent
bonuses.
C. To improve the accuracy of investment analysis, investment banking personnel
regularly review research reports prepared by the research division.
94. In order to prevent misconduct, the Standards of Practice Handbook recommends members
and candidates to encourage their employers to:
A. Restrict employee participation in IPOs.

B. Establish written procedures for reporting violations.
C. Disseminate a list of potential violations and disciplinary sanctions to all firm
employees.
95. Samantha Town is a portfolio manager at Wallace Associates situated in Dallas, Texas. This
year, Town has delivered exceptional performance for one of her client's accounts. In exchange
for the performance, her client has offered her two front row tickets to an opera as well as the
opportunity to meet the stage cast after the show. To ensure she does not violate the CFA
Standards of Professional Conduct, Town’s best course of action would be to:

A. Reject the offer.
B. Inform her employer after attending the opera show.
C. Accept the offer after obtaining written permission from both parties.
96. Jessica March and Adam Pocock are CFA Level III candidates as well as colleagues. The two
regularly study together for the Level III exam. During one of their study sessions, the two
individuals engage in a discussion.
March: “Earlier in the year, I had a discussion with Tim Martin, a Level III candidate, who said
that the most recent exam was very ‘difficult.’”
Pocock: “Difficult or not, I have already told my superior that I will become a charter holder
shortly following completion of the Level III exam.”
According to the Standards of Practice Handbook, which individual is most likely in violation?
A. March; she has shared confidential information with Pocock.

B. Pocock; he has made a guarantee regarding the receipt of the charter.
C. March; she has engaged in a discussion with Martin regarding the exam and its
contents.
97. Which of the following statements concerning claiming compliance with the GIPS standards
is most likely correct?
A. Compliance can only be achieved on a firm-wide basis.

B. Compliance with the GIPS standards is enforced by legal and regulatory authorities.
C. Software vendors supplying performance calculation software programs to investment
management firms can claim compliance with the GIPS standards.

98. Which of the following activities most likely represents market manipulation and is a
violation of the CFA Institute Standards of Professional Conduct?
A. An investment analyst over-exaggerates his firm’s performance in order to win new

client accounts.
B. A global hedge fund increases the stock price of an oil producer when it makes a
significant purchase of the producer’s shares.
C. A dealer firm buys and sells shares of stock between two accounts under its
management to create artificial trading activity.
99. The employees of LockHurst Traders, a dealer firm, established an equity fund that invests
in highly speculative ‘hot’ issues for their personal investment portfolios. The fund was set up
after receiving employer consent, and all securities purchased are pre- cleared by a company
officer. The latest security purchased by the fund is issued by a manufacturer, which has
previously undertaken an IPO of its stock. The employees have made an agreement with the
manufacturer whereby they will purchase a large quantity of the stock to induce an increase in
price. The stock will later be sold to clients when its price has at least doubled. Which of the
following standards is least likely being violated?
A. Fair dealing
B. Misrepresentation
C. Responsibility of supervisors
100. According to the Standards of Practice Handbook, an investment manager who learns that
his client is engaged in an illegal activity should:
A. seek legal counsel

B. inform legal authorities
C. disclose the activity to the CFA Institute
101. Which of the following is most likely a key feature of GIPS standards?
A. Rely on the integrity of input data

B. Address every aspect of performance measurement
C. Have evolved over time to focus primarily on returns

102. According to the CFA Institute Standards of Practice Handbook, which of the following
compliance procedures are members and candidates least likely recommended to consider?
A. Prohibiting employee participation in equity-related IPOs.

B. Offering different levels of service to clients on a selective basis.
C. Limiting the number of employees who will know that a recommendation is to be
disseminated.
103. Standard I (A) – Knowledge of the Law, requires members and/or candidates to:
A. Document a violation when disassociating themselves from an illegal activity

B. Have detailed knowledge of all the laws that could potentially govern their activities
C. Abide by the rules and regulations related to the administration of the CFA
examination
104. When establishing trade allocation procedures for client portfolios, members and
candidates should consider giving all client accounts participating in block trades the:
A. Same execution price and charging the same commission.

B. Execution price and commission on first in first out basis.
C. Same execution commission and execution price based on first in first out basis.
105. After conducting thorough analysis and compiling his research report, Jason Woods arrives
at a weak sell recommendation for a financial services firm. His supervisor instructs Woods that
his recommendation is too conservative and that he should revise it to a strong sell. Woods’ best
course of action would be to:
A. Re-evaluate the thoroughness of his research process.

B. Maintain a weak sell recommendation and issue the report.
C. Issue a strong sell recommendation to avoid violating his duty of loyalty to his
employer.

106. Conduct that constitutes a violation of the CFA Institute Standards of Professional Conduct
concerning ‘Conduct as Members and Candidates in the CFA Program’ includes:
A. Cheating on an MBA exam.

B. Soliciting employer clients prior to departing.
C. Not following security measures implemented for the CFA exam.
107. Regarding the GIPS standards, verification least likely serves to:
A. Provide marketing advantages to a firm.

B. Ensure the accuracy of a performance presentation.
C. Test whether disclosure policies are designed to present performance in compliance
with the GIPS standards.
108. Jason Gilbert, CFA, is an exam grader for the CFA Program. He also works as an
independent research analyst. When asked about his experience as a grader and the CFA
Program’s scope in the financial market, Gilbert makes the following comments:
Comment 1: “Although results for the CFA exam are yet to be released, pass rates will be the
lowest across all levels.”
Comment 2: “The CFA Program equips candidates to be qualified enough to deal with a broad
range of real-life topics, including but not limited to financial analysis, portfolio management,
quantitative techniques and corporate finance.”
Which comment most likely represents a violation of the CFA Institute Standards of
Professional Conduct?
A. Comment 1 only.
B. Comment 2 only.
C. Both of the comments.

109. Mark Michler is a financial analyst charged with developing performance projections for
Tike Limited for the financial years 2015 to 2030. He uses a forecasting model developed by his
supervisor to extrapolate historical performance information (from the years 1990 to 2014) into
the future, makes further adjustments, and publishes the forecasts in his research report. He
includes a small disclosure at the end of the report, which reads, “All forecasts represent
simulations of past performance.”
Is Michler in violation of any CFA Institute Standards of Professional Conduct?
A. No.
B. Yes, he is not permitted to use simulated performance information.
C. Yes, his disclosure does not provide full details on the simulated performance.
110. Jason Lee is the senior portfolio manager at Motto Trust, an asset advisory firm. To enhance
his tax management skills, Lee has been invited to attend a tax conference which is sponsored
by a tax advisory firm owned by one of his clients. The client has offered to fully pay for
transportation to the conference, but Lee declines and instead opts for his own arrangement.
Lee informs his supervisor of the conference invitation received before departing. At the
conclusion of the conference, the senior manager of the tax advisory firm invites Lee to an
exclusive golf club, which he accepts. He informs his employer about the invitation upon
returning to work the following day. Has Lee violated any CFA Institute Standards of
A. No.
B. Only with respect to attending the conference.
C. Only with respect to accepting the golf club invitation.
111. Joyce & Monroe (J&M) is an investment bank with its own research division. Investment
banker Ron Howard serves J&M and has recently arranged corporate financing for its client,
Westdale Limited. Westdale will be using the financing to expand production to Australia.
Several weeks later, J&M’s chief research analyst issues a research report on Westdale wherein
he recommends, “Westdale’s decision to expand into Australia is an excellent move because the
potential market for its products should be vast. I am extremely confident that the company will
see a remarkable and positive difference in its earnings over the coming months. Based on this, I
recommend a strong BUY.” According to the Standards of Practice Handbook, the analyst’s
recommendation most likely violates the standard concerning:

A. Misrepresentation; he is guaranteeing investment performance.
B. Disclosure of conflicts; he has not disclosed J&M’s relationship with Westdale
C. Communication with clients and prospects; he has failed to separate opinion from fact
112. In order to comply with the CFA Institute Standards of Professional Conduct relating to
duties to employers, members and candidates:
A. Should not enter into an independent business while still employed.

B. Are encouraged to recommend that their employers adopt and distribute a code of
ethics.
C. May obtain an assurance from a subordinate who has violated the Codes and Standards
that the wrongdoing will not recur.
113. Following the conclusion of research done on a steel equipment manufacturer, the research
firm releases a one word ‘sell’ recommendation to all its clients and prospects and discloses that
‘additional information concerning the recommendation is available from the producer of the
report.’ Based on the communication used by the firm, it is most likely:
A. In violation of the Code and Standards because the firm must include the factors that
were used to arrive at the recommendation.
B. In violation of the Code and Standards because the firm must disclose the identified
‘additional information’ as part of the recommendation.
C. Not in violation of the Code and Standards as communication is defined as ‘highly
diverse’ by the CFA Institute Standards of Professional Conduct.
114. Which of the following actions is least likely considered a violation of the standard
concerning Loyalty to Employers?
A. Soliciting clients prior to the cessation of employment.

B. Using a business plan generated for the employer to start a new business.
C. Applying specialized analytical skills gained at the previous employer in the new
workplace.

115. When managing pooled assets to a specific mandate, investment manager(s):
A. Actions are not governed by the suitability standard.

B. Must consider the suitability of an investment for clients.
C. Need not consider the suitability of an investment for clients.
116. Dana Irk and Carl Sholes are CFA Level II candidates who have recently sat for the Level II
exam and are awaiting their results. In a discussion between the two candidates, they make a
comment each:
Irk: “This year, the exam did not feature any questions on currency futures.”
Scholes: “I found the quantitative techniques section particularly difficult this year, as there
were long calculations in many questions.”
Which candidate’s statement is most likely in violation of the CFA Institute Standards of
A. Irk only.
B. Scholes only.
C. Both Irk and Scholes.
117. To be able to rely on the integrity of input data, the GIPS standards require firms to:
A. Follow certain calculation methodologies.

B. Present a minimum of five years of GIPS compliant investment performance.
C. Include all actual, fee-paying portfolios in at least one composite defined by investment
strategy.
118. Hart Lewis, a fund manager at Maritime Inc., runs an emerging market fixed-income hedge
fund. The latest securities being evaluated by Lewis are African corporate bonds. Due to the
inefficiency of the corporate bond markets in which the issuers operate, security prices have not
increased to reflect the early signs of recovery in the credit markets and economy. Lewis takes
advantage of the information lag and purchases a significant number of corporate bonds for the
fund. Bond prices immediately surge following the fund’s purchase leaving investors to
question whether the firm has engaged in market manipulation. Has Lewis engaged in market
manipulation?

A. No.
B. Yes, his activities have artificially distorted bond prices.
C. Yes, he has engaged in information-based manipulation.
119. With respect to the acceptance of gifts, the CFA Institute:
A. Discourages customary business-related entertainment.

B. Encourages setting a strict value limit for acceptable gifts.
C. Encourages accepting gifts from parties other than clients.
120. Sarah Ali, an investment analyst serving a firm, manages several equity funds in the
country of Lartha. Local laws permit investment analysts to undertake trades for accounts in
which they have a beneficial ownership at the same time as their employer. However, client
account trades have transaction priority. Ali has identified the stock of Gerard Tech as attractive
for her investment portfolio, the firm’s equity fund and her client accounts.
In order to claim compliance with the Code and Standards, after allocating the stock to client
accounts, Ali is most likely required to purchase the stock in the following order:
A. herself followed by her employer

B. her employer followed by herself
C. simultaneously for both herself and her employer
121. Which of the following is least likely included in the code of ethics?
A. Promote the integrity of and uphold the rules governing capital markets.
B. Maintain and improve professional competence and strive to maintain and improve the
competence of other investment professionals.
C. Deal fairly and objectively with all clients when providing investment analysis, making
investment recommendations or taking investment actions.

122. Which of the following statements is most likely correct regarding compliance with the
GIPS standards?
A. Obtaining verification is not mandatory.

B. The GIPS standards are comprehensive, addressing unique characteristics of each asset
class.
C. Compliance with the Code of Ethics and Standards of Professional Conduct is
mandatory.
123. XYZ Inc. is an investment management firm which claims compliance with the Global
Investment Performance Standards. Each year, the firm’s management selects ten percent of
prospective client requests and makes compliant presentations; this policy is based on a first-
come, first-serve basis. Due to limited resources, the frequency of providing compliant
presentations to prospective clients is annually, at a minimum. Existing clients are provided an
annual compliant presentation of a composite only if their portfolio is included.
Which component of XYZ Inc’s compliant presentation policy is most likely consistent with the
requirements of the Fundamental of Compliance section of the Global Investment Performance
Standards?
A. The presentation policy for existing clients.

B. The first-come, first-serve performance presentation policy.
C. The frequency of providing presentations to prospective clients.
124. Laura Elliot is a broker at Housegate, a broker-dealer firm. She undertakes trades on behalf
of clients with a high net worth. She discovers that one of her clients has engaged in the
embezzlement of portfolio funds, which classifies as an illegal activity under domestic trading
regulations. In order to comply with the CFA Institute Standards of Professional Conduct,
Elliot’s preliminary course of action would be to:
A. Request for a different assignment.

B. Report the violation to her supervisor.
C. Report the violation to regulatory authorities.

125. In order to assure fair dealing, members and candidates should issue an investment
recommendation:
A. To all its clients first, then within the firm

B. Simultaneously within the firm and to all its clients
C. Simultaneously to suitable clients and within the firm
126. Mosaic theory is defined as an analyst combining information that is:
A. Non-material, non-public and material public

B. Non-material, public and material non-public
C. Material, non-public and non-material public
127. Josh Packman manages accounts on behalf of a number of clients on the island of
Murmania. Murmania does not have any policies on the frequency at which clients must be
provided with statements showing the funds and securities in custody. Packman should most
likely provide these statements:
A. At least quarterly.
B. At least semi-annually.
C. At least annually.
128. Logan Perkins, a CFA charter holder and fund manager, is making a presentation to
prospective clients. At the end of the presentation, he makes the following comment:
“I am pleased to inform you about my historical performance. Funds that I have managed have
consistently outperformed the market and have generated average annual returns of 8% for the
last 15 years. Though I can’t predict specific numbers for the future, I can confidently say that,
with me at the helm, returns would hover between 6% and 12%.”

Logan has most likely:
A. Violated Standard I(C) – Misrepresentation by quoting a specific range within which

future returns would lie.
B. Not violated Standard I(C) – Misrepresentation, as he correctly mentions that he cannot
predict specific numbers for the future.
C. Violated Standard I(C) – Misrepresentation by highlighting his performance over the
last 15 years.
129. A fixed income trader observes that six-month Treasury bills are trading at lower prices
compared to six-month Treasury STRIPS. He immediately starts buying and selling Treasury
bills and STRIPS respectively, with the help of computer programs. The trader has most likely:
A. Violated Standard II(B) – Market Manipulation by carrying out too many trades.
B. Not violated Standard II(B) – Market Manipulation by carrying out the trades.
C. Violated Standard II(B) – Market Manipulation by carrying out the trades with the help
of a computer program.
130. Keith Heath, CFA, works at Knowledge Investors Private Limited as an investment
advisor. Heath used to maintain a website in which he regularly posted about his investment
recommendations. Heath posted a buy recommendation several years ago about a company
called Yummy Educations Ltd. Several months later that company was embroiled in tax-related
fraud. Because of a career change, Heath has not updated his website for quite a while, and a
few web pages still show a ‘buy’ recommendation on the stock of Yummy Educations Limited.
Heath:
A. Has most likely not violated Standard I(C) – Misrepresentation.

B. Has most likely violated Standard I(C) – Misrepresentation by not updating his website
on a regular basis.
C. Would not violate Standard I(C) – Misrepresentation if he updates his web pages today
with a disclaimer that Yummy Educations Limited is no longer a ‘buy’ because of tax-
related fraud.

131. Grant Ross, CFA, works at Anemas Advisors Limited, an investment management firm.
Anemas Advisors Limited manages several diversified mutual funds which have consistently
beaten the overall market for the 10 years the firm has been in existence. Currently, the mutual
funds managed by Anemas have a few hundred investors. One month ago, Ross made the
decision to personally invest in one of these diversified mutual funds but did not disclose his
investment to management or to any of the investors. According to the CFA Code and
Standards, Ross has most likely:
A. Violated Standard VI(A) – Disclosure of Conflicts.

B. Not violated the Standards.
C. Violated Standard V(B) – Communication with Clients and Prospective Clients.
132. According to the Global Investment Performance Standards (GIPS), a composite is an

aggregation of individual portfolios representing a similar investment mandate, objective or
strategy and is the primary vehicle for presenting performance to prospective clients. The
following are some of the characteristics of a composite, EXCEPT:
A. It must include discretionary and non-discretionary portfolios managed in accordance

with the same investment mandate, objective or strategy.
B. It must include fee-paying portfolios managed in accordance with the same investment
mandate, objective or strategy.
C. It must include discretionary portfolios managed in accordance with the same
investment mandate, objective or strategy.

133. Jimmy Tucker, CFA, works as an investment advisor at Perfect Investments Private
Limited. Tucker discovers that one of the corporate clients covered by his firm is involved in tax
disputes. Tucker’s firm is reluctant to disseminate an adverse opinion about the client, as it
expects new business from the client. Tucker removes the controversial company from the
research universe and puts it on a restricted list so that the firm disseminates only factual
information about the corporate client. Tucker has most likely:
A. Violated Standard I(B) – Independence and Objectivity by not expressing any opinion
about the corporate client.
B. Not violated Standard I(B) – Independence and Objectivity by not expressing his
opinion about the corporate client.
C. Violated Standard I(B) – Independence and Objectivity by concealing information about
the client.
134. Kurt Gallagher, CFA, works as a portfolio manager at Excellent Investment Advisors.
During a meeting with a long-term friend, Gallagher receives material information in
connection with a stock some of his clients have in their portfolios. Keith’s most likely course of
action is to:
A. Keep the information secret.

B. Try to achieve public dissemination of the information.
C. Not alter his current trades based on the information.

135. Kim Fowler, CFA, is the director of the investment research team at Excellent Investors
LLC. Fowler covers stocks that are illiquid and have low trading volumes. She has access to
multiple sources which provide the price of these illiquid securities. Fowler consistently reports
the price published in ABC Times. The latest price published by other sources, including ABC
Times is given below:
ABC Times XYZ Magazine MBC Financial EDF Business QWE Times
Times Weekly
$12.50 $11.50 $10.65 $13.00 $11.12
In her latest report, Fowler again publishes the price of the illiquid stock as published in ABC
times. Fowler has most likely:
A. Violated Standard I(C) – Misrepresentation by quoting a higher price.

B. Not violated the Standards.
C. Violated Standard III(B) – Fair Dealing by not fairly dealing with her clients.
136. Glen Warren, CFA, writes a report to his clients describing a new financial product recently
launched by his investment firm. The new product is designed to generate great returns in case
market volatility increases. An extract of the report is given below:
“The product will generate great returns in case of increased market volatility. However, as the
trading techniques used to generate the return are deemed proprietary, they cannot be
disclosed in the report.”
This extract from the report is most likely:
A. In violation of Standard V(B) – Communication with Clients and Prospective Clients.

B. In violation of Standard III(D) – Performance Presentation.
C. Not in violation of the Standards.

137. Gregory Mayer, CFA, works at Diligent Investors Private Limited. Mayer is a pacifist at
heart and often participates in demonstrations against weapons manufacturing firms. In the
country in which Mayer resides, participating in protests is a criminal act; thus, he has been
arrested on numerous occasions. Mayer has most likely:
A. Violated Standard I(D) – Misconduct by adversely getting arrested on several occasions.

B. Not violated Standard I(D) – Misconduct.
C. Violated Standard I(D) – Misconduct by committing a criminal act.
138. During a CFA Institute Professional Conduct Program (PCP) investigation, Jack Grant is
asked to provide confidential information related to his clients. Which of the following is the
most appropriate statement regarding a Professional Conduct Program (PCP) investigation?
A. Grant must not disclose the confidential information, as it will be considered a violation
of Standard III(E) – Preservation of Confidentiality.
B. Grant must disclose the confidential information, as it will not be considered a violation
of Standard III(E) – Preservation of Confidentiality.
C. Accessing confidential information is not allowed during a PCP investigation.
139. Marcus Davies, CFA, works at AlgoRythm Investment LLC as an investment advisor.
Davies receives an offer from an educational institution for a part-time paid position as a
mathematics freelance teacher. He accepts the offer and ensures that the teaching assignments
will not interfere with his investment advisory commitments. Davies does not disclose teaching
assignments to his employer. Marcus Davies has most likely:
A. Violated Standard IV(A) – Loyalty.

B. Not violated Standard IV(A) – Loyalty.
C. Violated Standard VI(A) – Disclosure of Conflicts.

140. Carmen Campbell is the supervisor of the research division of a well-known investment
bank. Jenny Roberts has recently joined the firm as a research analyst and reports to Campbell.
During an informal meeting, Roberts suggests Campbell recommend a ‘buy’ rating on a
pharmaceutical company tracked by Roberts. She informs her that the company has received
final FDA approval for one of its drugs which has an upside potential of $50 million. Campbell
approves the research report and recommends a ‘buy’ rating on the stock. However, it is later
discovered that the company had never received final FDA approval for the drug. Which of the
following statements is the most appropriate?
A. Roberts has violated the Standards of Professional Conduct.

B. Campbell has violated the Standards of Professional Conduct.
C. Campbell and Roberts have both violated the Standards of Professional Conduct.
141. Martina Gibbons is a CFA Level II Candidate. During an interview, Gibbons makes the
following two statements:
Statement I: “I have successfully completed the first two levels of the CFA exam program.”
Statement II: “The CFA program overstresses areas such as financial analysis which I believe are
unnecessary at the Level I stage.”
Which of the following statements most likely represents a violation of the standards relating to
Responsibilities as a CFA Institute Member or CFA Candidate?
A. Statement I only.
B. Statement II only.
C. Neither statement is a violation.
142. Recommended written trade allocation procedures least likely include:
A. Processing orders on a first-come, first-served basis.

B. Allocating trades for new issues by portfolio manager.
C. Giving all accounts participating in a block trade a weighted price based on their order
value.

143. Donna Simpson had an exceptional performance year. During a meeting where Simpson is
updating the client’s investment policy statement (IPS), one of her clients offers her two NBA
finals first-row tickets as a reward. Simpson’s best course of action is to:
A. Reject the offer.

B. Receive consent from her employer before accepting the offer.
C. Accept the offer as long as she notifies her employer accordingly.
144. Which of the following is a section of the Global Investment Performance Standards?
A. Hedge funds
B. Record retention
C. Wrap fee portfolios

CFA L1 Ethics Questions

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CFA L1 Ethics Questions

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By AnalystPrep.

CFA LEVEL 1 – ETHICAL By AnalystPrep.com

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A. Only cash considerations should be disclosed.

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II. There is no default risk on the investments made by the fund.

Which of the statements is a violation of Standard I(C) – Misrepresentation?

A. Not violated any standard in mentioning this.

A. Increasing the intervention of the government in the investment industry

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A. No, Lively should not trade in her mother’s account at all.

A. Scott should publish the report.

A. No, as there has been no significant change in Anniston’s financial situation.

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A. Not violated Standard VI(A) – Disclosure of Conflicts by not disclosing the

A. Violating Standard I (C) – Misrepresentation.

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II. Preserve the confidentiality of information communicated by clients, prospects or employers

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A. Yes, Haldon cannot make such commitments.

A. Yes, Triaelli has violated Standard I(D) – Professional Misconduct.

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A. Violated Standard II(B) – Market manipulation by getting into a transaction-based

A. No, Almas is not violating the standard.

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A. Walton should report Peters to the Compliance Team.

A. Real Estate holdings

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A. A member is required to disclose only the fees he receives.

A. No, because Hinges did not charge any fees.

A. Standard III(A) – Loyalty, Prudence, and Care

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A. Sell the stock, given this information.

40. Which of the following statements is most likely true?

A. Members cannot pursue a competing independent practice that could result in

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A. It is not the supervisor's responsibility to ensure that investment reports of a research

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46. Which of the following is most likely incorrect?

47. Which of the following is most likely incorrect?

A. "Firewall" is a common term applied to the barriers created to prevent sensitive

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A. Disclose the information.

A. Yes, it constitutes the use of material non-public information.

A. The aggregate of portfolios managed with the same investment mandate.

A. He does not distinguish between opinion and fact.

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A. Accept the sell order.

A. Voluntary and must be performed by a third party.

A. Exercise diligence, independence, and thoroughness in analyzing the investment.

A. A violation of Standard I(C) – Misrepresentation.

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A. Places the clients first.

A. Exercise independent judgment.

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A. As soon as the information is disseminated to all clients.

A. Gifts from a company

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A. Has not violated CFA Institute Standards of Professional Conduct.

A. Is in compliance with Standard IV(C) – Responsibilities of Supervisors.