{"id":19009,"date":"2021-02-17T08:31:00","date_gmt":"2021-02-17T08:31:00","guid":{"rendered":"https:\/\/www.dumpsbase.com\/freedumps\/?p=19009"},"modified":"2021-02-04T08:53:49","modified_gmt":"2021-02-04T08:53:49","slug":"cfa-level-2-exam-dumps-with-valid-practice-qas","status":"publish","type":"post","link":"https:\/\/www.dumpsbase.com\/freedumps\/cfa-level-2-exam-dumps-with-valid-practice-qas.html","title":{"rendered":"CFA Level 2 Exam Dumps With Valid Practice Q&#038;As"},"content":{"rendered":"\n<p>After you complete CFA Level 1 exam, you can come to take and pass CFA Level 2 exam. We have collected all the actual CFA Level 2 exam questions, also have verified all the CFA Level 2 exam answers to make sure you can pass CFA Level 2 exam. DumpsBase are offering CFA Level 2 pdf file and free software for learning.\u00a0<\/p>\n<h2>You can read <span style=\"color: #ff0000;\">CFA Level 2 free dumps<\/span> online here:<\/h2>\n<script>\n\t  window.fbAsyncInit = function() {\n\t    FB.init({\n\t      appId            : '622169541470367',\n\t      autoLogAppEvents : true,\n\t      xfbml            : true,\n\t      version          : 'v3.1'\n\t    });\n\t  };\n\t\n\t  (function(d, s, id){\n\t     var js, fjs = d.getElementsByTagName(s)[0];\n\t     if (d.getElementById(id)) {return;}\n\t     js = d.createElement(s); js.id = id;\n\t     js.src = \"https:\/\/connect.facebook.net\/en_US\/sdk.js\";\n\t     fjs.parentNode.insertBefore(js, fjs);\n\t   }(document, 'script', 'facebook-jssdk'));\n\t<\/script><script type=\"text\/javascript\" >\ndocument.addEventListener(\"DOMContentLoaded\", function(event) { \nif(!window.jQuery) alert(\"The important jQuery library is not properly loaded in your site. Your WordPress theme is probably missing the essential wp_head() call. You can switch to another theme and you will see that the plugin works fine and this notice disappears. If you are still not sure what to do you can contact us for help.\");\n});\n<\/script>  \n  \n<div  id=\"watupro_quiz\" class=\"quiz-area single-page-quiz\">\n<p id=\"submittingExam4666\" style=\"display:none;text-align:center;\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/plugins\/watupro\/img\/loading.gif\" width=\"16\" height=\"16\"><\/p>\n\n<div class=\"watupro-exam-description\" id=\"description-quiz-4666\"><\/div>\n\n<form action=\"\" method=\"post\" class=\"quiz-form\" id=\"quiz-4666\"  enctype=\"multipart\/form-data\" >\n<div class='watu-question ' id='question-1' style=';'><div id='questionWrap-1'  class='   watupro-question-id-148501'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>1. <\/span>Glenda Garvey is interning at Samson Securities in the summer to earn money for her last semester of studies for her MBA. She took the Level 3 CFA&reg; exam in June but has not yet received her score. Garvey\u2019s work involves preparing research reports on small companies. <br \/>\r<br><br \/>\r<br>Garvey is at lunch with a group of co-workers. She listens to their conversation about various stocks and takes note of a comment from Tony Topel, a veteran analyst. Topel is talking about Vallo Engineering, a small stock he has tried repeatedly to convince the investment director to add to the monitored list. While the investment director does not like Vallo, Topel has faith in the company and has gradually accumulated 5,000 shares for his own account. Another analyst, Mary Kennedy, tells the group about Koral Koatings, a paint and sealant manufacturer. Kennedy has spent most of the last week at the office doing research on Koral. She has concluded that the stock is undervalued and consensus earnings estimates are conservative. However, she has not filed a report for Samson, nor does she intend to. She said she has purchased the stock for herself and advises her colleagues to do the same. After she gets back to the office, Garvey purchases 25 shares of Vallo and 50 shares of Koral for herself. <br \/>\r<br><br \/>\r<br>Samson pays its interns very little, and Garvey works as a waitress at a diner in the financial district to supplement her income. The dinner crowd includes many analysts and brokers who work at nearby businesses. While waiting tables that night, Garvey hears two employees of a major brokerage house discussing Metrona, a nanotechnology company. The restaurant patrons say that the broker's star analyst has issued a report with a buy rating on Metrona that morning. The diners plans to buy the stock the next morning. After Garvey finishes her shift, restaurant manager Mandy Jones, a longtime Samson client, asks to speak with her. Jones commends Garvey for her hard work at the restaurant, praising her punctuality and positive attitude, and offers her two tickets to a Yankees game as a bonus. <br \/>\r<br><br \/>\r<br>The next morning, Garvey buys 40 shares of Metrona for her own account at the market open. Soon afterward, she receives a call from Harold Koons, one of Samson's largest money-management clients. Koons says he got Garvey's name from Bertha Witt, who manages the Koons' account. Koons wanted to reward the analyst who discovered Anvil Hammers, a machine-tool company whose stock soared soon after it was added to his portfolio. Garvey prepared the original report on Anvil Hammers. Koons offers Garvey two free round-trip tickets to the city of her choice. Garvey thanks Koons, then asks her immediate supervisor, Karl May, about the gift from Koons but does not mention the gift from Jones. May approves the Koons\u2019 gift. <br \/>\r<br><br \/>\r<br>After talking with May, Garvey starts a research project on Zenith Enterprises, a frozen-juice maker. Garvey's gathers quarterly data on the company's sales and profits over the past two years. Garvey uses a simple linear regression to estimate the relationship between GDP growth and Zenith's sales growth. Next she uses a consensus GDP estimate from a well-known economic data reporting service and her regression model to extrapolate growth rates for the next three years. <br \/>\r<br><br \/>\r<br>Later that afternoon, Garvey attends a company meeting on the ethics of money management. She listens to a lecture in which John Bloomquist, a veteran portfolio manager, talks about his job responsibilities. Garvey takes notes that include the following three statements made by Bloomquist: <br \/>\r<br><br \/>\r<br>Statement 1: I\u2019m not a bond expert, and I\u2019ve turned to a colleague for advice on how to manage the fixed-income portion of client portfolios. <br \/>\r<br><br \/>\r<br>Statement 2: I strive not to favor either the remaindermen or the current-income beneficiaries, instead I work to serve both of their interests. <br \/>\r<br><br \/>\r<br>Statement 3: All of my portfolios have target growth rates sufficient to keep ahead of inflation. <br \/>\r<br><br \/>\r<br>Garvey is not working at the diner that night, so she goes home to work on her biography for an online placement service. <br \/>\r<br>In it she makes the following two statements: <br \/>\r<br><br \/>\r<br>Statement 1: I'm a CFA Level 3 candidate, and I expect to receive my charter this fall. The CFA program is a grueling, 3-part, graduate-level course, and passage requires an expertise in a variety of financial instruments as well as knowledge of the forces that drive our economy and financial markets. <br \/>\r<br>Statement 1: I expect to graduate with my MBA from Braxton College at the end of the fall semester. As both an MBA and a CFA, I'll be in high demand. Hire me now while you still have the chance. <br \/>\r<br><br \/>\r<br>During the lunch conversation, which CFA Institute Standard of Professional Conduct was most likely violated?<\/div><input type='hidden' name='question_id[]' id='qID_1' value='148501' \/><input type='hidden' id='answerType148501' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148501[]' id='answer-id-604758' class='answer   answerof-148501 ' value='604758'   \/><label for='answer-id-604758' id='answer-label-604758' class=' answer'><span>III(B) Fair Dealing.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148501[]' id='answer-id-604759' class='answer   answerof-148501 ' value='604759'   \/><label for='answer-id-604759' id='answer-label-604759' class=' answer'><span>IV(A) Loyalty.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148501[]' id='answer-id-604760' class='answer   answerof-148501 ' value='604760'   \/><label for='answer-id-604760' id='answer-label-604760' class=' answer'><span>V(A) Reasonable Basis.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-2' style=';'><div id='questionWrap-2'  class='   watupro-question-id-148502'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>2. <\/span>Glenda Garvey is interning at Samson Securities in the summer to earn money for her last semester of studies for her MBA. She took the Level 3 CFA&reg; exam in June but has not yet received her score. Garvey\u2019s work involves preparing research reports on small companies. <br \/>\r<br><br \/>\r<br>Garvey is at lunch with a group of co-workers. She listens to their conversation about various stocks and takes note of a comment from Tony Topel, a veteran analyst. Topel is talking about Vallo Engineering, a small stock he has tried repeatedly to convince the investment director to add to the monitored list. While the investment director does not like Vallo, Topel has faith in the company and has gradually accumulated 5,000 shares for his own account. Another analyst, Mary Kennedy, tells the group about Koral Koatings, a paint and sealant manufacturer. Kennedy has spent most of the last week at the office doing research on Koral. She has concluded that the stock is undervalued and consensus earnings estimates are conservative. However, she has not filed a report for Samson, nor does she intend to. She said she has purchased the stock for herself and advises her colleagues to do the same. After she gets back to the office, Garvey purchases 25 shares of Vallo and 50 shares of Koral for herself. <br \/>\r<br><br \/>\r<br>Samson pays its interns very little, and Garvey works as a waitress at a diner in the financial district to supplement her income. The dinner crowd includes many analysts and brokers who work at nearby businesses. While waiting tables that night, Garvey hears two employees of a major brokerage house discussing Metrona, a nanotechnology company. The restaurant patrons say that the broker's star analyst has issued a report with a buy rating on Metrona that morning. The diners plans to buy the stock the next morning. After Garvey finishes her shift, restaurant manager Mandy Jones, a longtime Samson client, asks to speak with her. Jones commends Garvey for her hard work at the restaurant, praising her punctuality and positive attitude, and offers her two tickets to a Yankees game as a bonus. <br \/>\r<br><br \/>\r<br>The next morning, Garvey buys 40 shares of Metrona for her own account at the market open. Soon afterward, she receives a call from Harold Koons, one of Samson's largest money-management clients. Koons says he got Garvey's name from Bertha Witt, who manages the Koons' account. Koons wanted to reward the analyst who discovered Anvil Hammers, a machine-tool company whose stock soared soon after it was added to his portfolio. Garvey prepared the original report on Anvil Hammers. Koons offers Garvey two free round-trip tickets to the city of her choice. Garvey thanks Koons, then asks her immediate supervisor, Karl May, about the gift from Koons but does not mention the gift from Jones. May approves the Koons\u2019 gift. <br \/>\r<br><br \/>\r<br>After talking with May, Garvey starts a research project on Zenith Enterprises, a frozen-juice maker. Garvey's gathers quarterly data on the company's sales and profits over the past two years. Garvey uses a simple linear regression to estimate the relationship between GDP growth and Zenith's sales growth. Next she uses a consensus GDP estimate from a well-known economic data reporting service and her regression model to extrapolate growth rates for the next three years. <br \/>\r<br><br \/>\r<br>Later that afternoon, Garvey attends a company meeting on the ethics of money management. She listens to a lecture in which John Bloomquist, a veteran portfolio manager, talks about his job responsibilities. Garvey takes notes that include the following three statements made by Bloomquist: <br \/>\r<br><br \/>\r<br>Statement 1: I\u2019m not a bond expert, and I\u2019ve turned to a colleague for advice on how to manage the fixed-income portion of client portfolios. <br \/>\r<br><br \/>\r<br>Statement 2: I strive not to favor either the remaindermen or the current-income beneficiaries, instead I work to serve both of their interests. <br \/>\r<br><br \/>\r<br>Statement 3: All of my portfolios have target growth rates sufficient to keep ahead of inflation. <br \/>\r<br><br \/>\r<br>Garvey is not working at the diner that night, so she goes home to work on her biography for an online placement service. <br \/>\r<br>In it she makes the following two statements: <br \/>\r<br><br \/>\r<br>Statement 1: I'm a CFA Level 3 candidate, and I expect to receive my charter this fall. The CFA program is a grueling, 3-part, graduate-level course, and passage requires an expertise in a variety of financial instruments as well as knowledge of the forces that drive our economy and financial markets. <br \/>\r<br>Statement 1: I expect to graduate with my MBA from Braxton College at the end of the fall semester. As both an MBA and a CFA, I'll be in high demand. Hire me now while you still have the chance. <br \/>\r<br><br \/>\r<br>Does Garvey's acceptance of the gifts from Koons and Jones violate Standard 1(B) Independence and Objectivity?<\/div><input type='hidden' name='question_id[]' id='qID_2' value='148502' \/><input type='hidden' id='answerType148502' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148502[]' id='answer-id-604761' class='answer   answerof-148502 ' value='604761'   \/><label for='answer-id-604761' id='answer-label-604761' class=' answer'><span>Accepting Koons' gift was a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148502[]' id='answer-id-604762' class='answer   answerof-148502 ' value='604762'   \/><label for='answer-id-604762' id='answer-label-604762' class=' answer'><span>Accepting Jones* gift was a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148502[]' id='answer-id-604763' class='answer   answerof-148502 ' value='604763'   \/><label for='answer-id-604763' id='answer-label-604763' class=' answer'><span>Neither gift would result in a violation.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-3' style=';'><div id='questionWrap-3'  class='   watupro-question-id-148503'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>3. <\/span>Glenda Garvey is interning at Samson Securities in the summer to earn money for her last semester of studies for her MBA. She took the Level 3 CFA&reg; exam in June but has not yet received her score. Garvey\u2019s work involves preparing research reports on small companies. <br \/>\r<br><br \/>\r<br>Garvey is at lunch with a group of co-workers. She listens to their conversation about various stocks and takes note of a comment from Tony Topel, a veteran analyst. Topel is talking about Vallo Engineering, a small stock he has tried repeatedly to convince the investment director to add to the monitored list. While the investment director does not like Vallo, Topel has faith in the company and has gradually accumulated 5,000 shares for his own account. Another analyst, Mary Kennedy, tells the group about Koral Koatings, a paint and sealant manufacturer. Kennedy has spent most of the last week at the office doing research on Koral. She has concluded that the stock is undervalued and consensus earnings estimates are conservative. <br \/>\r<br>However, she has not filed a report for Samson, nor does she intend to. She said she has purchased the stock for herself and advises her colleagues to do the same. After she gets back to the office, Garvey purchases 25 shares of Vallo and 50 shares of Koral for herself. <br \/>\r<br><br \/>\r<br>Samson pays its interns very little, and Garvey works as a waitress at a diner in the financial district to supplement her income. The dinner crowd includes many analysts and brokers who work at nearby businesses. While waiting tables that night, Garvey hears two employees of a major brokerage house discussing Metrona, a nanotechnology company. The restaurant patrons say that the broker's star analyst has issued a report with a buy rating on Metrona that morning. The diners plans to buy the stock the next morning. After Garvey finishes her shift, restaurant manager Mandy Jones, a longtime Samson client, asks to speak with her. Jones commends Garvey for her hard work at the restaurant, praising her punctuality and positive attitude, and offers her two tickets to a Yankees game as a bonus. <br \/>\r<br><br \/>\r<br>The next morning, Garvey buys 40 shares of Metrona for her own account at the market open. Soon afterward, she receives a call from Harold Koons, one of Samson's largest money-management clients. Koons says he got Garvey's name from Bertha Witt, who manages the Koons' account. Koons wanted to reward the analyst who discovered Anvil Hammers, a machine-tool company whose stock soared soon after it was added to his portfolio. Garvey prepared the original report on Anvil Hammers. Koons offers Garvey two free round-trip tickets to the city of her choice. Garvey thanks Koons, then asks her immediate supervisor, Karl May, about the gift from Koons but does not mention the gift from Jones. May approves the Koons\u2019 gift. <br \/>\r<br><br \/>\r<br>After talking with May, Garvey starts a research project on Zenith Enterprises, a frozen-juice maker. Garvey's gathers quarterly data on the company's sales and profits over the past two years. Garvey uses a simple linear regression to estimate the relationship between GDP growth and Zenith's sales growth. Next she uses a consensus GDP estimate from a well-known economic data reporting service and her regression model to extrapolate growth rates for the next three years. <br \/>\r<br><br \/>\r<br>Later that afternoon, Garvey attends a company meeting on the ethics of money management. She listens to a lecture in which John Bloomquist, a veteran portfolio manager, talks about his job responsibilities. Garvey takes notes that include the following three statements made by Bloomquist: <br \/>\r<br><br \/>\r<br>Statement 1: I\u2019m not a bond expert, and I\u2019ve turned to a colleague for advice on how to manage the fixed-income portion of client portfolios. <br \/>\r<br><br \/>\r<br>Statement 2: I strive not to favor either the remaindermen or the current-income beneficiaries, instead I work to serve both of their interests. <br \/>\r<br><br \/>\r<br>Statement 3: All of my portfolios have target growth rates sufficient to keep ahead of inflation. <br \/>\r<br><br \/>\r<br>Garvey is not working at the diner that night, so she goes home to work on her biography for an online placement service. <br \/>\r<br>In it she makes the following two statements: <br \/>\r<br><br \/>\r<br>Statement 1: I'm a CFA Level 3 candidate, and I expect to receive my charter this fall. The CFA program is a grueling, 3-part, graduate-level course, and passage requires an expertise in a variety of financial instruments as well as knowledge of the forces that drive our economy and financial markets. Statement 1: I expect to graduate with my MBA from Braxton College at the end of the fall semester. <br \/>\r<br>As both an MBA and a CFA, I'll be in high demand. Hire me now while you still have the chance. <br \/>\r<br>Did Garvey violate Standard 11(A) Material Nonpublic Information when she purchased Vallo and Metrona?<\/div><input type='hidden' name='question_id[]' id='qID_3' value='148503' \/><input type='hidden' id='answerType148503' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148503[]' id='answer-id-604764' class='answer   answerof-148503 ' value='604764'   \/><label for='answer-id-604764' id='answer-label-604764' class=' answer'><span>Buying Vallo was a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148503[]' id='answer-id-604765' class='answer   answerof-148503 ' value='604765'   \/><label for='answer-id-604765' id='answer-label-604765' class=' answer'><span>Buying Metrona was a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148503[]' id='answer-id-604766' class='answer   answerof-148503 ' value='604766'   \/><label for='answer-id-604766' id='answer-label-604766' class=' answer'><span>Neither purchase was a violation.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-4' style=';'><div id='questionWrap-4'  class='   watupro-question-id-148504'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>4. <\/span>Glenda Garvey is interning at Samson Securities in the summer to earn money for her last semester of studies for her MBA. She took the Level 3 CFA&reg; exam in June but has not yet received her score. Garvey\u2019s work involves preparing research reports on small companies. <br \/>\r<br><br \/>\r<br>Garvey is at lunch with a group of co-workers. She listens to their conversation about various stocks and takes note of a comment from Tony Topel, a veteran analyst. Topel is talking about Vallo Engineering, a small stock he has tried repeatedly to convince the investment director to add to the monitored list. While the investment director does not like Vallo, Topel has faith in the company and has gradually accumulated 5,000 shares for his own account. Another analyst, Mary Kennedy, tells the group about Koral Koatings, a paint and sealant manufacturer. Kennedy has spent most of the last week at the office doing research on Koral. She has concluded that the stock is undervalued and consensus earnings estimates are conservative. <br \/>\r<br>However, she has not filed a report for Samson, nor does she intend to. She said she has purchased the stock for herself and advises her colleagues to do the same. After she gets back to the office, Garvey purchases 25 shares of Vallo and 50 shares of Koral for herself. <br \/>\r<br><br \/>\r<br>Samson pays its interns very little, and Garvey works as a waitress at a diner in the financial district to supplement her income. The dinner crowd includes many analysts and brokers who work at nearby businesses. While waiting tables that night, Garvey hears two employees of a major brokerage house discussing Metrona, a nanotechnology company. The restaurant patrons say that the broker's star analyst has issued a report with a buy rating on Metrona that morning. The diners plans to buy the stock the next morning. After Garvey finishes her shift, restaurant manager Mandy Jones, a longtime Samson client, asks to speak with her. Jones commends Garvey for her hard work at the restaurant, praising her punctuality and positive attitude, and offers her two tickets to a Yankees game as a bonus. <br \/>\r<br><br \/>\r<br>The next morning, Garvey buys 40 shares of Metrona for her own account at the market open. Soon afterward, she receives a call from Harold Koons, one of Samson's largest money-management clients. Koons says he got Garvey's name from Bertha Witt, who manages the Koons' account. Koons wanted to reward the analyst who discovered Anvil Hammers, a machine-tool company whose stock soared soon after it was added to his portfolio. Garvey prepared the original report on Anvil Hammers. Koons offers Garvey two free round-trip tickets to the city of her choice. Garvey thanks Koons, then asks her immediate supervisor, Karl May, about the gift from Koons but does not mention the gift from Jones. May approves the Koons\u2019 gift. <br \/>\r<br><br \/>\r<br>After talking with May, Garvey starts a research project on Zenith Enterprises, a frozen-juice maker. Garvey's gathers quarterly data on the company's sales and profits over the past two years. Garvey uses a simple linear regression to estimate the relationship between GDP growth and Zenith's sales growth. Next she uses a consensus GDP estimate from a well-known economic data reporting service and her regression model to extrapolate growth rates for the next three years. <br \/>\r<br><br \/>\r<br>Later that afternoon, Garvey attends a company meeting on the ethics of money management. She listens to a lecture in which John Bloomquist, a veteran portfolio manager, talks about his job responsibilities. Garvey takes notes that include the following three statements made by Bloomquist: <br \/>\r<br><br \/>\r<br>Statement 1: I\u2019m not a bond expert, and I\u2019ve turned to a colleague for advice on how to manage the fixed-income portion of client portfolios. <br \/>\r<br><br \/>\r<br>Statement 2: I strive not to favor either the remaindermen or the current-income beneficiaries, instead I work to serve both of their interests. <br \/>\r<br><br \/>\r<br>Statement 3: All of my portfolios have target growth rates sufficient to keep ahead of inflation. <br \/>\r<br><br \/>\r<br>Garvey is not working at the diner that night, so she goes home to work on her biography for an online placement service. <br \/>\r<br>In it she makes the following two statements: <br \/>\r<br><br \/>\r<br>Statement 1: I'm a CFA Level 3 candidate, and I expect to receive my charter this fall. The CFA program is a grueling, 3-part, graduate-level course, and passage requires an expertise in a variety of financial instruments as well as knowledge of the forces that drive our economy and financial markets. <br \/>\r<br>Statement 1: I expect to graduate with my MBA from Braxton College at the end of the fall semester. <br \/>\r<br>As both an MBA and a CFA, I'll be in high demand. Hire me now while you still have the chance. <br \/>\r<br>In her estimation of Zenith's future growth rate, what standard did Garvey violate?<\/div><input type='hidden' name='question_id[]' id='qID_4' value='148504' \/><input type='hidden' id='answerType148504' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148504[]' id='answer-id-604767' class='answer   answerof-148504 ' value='604767'   \/><label for='answer-id-604767' id='answer-label-604767' class=' answer'><span>Standard 1(C) Misrepresentation regarding plagiarism.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148504[]' id='answer-id-604768' class='answer   answerof-148504 ' value='604768'   \/><label for='answer-id-604768' id='answer-label-604768' class=' answer'><span>Standard V(A) Diligence and Reasonable Basis.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148504[]' id='answer-id-604769' class='answer   answerof-148504 ' value='604769'   \/><label for='answer-id-604769' id='answer-label-604769' class=' answer'><span>Both 1(C) and V(A).<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-5' style=';'><div id='questionWrap-5'  class='   watupro-question-id-148505'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>5. <\/span>Glenda Garvey is interning at Samson Securities in the summer to earn money for her last semester of studies for her MBA. She took the Level 3 CFA&reg; exam in June but has not yet received her score. Garvey\u2019s work involves preparing research reports on small companies. <br \/>\r<br><br \/>\r<br>Garvey is at lunch with a group of co-workers. She listens to their conversation about various stocks and takes note of a comment from Tony Topel, a veteran analyst. Topel is talking about Vallo Engineering, a small stock he has tried repeatedly to convince the investment director to add to the monitored list. While the investment director does not like Vallo, Topel has faith in the company and has gradually accumulated 5,000 shares for his own account. Another analyst, Mary Kennedy, tells the group about Koral Koatings, a paint and sealant manufacturer. Kennedy has spent most of the last week at the office doing research on Koral. She has concluded that the stock is undervalued and consensus earnings estimates are conservative. <br \/>\r<br>However, she has not filed a report for Samson, nor does she intend to. She said she has purchased the stock for herself and advises her colleagues to do the same. After she gets back to the office, Garvey purchases 25 shares of Vallo and 50 shares of Koral for herself. <br \/>\r<br><br \/>\r<br>Samson pays its interns very little, and Garvey works as a waitress at a diner in the financial district to supplement her income. The dinner crowd includes many analysts and brokers who work at nearby businesses. While waiting tables that night, Garvey hears two employees of a major brokerage house discussing Metrona, a nanotechnology company. The restaurant patrons say that the broker's star analyst has issued a report with a buy rating on Metrona that morning. The diners plans to buy the stock the next morning. After Garvey finishes her shift, restaurant manager Mandy Jones, a longtime Samson client, asks to speak with her. Jones commends Garvey for her hard work at the restaurant, praising her punctuality and positive attitude, and offers her two tickets to a Yankees game as a bonus. <br \/>\r<br><br \/>\r<br>The next morning, Garvey buys 40 shares of Metrona for her own account at the market open. Soon afterward, she receives a call from Harold Koons, one of Samson's largest money-management clients. Koons says he got Garvey's name from Bertha Witt, who manages the Koons' account. Koons wanted to reward the analyst who discovered Anvil Hammers, a machine-tool company whose stock soared soon after it was added to his portfolio. Garvey prepared the original report on Anvil Hammers. Koons offers Garvey two free round-trip tickets to the city of her choice. Garvey thanks Koons, then asks her immediate supervisor, Karl May, about the gift from Koons but does not mention the gift from Jones. May approves the Koons\u2019 gift. <br \/>\r<br><br \/>\r<br>After talking with May, Garvey starts a research project on Zenith Enterprises, a frozen-juice maker. Garvey's gathers quarterly data on the company's sales and profits over the past two years. Garvey uses a simple linear regression to estimate the relationship between GDP growth and Zenith's sales growth. Next she uses a consensus GDP estimate from a well-known economic data reporting service and her regression model to extrapolate growth rates for the next three years. <br \/>\r<br><br \/>\r<br>Later that afternoon, Garvey attends a company meeting on the ethics of money management. She listens to a lecture in which John Bloomquist, a veteran portfolio manager, talks about his job responsibilities. Garvey takes notes that include the following three statements made by Bloomquist: <br \/>\r<br><br \/>\r<br>Statement 1: I\u2019m not a bond expert, and I\u2019ve turned to a colleague for advice on how to manage the fixed-income portion of client portfolios. <br \/>\r<br><br \/>\r<br>Statement 2: I strive not to favor either the remaindermen or the current-income beneficiaries, instead I work to serve both of their interests. <br \/>\r<br><br \/>\r<br>Statement 3: All of my portfolios have target growth rates sufficient to keep ahead of inflation. <br \/>\r<br><br \/>\r<br>Garvey is not working at the diner that night, so she goes home to work on her biography for an online placement service. <br \/>\r<br>In it she makes the following two statements: <br \/>\r<br><br \/>\r<br>Statement 1: I'm a CFA Level 3 candidate, and I expect to receive my charter this fall. The CFA program is a grueling, 3-part, graduate-level course, and passage requires an expertise in a variety of financial instruments as well as knowledge of the forces that drive our economy and financial markets. <br \/>\r<br>Statement 1: I expect to graduate with my MBA from Braxton College at the end of the fall semester. <br \/>\r<br>As both an MBA and a CFA, I'll be in high demand. Hire me now while you still have the chance. <br \/>\r<br>Which of Bloomquist's statements most likely applies to both the Prudent Man Rule and the Prudent Investor Rule?<\/div><input type='hidden' name='question_id[]' id='qID_5' value='148505' \/><input type='hidden' id='answerType148505' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148505[]' id='answer-id-604770' class='answer   answerof-148505 ' value='604770'   \/><label for='answer-id-604770' id='answer-label-604770' class=' answer'><span>Statement 1.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148505[]' id='answer-id-604771' class='answer   answerof-148505 ' value='604771'   \/><label for='answer-id-604771' id='answer-label-604771' class=' answer'><span>Statement 2.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148505[]' id='answer-id-604772' class='answer   answerof-148505 ' value='604772'   \/><label for='answer-id-604772' id='answer-label-604772' class=' answer'><span>Statement 3.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-6' style=';'><div id='questionWrap-6'  class='   watupro-question-id-148506'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>6. <\/span>Glenda Garvey is interning at Samson Securities in the summer to earn money for her last semester of studies for her MBA. She took the Level 3 CFA&reg; exam in June but has not yet received her score. Garvey\u2019s work involves preparing research reports on small companies. <br \/>\r<br><br \/>\r<br>Garvey is at lunch with a group of co-workers. She listens to their conversation about various stocks and takes note of a comment from Tony Topel, a veteran analyst. Topel is talking about Vallo Engineering, a small stock he has tried repeatedly to convince the investment director to add to the monitored list. While the investment director does not like Vallo, Topel has faith in the company and has gradually accumulated 5,000 shares for his own account. Another analyst, Mary Kennedy, tells the group about Koral Koatings, a paint and sealant manufacturer. Kennedy has spent most of the last week at the office doing research on Koral. She has concluded that the stock is undervalued and consensus earnings estimates are conservative. <br \/>\r<br>However, she has not filed a report for Samson, nor does she intend to. She said she has purchased the stock for herself and advises her colleagues to do the same. After she gets back to the office, Garvey purchases 25 shares of Vallo and 50 shares of Koral for herself. <br \/>\r<br><br \/>\r<br>Samson pays its interns very little, and Garvey works as a waitress at a diner in the financial district to supplement her income. The dinner crowd includes many analysts and brokers who work at nearby businesses. While waiting tables that night, Garvey hears two employees of a major brokerage house discussing Metrona, a nanotechnology company. The restaurant patrons say that the broker's star analyst has issued a report with a buy rating on Metrona that morning. The diners plans to buy the stock the next morning. After Garvey finishes her shift, restaurant manager Mandy Jones, a longtime Samson client, asks to speak with her. Jones commends Garvey for her hard work at the restaurant, praising her punctuality and positive attitude, and offers her two tickets to a Yankees game as a bonus. <br \/>\r<br><br \/>\r<br>The next morning, Garvey buys 40 shares of Metrona for her own account at the market open. Soon afterward, she receives a call from Harold Koons, one of Samson's largest money-management clients. Koons says he got Garvey's name from Bertha Witt, who manages the Koons' account. Koons wanted to reward the analyst who discovered Anvil Hammers, a machine-tool company whose stock soared soon after it was added to his portfolio. Garvey prepared the original report on Anvil Hammers. Koons offers Garvey two free round-trip tickets to the city of her choice. Garvey thanks Koons, then asks her immediate supervisor, Karl May, about the gift from Koons but does not mention the gift from Jones. May approves the Koons\u2019 gift. <br \/>\r<br><br \/>\r<br>After talking with May, Garvey starts a research project on Zenith Enterprises, a frozen-juice maker. Garvey's gathers quarterly data on the company's sales and profits over the past two years. Garvey uses a simple linear regression to estimate the relationship between GDP growth and Zenith's sales growth. Next she uses a consensus GDP estimate from a well-known economic data reporting service and her regression model to extrapolate growth rates for the next three years. <br \/>\r<br><br \/>\r<br>Later that afternoon, Garvey attends a company meeting on the ethics of money management. She listens to a lecture in which John Bloomquist, a veteran portfolio manager, talks about his job responsibilities. Garvey takes notes that include the following three statements made by Bloomquist: <br \/>\r<br><br \/>\r<br>Statement 1: I\u2019m not a bond expert, and I\u2019ve turned to a colleague for advice on how to manage the fixed-income portion of client portfolios. <br \/>\r<br><br \/>\r<br>Statement 2: I strive not to favor either the remaindermen or the current-income beneficiaries, instead I work to serve both of their interests. <br \/>\r<br><br \/>\r<br>Statement 3: All of my portfolios have target growth rates sufficient to keep ahead of inflation. <br \/>\r<br><br \/>\r<br>Garvey is not working at the diner that night, so she goes home to work on her biography for an online placement service. <br \/>\r<br>In it she makes the following two statements: <br \/>\r<br><br \/>\r<br>Statement 1: I'm a CFA Level 3 candidate, and I expect to receive my charter this fall. The CFA program is a grueling, 3-part, graduate-level course, and passage requires an expertise in a variety of financial instruments as well as knowledge of the forces that drive our economy and financial markets. <br \/>\r<br>Statement 1: I expect to graduate with my MBA from Braxton College at the end of the fall semester. <br \/>\r<br>As both an MBA and a CFA, I'll be in high demand. Hire me now while you still have the chance. <br \/>\r<br>Did the two statements in Garvey's biography violate Standard VII(B) Reference to CFA Institute, the CFA designation, and the CFA program?<\/div><input type='hidden' name='question_id[]' id='qID_6' value='148506' \/><input type='hidden' id='answerType148506' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148506[]' id='answer-id-604773' class='answer   answerof-148506 ' value='604773'   \/><label for='answer-id-604773' id='answer-label-604773' class=' answer'><span>Statement 1 is a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148506[]' id='answer-id-604774' class='answer   answerof-148506 ' value='604774'   \/><label for='answer-id-604774' id='answer-label-604774' class=' answer'><span>Statement 2 is a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148506[]' id='answer-id-604775' class='answer   answerof-148506 ' value='604775'   \/><label for='answer-id-604775' id='answer-label-604775' class=' answer'><span>Both statements are violations.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-7' style=';'><div id='questionWrap-7'  class='   watupro-question-id-148507'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>7. <\/span>Maria Harris is a CFA&reg; Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip. <br \/>\r<br><br \/>\r<br>Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline. <br \/>\r<br><br \/>\r<br>Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances. <br \/>\r<br><br \/>\r<br>After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year. <br \/>\r<br><br \/>\r<br>Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock. <br \/>\r<br><br \/>\r<br>Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an <br \/>\r<br><br \/>\r<br>IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth. <br \/>\r<br><br \/>\r<br>Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary. <br \/>\r<br>By accepting the trip from Quadrangle, has Harris complied with the CFA Institute Code and Standards?<\/div><input type='hidden' name='question_id[]' id='qID_7' value='148507' \/><input type='hidden' id='answerType148507' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148507[]' id='answer-id-604776' class='answer   answerof-148507 ' value='604776'   \/><label for='answer-id-604776' id='answer-label-604776' class=' answer'><span>Harris may accept the trip since she maintains a significant relationship with Quadrangle that contributes to the performance of client accounts.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148507[]' id='answer-id-604777' class='answer   answerof-148507 ' value='604777'   \/><label for='answer-id-604777' id='answer-label-604777' class=' answer'><span>Harris may accept the trip since she disclosed the trip to her supervisor and compliance officer and accepted based on their approval.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148507[]' id='answer-id-604778' class='answer   answerof-148507 ' value='604778'   \/><label for='answer-id-604778' id='answer-label-604778' class=' answer'><span>Harris may not accept the trip since the offer from Quadrangle could impede her ability to make objective investment decisions on behalf of the client.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-8' style=';'><div id='questionWrap-8'  class='   watupro-question-id-148508'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>8. <\/span>Maria Harris is a CFA&reg; Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip. <br \/>\r<br><br \/>\r<br>Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline. <br \/>\r<br><br \/>\r<br>Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances. <br \/>\r<br><br \/>\r<br>After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year. <br \/>\r<br><br \/>\r<br>Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock. <br \/>\r<br><br \/>\r<br>Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an <br \/>\r<br><br \/>\r<br>IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth. <br \/>\r<br><br \/>\r<br>Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary. <br \/>\r<br>Has either Harris or Clark violated Standard 11(A) Integrity of Capital Markets: Material Nonpublic Information?<\/div><input type='hidden' name='question_id[]' id='qID_8' value='148508' \/><input type='hidden' id='answerType148508' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148508[]' id='answer-id-604779' class='answer   answerof-148508 ' value='604779'   \/><label for='answer-id-604779' id='answer-label-604779' class=' answer'><span>Harris is in violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148508[]' id='answer-id-604780' class='answer   answerof-148508 ' value='604780'   \/><label for='answer-id-604780' id='answer-label-604780' class=' answer'><span>Clark is in violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148508[]' id='answer-id-604781' class='answer   answerof-148508 ' value='604781'   \/><label for='answer-id-604781' id='answer-label-604781' class=' answer'><span>Both are in violation.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-9' style=';'><div id='questionWrap-9'  class='   watupro-question-id-148509'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>9. <\/span>Maria Harris is a CFA&reg; Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip. <br \/>\r<br><br \/>\r<br>Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline. <br \/>\r<br><br \/>\r<br>Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances. <br \/>\r<br><br \/>\r<br>After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year. <br \/>\r<br><br \/>\r<br>Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock. <br \/>\r<br><br \/>\r<br>Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an <br \/>\r<br><br \/>\r<br>IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth. <br \/>\r<br><br \/>\r<br>Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary. <br \/>\r<br>According to the Standards of Practice, with respect to the two offers from Adams and Baker, Harris:<\/div><input type='hidden' name='question_id[]' id='qID_9' value='148509' \/><input type='hidden' id='answerType148509' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148509[]' id='answer-id-604782' class='answer   answerof-148509 ' value='604782'   \/><label for='answer-id-604782' id='answer-label-604782' class=' answer'><span>may accept both offers if she discloses them to her employer.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148509[]' id='answer-id-604783' class='answer   answerof-148509 ' value='604783'   \/><label for='answer-id-604783' id='answer-label-604783' class=' answer'><span>may accept both gifts only if she discloses them to her employer and receives permission.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148509[]' id='answer-id-604784' class='answer   answerof-148509 ' value='604784'   \/><label for='answer-id-604784' id='answer-label-604784' class=' answer'><span>must disclose the offer from Adams to her employer if she accepts it but must receive her employer's permission to accept the offer from Baker.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-10' style=';'><div id='questionWrap-10'  class='   watupro-question-id-148510'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>10. <\/span>Maria Harris is a CFA&reg; Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip. <br \/>\r<br><br \/>\r<br>Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline. <br \/>\r<br><br \/>\r<br>Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances. <br \/>\r<br><br \/>\r<br>After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year. <br \/>\r<br><br \/>\r<br>Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock. <br \/>\r<br><br \/>\r<br>Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an <br \/>\r<br><br \/>\r<br>IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth. <br \/>\r<br><br \/>\r<br>Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary. <br \/>\r<br>Has Michaels violated Standard 11(B) Integrity of Capital Markets: Manipulation with respect to any of the following?<\/div><input type='hidden' name='question_id[]' id='qID_10' value='148510' \/><input type='hidden' id='answerType148510' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148510[]' id='answer-id-604785' class='answer   answerof-148510 ' value='604785'   \/><label for='answer-id-604785' id='answer-label-604785' class=' answer'><span>The buy program is a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148510[]' id='answer-id-604786' class='answer   answerof-148510 ' value='604786'   \/><label for='answer-id-604786' id='answer-label-604786' class=' answer'><span>The liquidity activity is a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148510[]' id='answer-id-604787' class='answer   answerof-148510 ' value='604787'   \/><label for='answer-id-604787' id='answer-label-604787' class=' answer'><span>There is no violation.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-11' style=';'><div id='questionWrap-11'  class='   watupro-question-id-148511'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>11. <\/span>Maria Harris is a CFA&reg; Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip. <br \/>\r<br><br \/>\r<br>Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline. <br \/>\r<br><br \/>\r<br>Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances. <br \/>\r<br><br \/>\r<br>After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year. <br \/>\r<br><br \/>\r<br>Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock. <br \/>\r<br><br \/>\r<br>Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an <br \/>\r<br><br \/>\r<br>IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth. <br \/>\r<br><br \/>\r<br>Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary. <br \/>\r<br>According to Standard IV Duties to Employers, which of the following is most likely required of Swamy? Swamy must:<\/div><input type='hidden' name='question_id[]' id='qID_11' value='148511' \/><input type='hidden' id='answerType148511' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148511[]' id='answer-id-604788' class='answer   answerof-148511 ' value='604788'   \/><label for='answer-id-604788' id='answer-label-604788' class=' answer'><span>secure written permission from her employer before performing services for the symphony.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148511[]' id='answer-id-604789' class='answer   answerof-148511 ' value='604789'   \/><label for='answer-id-604789' id='answer-label-604789' class=' answer'><span>inform her immediate supervisor at Dillon in writing that she (Swamy) must comply with the Code and Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148511[]' id='answer-id-604790' class='answer   answerof-148511 ' value='604790'   \/><label for='answer-id-604790' id='answer-label-604790' class=' answer'><span>disclose to her employer any additional compensation she receives from Landmark Enterprises and secure written permission to serve on the board.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-12' style=';'><div id='questionWrap-12'  class='   watupro-question-id-148512'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>12. <\/span>Maria Harris is a CFA&reg; Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip. <br \/>\r<br><br \/>\r<br>Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline. <br \/>\r<br><br \/>\r<br>Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances. <br \/>\r<br><br \/>\r<br>After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year. <br \/>\r<br><br \/>\r<br>Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock. <br \/>\r<br><br \/>\r<br>Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an <br \/>\r<br><br \/>\r<br>IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth. <br \/>\r<br><br \/>\r<br>Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary. <br \/>\r<br>According to Standard IV Duties to Employers, which of the following is most likely required of Swamy? Swamy must: <br \/>\r<br>Which action by Park violated Standard III(B) Duties to Clients: Fair Dealing?<\/div><input type='hidden' name='question_id[]' id='qID_12' value='148512' \/><input type='hidden' id='answerType148512' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148512[]' id='answer-id-604791' class='answer   answerof-148512 ' value='604791'   \/><label for='answer-id-604791' id='answer-label-604791' class=' answer'><span>Increasing allocation to the problem client.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148512[]' id='answer-id-604792' class='answer   answerof-148512 ' value='604792'   \/><label for='answer-id-604792' id='answer-label-604792' class=' answer'><span>Decreased allocation to the brother-in-law and other firm clients.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148512[]' id='answer-id-604793' class='answer   answerof-148512 ' value='604793'   \/><label for='answer-id-604793' id='answer-label-604793' class=' answer'><span>Both actions are violations.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-13' style=';'><div id='questionWrap-13'  class='   watupro-question-id-148513'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>13. <\/span>Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business. <br \/>\r<br><br \/>\r<br>A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners. Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as &quot;CFA charterholders,&quot; but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct. <br \/>\r<br><br \/>\r<br>As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank. Security Bank is a large, New York-based broker\/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials. <br \/>\r<br><br \/>\r<br>However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account. <br \/>\r<br><br \/>\r<br>Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a &quot;hot&quot; offering. <br \/>\r<br><br \/>\r<br>Did the marketing materials presented to Crossley by Burton violate Standard III(D) Performance Presentation or Standard VI 1(B) Reference to CFA Institute, the CFA Designation, and the CFA Program?<\/div><input type='hidden' name='question_id[]' id='qID_13' value='148513' \/><input type='hidden' id='answerType148513' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148513[]' id='answer-id-604794' class='answer   answerof-148513 ' value='604794'   \/><label for='answer-id-604794' id='answer-label-604794' class=' answer'><span>Standard III(D) only.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148513[]' id='answer-id-604795' class='answer   answerof-148513 ' value='604795'   \/><label for='answer-id-604795' id='answer-label-604795' class=' answer'><span>Standard VII(B) only.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148513[]' id='answer-id-604796' class='answer   answerof-148513 ' value='604796'   \/><label for='answer-id-604796' id='answer-label-604796' class=' answer'><span>Both Standard III(D) and Standard VIT(B) are violated.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-14' style=';'><div id='questionWrap-14'  class='   watupro-question-id-148514'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>14. <\/span>Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business. <br \/>\r<br><br \/>\r<br>A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners. Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as &quot;CFA charterholders,&quot; but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct. <br \/>\r<br><br \/>\r<br>As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank. Security Bank is a large, New York-based broker\/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials. <br \/>\r<br><br \/>\r<br>However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account. <br \/>\r<br><br \/>\r<br>Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a &quot;hot&quot; offering. <br \/>\r<br><br \/>\r<br>The trading arrangement between Burton and Security Bank is most likely to be a violation of the CFA Institute Soft Dollar Standards because:<\/div><input type='hidden' name='question_id[]' id='qID_14' value='148514' \/><input type='hidden' id='answerType148514' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148514[]' id='answer-id-604797' class='answer   answerof-148514 ' value='604797'   \/><label for='answer-id-604797' id='answer-label-604797' class=' answer'><span>the practice of directed brokerage violates the member's or candidate's duty of loyalty to the client.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148514[]' id='answer-id-604798' class='answer   answerof-148514 ' value='604798'   \/><label for='answer-id-604798' id='answer-label-604798' class=' answer'><span>although Security Bank's execution is competitive, Burton will not be able to always obtain the best execution for his client.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148514[]' id='answer-id-604799' class='answer   answerof-148514 ' value='604799'   \/><label for='answer-id-604799' id='answer-label-604799' class=' answer'><span>the other clients' brokerage will be used to pay for research that will be utilized in the management of Crossley's account.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-15' style=';'><div id='questionWrap-15'  class='   watupro-question-id-148515'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>15. <\/span>Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business. <br \/>\r<br><br \/>\r<br>A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners. Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as &quot;CFA charterholders,&quot; but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct. <br \/>\r<br><br \/>\r<br>As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank. Security Bank is a large, New York-based broker\/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials. <br \/>\r<br><br \/>\r<br>However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account. <br \/>\r<br><br \/>\r<br>Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a &quot;hot&quot; offering. <br \/>\r<br><br \/>\r<br>According to CFA Institute Standards of Professional Conduct, which of the following statements best describes the circumstances under which Burton may enter into the referral agreement with Security Bank? Burton may enter into the agreement:<\/div><input type='hidden' name='question_id[]' id='qID_15' value='148515' \/><input type='hidden' id='answerType148515' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148515[]' id='answer-id-604800' class='answer   answerof-148515 ' value='604800'   \/><label for='answer-id-604800' id='answer-label-604800' class=' answer'><span>under no circumstances.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148515[]' id='answer-id-604801' class='answer   answerof-148515 ' value='604801'   \/><label for='answer-id-604801' id='answer-label-604801' class=' answer'><span>only after receiving written permission from clients.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148515[]' id='answer-id-604802' class='answer   answerof-148515 ' value='604802'   \/><label for='answer-id-604802' id='answer-label-604802' class=' answer'><span>only after fully disclosing the referral arrangement to clients and prospective clients.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-16' style=';'><div id='questionWrap-16'  class='   watupro-question-id-148516'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>16. <\/span>Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business. <br \/>\r<br><br \/>\r<br>A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners. Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as &quot;CFA charterholders,&quot; but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct. <br \/>\r<br><br \/>\r<br>As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank. Security Bank is a large, New York-based broker\/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials. <br \/>\r<br><br \/>\r<br>However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account. <br \/>\r<br><br \/>\r<br>Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a &quot;hot&quot; offering. <br \/>\r<br><br \/>\r<br>With respect to the road show meeting regarding the initial public offering of Solution Ware, did Security Bank comply with the requirements and recommendations of the CFA Institute Research Objectivity Standards?<\/div><input type='hidden' name='question_id[]' id='qID_16' value='148516' \/><input type='hidden' id='answerType148516' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148516[]' id='answer-id-604803' class='answer   answerof-148516 ' value='604803'   \/><label for='answer-id-604803' id='answer-label-604803' class=' answer'><span>No, because it publicly revealed that it also provides corporate finance services for Solution Ware.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148516[]' id='answer-id-604804' class='answer   answerof-148516 ' value='604804'   \/><label for='answer-id-604804' id='answer-label-604804' class=' answer'><span>No, because it failed to provide Burton with adequate information to make an investment decision.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148516[]' id='answer-id-604805' class='answer   answerof-148516 ' value='604805'   \/><label for='answer-id-604805' id='answer-label-604805' class=' answer'><span>No, because it allowed an analyst to participate in a marketing road show for a company that he covers.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-17' style=';'><div id='questionWrap-17'  class='   watupro-question-id-148517'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>17. <\/span>Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business. <br \/>\r<br><br \/>\r<br>A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners. Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as &quot;CFA charterholders,&quot; but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct. <br \/>\r<br><br \/>\r<br>As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank. Security Bank is a large, New York-based broker\/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials. <br \/>\r<br><br \/>\r<br>However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account. <br \/>\r<br><br \/>\r<br>Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a &quot;hot&quot; offering. <br \/>\r<br><br \/>\r<br>According to CFA Institute Standards of Professional Conduct, Burton's recommendation to Crossley that he purchase shares of the Solution Ware initial public offering is most likely:<\/div><input type='hidden' name='question_id[]' id='qID_17' value='148517' \/><input type='hidden' id='answerType148517' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148517[]' id='answer-id-604806' class='answer   answerof-148517 ' value='604806'   \/><label for='answer-id-604806' id='answer-label-604806' class=' answer'><span>in violation of Standard III(C) Suitability for not determining the appropriateness of the investment for the portfolio and Standard III(B) Fair Dealing for not making the investment recommendation to all of his clients at the same time.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148517[]' id='answer-id-604807' class='answer   answerof-148517 ' value='604807'   \/><label for='answer-id-604807' id='answer-label-604807' class=' answer'><span>in violation of Standard V(A) Diligence and Reasonable Basis for not thoroughly analyzing the investment before making a recommendation and in violation of Standard III(C) Suitability for not determining the appropriateness of the investment for the portfolio.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148517[]' id='answer-id-604808' class='answer   answerof-148517 ' value='604808'   \/><label for='answer-id-604808' id='answer-label-604808' class=' answer'><span>in violation of Standard V(A) Diligence and Reasonable Basis for not thoroughly analyzing the investment before making a recommendation and in violation of Standard III(B) Fair Dealing for not making the investment recommendation to all of his clients at the same time.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-18' style=';'><div id='questionWrap-18'  class='   watupro-question-id-148518'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>18. <\/span>Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business. <br \/>\r<br><br \/>\r<br>A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners. Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as &quot;CFA charterholders,&quot; but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct. <br \/>\r<br><br \/>\r<br>As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank. Security Bank is a large, New York-based broker\/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials. <br \/>\r<br><br \/>\r<br>However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account. <br \/>\r<br><br \/>\r<br>Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a &quot;hot&quot; offering. <br \/>\r<br><br \/>\r<br>According to CFA Standards of Professional Conduct, Burton's participation in the Solution Ware offering most likely:<\/div><input type='hidden' name='question_id[]' id='qID_18' value='148518' \/><input type='hidden' id='answerType148518' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148518[]' id='answer-id-604809' class='answer   answerof-148518 ' value='604809'   \/><label for='answer-id-604809' id='answer-label-604809' class=' answer'><span>is in violation of the Standards because his actions adversely affected the interests of Crossley.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148518[]' id='answer-id-604810' class='answer   answerof-148518 ' value='604810'   \/><label for='answer-id-604810' id='answer-label-604810' class=' answer'><span>is in violation of the Standards because he did not disclose his participation in the offering to Security Bank.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148518[]' id='answer-id-604811' class='answer   answerof-148518 ' value='604811'   \/><label for='answer-id-604811' id='answer-label-604811' class=' answer'><span>is not in violation of the Standards since the shares obtained in the IPO were distributed equitably on a pro rata basis.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-19' style=';'><div id='questionWrap-19'  class='   watupro-question-id-148519'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>19. <\/span>Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region. <br \/>\r<br><br \/>\r<br>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. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research. <br \/>\r<br><br \/>\r<br>Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services. <br \/>\r<br><br \/>\r<br>After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination. <br \/>\r<br><br \/>\r<br>In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry. Since Taylor is busy preparing for company conference calls, James tells him to &quot;throw something together from the street.&quot; To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits &quot;strong buy&quot; recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a &quot;Level 2 Candidate in the CFA Program.&quot; Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors. <br \/>\r<br><br \/>\r<br>To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they &quot;sell&quot; Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news. <br \/>\r<br><br \/>\r<br>Has Montpier likely violated any CFA Standards of Professional Conduct by recommending the stock of the acquisition target company?<\/div><input type='hidden' name='question_id[]' id='qID_19' value='148519' \/><input type='hidden' id='answerType148519' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148519[]' id='answer-id-604812' class='answer   answerof-148519 ' value='604812'   \/><label for='answer-id-604812' id='answer-label-604812' class=' answer'><span>Yes<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148519[]' id='answer-id-604813' class='answer   answerof-148519 ' value='604813'   \/><label for='answer-id-604813' id='answer-label-604813' class=' answer'><span>No, because she has already researched the company and deemed it a good investment.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148519[]' id='answer-id-604814' class='answer   answerof-148519 ' value='604814'   \/><label for='answer-id-604814' id='answer-label-604814' class=' answer'><span>No, because she is recommending the stock based on information assembled under the mosaic theory.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-20' style=';'><div id='questionWrap-20'  class='   watupro-question-id-148520'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>20. <\/span>Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region. <br \/>\r<br><br \/>\r<br>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. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research. <br \/>\r<br><br \/>\r<br>Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services. <br \/>\r<br><br \/>\r<br>After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination. <br \/>\r<br><br \/>\r<br>In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry. Since Taylor is busy preparing for company conference calls, James tells him to &quot;throw something together from the street.&quot; To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits &quot;strong buy&quot; recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a &quot;Level 2 Candidate in the CFA Program.&quot; Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors. <br \/>\r<br><br \/>\r<br>To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they &quot;sell&quot; Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news. <br \/>\r<br><br \/>\r<br>By not filing the proper registration forms with the Malaysian Securities Commission, did Montpier likely violate any CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_20' value='148520' \/><input type='hidden' id='answerType148520' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148520[]' id='answer-id-604815' class='answer   answerof-148520 ' value='604815'   \/><label for='answer-id-604815' id='answer-label-604815' class=' answer'><span>Yes. Montpier attempted to deceive the Malaysian Securities Commission, which violates the Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148520[]' id='answer-id-604816' class='answer   answerof-148520 ' value='604816'   \/><label for='answer-id-604816' id='answer-label-604816' class=' answer'><span>No. Montpier\u2018s sanction was later removed, indicating the Commission did not hold her responsible for the oversight.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148520[]' id='answer-id-604817' class='answer   answerof-148520 ' value='604817'   \/><label for='answer-id-604817' id='answer-label-604817' class=' answer'><span>Yes. Montpier should have regularly updated her knowledge about local laws and by not doing so violated the Standards.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-21' style=';'><div id='questionWrap-21'  class='   watupro-question-id-148521'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>21. <\/span>Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region. <br \/>\r<br><br \/>\r<br>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. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research. <br \/>\r<br><br \/>\r<br>Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services. <br \/>\r<br><br \/>\r<br>After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination. <br \/>\r<br><br \/>\r<br>In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry. Since Taylor is busy preparing for company conference calls, James tells him to &quot;throw something together from the street.&quot; To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits &quot;strong buy&quot; recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a &quot;Level 2 Candidate in the CFA Program.&quot; Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors. <br \/>\r<br><br \/>\r<br>To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they &quot;sell&quot; Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news. <br \/>\r<br><br \/>\r<br>In providing financial planning and investment research services to the investment club, has Montpier likely violated any CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_21' value='148521' \/><input type='hidden' id='answerType148521' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148521[]' id='answer-id-604818' class='answer   answerof-148521 ' value='604818'   \/><label for='answer-id-604818' id='answer-label-604818' class=' answer'><span>Yes. She has not received consent from her employer to all of the terms of the arrangement.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148521[]' id='answer-id-604819' class='answer   answerof-148521 ' value='604819'   \/><label for='answer-id-604819' id='answer-label-604819' class=' answer'><span>Yes. She has not received verbal approval from her employer and written approval from her financial service client.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148521[]' id='answer-id-604820' class='answer   answerof-148521 ' value='604820'   \/><label for='answer-id-604820' id='answer-label-604820' class=' answer'><span>No. She has not yet received any compensation for her consulting services and has informed her financial service client of her firm and its services.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-22' style=';'><div id='questionWrap-22'  class='   watupro-question-id-148522'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>22. <\/span>Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region. <br \/>\r<br><br \/>\r<br>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. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research. <br \/>\r<br><br \/>\r<br>Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services. <br \/>\r<br><br \/>\r<br>After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination. <br \/>\r<br><br \/>\r<br>In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry. Since Taylor is busy preparing for company conference calls, James tells him to &quot;throw something together from the street.&quot; To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits &quot;strong buy&quot; recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a &quot;Level 2 Candidate in the CFA Program.&quot; Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors. <br \/>\r<br><br \/>\r<br>To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they &quot;sell&quot; Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news. <br \/>\r<br><br \/>\r<br>In referencing his participation in the CFA program, has Taylor likely violated any CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_22' value='148522' \/><input type='hidden' id='answerType148522' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148522[]' id='answer-id-604821' class='answer   answerof-148522 ' value='604821'   \/><label for='answer-id-604821' id='answer-label-604821' class=' answer'><span>No, since he did not imply superior investment ability as a result of his candidacy.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148522[]' id='answer-id-604822' class='answer   answerof-148522 ' value='604822'   \/><label for='answer-id-604822' id='answer-label-604822' class=' answer'><span>Yes, since he must refer to himself as a Level 1 candidate, not a Level 2 candidate.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148522[]' id='answer-id-604823' class='answer   answerof-148522 ' value='604823'   \/><label for='answer-id-604823' id='answer-label-604823' class=' answer'><span>No, since he appropriately referenced his candidacy and did not imply a partial designation.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-23' style=';'><div id='questionWrap-23'  class='   watupro-question-id-148523'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>23. <\/span>Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region. <br \/>\r<br><br \/>\r<br>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. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research. <br \/>\r<br><br \/>\r<br>Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services. <br \/>\r<br><br \/>\r<br>After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination. <br \/>\r<br><br \/>\r<br>In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry. Since Taylor is busy preparing for company conference calls, James tells him to &quot;throw something together from the street.&quot; To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits &quot;strong buy&quot; recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a &quot;Level 2 Candidate in the CFA Program.&quot; Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors. <br \/>\r<br><br \/>\r<br>To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they &quot;sell&quot; Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news. <br \/>\r<br><br \/>\r<br>In creating his report on Immune Healthcare and Remedy Corp., Taylor likely violated the CFA Institute Standards of Professional Conduct for all of the following reasons except that he failed to:<\/div><input type='hidden' name='question_id[]' id='qID_23' value='148523' \/><input type='hidden' id='answerType148523' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148523[]' id='answer-id-604824' class='answer   answerof-148523 ' value='604824'   \/><label for='answer-id-604824' id='answer-label-604824' class=' answer'><span>give proper credit to the sources of information used in his report.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148523[]' id='answer-id-604825' class='answer   answerof-148523 ' value='604825'   \/><label for='answer-id-604825' id='answer-label-604825' class=' answer'><span>establish a reasonable and adequate basis for his recommendation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148523[]' id='answer-id-604826' class='answer   answerof-148523 ' value='604826'   \/><label for='answer-id-604826' id='answer-label-604826' class=' answer'><span>determine the suitability of the investment for his firm's clients.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-24' style=';'><div id='questionWrap-24'  class='   watupro-question-id-148524'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>24. <\/span>Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region. <br \/>\r<br><br \/>\r<br>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. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research. <br \/>\r<br><br \/>\r<br>Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services. <br \/>\r<br><br \/>\r<br>After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination. <br \/>\r<br><br \/>\r<br>In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry. Since Taylor is busy preparing for company conference calls, James tells him to &quot;throw something together from the street.&quot; To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits &quot;strong buy&quot; recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a &quot;Level 2 Candidate in the CFA Program.&quot; Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors. <br \/>\r<br><br \/>\r<br>To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they &quot;sell&quot; Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news. <br \/>\r<br><br \/>\r<br>By using the information obtained as a result of participating in the drug study, did Taylor likely violate any CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_24' value='148524' \/><input type='hidden' id='answerType148524' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148524[]' id='answer-id-604827' class='answer   answerof-148524 ' value='604827'   \/><label for='answer-id-604827' id='answer-label-604827' class=' answer'><span>Yes.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148524[]' id='answer-id-604828' class='answer   answerof-148524 ' value='604828'   \/><label for='answer-id-604828' id='answer-label-604828' class=' answer'><span>No. By participating in the study, Taylor had permission to use the information for the benefit of his clients.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148524[]' id='answer-id-604829' class='answer   answerof-148524 ' value='604829'   \/><label for='answer-id-604829' id='answer-label-604829' class=' answer'><span>No. The information received supplemented Taylor's existing research and was non-material, nonpublic information.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-25' style=';'><div id='questionWrap-25'  class='   watupro-question-id-148525'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>25. <\/span>A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm.&quot; <br \/>\r<br><br \/>\r<br>Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge. <br \/>\r<br><br \/>\r<br>Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision. <br \/>\r<br><br \/>\r<br>In the context of the Code and Standards, which of the items from the background check would most likely indicate that Zonding should not have hired Cooken?<\/div><input type='hidden' name='question_id[]' id='qID_25' value='148525' \/><input type='hidden' id='answerType148525' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148525[]' id='answer-id-604830' class='answer   answerof-148525 ' value='604830'   \/><label for='answer-id-604830' id='answer-label-604830' class=' answer'><span>Item i.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148525[]' id='answer-id-604831' class='answer   answerof-148525 ' value='604831'   \/><label for='answer-id-604831' id='answer-label-604831' class=' answer'><span>Item ii.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148525[]' id='answer-id-604832' class='answer   answerof-148525 ' value='604832'   \/><label for='answer-id-604832' id='answer-label-604832' class=' answer'><span>Item iii.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-26' style=';'><div id='questionWrap-26'  class='   watupro-question-id-148526'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>26. <\/span>A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm.&quot; <br \/>\r<br><br \/>\r<br>Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge. <br \/>\r<br><br \/>\r<br>Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision. <br \/>\r<br><br \/>\r<br>Which of the following statements provides the least appropriate , justification for Cooken's caution about <br \/>\r<br>revising the report on Mocline Tobacco?<\/div><input type='hidden' name='question_id[]' id='qID_26' value='148526' \/><input type='hidden' id='answerType148526' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148526[]' id='answer-id-604833' class='answer   answerof-148526 ' value='604833'   \/><label for='answer-id-604833' id='answer-label-604833' class=' answer'><span>Cooken knows next to nothing about Mocline stock.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148526[]' id='answer-id-604834' class='answer   answerof-148526 ' value='604834'   \/><label for='answer-id-604834' id='answer-label-604834' class=' answer'><span>Cooken's uncle, George Whales, is the CFO of Mocline.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148526[]' id='answer-id-604835' class='answer   answerof-148526 ' value='604835'   \/><label for='answer-id-604835' id='answer-label-604835' class=' answer'><span>In college, Cooken worked for Mocline but never declared the income on her taxes.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-27' style=';'><div id='questionWrap-27'  class='   watupro-question-id-148527'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>27. <\/span>A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm.&quot; <br \/>\r<br><br \/>\r<br>Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge. <br \/>\r<br><br \/>\r<br>Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision. <br \/>\r<br><br \/>\r<br>By not telling Zonding about the bartending position, Cooken has most likely violated:<\/div><input type='hidden' name='question_id[]' id='qID_27' value='148527' \/><input type='hidden' id='answerType148527' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148527[]' id='answer-id-604836' class='answer   answerof-148527 ' value='604836'   \/><label for='answer-id-604836' id='answer-label-604836' class=' answer'><span>no Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148527[]' id='answer-id-604837' class='answer   answerof-148527 ' value='604837'   \/><label for='answer-id-604837' id='answer-label-604837' class=' answer'><span>Standard IV(B) Additional Compensation Arrangements.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148527[]' id='answer-id-604838' class='answer   answerof-148527 ' value='604838'   \/><label for='answer-id-604838' id='answer-label-604838' class=' answer'><span>Standard IV(A) Loyalty (to employer) and Standard IV(B) Additional Compensation Arrangements.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-28' style=';'><div id='questionWrap-28'  class='   watupro-question-id-148528'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>28. <\/span>A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm.&quot; <br \/>\r<br><br \/>\r<br>Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge. <br \/>\r<br><br \/>\r<br>Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision. <br \/>\r<br><br \/>\r<br>Which of the requests, if fulfilled, is most likely to place Basch in violation of Standard III(E) Preservation of Confidentiality?<\/div><input type='hidden' name='question_id[]' id='qID_28' value='148528' \/><input type='hidden' id='answerType148528' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148528[]' id='answer-id-604839' class='answer   answerof-148528 ' value='604839'   \/><label for='answer-id-604839' id='answer-label-604839' class=' answer'><span>Request 1.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148528[]' id='answer-id-604840' class='answer   answerof-148528 ' value='604840'   \/><label for='answer-id-604840' id='answer-label-604840' class=' answer'><span>Request 2.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148528[]' id='answer-id-604841' class='answer   answerof-148528 ' value='604841'   \/><label for='answer-id-604841' id='answer-label-604841' class=' answer'><span>Request 3.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-29' style=';'><div id='questionWrap-29'  class='   watupro-question-id-148529'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>29. <\/span>A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm.&quot; <br \/>\r<br><br \/>\r<br>Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge. <br \/>\r<br><br \/>\r<br>Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision. <br \/>\r<br><br \/>\r<br>Is Basch correct or incorrect with regard to her statement about the five required fiduciary standards and her statement about the duty to delegate investment authority?<\/div><input type='hidden' name='question_id[]' id='qID_29' value='148529' \/><input type='hidden' id='answerType148529' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148529[]' id='answer-id-604842' class='answer   answerof-148529 ' value='604842'   \/><label for='answer-id-604842' id='answer-label-604842' class=' answer'><span>Incorrect about fiduciary standards only.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148529[]' id='answer-id-604843' class='answer   answerof-148529 ' value='604843'   \/><label for='answer-id-604843' id='answer-label-604843' class=' answer'><span>Incorrect about delegation of authority only.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148529[]' id='answer-id-604844' class='answer   answerof-148529 ' value='604844'   \/><label for='answer-id-604844' id='answer-label-604844' class=' answer'><span>Incorrect about fiduciary standards and delegation of authority.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-30' style=';'><div id='questionWrap-30'  class='   watupro-question-id-148530'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>30. <\/span>A potential client contacted an employee and wanted detailed performance records of client accounts so he can decide whether to invest with the firm.&quot; <br \/>\r<br><br \/>\r<br>Basch goes on to say that she is responsible for developing a presentation on the differences between the Prudent Investor and the Prudent Man rules for managing trust portfolios. Basch explains to Cooken that the Prudent Investor rule requires a trustee to exercise five fiduciary standards in managing the assets of a trust account, including care, skill, caution, loyalty, and impartiality. She states that although there are many differences between the Prudent Man and the newer Prudent Investor rule, one element of continuity is the duty of the trustee to delegate investment authority in the event that the trustee lacks sufficient investment knowledge. <br \/>\r<br><br \/>\r<br>Toward the end of the lunch meeting, Basch suggests that in exchange for research published by Cooken and Khasko, Basch can have portfolio managers at her firm send clients that are too small for their firm to Khasko. Since Khasko specializes in clients with smaller portfolios, the arrangement sounds like a good idea to Cooken. Cooken tells Basch that she will think the arrangement over and get back with her next week with a decision. <br \/>\r<br><br \/>\r<br>According to CFA Institute Standards of Professional Conduct, which of the following statements is most accurate with regard to the arrangement proposed by Basch to Cooken?<\/div><input type='hidden' name='question_id[]' id='qID_30' value='148530' \/><input type='hidden' id='answerType148530' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148530[]' id='answer-id-604845' class='answer   answerof-148530 ' value='604845'   \/><label for='answer-id-604845' id='answer-label-604845' class=' answer'><span>Under no circumstances may Cooken agree to the arrangement as proposed by Basch.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148530[]' id='answer-id-604846' class='answer   answerof-148530 ' value='604846'   \/><label for='answer-id-604846' id='answer-label-604846' class=' answer'><span>Cooken may agree to the arrangement only if it is disclosed to her employer, clients, and prospects.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148530[]' id='answer-id-604847' class='answer   answerof-148530 ' value='604847'   \/><label for='answer-id-604847' id='answer-label-604847' class=' answer'><span>Cooken may agree to the arrangement but need only make appropriate disclosure to prospective clients.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-31' style=';'><div id='questionWrap-31'  class='   watupro-question-id-148531'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>31. <\/span>Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. <br \/>\r<br><br \/>\r<br>Instruction 1: Limit risk by avoiding stock options. <br \/>\r<br>Instruction 2: Above all, ensure that our clients' capital is kept safe. <br \/>\r<br>Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. <br \/>\r<br>Instruction 4: Remember that every investment must have the quality to stand on its own. <br \/>\r<br><br \/>\r<br>Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the &quot;perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI(B) Priority of Transactions.&quot; Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. <br \/>\r<br>Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: <br \/>\r<br>Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. <br \/>\r<br>Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. <br \/>\r<br><br \/>\r<br>During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard &amp; Sons, a small brokerage firm. Walters asks for her advice. <br \/>\r<br><br \/>\r<br>When Walters returns to work, he is apprised of the following situation: Borchard &amp; Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. <br \/>\r<br>Borchard proposes three methods for dealing with the trading error. <br \/>\r<br><br \/>\r<br>Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. <br \/>\r<br>Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. <br \/>\r<br>Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. <br \/>\r<br><br \/>\r<br>Which of Baldw in's first-day instructions to Blackwell is consistent with the New Prudent Investor Rule?<\/div><input type='hidden' name='question_id[]' id='qID_31' value='148531' \/><input type='hidden' id='answerType148531' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148531[]' id='answer-id-604848' class='answer   answerof-148531 ' value='604848'   \/><label for='answer-id-604848' id='answer-label-604848' class=' answer'><span>Instruction 1.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148531[]' id='answer-id-604849' class='answer   answerof-148531 ' value='604849'   \/><label for='answer-id-604849' id='answer-label-604849' class=' answer'><span>Instruction 2.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148531[]' id='answer-id-604850' class='answer   answerof-148531 ' value='604850'   \/><label for='answer-id-604850' id='answer-label-604850' class=' answer'><span>Instruction 3.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-32' style=';'><div id='questionWrap-32'  class='   watupro-question-id-148532'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>32. <\/span>Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. <br \/>\r<br><br \/>\r<br>Instruction 1: Limit risk by avoiding stock options. <br \/>\r<br>Instruction 2: Above all, ensure that our clients' capital is kept safe. <br \/>\r<br>Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. <br \/>\r<br>Instruction 4: Remember that every investment must have the quality to stand on its own. <br \/>\r<br><br \/>\r<br>Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the &quot;perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI(B) Priority of Transactions.&quot; Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. <br \/>\r<br>Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: <br \/>\r<br>Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. <br \/>\r<br>Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. <br \/>\r<br><br \/>\r<br>During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard &amp; Sons, a small brokerage firm. Walters asks for her advice. <br \/>\r<br><br \/>\r<br>When Walters returns to work, he is apprised of the following situation: Borchard &amp; Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. <br \/>\r<br>Borchard proposes three methods for dealing with the trading error. <br \/>\r<br><br \/>\r<br>Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. <br \/>\r<br>Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. <br \/>\r<br>Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. <br \/>\r<br><br \/>\r<br>When updating the proxy-voting policy to conform to CFA Institute recommendations, which of the following recommendations is least appropriate for Blanchard to adopt?<\/div><input type='hidden' name='question_id[]' id='qID_32' value='148532' \/><input type='hidden' id='answerType148532' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148532[]' id='answer-id-604851' class='answer   answerof-148532 ' value='604851'   \/><label for='answer-id-604851' id='answer-label-604851' class=' answer'><span>Determine the economic impact of non-routine proxy votes.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148532[]' id='answer-id-604852' class='answer   answerof-148532 ' value='604852'   \/><label for='answer-id-604852' id='answer-label-604852' class=' answer'><span>Follow the same proxy-voting procedures regardless of the nature of the proposal.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148532[]' id='answer-id-604853' class='answer   answerof-148532 ' value='604853'   \/><label for='answer-id-604853' id='answer-label-604853' class=' answer'><span>If the proxy voter's preference differs from the preference of a client who has delegated his voting powers, go with the client's preference.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-33' style=';'><div id='questionWrap-33'  class='   watupro-question-id-148533'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>33. <\/span>Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. <br \/>\r<br><br \/>\r<br>Instruction 1: Limit risk by avoiding stock options. <br \/>\r<br>Instruction 2: Above all, ensure that our clients' capital is kept safe. <br \/>\r<br>Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. <br \/>\r<br>Instruction 4: Remember that every investment must have the quality to stand on its own. <br \/>\r<br><br \/>\r<br>Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the &quot;perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI(B) Priority of Transactions.&quot; Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. <br \/>\r<br>Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: <br \/>\r<br>Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. <br \/>\r<br>Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. <br \/>\r<br><br \/>\r<br>During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard &amp; Sons, a small brokerage firm. Walters asks for her advice. <br \/>\r<br><br \/>\r<br>When Walters returns to work, he is apprised of the following situation: Borchard &amp; Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. <br \/>\r<br>Borchard proposes three methods for dealing with the trading error. <br \/>\r<br><br \/>\r<br>Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. <br \/>\r<br>Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. <br \/>\r<br>Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. <br \/>\r<br><br \/>\r<br>A CFA charterholder who wishes to follow Standard VI(B) Priority of Transactions must:<\/div><input type='hidden' name='question_id[]' id='qID_33' value='148533' \/><input type='hidden' id='answerType148533' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148533[]' id='answer-id-604854' class='answer   answerof-148533 ' value='604854'   \/><label for='answer-id-604854' id='answer-label-604854' class=' answer'><span>maintain loyalty to pension-plan beneficiaries.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148533[]' id='answer-id-604855' class='answer   answerof-148533 ' value='604855'   \/><label for='answer-id-604855' id='answer-label-604855' class=' answer'><span>limit IPO investments in client and personal accounts.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148533[]' id='answer-id-604856' class='answer   answerof-148533 ' value='604856'   \/><label for='answer-id-604856' id='answer-label-604856' class=' answer'><span>give both clients and employers preference over the charterholder's own accounts.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-34' style=';'><div id='questionWrap-34'  class='   watupro-question-id-148534'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>34. <\/span>Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. <br \/>\r<br><br \/>\r<br>Instruction 1: Limit risk by avoiding stock options. <br \/>\r<br>Instruction 2: Above all, ensure that our clients' capital is kept safe. <br \/>\r<br>Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. <br \/>\r<br>Instruction 4: Remember that every investment must have the quality to stand on its own. <br \/>\r<br><br \/>\r<br>Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the &quot;perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI(B) Priority of Transactions.&quot; Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. <br \/>\r<br>Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: <br \/>\r<br>Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. <br \/>\r<br>Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. <br \/>\r<br><br \/>\r<br>During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard &amp; Sons, a small brokerage firm. Walters asks for her advice. <br \/>\r<br><br \/>\r<br>When Walters returns to work, he is apprised of the following situation: Borchard &amp; Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. <br \/>\r<br>Borchard proposes three methods for dealing with the trading error. <br \/>\r<br><br \/>\r<br>Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. <br \/>\r<br>Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. <br \/>\r<br>Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. <br \/>\r<br><br \/>\r<br>Are Thaddeus Baldwin's statements on the soft dollar standards correct?<\/div><input type='hidden' name='question_id[]' id='qID_34' value='148534' \/><input type='hidden' id='answerType148534' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148534[]' id='answer-id-604857' class='answer   answerof-148534 ' value='604857'   \/><label for='answer-id-604857' id='answer-label-604857' class=' answer'><span>Both statements are correct.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148534[]' id='answer-id-604858' class='answer   answerof-148534 ' value='604858'   \/><label for='answer-id-604858' id='answer-label-604858' class=' answer'><span>Only Statement I is correct.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148534[]' id='answer-id-604859' class='answer   answerof-148534 ' value='604859'   \/><label for='answer-id-604859' id='answer-label-604859' class=' answer'><span>Only Statement 2 is correct.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-35' style=';'><div id='questionWrap-35'  class='   watupro-question-id-148535'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>35. <\/span>Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. <br \/>\r<br><br \/>\r<br>Instruction 1: Limit risk by avoiding stock options. <br \/>\r<br>Instruction 2: Above all, ensure that our clients' capital is kept safe. <br \/>\r<br>Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. <br \/>\r<br>Instruction 4: Remember that every investment must have the quality to stand on its own. <br \/>\r<br><br \/>\r<br>Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the &quot;perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI(B) Priority of Transactions.&quot; Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. <br \/>\r<br>Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: <br \/>\r<br>Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. <br \/>\r<br>Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. <br \/>\r<br><br \/>\r<br>During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard &amp; Sons, a small brokerage firm. Walters asks for her advice. <br \/>\r<br><br \/>\r<br>When Walters returns to work, he is apprised of the following situation: Borchard &amp; Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. <br \/>\r<br>Borchard proposes three methods for dealing with the trading error. <br \/>\r<br><br \/>\r<br>Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. <br \/>\r<br>Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. <br \/>\r<br>Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. <br \/>\r<br><br \/>\r<br>It Walters wants the manual to satisfy the requirements and recommendations of the Code and Standards, which of the following instructions is least appropriate to include in the section on fair dealing?<\/div><input type='hidden' name='question_id[]' id='qID_35' value='148535' \/><input type='hidden' id='answerType148535' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148535[]' id='answer-id-604860' class='answer   answerof-148535 ' value='604860'   \/><label for='answer-id-604860' id='answer-label-604860' class=' answer'><span>Whenever possible, disseminate investment recommendations to all clients at the same time.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148535[]' id='answer-id-604861' class='answer   answerof-148535 ' value='604861'   \/><label for='answer-id-604861' id='answer-label-604861' class=' answer'><span>Execute all clients1 requested trades promptly and without comment, regardless of the company's opinion on the stock being traded.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148535[]' id='answer-id-604862' class='answer   answerof-148535 ' value='604862'   \/><label for='answer-id-604862' id='answer-label-604862' class=' answer'><span>Members of the investment-policy committee should not discuss possible changes in investment recommendations with anyone else in the firm until after an official decision has been made.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-36' style=';'><div id='questionWrap-36'  class='   watupro-question-id-148536'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>36. <\/span>Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. <br \/>\r<br><br \/>\r<br>Instruction 1: Limit risk by avoiding stock options. <br \/>\r<br>Instruction 2: Above all, ensure that our clients' capital is kept safe. <br \/>\r<br>Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. <br \/>\r<br>Instruction 4: Remember that every investment must have the quality to stand on its own. <br \/>\r<br><br \/>\r<br>Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the &quot;perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI(B) Priority of Transactions.&quot; Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. <br \/>\r<br>Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: <br \/>\r<br>Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. <br \/>\r<br>Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. <br \/>\r<br><br \/>\r<br>During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard &amp; Sons, a small brokerage firm. Walters asks for her advice. <br \/>\r<br><br \/>\r<br>When Walters returns to work, he is apprised of the following situation: Borchard &amp; Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. <br \/>\r<br>Borchard proposes three methods for dealing with the trading error. <br \/>\r<br><br \/>\r<br>Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. <br \/>\r<br>Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. <br \/>\r<br>Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. <br \/>\r<br><br \/>\r<br>Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. <br \/>\r<br>Which method for dealing with the trading error is most consistent with the Code and Standards?<\/div><input type='hidden' name='question_id[]' id='qID_36' value='148536' \/><input type='hidden' id='answerType148536' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148536[]' id='answer-id-604863' class='answer   answerof-148536 ' value='604863'   \/><label for='answer-id-604863' id='answer-label-604863' class=' answer'><span>Method 1.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148536[]' id='answer-id-604864' class='answer   answerof-148536 ' value='604864'   \/><label for='answer-id-604864' id='answer-label-604864' class=' answer'><span>Method 2.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148536[]' id='answer-id-604865' class='answer   answerof-148536 ' value='604865'   \/><label for='answer-id-604865' id='answer-label-604865' class=' answer'><span>Method 3.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-37' style=';'><div id='questionWrap-37'  class='   watupro-question-id-148537'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>37. <\/span>Charles Connor, CFA, is a portfolio manager at Apple Investments, LLC. Apple is a U.S.-based firm offering a wide spectrum of investment products and services. Connor manages the Biogene Fund, a domestic equity fund specializing in small capitalization growth stocks. The Biogene Fund generally takes significant positions in stocks, commonly owning 4.5-5% of the outstanding shares. The fund's prospectus limits positions to a maximum of 5% of the shares outstanding. The performance of the Biogene Fund has been superior over the last few years, but for the last two quarters the fund has underperformed its benchmark by a wide margin. Connor is determined to improve his performance numbers going forward. <br \/>\r<br><br \/>\r<br>The Biogene prospectus allows Connor to use derivative instruments in his investment strategy. Connor frequently uses options to hedge his fund's exposure as he builds or liquidates positions in his portfolio since Biogene's large positions often take several weeks to acquire. For example, when he identifies a stock to buy, he often buys call options to gain exposure to the stock. As he buys the stock, he sells off the options or allows them to expire. Connor has noticed that the increased volume in the call options often drives the stock price higher for a few days. He has seen a similar negative effect on stock prices when he buys large amounts of put options. <br \/>\r<br><br \/>\r<br>The end of the quarter is just a few days away, and Connor is considering three transactions: <br \/>\r<br><br \/>\r<br>Transaction A: Buying Put Options on Stock A <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 4,9% of the outstanding stock of Company A, but Connor believes the stock is fully valued and plans to sell the entire position. He anticipates that it will take approximately 45 trading days to liquidate the entire Biogene position in Stock A. <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 5% of the outstanding stock of Company B. Connor believes there is significant appreciation potential for Stock B, but the stock price has dropped in recent weeks. Connor is hoping that by taking an option position, there will be a carryover effect on ihe stock price before quarter end. <br \/>\r<br><br \/>\r<br>Transaction C: Selling the Biogene Fund's Entire Position in .Stock C <br \/>\r<br><br \/>\r<br>Connor believes that Stock C is still attractive, but he is selling the stock with the idea that he will repurchase the position next month. The motivation for the transaction is to capture a capital loss that will reduce the Biogene Fund's tax expense for the year. <br \/>\r<br><br \/>\r<br>Apple has an investment banking department that is active in initial public offerings (IPOs). George Arnold, CFA, is the senior manager of the IPO department. Arnold approached Connor about Stock D, a new IPO being offered by Apple. Stock D will open trading in two days. Apple had offered the IPO to all of its clients, but approximately 20% of the deal remained unsold. Having read the prospectus, Connor thinks Stock D would be a good fit for his fund, and he expects Stock D to improve his performance in both the short and long term. Connor is not aware of any information related to Stock D beyond that provided in the prospectus. Connor asked to purchase 5% of the IPO, but Arnold limited Biogene's share to 2%, explaining: <br \/>\r<br><br \/>\r<br>&quot;With Biogene's reputation, any participation will make the unsold shares highly marketable. Further, we may need Biogene to acquire more Stock D shares at a later date if the price does not hold up.&quot; <br \/>\r<br><br \/>\r<br>Connor is disappointed in being limited to 2% of the offering and suggests to Arnold in an e-mail that, given the 2% limitation, Biogene will not participate in the IPO. Arnold responded a few hours later with the following message: <br \/>\r<br><br \/>\r<br>&quot;I have just spoken with Ms. D, the CFO of Stock D. Although it is too late to alter the prospectus, management believes they will receive a large contract from a foreign government that will boost next year's sales by 20% or more. I urge you to accept the 2%\u2015you won't be sorry!&quot; <br \/>\r<br><br \/>\r<br>After reviewing Arnold's e-mail, Connor agrees to the 2% offer. <br \/>\r<br><br \/>\r<br>By executing Transaction A, Connor is:<\/div><input type='hidden' name='question_id[]' id='qID_37' value='148537' \/><input type='hidden' id='answerType148537' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148537[]' id='answer-id-604866' class='answer   answerof-148537 ' value='604866'   \/><label for='answer-id-604866' id='answer-label-604866' class=' answer'><span>violating the Standards because his option trading can be reasonably expected to affect the price of Stock<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148537[]' id='answer-id-604867' class='answer   answerof-148537 ' value='604867'   \/><label for='answer-id-604867' id='answer-label-604867' class=' answer'><span>violating the Standards because the option position creates a profit opportunity in conflict with Biogene's clients.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148537[]' id='answer-id-604868' class='answer   answerof-148537 ' value='604868'   \/><label for='answer-id-604868' id='answer-label-604868' class=' answer'><span>not violating the Standards.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-38' style=';'><div id='questionWrap-38'  class='   watupro-question-id-148538'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>38. <\/span>Charles Connor, CFA, is a portfolio manager at Apple Investments, LLC. Apple is a U.S.-based firm offering a wide spectrum of investment products and services. Connor manages the Biogene Fund, a domestic equity fund specializing in small capitalization growth stocks. The Biogene Fund generally takes significant positions in stocks, commonly owning 4.5-5% of the outstanding shares. The fund's prospectus limits positions to a maximum of 5% of the shares outstanding. The performance of the Biogene Fund has been superior over the last few years, but for the last two quarters the fund has underperformed its benchmark by a wide margin. Connor is determined to improve his performance numbers going forward. <br \/>\r<br><br \/>\r<br>The Biogene prospectus allows Connor to use derivative instruments in his investment strategy. Connor frequently uses options to hedge his fund's exposure as he builds or liquidates positions in his portfolio since Biogene's large positions often take several weeks to acquire. For example, when he identifies a stock to buy, he often buys call options to gain exposure to the stock. As he buys the stock, he sells off the options or allows them to expire. Connor has noticed that the increased volume in the call options often drives the stock price higher for a few days. He has seen a similar negative effect on stock prices when he buys large amounts of put options. <br \/>\r<br><br \/>\r<br>The end of the quarter is just a few days away, and Connor is considering three transactions: <br \/>\r<br><br \/>\r<br>Transaction A: Buying Put Options on Stock A <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 4,9% of the outstanding stock of Company A, but Connor believes the stock is fully valued and plans to sell the entire position. He anticipates that it will take approximately 45 trading days to liquidate the entire Biogene position in Stock A. <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 5% of the outstanding stock of Company B. Connor believes there is significant appreciation potential for Stock B, but the stock price has dropped in recent weeks. Connor is hoping that by taking an option position, there will be a carryover effect on ihe stock price before quarter end. <br \/>\r<br><br \/>\r<br>Transaction C: Selling the Biogene Fund's Entire Position in .Stock C <br \/>\r<br><br \/>\r<br>Connor believes that Stock C is still attractive, but he is selling the stock with the idea that he will repurchase the position next month. The motivation for the transaction is to capture a capital loss that will reduce the Biogene Fund's tax expense for the year. <br \/>\r<br><br \/>\r<br>Apple has an investment banking department that is active in initial public offerings (IPOs). George Arnold, CFA, is the senior manager of the IPO department. Arnold approached Connor about Stock D, a new IPO being offered by Apple. Stock D will open trading in two days. Apple had offered the IPO to all of its clients, but approximately 20% of the deal remained unsold. Having read the prospectus, Connor thinks Stock D would be a good fit for his fund, and he expects Stock D to improve his performance in both the short and long term. Connor is not aware of any information related to Stock D beyond that provided in the prospectus. Connor asked to purchase 5% of the IPO, but Arnold limited Biogene's share to 2%, explaining: <br \/>\r<br><br \/>\r<br>&quot;With Biogene's reputation, any participation will make the unsold shares highly marketable. Further, we may need Biogene to acquire more Stock D shares at a later date if the price does not hold up.&quot; <br \/>\r<br><br \/>\r<br>Connor is disappointed in being limited to 2% of the offering and suggests to Arnold in an e-mail that, given the 2% limitation, Biogene will not participate in the IPO. Arnold responded a few hours later with the following message: <br \/>\r<br><br \/>\r<br>&quot;I have just spoken with Ms. D, the CFO of Stock D. Although it is too late to alter the prospectus, management believes they will receive a large contract from a foreign government that will boost next year's sales by 20% or more. I urge you to accept the 2%\u2015you won't be sorry!&quot; <br \/>\r<br><br \/>\r<br>After reviewing Arnold's e-mail, Connor agrees to the 2% offer. <br \/>\r<br><br \/>\r<br>By executing Transaction B, Connor is:<\/div><input type='hidden' name='question_id[]' id='qID_38' value='148538' \/><input type='hidden' id='answerType148538' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148538[]' id='answer-id-604869' class='answer   answerof-148538 ' value='604869'   \/><label for='answer-id-604869' id='answer-label-604869' class=' answer'><span>violating the Standards because his option trading can be reasonably expected to affect his quarterly performance.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148538[]' id='answer-id-604870' class='answer   answerof-148538 ' value='604870'   \/><label for='answer-id-604870' id='answer-label-604870' class=' answer'><span>not violating the Standards because the option position creates a profit opportunity consistent with Biogene's clients interests.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148538[]' id='answer-id-604871' class='answer   answerof-148538 ' value='604871'   \/><label for='answer-id-604871' id='answer-label-604871' class=' answer'><span>not violating the Standards because he believes there is significant appreciation potential in Stock<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-39' style=';'><div id='questionWrap-39'  class='   watupro-question-id-148539'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>39. <\/span>Charles Connor, CFA, is a portfolio manager at Apple Investments, LLC. Apple is a U.S.-based firm offering a wide spectrum of investment products and services. Connor manages the Biogene Fund, a domestic equity fund specializing in small capitalization growth stocks. The Biogene Fund generally takes significant positions in stocks, commonly owning 4.5-5% of the outstanding shares. The fund's prospectus limits positions to a maximum of 5% of the shares outstanding. The performance of the Biogene Fund has been superior over the last few years, but for the last two quarters the fund has underperformed its benchmark by a wide margin. Connor is determined to improve his performance numbers going forward. <br \/>\r<br><br \/>\r<br>The Biogene prospectus allows Connor to use derivative instruments in his investment strategy. Connor frequently uses options to hedge his fund's exposure as he builds or liquidates positions in his portfolio since Biogene's large positions often take several weeks to acquire. For example, when he identifies a stock to buy, he often buys call options to gain exposure to the stock. As he buys the stock, he sells off the options or allows them to expire. Connor has noticed that the increased volume in the call options often drives the stock price higher for a few days. He has seen a similar negative effect on stock prices when he buys large amounts of put options. <br \/>\r<br><br \/>\r<br>The end of the quarter is just a few days away, and Connor is considering three transactions: <br \/>\r<br><br \/>\r<br>Transaction A: Buying Put Options on Stock A <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 4,9% of the outstanding stock of Company A, but Connor believes the stock is fully valued and plans to sell the entire position. He anticipates that it will take approximately 45 trading days to liquidate the entire Biogene position in Stock A. <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 5% of the outstanding stock of Company B. Connor believes there is significant appreciation potential for Stock B, but the stock price has dropped in recent weeks. Connor is hoping that by taking an option position, there will be a carryover effect on ihe stock price before quarter end. <br \/>\r<br><br \/>\r<br>Transaction C: Selling the Biogene Fund's Entire Position in .Stock C <br \/>\r<br><br \/>\r<br>Connor believes that Stock C is still attractive, but he is selling the stock with the idea that he will repurchase the position next month. The motivation for the transaction is to capture a capital loss that will reduce the Biogene Fund's tax expense for the year. <br \/>\r<br><br \/>\r<br>Apple has an investment banking department that is active in initial public offerings (IPOs). George Arnold, CFA, is the senior manager of the IPO department. Arnold approached Connor about Stock D, a new IPO being offered by Apple. Stock D will open trading in two days. Apple had offered the IPO to all of its clients, but approximately 20% of the deal remained unsold. Having read the prospectus, Connor thinks Stock D would be a good fit for his fund, and he expects Stock D to improve his performance in both the short and long term. Connor is not aware of any information related to Stock D beyond that provided in the prospectus. Connor asked to purchase 5% of the IPO, but Arnold limited Biogene's share to 2%, explaining: <br \/>\r<br><br \/>\r<br>&quot;With Biogene's reputation, any participation will make the unsold shares highly marketable. Further, we may need Biogene to acquire more Stock D shares at a later date if the price does not hold up.&quot; <br \/>\r<br><br \/>\r<br>Connor is disappointed in being limited to 2% of the offering and suggests to Arnold in an e-mail that, given the 2% limitation, Biogene will not participate in the IPO. Arnold responded a few hours later with the following message: <br \/>\r<br><br \/>\r<br>&quot;I have just spoken with Ms. D, the CFO of Stock D. Although it is too late to alter the prospectus, management believes they will receive a large contract from a foreign government that will boost next year's sales by 20% or more. I urge you to accept the 2%\u2015you won't be sorry!&quot; <br \/>\r<br><br \/>\r<br>After reviewing Arnold's e-mail, Connor agrees to the 2% offer. <br \/>\r<br><br \/>\r<br>By executing Transaction C, Connor is:<\/div><input type='hidden' name='question_id[]' id='qID_39' value='148539' \/><input type='hidden' id='answerType148539' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148539[]' id='answer-id-604872' class='answer   answerof-148539 ' value='604872'   \/><label for='answer-id-604872' id='answer-label-604872' class=' answer'><span>violating the Standards by executing a transaction for tax reasons only.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148539[]' id='answer-id-604873' class='answer   answerof-148539 ' value='604873'   \/><label for='answer-id-604873' id='answer-label-604873' class=' answer'><span>violating the Standards by executing a transaction that provides tax benefits to the Biogene Fund.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148539[]' id='answer-id-604874' class='answer   answerof-148539 ' value='604874'   \/><label for='answer-id-604874' id='answer-label-604874' class=' answer'><span>not violating the Standards.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-40' style=';'><div id='questionWrap-40'  class='   watupro-question-id-148540'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>40. <\/span>Charles Connor, CFA, is a portfolio manager at Apple Investments, LLC. Apple is a U.S.-based firm offering a wide spectrum of investment products and services. Connor manages the Biogene Fund, a domestic equity fund specializing in small capitalization growth stocks. The Biogene Fund generally takes significant positions in stocks, commonly owning 4.5-5% of the outstanding shares. The fund's prospectus limits positions to a maximum of 5% of the shares outstanding. The performance of the Biogene Fund has been superior over the last few years, but for the last two quarters the fund has underperformed its benchmark by a wide margin. Connor is determined to improve his performance numbers going forward. <br \/>\r<br><br \/>\r<br>The Biogene prospectus allows Connor to use derivative instruments in his investment strategy. Connor frequently uses options to hedge his fund's exposure as he builds or liquidates positions in his portfolio since Biogene's large positions often take several weeks to acquire. For example, when he identifies a stock to buy, he often buys call options to gain exposure to the stock. As he buys the stock, he sells off the options or allows them to expire. Connor has noticed that the increased volume in the call options often drives the stock price higher for a few days. He has seen a similar negative effect on stock prices when he buys large amounts of put options. <br \/>\r<br><br \/>\r<br>The end of the quarter is just a few days away, and Connor is considering three transactions: <br \/>\r<br><br \/>\r<br>Transaction A: Buying Put Options on Stock A <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 4,9% of the outstanding stock of Company A, but Connor believes the stock is fully valued and plans to sell the entire position. He anticipates that it will take approximately 45 trading days to liquidate the entire Biogene position in Stock A. <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 5% of the outstanding stock of Company B. Connor believes there is significant appreciation potential for Stock B, but the stock price has dropped in recent weeks. Connor is hoping that by taking an option position, there will be a carryover effect on ihe stock price before quarter end. <br \/>\r<br><br \/>\r<br>Transaction C: Selling the Biogene Fund's Entire Position in .Stock C <br \/>\r<br><br \/>\r<br>Connor believes that Stock C is still attractive, but he is selling the stock with the idea that he will repurchase the position next month. The motivation for the transaction is to capture a capital loss that will reduce the Biogene Fund's tax expense for the year. <br \/>\r<br><br \/>\r<br>Apple has an investment banking department that is active in initial public offerings (IPOs). George Arnold, CFA, is the senior manager of the IPO department. Arnold approached Connor about Stock D, a new IPO being offered by Apple. Stock D will open trading in two days. Apple had offered the IPO to all of its clients, but approximately 20% of the deal remained unsold. Having read the prospectus, Connor thinks Stock D would be a good fit for his fund, and he expects Stock D to improve his performance in both the short and long term. Connor is not aware of any information related to Stock D beyond that provided in the prospectus. Connor asked to purchase 5% of the IPO, but Arnold limited Biogene's share to 2%, explaining: <br \/>\r<br><br \/>\r<br>&quot;With Biogene's reputation, any participation will make the unsold shares highly marketable. Further, we may need Biogene to acquire more Stock D shares at a later date if the price does not hold up.&quot; <br \/>\r<br><br \/>\r<br>Connor is disappointed in being limited to 2% of the offering and suggests to Arnold in an e-mail that, given the 2% limitation, Biogene will not participate in the IPO. Arnold responded a few hours later with the following message: <br \/>\r<br><br \/>\r<br>&quot;I have just spoken with Ms. D, the CFO of Stock D. Although it is too late to alter the prospectus, management believes they will receive a large contract from a foreign government that will boost next year's sales by 20% or more. I urge you to accept the 2%\u2015you won't be sorry!&quot; <br \/>\r<br><br \/>\r<br>After reviewing Arnold's e-mail, Connor agrees to the 2% offer. <br \/>\r<br><br \/>\r<br>By offering Biogene the opportunity to participate in the IPO of Stock D, Apple Investments has violated CFA Institute Standards relating to:<\/div><input type='hidden' name='question_id[]' id='qID_40' value='148540' \/><input type='hidden' id='answerType148540' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148540[]' id='answer-id-604875' class='answer   answerof-148540 ' value='604875'   \/><label for='answer-id-604875' id='answer-label-604875' class=' answer'><span>priority of transactions but not independence and objectivity.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148540[]' id='answer-id-604876' class='answer   answerof-148540 ' value='604876'   \/><label for='answer-id-604876' id='answer-label-604876' class=' answer'><span>independence and objectivity but not priority of (ransactions.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148540[]' id='answer-id-604877' class='answer   answerof-148540 ' value='604877'   \/><label for='answer-id-604877' id='answer-label-604877' class=' answer'><span>neither priority of transactions nor independence and objectivity.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-41' style=';'><div id='questionWrap-41'  class='   watupro-question-id-148541'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>41. <\/span>Charles Connor, CFA, is a portfolio manager at Apple Investments, LLC. Apple is a U.S.-based firm offering a wide spectrum of investment products and services. Connor manages the Biogene Fund, a domestic equity fund specializing in small capitalization growth stocks. The Biogene Fund generally takes significant positions in stocks, commonly owning 4.5-5% of the outstanding shares. The fund's prospectus limits positions to a maximum of 5% of the shares outstanding. The performance of the Biogene Fund has been superior over the last few years, but for the last two quarters the fund has underperformed its benchmark by a wide margin. Connor is determined to improve his performance numbers going forward. <br \/>\r<br><br \/>\r<br>The Biogene prospectus allows Connor to use derivative instruments in his investment strategy. Connor frequently uses options to hedge his fund's exposure as he builds or liquidates positions in his portfolio since Biogene's large positions often take several weeks to acquire. For example, when he identifies a stock to buy, he often buys call options to gain exposure to the stock. As he buys the stock, he sells off the options or allows them to expire. Connor has noticed that the increased volume in the call options often drives the stock price higher for a few days. He has seen a similar negative effect on stock prices when he buys large amounts of put options. <br \/>\r<br><br \/>\r<br>The end of the quarter is just a few days away, and Connor is considering three transactions: <br \/>\r<br><br \/>\r<br>Transaction A: Buying Put Options on Stock A <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 4,9% of the outstanding stock of Company A, but Connor believes the stock is fully valued and plans to sell the entire position. He anticipates that it will take approximately 45 trading days to liquidate the entire Biogene position in Stock A. <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 5% of the outstanding stock of Company B. Connor believes there is significant appreciation potential for Stock B, but the stock price has dropped in recent weeks. Connor is hoping that by taking an option position, there will be a carryover effect on ihe stock price before quarter end. <br \/>\r<br><br \/>\r<br>Transaction C: Selling the Biogene Fund's Entire Position in .Stock C <br \/>\r<br><br \/>\r<br>Connor believes that Stock C is still attractive, but he is selling the stock with the idea that he will repurchase the position next month. The motivation for the transaction is to capture a capital loss that will reduce the Biogene Fund's tax expense for the year. <br \/>\r<br><br \/>\r<br>Apple has an investment banking department that is active in initial public offerings (IPOs). George Arnold, CFA, is the senior manager of the IPO department. Arnold approached Connor about Stock D, a new IPO being offered by Apple. Stock D will open trading in two days. Apple had offered the IPO to all of its clients, but approximately 20% of the deal remained unsold. Having read the prospectus, Connor thinks Stock D would be a good fit for his fund, and he expects Stock D to improve his performance in both the short and long term. Connor is not aware of any information related to Stock D beyond that provided in the prospectus. Connor asked to purchase 5% of the IPO, but Arnold limited Biogene's share to 2%, explaining: <br \/>\r<br><br \/>\r<br>&quot;With Biogene's reputation, any participation will make the unsold shares highly marketable. Further, we may need Biogene to acquire more Stock D shares at a later date if the price does not hold up.&quot; <br \/>\r<br><br \/>\r<br>Connor is disappointed in being limited to 2% of the offering and suggests to Arnold in an e-mail that, given the 2% limitation, Biogene will not participate in the IPO. Arnold responded a few hours later with the following message: <br \/>\r<br><br \/>\r<br>&quot;I have just spoken with Ms. D, the CFO of Stock D. Although it is too late to alter the prospectus, management believes they will receive a large contract from a foreign government that will boost next year's sales by 20% or more. I urge you to accept the 2%\u2015you won't be sorry!&quot; <br \/>\r<br><br \/>\r<br>After reviewing Arnold's e-mail, Connor agrees to the 2% offer. <br \/>\r<br><br \/>\r<br>Arnold's arguments for limiting Biogene's share to 2% suggest that Apple:<\/div><input type='hidden' name='question_id[]' id='qID_41' value='148541' \/><input type='hidden' id='answerType148541' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148541[]' id='answer-id-604878' class='answer   answerof-148541 ' value='604878'   \/><label for='answer-id-604878' id='answer-label-604878' class=' answer'><span>may engage in a liquidity pumping strategy that would be acceptable given that Biogene is a related entity.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148541[]' id='answer-id-604879' class='answer   answerof-148541 ' value='604879'   \/><label for='answer-id-604879' id='answer-label-604879' class=' answer'><span>may engage in transaction-based manipulation of Stock D in the future, in violation of Standards relating to market manipulation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148541[]' id='answer-id-604880' class='answer   answerof-148541 ' value='604880'   \/><label for='answer-id-604880' id='answer-label-604880' class=' answer'><span>is violating Standards related to priority of transactions by ofTering the IPO to Biogene before it is fully subscribed.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-42' style=';'><div id='questionWrap-42'  class='   watupro-question-id-148542'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>42. <\/span>Charles Connor, CFA, is a portfolio manager at Apple Investments, LLC. Apple is a U.S.-based firm offering a wide spectrum of investment products and services. Connor manages the Biogene Fund, a domestic equity fund specializing in small capitalization growth stocks. The Biogene Fund generally takes significant positions in stocks, commonly owning 4.5-5% of the outstanding shares. The fund's prospectus limits positions to a maximum of 5% of the shares outstanding. The performance of the Biogene Fund has been superior over the last few years, but for the last two quarters the fund has underperformed its benchmark by a wide margin. Connor is determined to improve his performance numbers going forward. <br \/>\r<br><br \/>\r<br>The Biogene prospectus allows Connor to use derivative instruments in his investment strategy. Connor frequently uses options to hedge his fund's exposure as he builds or liquidates positions in his portfolio since Biogene's large positions often take several weeks to acquire. For example, when he identifies a stock to buy, he often buys call options to gain exposure to the stock. As he buys the stock, he sells off the options or allows them to expire. Connor has noticed that the increased volume in the call options often drives the stock price higher for a few days. He has seen a similar negative effect on stock prices when he buys large amounts of put options. <br \/>\r<br><br \/>\r<br>The end of the quarter is just a few days away, and Connor is considering three transactions: <br \/>\r<br><br \/>\r<br>Transaction A: Buying Put Options on Stock A <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 4,9% of the outstanding stock of Company A, but Connor believes the stock is fully valued and plans to sell the entire position. He anticipates that it will take approximately 45 trading days to liquidate the entire Biogene position in Stock A. <br \/>\r<br><br \/>\r<br>The Biogene Fund owns 5% of the outstanding stock of Company B. Connor believes there is significant appreciation potential for Stock B, but the stock price has dropped in recent weeks. Connor is hoping that by taking an option position, there will be a carryover effect on ihe stock price before quarter end. <br \/>\r<br><br \/>\r<br>Transaction C: Selling the Biogene Fund's Entire Position in .Stock C <br \/>\r<br><br \/>\r<br>Connor believes that Stock C is still attractive, but he is selling the stock with the idea that he will repurchase the position next month. The motivation for the transaction is to capture a capital loss that will reduce the Biogene Fund's tax expense for the year. <br \/>\r<br><br \/>\r<br>Apple has an investment banking department that is active in initial public offerings (IPOs). George Arnold, CFA, is the senior manager of the IPO department. Arnold approached Connor about Stock D, a new IPO being offered by Apple. Stock D will open trading in two days. Apple had offered the IPO to all of its clients, but approximately 20% of the deal remained unsold. Having read the prospectus, Connor thinks Stock D would be a good fit for his fund, and he expects Stock D to improve his performance in both the short and long term. Connor is not aware of any information related to Stock D beyond that provided in the prospectus. Connor asked to purchase 5% of the IPO, but Arnold limited Biogene's share to 2%, explaining: <br \/>\r<br><br \/>\r<br>&quot;With Biogene's reputation, any participation will make the unsold shares highly marketable. Further, we may need Biogene to acquire more Stock D shares at a later date if the price does not hold up.&quot; <br \/>\r<br><br \/>\r<br>Connor is disappointed in being limited to 2% of the offering and suggests to Arnold in an e-mail that, given the 2% limitation, Biogene will not participate in the IPO. Arnold responded a few hours later with the following message: <br \/>\r<br><br \/>\r<br>&quot;I have just spoken with Ms. D, the CFO of Stock D. Although it is too late to alter the prospectus, management believes they will receive a large contract from a foreign government that will boost next year's sales by 20% or more. I urge you to accept the 2%\u2015you won't be sorry!&quot; <br \/>\r<br><br \/>\r<br>After reviewing Arnold's e-mail, Connor agrees to the 2% offer. <br \/>\r<br><br \/>\r<br>Based upon Connor's acceptance of the 2% limitation after receiving the e-mail from Arnold:<\/div><input type='hidden' name='question_id[]' id='qID_42' value='148542' \/><input type='hidden' id='answerType148542' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148542[]' id='answer-id-604881' class='answer   answerof-148542 ' value='604881'   \/><label for='answer-id-604881' id='answer-label-604881' class=' answer'><span>Connor has violated Standards relating to material nonpublic information, and Arnold has violated Standards relating to preservation of confidentiality.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148542[]' id='answer-id-604882' class='answer   answerof-148542 ' value='604882'   \/><label for='answer-id-604882' id='answer-label-604882' class=' answer'><span>Connor has not violated Standards relating to material nonpublic information, but Arnold has violated Standards relating to preservation of confidentiality.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148542[]' id='answer-id-604883' class='answer   answerof-148542 ' value='604883'   \/><label for='answer-id-604883' id='answer-label-604883' class=' answer'><span>Connor has not violated Standards relating to material nonpublic information, but Arnold has violated Standards relating to preservation of confidentiality and material nonpublic information.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-43' style=';'><div id='questionWrap-43'  class='   watupro-question-id-148543'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>43. <\/span>Pat Wilson, CFA, is the chief compliance officer for Excess Investments, a global asset management and investment banking services company. Wilson is reviewing two investment reports written by Peter Holly, CFA, an analyst and portfolio manager who has worked for Excess for four years. Holly's first report under compliance review is a strong buy recommendation for BlueNote Inc., a musical instrument manufacturer. The report states that the buy recommendation is applicable for the next 6 to 12 months with an average level of risk and a sustainable price target of $24 for the entire time period. At the bottom of the report, an e-mail address is given for investors who wish to obtain a complete description of the firm's rating system. Among other reasons supporting the recommendation, Holly's report states that expected increases in profitability as well as increased supply chain efficiency provide compelling support for purchasing BlueNote. <br \/>\r<br><br \/>\r<br>Holly informs Wilson that he determined his conclusions primarily from an intensive review of BlueNote's filings with the SEC but also from a call to one of BlueNote's suppliers who informed Holly that their new inventory processing system would allow for more efficiency in supplying BlueNote with raw materials. Holly explains to Wilson that he is the only analyst covering BlueNote who is aware of this information and that he believes the new inventory processing system will allow BlueNote to reduce costs and increase overall profitability for several years to come. <br \/>\r<br><br \/>\r<br>Wilson must also review Holly's report on BigTirae Inc., a musical promotions and distribution company. In the report, Holly provides a very optimistic analysis of BigTime's fundamentals. The analysis supports a buy recommendation for the company. Wilson finds one problem with Holly's report on BigTime related to Holly's former business relationship with BigTime Inc. Two years before joining Excess, Holly worked as an investment banker and received 1,000 restricted shares of BigTime as a result of his participation in taking the company public. These facts are not disclosed in the report but are disclosed on Excess Investment's Web site. Wilson decides, however, that the timeliness of the information in the report warrants overlooking this issue so that the report can be distributed. <br \/>\r<br><br \/>\r<br>Just before the report is issued. Holly mentions to Wilson that BigTime unknowingly disclosed to him and a few other analysts who were wailing for a conference call to begin that the company is planning to restructure both its sales staff and sales strategy and may sell one of its poorly performing business units next year. <br \/>\r<br><br \/>\r<br>Three days after issuing his report on BigTime, which caused a substantial rise in the price of BigTime shares, Holly sells all of the BigTirne shares out of both his performance fee-based accounts and asset-based accounts and then proceeds to sell all of the BigTime shares out of his own account on the following day. Holly obtained approval from Wilson before making the trades. <br \/>\r<br><br \/>\r<br>Just after selling his shares in BigTime, Holly receives a call from the CEO of BlueNote who wants to see if Holly received the desk pen engraved with the BlueNote company logo that he sent last week and also to offer two front row tickets plus limousine service to a sold-out concert for a popular band that uses BlueNote's instruments. Holly confirms that the desk pen arrived and thanks the CEO for the gift and tells him that before he accepts the concert tickets, he will have to check his calendar to see if he will be able to attend. Holly declines the use of the limousine service should he decide to attend the concert. <br \/>\r<br><br \/>\r<br>After speaking with the CEO of BlucNote, Holly constructs a letter that he plans to send by e-mail to all of his clients and prospects with e-mail addresses and by regular mail to all of his clients and prospects without e-mail addresses. The letter details changes to an equity valuation model that Holly and several other analysts at Excess use to analyze potential investment recommendations. Holly's letter explains that the new model, which will be put into use next month, will utilize Monte Carlo simulations to create a distribution of stock values, a sharp contrast to the existing model which uses static valuations combined with sensitivity analysis. Relevant details of the new model are included in the letter, but similar details about the existing model are not included. The letter also explains that management at Excess has decided to exclude alcohol and tobacco company securities from the research coverage universe. Holly's letter concludes by stating that no other significant changes that would affect the investment recommendation process have occurred or are expected to occur in the near future. <br \/>\r<br><br \/>\r<br>According to CFA Institute Research Objectivity Standards (ROS), which of the following statements is most accurate with regard to the rating system used by Holly in his investment report on BlueNote Inc.? The rating system:<\/div><input type='hidden' name='question_id[]' id='qID_43' value='148543' \/><input type='hidden' id='answerType148543' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148543[]' id='answer-id-604884' class='answer   answerof-148543 ' value='604884'   \/><label for='answer-id-604884' id='answer-label-604884' class=' answer'><span>has appropriately incorporated the three recommended rating system elements from the RO<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148543[]' id='answer-id-604885' class='answer   answerof-148543 ' value='604885'   \/><label for='answer-id-604885' id='answer-label-604885' class=' answer'><span>should not have included a price target as it makes an implicit guarantee of investment performance.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148543[]' id='answer-id-604886' class='answer   answerof-148543 ' value='604886'   \/><label for='answer-id-604886' id='answer-label-604886' class=' answer'><span>should not have included a time frame, as it misrepresents the level of certainty of the recommendation.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-44' style=';'><div id='questionWrap-44'  class='   watupro-question-id-148544'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>44. <\/span>Pat Wilson, CFA, is the chief compliance officer for Excess Investments, a global asset management and investment banking services company. Wilson is reviewing two investment reports written by Peter Holly, CFA, an analyst and portfolio manager who has worked for Excess for four years. Holly's first report under compliance review is a strong buy recommendation for BlueNote Inc., a musical instrument manufacturer. The report states that the buy recommendation is applicable for the next 6 to 12 months with an average level of risk and a sustainable price target of $24 for the entire time period. At the bottom of the report, an e-mail address is given for investors who wish to obtain a complete description of the firm's rating system. Among other reasons supporting the recommendation, Holly's report states that expected increases in profitability as well as increased supply chain efficiency provide compelling support for purchasing BlueNote. <br \/>\r<br><br \/>\r<br>Holly informs Wilson that he determined his conclusions primarily from an intensive review of BlueNote's filings with the SEC but also from a call to one of BlueNote's suppliers who informed Holly that their new inventory processing system would allow for more efficiency in supplying BlueNote with raw materials. Holly explains to Wilson that he is the only analyst covering BlueNote who is aware of this information and that he believes the new inventory processing system will allow BlueNote to reduce costs and increase overall profitability for several years to come. <br \/>\r<br><br \/>\r<br>Wilson must also review Holly's report on BigTirae Inc., a musical promotions and distribution company. In the report, Holly provides a very optimistic analysis of BigTime's fundamentals. The analysis supports a buy recommendation for the company. Wilson finds one problem with Holly's report on BigTime related to Holly's former business relationship with BigTime Inc. Two years before joining Excess, Holly worked as an investment banker and received 1,000 restricted shares of BigTime as a result of his participation in taking the company public. These facts are not disclosed in the report but are disclosed on Excess Investment's Web site. Wilson decides, however, that the timeliness of the information in the report warrants overlooking this issue so that the report can be distributed. <br \/>\r<br><br \/>\r<br>Just before the report is issued. Holly mentions to Wilson that BigTime unknowingly disclosed to him and a few other analysts who were wailing for a conference call to begin that the company is planning to restructure both its sales staff and sales strategy and may sell one of its poorly performing business units next year. <br \/>\r<br><br \/>\r<br>Three days after issuing his report on BigTime, which caused a substantial rise in the price of BigTime shares, Holly sells all of the BigTirne shares out of both his performance fee-based accounts and asset-based accounts and then proceeds to sell all of the BigTime shares out of his own account on the following day. Holly obtained approval from Wilson before making the trades. <br \/>\r<br><br \/>\r<br>Just after selling his shares in BigTime, Holly receives a call from the CEO of BlueNote who wants to see if Holly received the desk pen engraved with the BlueNote company logo that he sent last week and also to offer two front row tickets plus limousine service to a sold-out concert for a popular band that uses BlueNote's instruments. Holly confirms that the desk pen arrived and thanks the CEO for the gift and tells him that before he accepts the concert tickets, he will have to check his calendar to see if he will be able to attend. Holly declines the use of the limousine service should he decide to attend the concert. <br \/>\r<br><br \/>\r<br>After speaking with the CEO of BlucNote, Holly constructs a letter that he plans to send by e-mail to all of his clients and prospects with e-mail addresses and by regular mail to all of his clients and prospects without e-mail addresses. The letter details changes to an equity valuation model that Holly and several other analysts at Excess use to analyze potential investment recommendations. Holly's letter explains that the new model, which will be put into use next month, will utilize Monte Carlo simulations to create a distribution of stock values, a sharp contrast to the existing model which uses static valuations combined with sensitivity analysis. Relevant details of the new model are included in the letter, but similar details about the existing model are not included. The letter also explains that management at Excess has decided to exclude alcohol and tobacco company securities from the research coverage universe. Holly's letter concludes by stating that no other significant changes that would affect the investment recommendation process have occurred or are expected to occur in the near future. <br \/>\r<br><br \/>\r<br>Did Holly violate any CFA Institute Standards of Professional Conduct with respect to his report on BlueNote or BigTime, as it relates to potential use of material nonpublic information?<\/div><input type='hidden' name='question_id[]' id='qID_44' value='148544' \/><input type='hidden' id='answerType148544' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148544[]' id='answer-id-604887' class='answer   answerof-148544 ' value='604887'   \/><label for='answer-id-604887' id='answer-label-604887' class=' answer'><span>Holly has violated Standard on material nonpublic information in the case of both reports.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148544[]' id='answer-id-604888' class='answer   answerof-148544 ' value='604888'   \/><label for='answer-id-604888' id='answer-label-604888' class=' answer'><span>There is a violation regarding the Blue Note report, but no violation with the Big Time report.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148544[]' id='answer-id-604889' class='answer   answerof-148544 ' value='604889'   \/><label for='answer-id-604889' id='answer-label-604889' class=' answer'><span>There is a violation regarding the Big Time report, but no violation with the Blue Note report.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-45' style=';'><div id='questionWrap-45'  class='   watupro-question-id-148545'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>45. <\/span>Pat Wilson, CFA, is the chief compliance officer for Excess Investments, a global asset management and investment banking services company. Wilson is reviewing two investment reports written by Peter Holly, CFA, an analyst and portfolio manager who has worked for Excess for four years. Holly's first report under compliance review is a strong buy recommendation for BlueNote Inc., a musical instrument manufacturer. The report states that the buy recommendation is applicable for the next 6 to 12 months with an average level of risk and a sustainable price target of $24 for the entire time period. At the bottom of the report, an e-mail address is given for investors who wish to obtain a complete description of the firm's rating system. Among other reasons supporting the recommendation, Holly's report states that expected increases in profitability as well as increased supply chain efficiency provide compelling support for purchasing BlueNote. <br \/>\r<br><br \/>\r<br>Holly informs Wilson that he determined his conclusions primarily from an intensive review of BlueNote's filings with the SEC but also from a call to one of BlueNote's suppliers who informed Holly that their new inventory processing system would allow for more efficiency in supplying BlueNote with raw materials. Holly explains to Wilson that he is the only analyst covering BlueNote who is aware of this information and that he believes the new inventory processing system will allow BlueNote to reduce costs and increase overall profitability for several years to come. <br \/>\r<br><br \/>\r<br>Wilson must also review Holly's report on BigTirae Inc., a musical promotions and distribution company. In the report, Holly provides a very optimistic analysis of BigTime's fundamentals. The analysis supports a buy recommendation for the company. Wilson finds one problem with Holly's report on BigTime related to Holly's former business relationship with BigTime Inc. Two years before joining Excess, Holly worked as an investment banker and received 1,000 restricted shares of BigTime as a result of his participation in taking the company public. These facts are not disclosed in the report but are disclosed on Excess Investment's Web site. Wilson decides, however, that the timeliness of the information in the report warrants overlooking this issue so that the report can be distributed. <br \/>\r<br><br \/>\r<br>Just before the report is issued. Holly mentions to Wilson that BigTime unknowingly disclosed to him and a few other analysts who were wailing for a conference call to begin that the company is planning to restructure both its sales staff and sales strategy and may sell one of its poorly performing business units next year. <br \/>\r<br><br \/>\r<br>Three days after issuing his report on BigTime, which caused a substantial rise in the price of BigTime shares, Holly sells all of the BigTirne shares out of both his performance fee-based accounts and asset-based accounts and then proceeds to sell all of the BigTime shares out of his own account on the following day. Holly obtained approval from Wilson before making the trades. <br \/>\r<br><br \/>\r<br>Just after selling his shares in BigTime, Holly receives a call from the CEO of BlueNote who wants to see if Holly received the desk pen engraved with the BlueNote company logo that he sent last week and also to offer two front row tickets plus limousine service to a sold-out concert for a popular band that uses BlueNote's instruments. Holly confirms that the desk pen arrived and thanks the CEO for the gift and tells him that before he accepts the concert tickets, he will have to check his calendar to see if he will be able to attend. Holly declines the use of the limousine service should he decide to attend the concert. <br \/>\r<br><br \/>\r<br>After speaking with the CEO of BlucNote, Holly constructs a letter that he plans to send by e-mail to all of his clients and prospects with e-mail addresses and by regular mail to all of his clients and prospects without e-mail addresses. The letter details changes to an equity valuation model that Holly and several other analysts at Excess use to analyze potential investment recommendations. Holly's letter explains that the new model, which will be put into use next month, will utilize Monte Carlo simulations to create a distribution of stock values, a sharp contrast to the existing model which uses static valuations combined with sensitivity analysis. Relevant details of the new model are included in the letter, but similar details about the existing model are not included. The letter also explains that management at Excess has decided to exclude alcohol and tobacco company securities from the research coverage universe. Holly's letter concludes by stating that no other significant changes that would affect the investment recommendation process have occurred or are expected to occur in the near future. <br \/>\r<br><br \/>\r<br>According to CFA Institute Research Objectivity Standards (ROS), which of the following statements is most accurate with regard to Holly's disclosure of his ownership of BigTime restricted shares and past investment banking relationship with BigTime? The disclosure:<\/div><input type='hidden' name='question_id[]' id='qID_45' value='148545' \/><input type='hidden' id='answerType148545' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148545[]' id='answer-id-604890' class='answer   answerof-148545 ' value='604890'   \/><label for='answer-id-604890' id='answer-label-604890' class=' answer'><span>is not required or recommended by the ROS since the shares are restricted.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148545[]' id='answer-id-604891' class='answer   answerof-148545 ' value='604891'   \/><label for='answer-id-604891' id='answer-label-604891' class=' answer'><span>complies with the ROS recommended procedures for disclosing conflicts of interest.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148545[]' id='answer-id-604892' class='answer   answerof-148545 ' value='604892'   \/><label for='answer-id-604892' id='answer-label-604892' class=' answer'><span>should have been made in the research report itself and not just on Excess's Web site.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-46' style=';'><div id='questionWrap-46'  class='   watupro-question-id-148546'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>46. <\/span>Pat Wilson, CFA, is the chief compliance officer for Excess Investments, a global asset management and investment banking services company. Wilson is reviewing two investment reports written by Peter Holly, CFA, an analyst and portfolio manager who has worked for Excess for four years. Holly's first report under compliance review is a strong buy recommendation for BlueNote Inc., a musical instrument manufacturer. The report states that the buy recommendation is applicable for the next 6 to 12 months with an average level of risk and a sustainable price target of $24 for the entire time period. At the bottom of the report, an e-mail address is given for investors who wish to obtain a complete description of the firm's rating system. Among other reasons supporting the recommendation, Holly's report states that expected increases in profitability as well as increased supply chain efficiency provide compelling support for purchasing BlueNote. <br \/>\r<br><br \/>\r<br>Holly informs Wilson that he determined his conclusions primarily from an intensive review of BlueNote's filings with the SEC but also from a call to one of BlueNote's suppliers who informed Holly that their new inventory processing system would allow for more efficiency in supplying BlueNote with raw materials. Holly explains to Wilson that he is the only analyst covering BlueNote who is aware of this information and that he believes the new inventory processing system will allow BlueNote to reduce costs and increase overall profitability for several years to come. <br \/>\r<br><br \/>\r<br>Wilson must also review Holly's report on BigTirae Inc., a musical promotions and distribution company. In the report, Holly provides a very optimistic analysis of BigTime's fundamentals. The analysis supports a buy recommendation for the company. Wilson finds one problem with Holly's report on BigTime related to Holly's former business relationship with BigTime Inc. Two years before joining Excess, Holly worked as an investment banker and received 1,000 restricted shares of BigTime as a result of his participation in taking the company public. These facts are not disclosed in the report but are disclosed on Excess Investment's Web site. Wilson decides, however, that the timeliness of the information in the report warrants overlooking this issue so that the report can be distributed. <br \/>\r<br><br \/>\r<br>Just before the report is issued. Holly mentions to Wilson that BigTime unknowingly disclosed to him and a few other analysts who were wailing for a conference call to begin that the company is planning to restructure both its sales staff and sales strategy and may sell one of its poorly performing business units next year. <br \/>\r<br><br \/>\r<br>Three days after issuing his report on BigTime, which caused a substantial rise in the price of BigTime shares, Holly sells all of the BigTirne shares out of both his performance fee-based accounts and asset-based accounts and then proceeds to sell all of the BigTime shares out of his own account on the following day. Holly obtained approval from Wilson before making the trades. <br \/>\r<br><br \/>\r<br>Just after selling his shares in BigTime, Holly receives a call from the CEO of BlueNote who wants to see if Holly received the desk pen engraved with the BlueNote company logo that he sent last week and also to offer two front row tickets plus limousine service to a sold-out concert for a popular band that uses BlueNote's instruments. Holly confirms that the desk pen arrived and thanks the CEO for the gift and tells him that before he accepts the concert tickets, he will have to check his calendar to see if he will be able to attend. Holly declines the use of the limousine service should he decide to attend the concert. <br \/>\r<br><br \/>\r<br>After speaking with the CEO of BlucNote, Holly constructs a letter that he plans to send by e-mail to all of his clients and prospects with e-mail addresses and by regular mail to all of his clients and prospects without e-mail addresses. The letter details changes to an equity valuation model that Holly and several other analysts at Excess use to analyze potential investment recommendations. Holly's letter explains that the new model, which will be put into use next month, will utilize Monte Carlo simulations to create a distribution of stock values, a sharp contrast to the existing model which uses static valuations combined with sensitivity analysis. Relevant details of the new model are included in the letter, but similar details about the existing model are not included. The letter also explains that management at Excess has decided to exclude alcohol and tobacco company securities from the research coverage universe. Holly's letter concludes by stating that no other significant changes that would affect the investment recommendation process have occurred or are expected to occur in the near future. <br \/>\r<br><br \/>\r<br>According to CFA Institute Standards of Professional Conduct, which of the following statements is most likely correct with regard to Holly's report and subsequent sale of his and his clients' shares of BigTime common stock? Holly has: A. violated the Standard by attempting to manipulate the market price of BigTime stock. <br \/>\r<br>B. not violated the Standard since he first obtained approval to make the trades from his compliance officer. <br \/>\r<br>C. not violated the Standard since he acted in the best interest of his clients by realizing gains on BigTime stock.<\/div><input type='hidden' name='question_id[]' id='qID_46' value='148546' \/><input type='hidden' id='answerType148546' value='textarea'><!-- end question-content--><\/div><div class='question-choices '><p><textarea name='answer-148546[]' id='textarea_q_148546' class='watupro-textarea-medium' rows='5' cols='80'><\/textarea>\n<\/p><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-47' style=';'><div id='questionWrap-47'  class='   watupro-question-id-148547'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>47. <\/span>Pat Wilson, CFA, is the chief compliance officer for Excess Investments, a global asset management and investment banking services company. Wilson is reviewing two investment reports written by Peter Holly, CFA, an analyst and portfolio manager who has worked for Excess for four years. Holly's first report under compliance review is a strong buy recommendation for BlueNote Inc., a musical instrument manufacturer. The report states that the buy recommendation is applicable for the next 6 to 12 months with an average level of risk and a sustainable price target of $24 for the entire time period. At the bottom of the report, an e-mail address is given for investors who wish to obtain a complete description of the firm's rating system. Among other reasons supporting the recommendation, Holly's report states that expected increases in profitability as well as increased supply chain efficiency provide compelling support for purchasing BlueNote. <br \/>\r<br><br \/>\r<br>Holly informs Wilson that he determined his conclusions primarily from an intensive review of BlueNote's filings with the SEC but also from a call to one of BlueNote's suppliers who informed Holly that their new inventory processing system would allow for more efficiency in supplying BlueNote with raw materials. Holly explains to Wilson that he is the only analyst covering BlueNote who is aware of this information and that he believes the new inventory processing system will allow BlueNote to reduce costs and increase overall profitability for several years to come. <br \/>\r<br><br \/>\r<br>Wilson must also review Holly's report on BigTirae Inc., a musical promotions and distribution company. In the report, Holly provides a very optimistic analysis of BigTime's fundamentals. The analysis supports a buy recommendation for the company. Wilson finds one problem with Holly's report on BigTime related to Holly's former business relationship with BigTime Inc. Two years before joining Excess, Holly worked as an investment banker and received 1,000 restricted shares of BigTime as a result of his participation in taking the company public. These facts are not disclosed in the report but are disclosed on Excess Investment's Web site. Wilson decides, however, that the timeliness of the information in the report warrants overlooking this issue so that the report can be distributed. <br \/>\r<br><br \/>\r<br>Just before the report is issued. Holly mentions to Wilson that BigTime unknowingly disclosed to him and a few other analysts who were wailing for a conference call to begin that the company is planning to restructure both its sales staff and sales strategy and may sell one of its poorly performing business units next year. <br \/>\r<br><br \/>\r<br>Three days after issuing his report on BigTime, which caused a substantial rise in the price of BigTime shares, Holly sells all of the BigTirne shares out of both his performance fee-based accounts and asset-based accounts and then proceeds to sell all of the BigTime shares out of his own account on the following day. Holly obtained approval from Wilson before making the trades. <br \/>\r<br><br \/>\r<br>Just after selling his shares in BigTime, Holly receives a call from the CEO of BlueNote who wants to see if Holly received the desk pen engraved with the BlueNote company logo that he sent last week and also to offer two front row tickets plus limousine service to a sold-out concert for a popular band that uses BlueNote's instruments. Holly confirms that the desk pen arrived and thanks the CEO for the gift and tells him that before he accepts the concert tickets, he will have to check his calendar to see if he will be able to attend. Holly declines the use of the limousine service should he decide to attend the concert. <br \/>\r<br><br \/>\r<br>After speaking with the CEO of BlucNote, Holly constructs a letter that he plans to send by e-mail to all of his clients and prospects with e-mail addresses and by regular mail to all of his clients and prospects without e-mail addresses. The letter details changes to an equity valuation model that Holly and several other analysts at Excess use to analyze potential investment recommendations. Holly's letter explains that the new model, which will be put into use next month, will utilize Monte Carlo simulations to create a distribution of stock values, a sharp contrast to the existing model which uses static valuations combined with sensitivity analysis. Relevant details of the new model are included in the letter, but similar details about the existing model are not included. The letter also explains that management at Excess has decided to exclude alcohol and tobacco company securities from the research coverage universe. Holly's letter concludes by stating that no other significant changes that would affect the investment recommendation process have occurred or are expected to occur in the near future. <br \/>\r<br><br \/>\r<br>According to CFA Institute Standards of Professional Conduct, which of the following best describes the actions Holly should take with regard to the desk pen and the concert tickets offered to him by the CEO of BlucNote? Holly:<\/div><input type='hidden' name='question_id[]' id='qID_47' value='148547' \/><input type='hidden' id='answerType148547' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148547[]' id='answer-id-604894' class='answer   answerof-148547 ' value='604894'   \/><label for='answer-id-604894' id='answer-label-604894' class=' answer'><span>must not accept the desk pen or the concert tickets.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148547[]' id='answer-id-604895' class='answer   answerof-148547 ' value='604895'   \/><label for='answer-id-604895' id='answer-label-604895' class=' answer'><span>may accept both the desk pen and the concert tickets.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148547[]' id='answer-id-604896' class='answer   answerof-148547 ' value='604896'   \/><label for='answer-id-604896' id='answer-label-604896' class=' answer'><span>may accept the desk pen but should not accept the concert tickets.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-48' style=';'><div id='questionWrap-48'  class='   watupro-question-id-148548'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>48. <\/span>Pat Wilson, CFA, is the chief compliance officer for Excess Investments, a global asset management and investment banking services company. Wilson is reviewing two investment reports written by Peter Holly, CFA, an analyst and portfolio manager who has worked for Excess for four years. Holly's first report under compliance review is a strong buy recommendation for BlueNote Inc., a musical instrument manufacturer. The report states that the buy recommendation is applicable for the next 6 to 12 months with an average level of risk and a sustainable price target of $24 for the entire time period. At the bottom of the report, an e-mail address is given for investors who wish to obtain a complete description of the firm's rating system. Among other reasons supporting the recommendation, Holly's report states that expected increases in profitability as well as increased supply chain efficiency provide compelling support for purchasing BlueNote. <br \/>\r<br><br \/>\r<br>Holly informs Wilson that he determined his conclusions primarily from an intensive review of BlueNote's filings with the SEC but also from a call to one of BlueNote's suppliers who informed Holly that their new inventory processing system would allow for more efficiency in supplying BlueNote with raw materials. Holly explains to Wilson that he is the only analyst covering BlueNote who is aware of this information and that he believes the new inventory processing system will allow BlueNote to reduce costs and increase overall profitability for several years to come. <br \/>\r<br><br \/>\r<br>Wilson must also review Holly's report on BigTirae Inc., a musical promotions and distribution company. In the report, Holly provides a very optimistic analysis of BigTime's fundamentals. The analysis supports a buy recommendation for the company. Wilson finds one problem with Holly's report on BigTime related to Holly's former business relationship with BigTime Inc. Two years before joining Excess, Holly worked as an investment banker and received 1,000 restricted shares of BigTime as a result of his participation in taking the company public. These facts are not disclosed in the report but are disclosed on Excess Investment's Web site. Wilson decides, however, that the timeliness of the information in the report warrants overlooking this issue so that the report can be distributed. <br \/>\r<br><br \/>\r<br>Just before the report is issued. Holly mentions to Wilson that BigTime unknowingly disclosed to him and a few other analysts who were wailing for a conference call to begin that the company is planning to restructure both its sales staff and sales strategy and may sell one of its poorly performing business units next year. <br \/>\r<br><br \/>\r<br>Three days after issuing his report on BigTime, which caused a substantial rise in the price of BigTime shares, Holly sells all of the BigTirne shares out of both his performance fee-based accounts and asset-based accounts and then proceeds to sell all of the BigTime shares out of his own account on the following day. Holly obtained approval from Wilson before making the trades. <br \/>\r<br><br \/>\r<br>Just after selling his shares in BigTime, Holly receives a call from the CEO of BlueNote who wants to see if Holly received the desk pen engraved with the BlueNote company logo that he sent last week and also to offer two front row tickets plus limousine service to a sold-out concert for a popular band that uses BlueNote's instruments. Holly confirms that the desk pen arrived and thanks the CEO for the gift and tells him that before he accepts the concert tickets, he will have to check his calendar to see if he will be able to attend. Holly declines the use of the limousine service should he decide to attend the concert. <br \/>\r<br><br \/>\r<br>After speaking with the CEO of BlucNote, Holly constructs a letter that he plans to send by e-mail to all of his clients and prospects with e-mail addresses and by regular mail to all of his clients and prospects without e-mail addresses. The letter details changes to an equity valuation model that Holly and several other analysts at Excess use to analyze potential investment recommendations. Holly's letter explains that the new model, which will be put into use next month, will utilize Monte Carlo simulations to create a distribution of stock values, a sharp contrast to the existing model which uses static valuations combined with sensitivity analysis. Relevant details of the new model are included in the letter, but similar details about the existing model are not included. The letter also explains that management at Excess has decided to exclude alcohol and tobacco company securities from the research coverage universe. Holly's letter concludes by stating that no other significant changes that would affect the investment recommendation process have occurred or are expected to occur in the near future. <br \/>\r<br><br \/>\r<br>In his letter to clients explaining the change in the valuation model, did Holly violate anv CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_48' value='148548' \/><input type='hidden' id='answerType148548' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148548[]' id='answer-id-604897' class='answer   answerof-148548 ' value='604897'   \/><label for='answer-id-604897' id='answer-label-604897' class=' answer'><span>No.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148548[]' id='answer-id-604898' class='answer   answerof-148548 ' value='604898'   \/><label for='answer-id-604898' id='answer-label-604898' class=' answer'><span>Yes, since he did not treat all clients fairly in his dissemination of the letter.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148548[]' id='answer-id-604899' class='answer   answerof-148548 ' value='604899'   \/><label for='answer-id-604899' id='answer-label-604899' class=' answer'><span>Yes, since he failed to include details of the current valuation model to contrast with the new model.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-49' style=';'><div id='questionWrap-49'  class='   watupro-question-id-148549'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>49. <\/span>For the past 15 years, Susan Luna, CFA, Kyle Lawson, CFA, and Matt Miller. CFA, have worked together as equity analysts and then equity portfolio managers in the investment management division (BIMCO) of the Broadway Life Insurance Company. For the past five years, the three associates have worked together managing the BIMCO Aggressive Growth Fund (BAGF). During their management tenure the BAGF had excellent performance and was well recognized in the financial press. <br \/>\r<br><br \/>\r<br>Just over one year ago, Broadway Life was acquired by a larger company, Gobble Insurance, and as part of the consolidation process BIMCO was closed. The closure allowed Luna, Lawson and Miller to start their own investment management firm, Trio Investment Management LLC (TIM). TIM focuses on the small capitalization growth equities area. This is the same investment focus as the BAGF, but TIM will have individually managed accounts. Several cases have arisen calling for interpretation as to consistency with CFA Institute Standards of Professional Conduct. <br \/>\r<br><br \/>\r<br>Case 1 <br \/>\r<br>TIM markets its investment management services by contracting with small, local bank trust departments. One of the newest bank trust clients for TIM is Shadow Mountain Bank and Trust. Judy Sampson, CFA, the trust officer for Shadow Mountain, has scheduled a meeting with a potential client. When Lawson arrives for the client meeting, he finds that all of the TIM marketing material, including biographies of TIM portfolio managers, has been relabeled by Sampson as the Shadow Mountain Wealth Management Team. Sampson has also added the performance of BAGF into the current TIM Equity Composite Index portfolio and relabeled the resultant combined graph, the Shadow Mountain Equity Composite Index. Sampson states that making such changes would probably please clients and improve the chances of acquiring additional trust management accounts for Shadow Mountain and TIM. Lawson goes along and makes the presentation to the potential client using the Shadow Mountain marketing material and the relabeled BAGF\/TIM equity performance record. <br \/>\r<br><br \/>\r<br>Case 2 <br \/>\r<br>Susan Luna of TIM is meeting with Sol Wurtzel, an institutional salesman for Turn Byer, a large national brokerage firm. Luna complains that TIM*s technology costs are too high, especially their outside software services costs. TIM currently subscribes to two investment-related software services. The first software vendor is StockCal Software Services (StockCal), which provides valuation and stock charting capabilities TIM uses in their equity research and selection process. The other vendor is Add-Invest Software (Add-Invest), a software program providing account management and performance evaluation reporting which TIM uses in developing monthly reports for all clients. In response to Luna, Wurtzel suggests that Turn Byer has an excellent soft dollar trading desk and would be willing to offer to cover TIM's StockCal and Add-Invest expenses through soft dollar commissions. Luna then reviews TIM's projected commission dollars for the year and decides there are more than enough soft dollars to pay the StockCal, AGF and Add-Invest Software bills combined. Luna believes she can be assured of excellent trade execution from Turn Byer and improved profitability for TIM because of the increased use of soft dollars. Luna then directs that the StockCal and Add-Invest software services be paid for with soft dollar or client brokerage dollars. <br \/>\r<br><br \/>\r<br>Case 3 <br \/>\r<br>Sol Wurtzel, the equity salesman for Turn Byer, has referred several clients to TIM over the past year. In fact, Wurtzel referrals currently account for almost 20% of the assets managed by TIM. The principals of TIM decide to reward Wurtzel, either by doubling the commissions paid on trades executed through Turn Byer on Wurtzel's referral accounts, or by paying Wurtzel a cash referral fee for each additional TIM account opened by a Wurtzel referral. The principals agree that any cash referral fee would need to be disclosed to clients in advance. <br \/>\r<br><br \/>\r<br>Case 4 <br \/>\r<br>Luna notes that her clients have become increasingly aware of the directed client brokerage \/ soft dollar commissions issue. At a recent meeting with one of her large pension clients. Service Workers Union Local #1418, the subject of directed commissions came up. Upon learning of the commission dollars available to their account, the Union trustees directed Luna to use their client brokerage of approximately $25,000 to donate to a think lank called the Hoover Study Center of Unions at Samford University. Service Workers trustees believed the Hoover study will increase the public awareness of the benefits unions offer to their members and increase union membership. Luna concurs with the trustee's judgment on increasing union enrollment as a great goal, and follows the client's instructions and makes the $25,000 contribution to the Hoover Study Center. Another client, Rosa Lutz, has asked Luna to credit the soft dollar client brokerage proceeds from her personal retirement accounts to Roswell Academy, to update their computer lab. Luna agrees that a new computer lab for Roswell Academy is greatly needed and she allocates 510,000 of Lutz's commission dollars to Roswell Academy. <br \/>\r<br><br \/>\r<br>Did Sampson and\/or Lawson violate the CFA Institute Standards of Professional Conduct with respect to presenting the TIM biographies to the client?<\/div><input type='hidden' name='question_id[]' id='qID_49' value='148549' \/><input type='hidden' id='answerType148549' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148549[]' id='answer-id-604900' class='answer   answerof-148549 ' value='604900'   \/><label for='answer-id-604900' id='answer-label-604900' class=' answer'><span>Yes, both Sampson and Lawson violated the Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148549[]' id='answer-id-604901' class='answer   answerof-148549 ' value='604901'   \/><label for='answer-id-604901' id='answer-label-604901' class=' answer'><span>Yes, Sampson violated the Standards, while Lawson did not.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148549[]' id='answer-id-604902' class='answer   answerof-148549 ' value='604902'   \/><label for='answer-id-604902' id='answer-label-604902' class=' answer'><span>Neither Sampson nor Lawson violated the Standards, since such outsourcing is permitted.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-50' style=';'><div id='questionWrap-50'  class='   watupro-question-id-148550'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>50. <\/span>For the past 15 years, Susan Luna, CFA, Kyle Lawson, CFA, and Matt Miller. CFA, have worked together as equity analysts and then equity portfolio managers in the investment management division (BIMCO) of the Broadway Life Insurance Company. For the past five years, the three associates have worked together managing the BIMCO Aggressive Growth Fund (BAGF). During their management tenure the BAGF had excellent performance and was well recognized in the financial press. <br \/>\r<br><br \/>\r<br>Just over one year ago, Broadway Life was acquired by a larger company, Gobble Insurance, and as part of the consolidation process BIMCO was closed. The closure allowed Luna, Lawson and Miller to start their own investment management firm, Trio Investment Management LLC (TIM). TIM focuses on the small capitalization growth equities area. This is the same investment focus as the BAGF, but TIM will have individually managed accounts. Several cases have arisen calling for interpretation as to consistency with CFA Institute Standards of Professional Conduct. <br \/>\r<br><br \/>\r<br>Case 1 <br \/>\r<br>TIM markets its investment management services by contracting with small, local bank trust departments. One of the newest bank trust clients for TIM is Shadow Mountain Bank and Trust. Judy Sampson, CFA, the trust officer for Shadow Mountain, has scheduled a meeting with a potential client. When Lawson arrives for the client meeting, he finds that all of the TIM marketing material, including biographies of TIM portfolio managers, has been relabeled by Sampson as the Shadow Mountain Wealth Management Team. Sampson has also added the performance of BAGF into the current TIM Equity Composite Index portfolio and relabeled the resultant combined graph, the Shadow Mountain Equity Composite Index. Sampson states that making such changes would probably please clients and improve the chances of acquiring additional trust management accounts for Shadow Mountain and TIM. Lawson goes along and makes the presentation to the potential client using the Shadow Mountain marketing material and the relabeled BAGF\/TIM equity performance record. <br \/>\r<br><br \/>\r<br>Case 2 <br \/>\r<br>Susan Luna of TIM is meeting with Sol Wurtzel, an institutional salesman for Turn Byer, a large national brokerage firm. Luna complains that TIM*s technology costs are too high, especially their outside software services costs. TIM currently subscribes to two investment-related software services. The first software vendor is StockCal Software Services (StockCal), which provides valuation and stock charting capabilities TIM uses in their equity research and selection process. The other vendor is Add-Invest Software (Add-Invest), a software program providing account management and performance evaluation reporting which TIM uses in developing monthly reports for all clients. In response to Luna, Wurtzel suggests that Turn Byer has an excellent soft dollar trading desk and would be willing to offer to cover TIM's StockCal and Add-Invest expenses through soft dollar commissions. Luna then reviews TIM's projected commission dollars for the year and decides there are more than enough soft dollars to pay the StockCal, AGF and Add-Invest Software bills combined. Luna believes she can be assured of excellent trade execution from Turn Byer and improved profitability for TIM because of the increased use of soft dollars. Luna then directs that the StockCal and Add-Invest software services be paid for with soft dollar or client brokerage dollars. <br \/>\r<br><br \/>\r<br>Case 3 <br \/>\r<br>Sol Wurtzel, the equity salesman for Turn Byer, has referred several clients to TIM over the past year. In fact, Wurtzel referrals currently account for almost 20% of the assets managed by TIM. The principals of TIM decide to reward Wurtzel, either by doubling the commissions paid on trades executed through Turn Byer on Wurtzel's referral accounts, or by paying Wurtzel a cash referral fee for each additional TIM account opened by a Wurtzel referral. The principals agree that any cash referral fee would need to be disclosed to clients in advance. <br \/>\r<br><br \/>\r<br>Case 4 <br \/>\r<br>Luna notes that her clients have become increasingly aware of the directed client brokerage \/ soft dollar commissions issue. At a recent meeting with one of her large pension clients. Service Workers Union Local #1418, the subject of directed commissions came up. Upon learning of the commission dollars available to their account, the Union trustees directed Luna to use their client brokerage of approximately $25,000 to donate to a think lank called the Hoover Study Center of Unions at Samford University. Service Workers trustees believed the Hoover study will increase the public awareness of the benefits unions offer to their members and increase union membership. Luna concurs with the trustee's judgment on increasing union enrollment as a great goal, and follows the client's instructions and makes the $25,000 contribution to the Hoover Study Center. Another client, Rosa Lutz, has asked Luna to credit the soft dollar client brokerage proceeds from her personal retirement accounts to Roswell Academy, to update their computer lab. Luna agrees that a new computer lab for Roswell Academy is greatly needed and she allocates 510,000 of Lutz's commission dollars to Roswell Academy. <br \/>\r<br><br \/>\r<br>Sampson's use of the relabeled BAGF investment performance record is in violation of CFA Institute Standards:<\/div><input type='hidden' name='question_id[]' id='qID_50' value='148550' \/><input type='hidden' id='answerType148550' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148550[]' id='answer-id-604903' class='answer   answerof-148550 ' value='604903'   \/><label for='answer-id-604903' id='answer-label-604903' class=' answer'><span>only if Sampson fails to include written disclosures as to the true source and nature of the performance record.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148550[]' id='answer-id-604904' class='answer   answerof-148550 ' value='604904'   \/><label for='answer-id-604904' id='answer-label-604904' class=' answer'><span>only if Sampson does not have written permission from Gobble Insurance to use the performance data.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148550[]' id='answer-id-604905' class='answer   answerof-148550 ' value='604905'   \/><label for='answer-id-604905' id='answer-label-604905' class=' answer'><span>unless Sampson includes written disclosures as to the true source and nature of the performance record, and has written permission from Gobble Insurance to use the performance data.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-51' style=';'><div id='questionWrap-51'  class='   watupro-question-id-148551'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>51. <\/span>For the past 15 years, Susan Luna, CFA, Kyle Lawson, CFA, and Matt Miller. CFA, have worked together as equity analysts and then equity portfolio managers in the investment management division (BIMCO) of the Broadway Life Insurance Company. For the past five years, the three associates have worked together managing the BIMCO Aggressive Growth Fund (BAGF). During their management tenure the BAGF had excellent performance and was well recognized in the financial press. <br \/>\r<br><br \/>\r<br>Just over one year ago, Broadway Life was acquired by a larger company, Gobble Insurance, and as part of the consolidation process BIMCO was closed. The closure allowed Luna, Lawson and Miller to start their own investment management firm, Trio Investment Management LLC (TIM). TIM focuses on the small capitalization growth equities area. This is the same investment focus as the BAGF, but TIM will have individually managed accounts. Several cases have arisen calling for interpretation as to consistency with CFA Institute Standards of Professional Conduct. <br \/>\r<br><br \/>\r<br>Case 1 <br \/>\r<br>TIM markets its investment management services by contracting with small, local bank trust departments. One of the newest bank trust clients for TIM is Shadow Mountain Bank and Trust. Judy Sampson, CFA, the trust officer for Shadow Mountain, has scheduled a meeting with a potential client. When Lawson arrives for the client meeting, he finds that all of the TIM marketing material, including biographies of TIM portfolio managers, has been relabeled by Sampson as the Shadow Mountain Wealth Management Team. Sampson has also added the performance of BAGF into the current TIM Equity Composite Index portfolio and relabeled the resultant combined graph, the Shadow Mountain Equity Composite Index. Sampson states that making such changes would probably please clients and improve the chances of acquiring additional trust management accounts for Shadow Mountain and TIM. Lawson goes along and makes the presentation to the potential client using the Shadow Mountain marketing material and the relabeled BAGF\/TIM equity performance record. <br \/>\r<br><br \/>\r<br>Case 2 <br \/>\r<br>Susan Luna of TIM is meeting with Sol Wurtzel, an institutional salesman for Turn Byer, a large national brokerage firm. Luna complains that TIM*s technology costs are too high, especially their outside software services costs. TIM currently subscribes to two investment-related software services. The first software vendor is StockCal Software Services (StockCal), which provides valuation and stock charting capabilities TIM uses in their equity research and selection process. The other vendor is Add-Invest Software (Add-Invest), a software program providing account management and performance evaluation reporting which TIM uses in developing monthly reports for all clients. In response to Luna, Wurtzel suggests that Turn Byer has an excellent soft dollar trading desk and would be willing to offer to cover TIM's StockCal and Add-Invest expenses through soft dollar commissions. Luna then reviews TIM's projected commission dollars for the year and decides there are more than enough soft dollars to pay the StockCal, AGF and Add-Invest Software bills combined. Luna believes she can be assured of excellent trade execution from Turn Byer and improved profitability for TIM because of the increased use of soft dollars. Luna then directs that the StockCal and Add-Invest software services be paid for with soft dollar or client brokerage dollars. <br \/>\r<br><br \/>\r<br>Case 3 <br \/>\r<br>Sol Wurtzel, the equity salesman for Turn Byer, has referred several clients to TIM over the past year. In fact, Wurtzel referrals currently account for almost 20% of the assets managed by TIM. The principals of TIM decide to reward Wurtzel, either by doubling the commissions paid on trades executed through Turn Byer on Wurtzel's referral accounts, or by paying Wurtzel a cash referral fee for each additional TIM account opened by a Wurtzel referral. The principals agree that any cash referral fee would need to be disclosed to clients in advance. <br \/>\r<br><br \/>\r<br>Case 4 <br \/>\r<br>Luna notes that her clients have become increasingly aware of the directed client brokerage \/ soft dollar commissions issue. At a recent meeting with one of her large pension clients. Service Workers Union Local #1418, the subject of directed commissions came up. Upon learning of the commission dollars available to their account, the Union trustees directed Luna to use their client brokerage of approximately $25,000 to donate to a think lank called the Hoover Study Center of Unions at Samford University. Service Workers trustees believed the Hoover study will increase the public awareness of the benefits unions offer to their members and increase union membership. Luna concurs with the trustee's judgment on increasing union enrollment as a great goal, and follows the client's instructions and makes the $25,000 contribution to the Hoover Study Center. Another client, Rosa Lutz, has asked Luna to credit the soft dollar client brokerage proceeds from her personal retirement accounts to Roswell Academy, to update their computer lab. Luna agrees that a new computer lab for Roswell Academy is greatly needed and she allocates 510,000 of Lutz's commission dollars to Roswell Academy. <br \/>\r<br><br \/>\r<br>Did Luna violate the CFA Institute Standards of Professional Conduct and the CFA Institute Soft Dollar Standards by using soft dollar commissions to pay TIM's software subscription costs to StockCal and\/or Add-Invcst?<\/div><input type='hidden' name='question_id[]' id='qID_51' value='148551' \/><input type='hidden' id='answerType148551' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148551[]' id='answer-id-604906' class='answer   answerof-148551 ' value='604906'   \/><label for='answer-id-604906' id='answer-label-604906' class=' answer'><span>Both StockCal and Add-Invest software services may be paid for with soft dollars.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148551[]' id='answer-id-604907' class='answer   answerof-148551 ' value='604907'   \/><label for='answer-id-604907' id='answer-label-604907' class=' answer'><span>Neither StockCal nor Add-Invest software may be paid for with soft dollars.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148551[]' id='answer-id-604908' class='answer   answerof-148551 ' value='604908'   \/><label for='answer-id-604908' id='answer-label-604908' class=' answer'><span>It is acceptable to use soft dollars to pay for the StockCal software, but not the Add-Invest software.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-52' style=';'><div id='questionWrap-52'  class='   watupro-question-id-148552'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>52. <\/span>For the past 15 years, Susan Luna, CFA, Kyle Lawson, CFA, and Matt Miller. CFA, have worked together as equity analysts and then equity portfolio managers in the investment management division (BIMCO) of the Broadway Life Insurance Company. For the past five years, the three associates have worked together managing the BIMCO Aggressive Growth Fund (BAGF). During their management tenure the BAGF had excellent performance and was well recognized in the financial press. <br \/>\r<br><br \/>\r<br>Just over one year ago, Broadway Life was acquired by a larger company, Gobble Insurance, and as part of the consolidation process BIMCO was closed. The closure allowed Luna, Lawson and Miller to start their own investment management firm, Trio Investment Management LLC (TIM). TIM focuses on the small capitalization growth equities area. This is the same investment focus as the BAGF, but TIM will have individually managed accounts. Several cases have arisen calling for interpretation as to consistency with CFA Institute Standards of Professional Conduct. <br \/>\r<br><br \/>\r<br>Case 1 <br \/>\r<br>TIM markets its investment management services by contracting with small, local bank trust departments. One of the newest bank trust clients for TIM is Shadow Mountain Bank and Trust. Judy Sampson, CFA, the trust officer for Shadow Mountain, has scheduled a meeting with a potential client. When Lawson arrives for the client meeting, he finds that all of the TIM marketing material, including biographies of TIM portfolio managers, has been relabeled by Sampson as the Shadow Mountain Wealth Management Team. Sampson has also added the performance of BAGF into the current TIM Equity Composite Index portfolio and relabeled the resultant combined graph, the Shadow Mountain Equity Composite Index. Sampson states that making such changes would probably please clients and improve the chances of acquiring additional trust management accounts for Shadow Mountain and TIM. Lawson goes along and makes the presentation to the potential client using the Shadow Mountain marketing material and the relabeled BAGF\/TIM equity performance record. <br \/>\r<br><br \/>\r<br>Case 2 <br \/>\r<br>Susan Luna of TIM is meeting with Sol Wurtzel, an institutional salesman for Turn Byer, a large national brokerage firm. Luna complains that TIM*s technology costs are too high, especially their outside software services costs. TIM currently subscribes to two investment-related software services. The first software vendor is StockCal Software Services (StockCal), which provides valuation and stock charting capabilities TIM uses in their equity research and selection process. The other vendor is Add-Invest Software (Add-Invest), a software program providing account management and performance evaluation reporting which TIM uses in developing monthly reports for all clients. In response to Luna, Wurtzel suggests that Turn Byer has an excellent soft dollar trading desk and would be willing to offer to cover TIM's StockCal and Add-Invest expenses through soft dollar commissions. Luna then reviews TIM's projected commission dollars for the year and decides there are more than enough soft dollars to pay the StockCal, AGF and Add-Invest Software bills combined. Luna believes she can be assured of excellent trade execution from Turn Byer and improved profitability for TIM because of the increased use of soft dollars. Luna then directs that the StockCal and Add-Invest software services be paid for with soft dollar or client brokerage dollars. <br \/>\r<br><br \/>\r<br>Case 3 <br \/>\r<br>Sol Wurtzel, the equity salesman for Turn Byer, has referred several clients to TIM over the past year. In fact, Wurtzel referrals currently account for almost 20% of the assets managed by TIM. The principals of TIM decide to reward Wurtzel, either by doubling the commissions paid on trades executed through Turn Byer on Wurtzel's referral accounts, or by paying Wurtzel a cash referral fee for each additional TIM account opened by a Wurtzel referral. The principals agree that any cash referral fee would need to be disclosed to clients in advance. <br \/>\r<br><br \/>\r<br>Case 4 <br \/>\r<br>Luna notes that her clients have become increasingly aware of the directed client brokerage \/ soft dollar commissions issue. At a recent meeting with one of her large pension clients. Service Workers Union Local #1418, the subject of directed commissions came up. Upon learning of the commission dollars available to their account, the Union trustees directed Luna to use their client brokerage of approximately $25,000 to donate to a think lank called the Hoover Study Center of Unions at Samford University. Service Workers trustees believed the Hoover study will increase the public awareness of the benefits unions offer to their members and increase union membership. Luna concurs with the trustee's judgment on increasing union enrollment as a great goal, and follows the client's instructions and makes the $25,000 contribution to the Hoover Study Center. Another client, Rosa Lutz, has asked Luna to credit the soft dollar client brokerage proceeds from her personal retirement accounts to Roswell Academy, to update their computer lab. Luna agrees that a new computer lab for Roswell Academy is greatly needed and she allocates 510,000 of Lutz's commission dollars to Roswell Academy. <br \/>\r<br><br \/>\r<br>Would either of the compensation arrangements to reward Wurtzel for client referrals be in violation of the CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_52' value='148552' \/><input type='hidden' id='answerType148552' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148552[]' id='answer-id-604909' class='answer   answerof-148552 ' value='604909'   \/><label for='answer-id-604909' id='answer-label-604909' class=' answer'><span>Both compensation arrangements would be violations, regardless of any disclosures to clients.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148552[]' id='answer-id-604910' class='answer   answerof-148552 ' value='604910'   \/><label for='answer-id-604910' id='answer-label-604910' class=' answer'><span>The increased commissions plan would be a violation, while the cash referral fees would not be a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148552[]' id='answer-id-604911' class='answer   answerof-148552 ' value='604911'   \/><label for='answer-id-604911' id='answer-label-604911' class=' answer'><span>Doth compensation arrangements are allowed, as long as they are fully disclosed, in advance, to all clients and prospective clients.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-53' style=';'><div id='questionWrap-53'  class='   watupro-question-id-148553'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>53. <\/span>For the past 15 years, Susan Luna, CFA, Kyle Lawson, CFA, and Matt Miller. CFA, have worked together as equity analysts and then equity portfolio managers in the investment management division (BIMCO) of the Broadway Life Insurance Company. For the past five years, the three associates have worked together managing the BIMCO Aggressive Growth Fund (BAGF). During their management tenure the BAGF had excellent performance and was well recognized in the financial press. <br \/>\r<br><br \/>\r<br>Just over one year ago, Broadway Life was acquired by a larger company, Gobble Insurance, and as part of the consolidation process BIMCO was closed. The closure allowed Luna, Lawson and Miller to start their own investment management firm, Trio Investment Management LLC (TIM). TIM focuses on the small capitalization growth equities area. This is the same investment focus as the BAGF, but TIM will have individually managed accounts. Several cases have arisen calling for interpretation as to consistency with CFA Institute Standards of Professional Conduct. <br \/>\r<br><br \/>\r<br>Case 1 <br \/>\r<br>TIM markets its investment management services by contracting with small, local bank trust departments. One of the newest bank trust clients for TIM is Shadow Mountain Bank and Trust. Judy Sampson, CFA, the trust officer for Shadow Mountain, has scheduled a meeting with a potential client. When Lawson arrives for the client meeting, he finds that all of the TIM marketing material, including biographies of TIM portfolio managers, has been relabeled by Sampson as the Shadow Mountain Wealth Management Team. Sampson has also added the performance of BAGF into the current TIM Equity Composite Index portfolio and relabeled the resultant combined graph, the Shadow Mountain Equity Composite Index. Sampson states that making such changes would probably please clients and improve the chances of acquiring additional trust management accounts for Shadow Mountain and TIM. Lawson goes along and makes the presentation to the potential client using the Shadow Mountain marketing material and the relabeled BAGF\/TIM equity performance record. <br \/>\r<br><br \/>\r<br>Case 2 <br \/>\r<br>Susan Luna of TIM is meeting with Sol Wurtzel, an institutional salesman for Turn Byer, a large national brokerage firm. Luna complains that TIM*s technology costs are too high, especially their outside software services costs. TIM currently subscribes to two investment-related software services. The first software vendor is StockCal Software Services (StockCal), which provides valuation and stock charting capabilities TIM uses in their equity research and selection process. The other vendor is Add-Invest Software (Add-Invest), a software program providing account management and performance evaluation reporting which TIM uses in developing monthly reports for all clients. In response to Luna, Wurtzel suggests that Turn Byer has an excellent soft dollar trading desk and would be willing to offer to cover TIM's StockCal and Add-Invest expenses through soft dollar commissions. Luna then reviews TIM's projected commission dollars for the year and decides there are more than enough soft dollars to pay the StockCal, AGF and Add-Invest Software bills combined. Luna believes she can be assured of excellent trade execution from Turn Byer and improved profitability for TIM because of the increased use of soft dollars. Luna then directs that the StockCal and Add-Invest software services be paid for with soft dollar or client brokerage dollars. <br \/>\r<br><br \/>\r<br>Case 3 <br \/>\r<br>Sol Wurtzel, the equity salesman for Turn Byer, has referred several clients to TIM over the past year. In fact, Wurtzel referrals currently account for almost 20% of the assets managed by TIM. The principals of TIM decide to reward Wurtzel, either by doubling the commissions paid on trades executed through Turn Byer on Wurtzel's referral accounts, or by paying Wurtzel a cash referral fee for each additional TIM account opened by a Wurtzel referral. The principals agree that any cash referral fee would need to be disclosed to clients in advance. <br \/>\r<br><br \/>\r<br>Case 4 <br \/>\r<br>Luna notes that her clients have become increasingly aware of the directed client brokerage \/ soft dollar commissions issue. At a recent meeting with one of her large pension clients. Service Workers Union Local #1418, the subject of directed commissions came up. Upon learning of the commission dollars available to their account, the Union trustees directed Luna to use their client brokerage of approximately $25,000 to donate to a think lank called the Hoover Study Center of Unions at Samford University. Service Workers trustees believed the Hoover study will increase the public awareness of the benefits unions offer to their members and increase union membership. Luna concurs with the trustee's judgment on increasing union enrollment as a great goal, and follows the client's instructions and makes the $25,000 contribution to the Hoover Study Center. Another client, Rosa Lutz, has asked Luna to credit the soft dollar client brokerage proceeds from her personal retirement accounts to Roswell Academy, to update their computer lab. Luna agrees that a new computer lab for Roswell Academy is greatly needed and she allocates 510,000 of Lutz's commission dollars to Roswell Academy. <br \/>\r<br><br \/>\r<br>Is the use of client brokerage to make the $25,000 educational contribution to the Hoover Study Center of Unions a violation of the CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_53' value='148553' \/><input type='hidden' id='answerType148553' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148553[]' id='answer-id-604912' class='answer   answerof-148553 ' value='604912'   \/><label for='answer-id-604912' id='answer-label-604912' class=' answer'><span>Yes, because TIM must assure that client brokerage fees are directed to the benefit of the client.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148553[]' id='answer-id-604913' class='answer   answerof-148553 ' value='604913'   \/><label for='answer-id-604913' id='answer-label-604913' class=' answer'><span>Yes, because client brokerage must only be used to pay for goods and services directly related to the investment decision making process.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148553[]' id='answer-id-604914' class='answer   answerof-148553 ' value='604914'   \/><label for='answer-id-604914' id='answer-label-604914' class=' answer'><span>No, because the client brokerage has been spent at the specific direction of the client.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-54' style=';'><div id='questionWrap-54'  class='   watupro-question-id-148554'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>54. <\/span>For the past 15 years, Susan Luna, CFA, Kyle Lawson, CFA, and Matt Miller. CFA, have worked together as equity analysts and then equity portfolio managers in the investment management division (BIMCO) of the Broadway Life Insurance Company. For the past five years, the three associates have worked together managing the BIMCO Aggressive Growth Fund (BAGF). During their management tenure the BAGF had excellent performance and was well recognized in the financial press. <br \/>\r<br><br \/>\r<br>Just over one year ago, Broadway Life was acquired by a larger company, Gobble Insurance, and as part of the consolidation process BIMCO was closed. The closure allowed Luna, Lawson and Miller to start their own investment management firm, Trio Investment Management LLC (TIM). TIM focuses on the small capitalization growth equities area. This is the same investment focus as the BAGF, but TIM will have individually managed accounts. Several cases have arisen calling for interpretation as to consistency with CFA Institute Standards of Professional Conduct. <br \/>\r<br><br \/>\r<br>Case 1 <br \/>\r<br>TIM markets its investment management services by contracting with small, local bank trust departments. One of the newest bank trust clients for TIM is Shadow Mountain Bank and Trust. Judy Sampson, CFA, the trust officer for Shadow Mountain, has scheduled a meeting with a potential client. When Lawson arrives for the client meeting, he finds that all of the TIM marketing material, including biographies of TIM portfolio managers, has been relabeled by Sampson as the Shadow Mountain Wealth Management Team. Sampson has also added the performance of BAGF into the current TIM Equity Composite Index portfolio and relabeled the resultant combined graph, the Shadow Mountain Equity Composite Index. Sampson states that making such changes would probably please clients and improve the chances of acquiring additional trust management accounts for Shadow Mountain and TIM. Lawson goes along and makes the presentation to the potential client using the Shadow Mountain marketing material and the relabeled BAGF\/TIM equity performance record. <br \/>\r<br><br \/>\r<br>Case 2 <br \/>\r<br>Susan Luna of TIM is meeting with Sol Wurtzel, an institutional salesman for Turn Byer, a large national brokerage firm. Luna complains that TIM*s technology costs are too high, especially their outside software services costs. TIM currently subscribes to two investment-related software services. The first software vendor is StockCal Software Services (StockCal), which provides valuation and stock charting capabilities TIM uses in their equity research and selection process. The other vendor is Add-Invest Software (Add-Invest), a software program providing account management and performance evaluation reporting which TIM uses in developing monthly reports for all clients. In response to Luna, Wurtzel suggests that Turn Byer has an excellent soft dollar trading desk and would be willing to offer to cover TIM's StockCal and Add-Invest expenses through soft dollar commissions. Luna then reviews TIM's projected commission dollars for the year and decides there are more than enough soft dollars to pay the StockCal, AGF and Add-Invest Software bills combined. Luna believes she can be assured of excellent trade execution from Turn Byer and improved profitability for TIM because of the increased use of soft dollars. Luna then directs that the StockCal and Add-Invest software services be paid for with soft dollar or client brokerage dollars. <br \/>\r<br><br \/>\r<br>Case 3 <br \/>\r<br>Sol Wurtzel, the equity salesman for Turn Byer, has referred several clients to TIM over the past year. In fact, Wurtzel referrals currently account for almost 20% of the assets managed by TIM. The principals of TIM decide to reward Wurtzel, either by doubling the commissions paid on trades executed through Turn Byer on Wurtzel's referral accounts, or by paying Wurtzel a cash referral fee for each additional TIM account opened by a Wurtzel referral. The principals agree that any cash referral fee would need to be disclosed to clients in advance. <br \/>\r<br><br \/>\r<br>Case 4 <br \/>\r<br>Luna notes that her clients have become increasingly aware of the directed client brokerage \/ soft dollar commissions issue. At a recent meeting with one of her large pension clients. Service Workers Union Local #1418, the subject of directed commissions came up. Upon learning of the commission dollars available to their account, the Union trustees directed Luna to use their client brokerage of approximately $25,000 to donate to a think lank called the Hoover Study Center of Unions at Samford University. Service Workers trustees believed the Hoover study will increase the public awareness of the benefits unions offer to their members and increase union membership. Luna concurs with the trustee's judgment on increasing union enrollment as a great goal, and follows the client's instructions and makes the $25,000 contribution to the Hoover Study Center. Another client, Rosa Lutz, has asked Luna to credit the soft dollar client brokerage proceeds from her personal retirement accounts to Roswell Academy, to update their computer lab. Luna agrees that a new computer lab for Roswell Academy is greatly needed and she allocates 510,000 of Lutz's commission dollars to Roswell Academy. <br \/>\r<br><br \/>\r<br>Is the use of client brokerage to make the $ 10,000 contribution to the Roswell Academy a violation of the CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_54' value='148554' \/><input type='hidden' id='answerType148554' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148554[]' id='answer-id-604915' class='answer   answerof-148554 ' value='604915'   \/><label for='answer-id-604915' id='answer-label-604915' class=' answer'><span>Yes, because client brokerage must only be used to pay for goods and services directly related to the investment decision making process.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148554[]' id='answer-id-604916' class='answer   answerof-148554 ' value='604916'   \/><label for='answer-id-604916' id='answer-label-604916' class=' answer'><span>Yes, because client brokerage of tax-deferred accounts can not be used to make charitable contributions.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148554[]' id='answer-id-604917' class='answer   answerof-148554 ' value='604917'   \/><label for='answer-id-604917' id='answer-label-604917' class=' answer'><span>No, because the client brokerage has been spent at the specific direction of the client.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-55' style=';'><div id='questionWrap-55'  class='   watupro-question-id-148555'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>55. <\/span>Chester Brothers, LLC, is an investment management firm with $200 million in assets under management. Chester's equity style is described to clients as a &quot;large cap core&quot; strategy. One year ago, Chester instituted a new compensation plan for its equity portfolio managers. Under this new plan, each portfolio manager receives an annual bonus based upon that manager's quarterly performance relative to the S&amp;P 500 index. For each quarter of aut-performance, the manager receives a bonus in the amount of 20% of his regular annual compensation. Chester has not disclosed this new plan to clients. Portfolio managers at Chester are not bound by non-compete agreements. <br \/>\r<br><br \/>\r<br>Fames Rogers, CFA, and Karen Pierce, CFA, are both portfolio managers affected by the new policy. Rogers out-performed the S&amp;P 500 index in each of the last three quarters, largely because he began investing his clients1 funds in small cap securities. Chester has recently been citing Rogers's performance in local media advertising, including claims that &quot;Chester's star manager, James Rogers, has outperformed the S&amp;P 500 index in each of the last three quarters.&quot; The print advertising associated with the media campaign includes a photograph of Rogers, identifying him as James Rogers, CFA. Below his name is a quote apparently attributable to Rogers saying &quot;as a CFA chartcrholdcr I am committed to the highest ethical standards.&quot; <br \/>\r<br><br \/>\r<br>A few weeks after the advertising campaign began, Rogers was approached by the Grumpp Foundation, a local charitable endowment with $3 billion in assets, about serving on their investment advisory committee. The committee meets weekly to review the portfolio and make adjustments as needed. The Grumpp trustees were impressed by the favorable mention of Rogers in the marketing campaign. In making their offer, they even suggested that Rogers could mention his position on the advisory committee in future Chester marketing material. Rogers has not informed Chester about the Grumpp offer, but he has not yet accepted the position. <br \/>\r<br><br \/>\r<br>Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a computer model she developed while working al Chester, as well as the most recent list of her buy recommendations, which was created from the output of her computer valuation model. Pierce soon accepted a position at a competing firm, Cheeri Group. On her first day at Cheeri, she contacted each of her five largest former clients, informing them of her new employment and asking that they consider moving their accounts from Chester to Cheeri. During both telephone conversations and e-mails with her former clients, Pierce mentioned that Chester had a new compensation program that created incentives for managers to shift into smaller cap securities. <br \/>\r<br><br \/>\r<br>Cheeri has posted Pierce's investment performance for the past five years on its Web site, excluding the three most recent quarters. <br \/>\r<br>The footnotes to the performance information include the following two statements: <br \/>\r<br>Statement 1: Includes large capitalization portfolios only. <br \/>\r<br>Statement 2: Results reflect manager's performance at previous employer. <br \/>\r<br><br \/>\r<br>Chester's new compensation plan for awarding bonuses to individual portfolio managers:<\/div><input type='hidden' name='question_id[]' id='qID_55' value='148555' \/><input type='hidden' id='answerType148555' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148555[]' id='answer-id-604918' class='answer   answerof-148555 ' value='604918'   \/><label for='answer-id-604918' id='answer-label-604918' class=' answer'><span>is consistent with CFA Institute Standards and does not require disclosure.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148555[]' id='answer-id-604919' class='answer   answerof-148555 ' value='604919'   \/><label for='answer-id-604919' id='answer-label-604919' class=' answer'><span>is consistent with CFA Institute Standards only if fully disclosed to clients.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148555[]' id='answer-id-604920' class='answer   answerof-148555 ' value='604920'   \/><label for='answer-id-604920' id='answer-label-604920' class=' answer'><span>is consistent with CFA Institute Standards, but any bonuses awarded under the plan must be fully disclosed to clients.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-56' style=';'><div id='questionWrap-56'  class='   watupro-question-id-148556'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>56. <\/span>Chester Brothers, LLC, is an investment management firm with $200 million in assets under management. Chester's equity style is described to clients as a &quot;large cap core&quot; strategy. One year ago, Chester instituted a new compensation plan for its equity portfolio managers. Under this new plan, each portfolio manager receives an annual bonus based upon that manager's quarterly performance relative to the S&amp;P 500 index. For each quarter of aut-performance, the manager receives a bonus in the amount of 20% of his regular annual compensation. Chester has not disclosed this new plan to clients. Portfolio managers at Chester are not bound by non-compete agreements. <br \/>\r<br><br \/>\r<br>Fames Rogers, CFA, and Karen Pierce, CFA, are both portfolio managers affected by the new policy. Rogers out-performed the S&amp;P 500 index in each of the last three quarters, largely because he began investing his clients1 funds in small cap securities. Chester has recently been citing Rogers's performance in local media advertising, including claims that &quot;Chester's star manager, James Rogers, has outperformed the S&amp;P 500 index in each of the last three quarters.&quot; The print advertising associated with the media campaign includes a photograph of Rogers, identifying him as James Rogers, CFA. Below his name is a quote apparently attributable to Rogers saying &quot;as a CFA chartcrholdcr I am committed to the highest ethical standards.&quot; <br \/>\r<br><br \/>\r<br>A few weeks after the advertising campaign began, Rogers was approached by the Grumpp Foundation, a local charitable endowment with $3 billion in assets, about serving on their investment advisory committee. The committee meets weekly to review the portfolio and make adjustments as needed. The Grumpp trustees were impressed by the favorable mention of Rogers in the marketing campaign. In making their offer, they even suggested that Rogers could mention his position on the advisory committee in future Chester marketing material. Rogers has not informed Chester about the Grumpp offer, but he has not yet accepted the position. <br \/>\r<br><br \/>\r<br>Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a computer model she developed while working al Chester, as well as the most recent list of her buy recommendations, which was created from the output of her computer valuation model. Pierce soon accepted a position at a competing firm, Cheeri Group. On her first day at Cheeri, she contacted each of her five largest former clients, informing them of her new employment and asking that they consider moving their accounts from Chester to Cheeri. During both telephone conversations and e-mails with her former clients, Pierce mentioned that Chester had a new compensation program that created incentives for managers to shift into smaller cap securities. <br \/>\r<br><br \/>\r<br>Cheeri has posted Pierce's investment performance for the past five years on its Web site, excluding the three most recent quarters. <br \/>\r<br>The footnotes to the performance information include the following two statements: <br \/>\r<br>Statement 1: Includes large capitalization portfolios only. <br \/>\r<br>Statement 2: Results reflect manager's performance at previous employer. <br \/>\r<br><br \/>\r<br>Assuming Rogers would like to accept the offer to serve on the Grumpp investment advisory committee, Rogers's obligations under the CFA Institute Standards require that he:<\/div><input type='hidden' name='question_id[]' id='qID_56' value='148556' \/><input type='hidden' id='answerType148556' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148556[]' id='answer-id-604921' class='answer   answerof-148556 ' value='604921'   \/><label for='answer-id-604921' id='answer-label-604921' class=' answer'><span>refuse to serve on the Grumpp committee.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148556[]' id='answer-id-604922' class='answer   answerof-148556 ' value='604922'   \/><label for='answer-id-604922' id='answer-label-604922' class=' answer'><span>accept the Grumpp committee position only after disclosing the offer to his supervisor.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148556[]' id='answer-id-604923' class='answer   answerof-148556 ' value='604923'   \/><label for='answer-id-604923' id='answer-label-604923' class=' answer'><span>accept the Grumpp committee position and disclose his acceptance as soon as possible to his supervisor.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-57' style=';'><div id='questionWrap-57'  class='   watupro-question-id-148557'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>57. <\/span>Chester Brothers, LLC, is an investment management firm with $200 million in assets under management. Chester's equity style is described to clients as a &quot;large cap core&quot; strategy. One year ago, Chester instituted a new compensation plan for its equity portfolio managers. Under this new plan, each portfolio manager receives an annual bonus based upon that manager's quarterly performance relative to the S&amp;P 500 index. For each quarter of aut-performance, the manager receives a bonus in the amount of 20% of his regular annual compensation. Chester has not disclosed this new plan to clients. Portfolio managers at Chester are not bound by non-compete agreements. <br \/>\r<br><br \/>\r<br>Fames Rogers, CFA, and Karen Pierce, CFA, are both portfolio managers affected by the new policy. Rogers out-performed the S&amp;P 500 index in each of the last three quarters, largely because he began investing his clients1 funds in small cap securities. Chester has recently been citing Rogers's performance in local media advertising, including claims that &quot;Chester's star manager, James Rogers, has outperformed the S&amp;P 500 index in each of the last three quarters.&quot; The print advertising associated with the media campaign includes a photograph of Rogers, identifying him as James Rogers, CFA. Below his name is a quote apparently attributable to Rogers saying &quot;as a CFA chartcrholdcr I am committed to the highest ethical standards.&quot; <br \/>\r<br><br \/>\r<br>A few weeks after the advertising campaign began, Rogers was approached by the Grumpp Foundation, a local charitable endowment with $3 billion in assets, about serving on their investment advisory committee. The committee meets weekly to review the portfolio and make adjustments as needed. The Grumpp trustees were impressed by the favorable mention of Rogers in the marketing campaign. In making their offer, they even suggested that Rogers could mention his position on the advisory committee in future Chester marketing material. Rogers has not informed Chester about the Grumpp offer, but he has not yet accepted the position. <br \/>\r<br><br \/>\r<br>Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a computer model she developed while working al Chester, as well as the most recent list of her buy recommendations, which was created from the output of her computer valuation model. Pierce soon accepted a position at a competing firm, Cheeri Group. On her first day at Cheeri, she contacted each of her five largest former clients, informing them of her new employment and asking that they consider moving their accounts from Chester to Cheeri. During both telephone conversations and e-mails with her former clients, Pierce mentioned that Chester had a new compensation program that created incentives for managers to shift into smaller cap securities. <br \/>\r<br><br \/>\r<br>Cheeri has posted Pierce's investment performance for the past five years on its Web site, excluding the three most recent quarters. <br \/>\r<br>The footnotes to the performance information include the following two statements: <br \/>\r<br>Statement 1: Includes large capitalization portfolios only. <br \/>\r<br>Statement 2: Results reflect manager's performance at previous employer. <br \/>\r<br><br \/>\r<br>Chester's advertising campaign includes claims about Rogers's investment performance, as well as Rogers's use and reference to the CFA charter. Is Chester's advertising campaign consistent with the CFA Institute Standards?<\/div><input type='hidden' name='question_id[]' id='qID_57' value='148557' \/><input type='hidden' id='answerType148557' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148557[]' id='answer-id-604924' class='answer   answerof-148557 ' value='604924'   \/><label for='answer-id-604924' id='answer-label-604924' class=' answer'><span>Chester's performance claims are inconsistent with CFA Institute Standards, but his use and reference to the CFA designation is appropriate.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148557[]' id='answer-id-604925' class='answer   answerof-148557 ' value='604925'   \/><label for='answer-id-604925' id='answer-label-604925' class=' answer'><span>Both the performance claim and the reference to the CFA charter are violations.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148557[]' id='answer-id-604926' class='answer   answerof-148557 ' value='604926'   \/><label for='answer-id-604926' id='answer-label-604926' class=' answer'><span>Neither the performance claims nor the use and reference to the CFA designation are violations.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-58' style=';'><div id='questionWrap-58'  class='   watupro-question-id-148558'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>58. <\/span>Chester Brothers, LLC, is an investment management firm with $200 million in assets under management. Chester's equity style is described to clients as a &quot;large cap core&quot; strategy. One year ago, Chester instituted a new compensation plan for its equity portfolio managers. Under this new plan, each portfolio manager receives an annual bonus based upon that manager's quarterly performance relative to the S&amp;P 500 index. For each quarter of aut-performance, the manager receives a bonus in the amount of 20% of his regular annual compensation. Chester has not disclosed this new plan to clients. Portfolio managers at Chester are not bound by non-compete agreements. <br \/>\r<br><br \/>\r<br>Fames Rogers, CFA, and Karen Pierce, CFA, are both portfolio managers affected by the new policy. Rogers out-performed the S&amp;P 500 index in each of the last three quarters, largely because he began investing his clients1 funds in small cap securities. Chester has recently been citing Rogers's performance in local media advertising, including claims that &quot;Chester's star manager, James Rogers, has outperformed the S&amp;P 500 index in each of the last three quarters.&quot; The print advertising associated with the media campaign includes a photograph of Rogers, identifying him as James Rogers, CFA. Below his name is a quote apparently attributable to Rogers saying &quot;as a CFA chartcrholdcr I am committed to the highest ethical standards.&quot; <br \/>\r<br><br \/>\r<br>A few weeks after the advertising campaign began, Rogers was approached by the Grumpp Foundation, a local charitable endowment with $3 billion in assets, about serving on their investment advisory committee. The committee meets weekly to review the portfolio and make adjustments as needed. The Grumpp trustees were impressed by the favorable mention of Rogers in the marketing campaign. In making their offer, they even suggested that Rogers could mention his position on the advisory committee in future Chester marketing material. Rogers has not informed Chester about the Grumpp offer, but he has not yet accepted the position. <br \/>\r<br><br \/>\r<br>Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a computer model she developed while working al Chester, as well as the most recent list of her buy recommendations, which was created from the output of her computer valuation model. Pierce soon accepted a position at a competing firm, Cheeri Group. On her first day at Cheeri, she contacted each of her five largest former clients, informing them of her new employment and asking that they consider moving their accounts from Chester to Cheeri. During both telephone conversations and e-mails with her former clients, Pierce mentioned that Chester had a new compensation program that created incentives for managers to shift into smaller cap securities. <br \/>\r<br><br \/>\r<br>Cheeri has posted Pierce's investment performance for the past five years on its Web site, excluding the three most recent quarters. <br \/>\r<br>The footnotes to the performance information include the following two statements: <br \/>\r<br>Statement 1: Includes large capitalization portfolios only. <br \/>\r<br>Statement 2: Results reflect manager's performance at previous employer. <br \/>\r<br><br \/>\r<br>When Pierce left her position at Chester, her behavior was inconsistent with the CFA Institute Standards in that:<\/div><input type='hidden' name='question_id[]' id='qID_58' value='148558' \/><input type='hidden' id='answerType148558' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148558[]' id='answer-id-604927' class='answer   answerof-148558 ' value='604927'   \/><label for='answer-id-604927' id='answer-label-604927' class=' answer'><span>taking the computer model was a violation, but taking the recommended list was not a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148558[]' id='answer-id-604928' class='answer   answerof-148558 ' value='604928'   \/><label for='answer-id-604928' id='answer-label-604928' class=' answer'><span>taking the list of her recommendations was a violation, but taking the computer model was not a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148558[]' id='answer-id-604929' class='answer   answerof-148558 ' value='604929'   \/><label for='answer-id-604929' id='answer-label-604929' class=' answer'><span>both the computer model and the recommended list were Chester property that Pierce should not have taken.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-59' style=';'><div id='questionWrap-59'  class='   watupro-question-id-148559'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>59. <\/span>Chester Brothers, LLC, is an investment management firm with $200 million in assets under management. Chester's equity style is described to clients as a &quot;large cap core&quot; strategy. One year ago, Chester instituted a new compensation plan for its equity portfolio managers. Under this new plan, each portfolio manager receives an annual bonus based upon that manager's quarterly performance relative to the S&amp;P 500 index. For each quarter of aut-performance, the manager receives a bonus in the amount of 20% of his regular annual compensation. Chester has not disclosed this new plan to clients. Portfolio managers at Chester are not bound by non-compete agreements. <br \/>\r<br><br \/>\r<br>Fames Rogers, CFA, and Karen Pierce, CFA, are both portfolio managers affected by the new policy. Rogers out-performed the S&amp;P 500 index in each of the last three quarters, largely because he began investing his clients1 funds in small cap securities. Chester has recently been citing Rogers's performance in local media advertising, including claims that &quot;Chester's star manager, James Rogers, has outperformed the S&amp;P 500 index in each of the last three quarters.&quot; The print advertising associated with the media campaign includes a photograph of Rogers, identifying him as James Rogers, CFA. Below his name is a quote apparently attributable to Rogers saying &quot;as a CFA chartcrholdcr I am committed to the highest ethical standards.&quot; <br \/>\r<br><br \/>\r<br>A few weeks after the advertising campaign began, Rogers was approached by the Grumpp Foundation, a local charitable endowment with $3 billion in assets, about serving on their investment advisory committee. The committee meets weekly to review the portfolio and make adjustments as needed. The Grumpp trustees were impressed by the favorable mention of Rogers in the marketing campaign. In making their offer, they even suggested that Rogers could mention his position on the advisory committee in future Chester marketing material. Rogers has not informed Chester about the Grumpp offer, but he has not yet accepted the position. <br \/>\r<br><br \/>\r<br>Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a computer model she developed while working al Chester, as well as the most recent list of her buy recommendations, which was created from the output of her computer valuation model. Pierce soon accepted a position at a competing firm, Cheeri Group. On her first day at Cheeri, she contacted each of her five largest former clients, informing them of her new employment and asking that they consider moving their accounts from Chester to Cheeri. During both telephone conversations and e-mails with her former clients, Pierce mentioned that Chester had a new compensation program that created incentives for managers to shift into smaller cap securities. <br \/>\r<br><br \/>\r<br>Cheeri has posted Pierce's investment performance for the past five years on its Web site, excluding the three most recent quarters. <br \/>\r<br>The footnotes to the performance information include the following two statements: <br \/>\r<br>Statement 1: Includes large capitalization portfolios only. <br \/>\r<br>Statement 2: Results reflect manager's performance at previous employer. <br \/>\r<br><br \/>\r<br>Pierce's behavior upon assuming her new position at Cheeri can best be described as violating CFA Institute Standards because she:<\/div><input type='hidden' name='question_id[]' id='qID_59' value='148559' \/><input type='hidden' id='answerType148559' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148559[]' id='answer-id-604930' class='answer   answerof-148559 ' value='604930'   \/><label for='answer-id-604930' id='answer-label-604930' class=' answer'><span>encouraged her former clients to leave Chester.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148559[]' id='answer-id-604931' class='answer   answerof-148559 ' value='604931'   \/><label for='answer-id-604931' id='answer-label-604931' class=' answer'><span>should not have contacted her former clients at all.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148559[]' id='answer-id-604932' class='answer   answerof-148559 ' value='604932'   \/><label for='answer-id-604932' id='answer-label-604932' class=' answer'><span>disclosed Chester's new compensation program.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-60' style=';'><div id='questionWrap-60'  class='   watupro-question-id-148560'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>60. <\/span>Chester Brothers, LLC, is an investment management firm with $200 million in assets under management. Chester's equity style is described to clients as a &quot;large cap core&quot; strategy. One year ago, Chester instituted a new compensation plan for its equity portfolio managers. Under this new plan, each portfolio manager receives an annual bonus based upon that manager's quarterly performance relative to the S&amp;P 500 index. For each quarter of aut-performance, the manager receives a bonus in the amount of 20% of his regular annual compensation. Chester has not disclosed this new plan to clients. Portfolio managers at Chester are not bound by non-compete agreements. <br \/>\r<br><br \/>\r<br>Fames Rogers, CFA, and Karen Pierce, CFA, are both portfolio managers affected by the new policy. Rogers out-performed the S&amp;P 500 index in each of the last three quarters, largely because he began investing his clients1 funds in small cap securities. Chester has recently been citing Rogers's performance in local media advertising, including claims that &quot;Chester's star manager, James Rogers, has outperformed the S&amp;P 500 index in each of the last three quarters.&quot; The print advertising associated with the media campaign includes a photograph of Rogers, identifying him as James Rogers, CFA. Below his name is a quote apparently attributable to Rogers saying &quot;as a CFA chartcrholdcr I am committed to the highest ethical standards.&quot; <br \/>\r<br><br \/>\r<br>A few weeks after the advertising campaign began, Rogers was approached by the Grumpp Foundation, a local charitable endowment with $3 billion in assets, about serving on their investment advisory committee. The committee meets weekly to review the portfolio and make adjustments as needed. The Grumpp trustees were impressed by the favorable mention of Rogers in the marketing campaign. In making their offer, they even suggested that Rogers could mention his position on the advisory committee in future Chester marketing material. Rogers has not informed Chester about the Grumpp offer, but he has not yet accepted the position. <br \/>\r<br><br \/>\r<br>Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a Pierce has not fared as well as Rogers. She also shifted into smaller cap securities, but due to two extremely poor performing large cap stocks, her performance lagged the S&amp;P 500 index for the first three quarters. After an angry confrontation with her supervisor, Pierce resigned. Pierce did not take any client information with her, but when she left she did take a copy of a computer model she developed while working al Chester, as well as the most recent list of her buy recommendations, which was created from the output of her computer valuation model. Pierce soon accepted a position at a competing firm, Cheeri Group. On her first day at Cheeri, she contacted each of her five largest former clients, informing them of her new employment and asking that they consider moving their accounts from Chester to Cheeri. During both telephone conversations and e-mails with her former clients, Pierce mentioned that Chester had a new compensation program that created incentives for managers to shift into smaller cap securities. <br \/>\r<br><br \/>\r<br>Cheeri has posted Pierce's investment performance for the past five years on its Web site, excluding the three most recent quarters. <br \/>\r<br>The footnotes to the performance information include the following two statements: <br \/>\r<br>Statement 1: Includes large capitalization portfolios only. <br \/>\r<br>Statement 2: Results reflect manager's performance at previous employer. <br \/>\r<br><br \/>\r<br>Cheeri's presentation of Pierce's investment performance is inconsistent with CFA Institute Standards because:<\/div><input type='hidden' name='question_id[]' id='qID_60' value='148560' \/><input type='hidden' id='answerType148560' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148560[]' id='answer-id-604933' class='answer   answerof-148560 ' value='604933'   \/><label for='answer-id-604933' id='answer-label-604933' class=' answer'><span>the results were not calculated under GIP<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148560[]' id='answer-id-604934' class='answer   answerof-148560 ' value='604934'   \/><label for='answer-id-604934' id='answer-label-604934' class=' answer'><span>performance from a previous employer should not be included.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148560[]' id='answer-id-604935' class='answer   answerof-148560 ' value='604935'   \/><label for='answer-id-604935' id='answer-label-604935' class=' answer'><span>the results misrepresent Pierce's large cap performance.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-61' style=';'><div id='questionWrap-61'  class='   watupro-question-id-148561'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>61. <\/span>Susan Foley, CFA, is Chief Investment Officer of Federated Investment Management Co. (FIMCO), a large investment management firm that includes a family of mutual funds as well as individually managed accounts. The individually managed accounts include individuals, personal trusts, and employee benefit plans. In the past few months, Foley has encountered a couple of problems. <br \/>\r<br><br \/>\r<br>The Tasty IPO <br \/>\r<br><br \/>\r<br>Most portfolio managers of FIMCO have not participated in the initial public offering (IPO) market in recent years. However, recent changes to the compensation calculation at FIMCO have tied manager bonuses to portfolio performance. The changes were outlined in a letter that was sent out to clients and prospects shortly before the new bonus structure took effect. Carl Lee, CFA, is one portfolio manager who believes that investing in IPOs may add to his client's equity performance and, in turn, increase his bonus. While Lee's individual clients have done quite well this year, his employee benefit plans have suffered as a result of limited exposure to the strongest performing sector of the market. Lee has placed an order for all employee benefit plans to receive an allocation of the Tasty Doughnut IPO. Tasty is an over-subscribed IPO that Lee knew would make money for his clients. When he placed the order, Lee's assistant reminded him that one pension plan. Ultra Airlines, was explicitly prohibited from investing in IPOs in its investment policy statement, due to the under-funded status of the pension plan. Lee responded that the Tasty IPO would never actually be owned in Ultra's account, because he would sell the IPO stock before the end of the day and realize a profit before the position ever hit the books. <br \/>\r<br><br \/>\r<br>Another manager, Franz Mason, CFA, who manages accounts for about 150 individuals, is also interested in the Tasty IPO. Mason visits Lee's portfolio assistant and quizzes him about Lee's participation in the Tasty deal. Mason is sure that Lee would not have bought into Tasty unless he had done his homework. Mason places an order for 10,000 shares of the IPO. Mason returns to his desk and begins to allocate the IPO shares among his clients. Mason divides his client base into two groups: clients who are income-oriented and clients who arc capital gains-oriented. Mason believes those clients that are income-oriented are fairly risk averse and could not replace lost capital if the Tasty Doughnut deal lost money. Mason believes the capital gains-oriented accounts arc better able to withstand the potential loss associated with the Tasty IPO. Accordingly, Mason allocates his 10,000 share order of the Tasty IPO strictly to his capital appreciation clients using a pro rata allocation based on the size of the assets under management in each account. <br \/>\r<br><br \/>\r<br>FIMCO Income Fund (FIF) <br \/>\r<br><br \/>\r<br>Over the past three years, the FIF, with $5 billion in assets, has been the company's best performing mutual fund. Jane Ryan, CFA, managed the FIF for seven years, but resigned one year ago to start her own hedge fund. Under Ryan, the FIF invested in large cap stocks with reliable dividends. The fund's prospectus specifies that FIF will invest only in stocks that have paid a dividend for at least two quarters, and have a market capitalization in excess of $2.5 billion. Foley appointed FIMCO's next best manager (based on 5-year performance numbers) Steve Parsons, CFA, to replace Ryan. Parsons had been a very successful manager of the FIMCO Opportunity Fund, which specialized in small capitalization stocks. Six months after Parsons took over the helm at FIF. the portfolio had changed. The average market capitalization of FIF's holdings was $12.8 billion, as opposed to $21 billion a year ago. Over the same period, the average dividend yield on the portfolio had fallen from 3.8% to 3.1%. The performance of the FIF lagged its peer group for the first time in three years. In response to the lagging performance, Parsons purchased five stocks six months ago. Parsons bought all five stocks, none of which paid a dividend at the time of purchase, in anticipation that each company was likely to initiate dividends in the near future. So far, four of the stocks have initiated dividend payments, and their performance has benefited as a result. The fifth stock did not initiate a dividend, and Parsons sold the position last week. Largely due to the addition of the five new stocks, the FIF's performance has led its peer group over the past six months. <br \/>\r<br><br \/>\r<br>Before leaving FIMCO, Ryan had told Foley that above-average returns from both the management and client side could be gained from entering into the risk-arbitrage hedge fund market. Ryan had tried to convince FIMCO management to enter the risk-arbitrage market, but the firm determined that no one had the experience or research capability to run a risk-arbitrage operation. As a result, Ryan started the Plasma Fund LLC one month after leaving FIMCO. Foley remembers seeing Ryan at the annual FIMCO client dinner parly (before she left the firm) discussing the profits to be made from risk-arbitrage investing with several large FIF shareholders. Ryan mentioned that she would be opening the Plasma Fund to these FIMCO clients, several of whom made substantial investments in the first months of Plasma Fund's life. After Ryan resigned and left her office, Foley performed an inventory of firm assets signed out to Ryan. One of the copies of the proprietary stock selection software packages, FIMCO-SelectStock, assigned to Ryan was missing along with several of the SelectStock operating manuals. When Foley contacts Ryan about the missing software and manuals, Ryan states that the reason she took the SelectStock software was that it was an out of date version that FIMCO's information technology staff had urged all managers to discard. <br \/>\r<br><br \/>\r<br>Regarding Lee's order for employee benefit plans to receive an allocation of the Tasty Doughnut IPO, and his purchase of the Tasty Doughnut IPO for the Ultra Airlines Pension account, which of the following statements is most accurate?<\/div><input type='hidden' name='question_id[]' id='qID_61' value='148561' \/><input type='hidden' id='answerType148561' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148561[]' id='answer-id-604936' class='answer   answerof-148561 ' value='604936'   \/><label for='answer-id-604936' id='answer-label-604936' class=' answer'><span>Lee's order for all employee benefit plans to receive an allocation of the Tasty Doughnuts IPO is acceptable, but Lee has violated CFA Institute Standards by placing the IPO order in the Ultra Airlines pension account.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148561[]' id='answer-id-604937' class='answer   answerof-148561 ' value='604937'   \/><label for='answer-id-604937' id='answer-label-604937' class=' answer'><span>Lee's order for all employee benefit plans to receive an allocation of the Tasty Doughnuts IPO is acceptable, since it is appropriate for his clients' employee benefit plans, and Lee has followed the CFA Institute Standards by notifying clients about recent compensation calculation changes, but Lee has violated CFA Institute Standards by placing the IPO order in the Ultra Airlines pension account.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148561[]' id='answer-id-604938' class='answer   answerof-148561 ' value='604938'   \/><label for='answer-id-604938' id='answer-label-604938' class=' answer'><span>By allocating the Tasty Doughnuts IPO to employee benefit accounts only, Lee is discriminating against other accounts who may have also wanted to participate in the Tasty IP<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148561[]' id='answer-id-604939' class='answer   answerof-148561 ' value='604939'   \/><label for='answer-id-604939' id='answer-label-604939' class=' answer'><span>Purchasing shares in the Tasty Doughnuts IPO for the Ultra Airlines account is a violation of CFA Institute Standards, since it violates the investment policy statement (IPS).<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-62' style=';'><div id='questionWrap-62'  class='   watupro-question-id-148562'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>62. <\/span>Susan Foley, CFA, is Chief Investment Officer of Federated Investment Management Co. (FIMCO), a large investment management firm that includes a family of mutual funds as well as individually managed accounts. The individually managed accounts include individuals, personal trusts, and employee benefit plans. In the past few months, Foley has encountered a couple of problems. <br \/>\r<br><br \/>\r<br>The Tasty IPO <br \/>\r<br><br \/>\r<br>Most portfolio managers of FIMCO have not participated in the initial public offering (IPO) market in recent years. However, recent changes to the compensation calculation at FIMCO have tied manager bonuses to portfolio performance. The changes were outlined in a letter that was sent out to clients and prospects shortly before the new bonus structure took effect. Carl Lee, CFA, is one portfolio manager who believes that investing in IPOs may add to his client's equity performance and, in turn, increase his bonus. While Lee's individual clients have done quite well this year, his employee benefit plans have suffered as a result of limited exposure to the strongest performing sector of the market. Lee has placed an order for all employee benefit plans to receive an allocation of the Tasty Doughnut IPO. Tasty is an over-subscribed IPO that Lee knew would make money for his clients. When he placed the order, Lee's assistant reminded him that one pension plan. Ultra Airlines, was explicitly prohibited from investing in IPOs in its investment policy statement, due to the under-funded status of the pension plan. Lee responded that the Tasty IPO would never actually be owned in Ultra's account, because he would sell the IPO stock before the end of the day and realize a profit before the position ever hit the books. <br \/>\r<br><br \/>\r<br>Another manager, Franz Mason, CFA, who manages accounts for about 150 individuals, is also interested in the Tasty IPO. Mason visits Lee's portfolio assistant and quizzes him about Lee's participation in the Tasty deal. Mason is sure that Lee would not have bought into Tasty unless he had done his homework. Mason places an order for 10,000 shares of the IPO. Mason returns to his desk and begins to allocate the IPO shares among his clients. Mason divides his client base into two groups: clients who are income-oriented and clients who arc capital gains-oriented. Mason believes those clients that are income-oriented are fairly risk averse and could not replace lost capital if the Tasty Doughnut deal lost money. Mason believes the capital gains-oriented accounts arc better able to withstand the potential loss associated with the Tasty IPO. Accordingly, Mason allocates his 10,000 share order of the Tasty IPO strictly to his capital appreciation clients using a pro rata allocation based on the size of the assets under management in each account. <br \/>\r<br><br \/>\r<br>FIMCO Income Fund (FIF) <br \/>\r<br><br \/>\r<br>Over the past three years, the FIF, with $5 billion in assets, has been the company's best performing mutual fund. Jane Ryan, CFA, managed the FIF for seven years, but resigned one year ago to start her own hedge fund. Under Ryan, the FIF invested in large cap stocks with reliable dividends. The fund's prospectus specifies that FIF will invest only in stocks that have paid a dividend for at least two quarters, and have a market capitalization in excess of $2.5 billion. Foley appointed FIMCO's next best manager (based on 5-year performance numbers) Steve Parsons, CFA, to replace Ryan. Parsons had been a very successful manager of the FIMCO Opportunity Fund, which specialized in small capitalization stocks. Six months after Parsons took over the helm at FIF. the portfolio had changed. The average market capitalization of FIF's holdings was $12.8 billion, as opposed to $21 billion a year ago. Over the same period, the average dividend yield on the portfolio had fallen from 3.8% to 3.1%. The performance of the FIF lagged its peer group for the first time in three years. In response to the lagging performance, Parsons purchased five stocks six months ago. Parsons bought all five stocks, none of which paid a dividend at the time of purchase, in anticipation that each company was likely to initiate dividends in the near future. So far, four of the stocks have initiated dividend payments, and their performance has benefited as a result. The fifth stock did not initiate a dividend, and Parsons sold the position last week. Largely due to the addition of the five new stocks, the FIF's performance has led its peer group over the past six months. <br \/>\r<br><br \/>\r<br>Before leaving FIMCO, Ryan had told Foley that above-average returns from both the management and client side could be gained from entering into the risk-arbitrage hedge fund market. Ryan had tried to convince FIMCO management to enter the risk-arbitrage market, but the firm determined that no one had the experience or research capability to run a risk-arbitrage operation. As a result, Ryan started the Plasma Fund LLC one month after leaving FIMCO. Foley remembers seeing Ryan at the annual FIMCO client dinner parly (before she left the firm) discussing the profits to be made from risk-arbitrage investing with several large FIF shareholders. Ryan mentioned that she would be opening the Plasma Fund to these FIMCO clients, several of whom made substantial investments in the first months of Plasma Fund's life. After Ryan resigned and left her office, Foley performed an inventory of firm assets signed out to Ryan. One of the copies of the proprietary stock selection software packages, FIMCO-SelectStock, assigned to Ryan was missing along with several of the SelectStock operating manuals. When Foley contacts Ryan about the missing software and manuals, Ryan states that the reason she took the SelectStock software was that it was an out of date version that FIMCO's information technology staff had urged all managers to discard. <br \/>\r<br><br \/>\r<br>Mason used two allocation plans for the Tasty IPO: the first decision was based on the orientation of the account (income vs. capital gains), and the second decision was based on the relative size of each account. Did Mason violate CFA Institute Standards of Professional Conduct with respect to either allocation decision?<\/div><input type='hidden' name='question_id[]' id='qID_62' value='148562' \/><input type='hidden' id='answerType148562' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148562[]' id='answer-id-604940' class='answer   answerof-148562 ' value='604940'   \/><label for='answer-id-604940' id='answer-label-604940' class=' answer'><span>Both Mason's allocation screens, based on orientation of the account, and on relative size of account, violate CFA Institute Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148562[]' id='answer-id-604941' class='answer   answerof-148562 ' value='604941'   \/><label for='answer-id-604941' id='answer-label-604941' class=' answer'><span>Both of Mason's allocation screens appear to fully conform with CFA Institute Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148562[]' id='answer-id-604942' class='answer   answerof-148562 ' value='604942'   \/><label for='answer-id-604942' id='answer-label-604942' class=' answer'><span>Mason's pro rata allocation system is acceptable, but he should have allocated some IPO shares to his income-oriented accounts.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-63' style=';'><div id='questionWrap-63'  class='   watupro-question-id-148563'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>63. <\/span>Susan Foley, CFA, is Chief Investment Officer of Federated Investment Management Co. (FIMCO), a large investment management firm that includes a family of mutual funds as well as individually managed accounts. The individually managed accounts include individuals, personal trusts, and employee benefit plans. In the past few months, Foley has encountered a couple of problems. <br \/>\r<br><br \/>\r<br>The Tasty IPO <br \/>\r<br><br \/>\r<br>Most portfolio managers of FIMCO have not participated in the initial public offering (IPO) market in recent years. However, recent changes to the compensation calculation at FIMCO have tied manager bonuses to portfolio performance. The changes were outlined in a letter that was sent out to clients and prospects shortly before the new bonus structure took effect. Carl Lee, CFA, is one portfolio manager who believes that investing in IPOs may add to his client's equity performance and, in turn, increase his bonus. While Lee's individual clients have done quite well this year, his employee benefit plans have suffered as a result of limited exposure to the strongest performing sector of the market. Lee has placed an order for all employee benefit plans to receive an allocation of the Tasty Doughnut IPO. Tasty is an over-subscribed IPO that Lee knew would make money for his clients. When he placed the order, Lee's assistant reminded him that one pension plan. Ultra Airlines, was explicitly prohibited from investing in IPOs in its investment policy statement, due to the under-funded status of the pension plan. Lee responded that the Tasty IPO would never actually be owned in Ultra's account, because he would sell the IPO stock before the end of the day and realize a profit before the position ever hit the books. <br \/>\r<br><br \/>\r<br>Another manager, Franz Mason, CFA, who manages accounts for about 150 individuals, is also interested in the Tasty IPO. Mason visits Lee's portfolio assistant and quizzes him about Lee's participation in the Tasty deal. Mason is sure that Lee would not have bought into Tasty unless he had done his homework. Mason places an order for 10,000 shares of the IPO. Mason returns to his desk and begins to allocate the IPO shares among his clients. Mason divides his client base into two groups: clients who are income-oriented and clients who arc capital gains-oriented. Mason believes those clients that are income-oriented are fairly risk averse and could not replace lost capital if the Tasty Doughnut deal lost money. Mason believes the capital gains-oriented accounts arc better able to withstand the potential loss associated with the Tasty IPO. Accordingly, Mason allocates his 10,000 share order of the Tasty IPO strictly to his capital appreciation clients using a pro rata allocation based on the size of the assets under management in each account. <br \/>\r<br><br \/>\r<br>FIMCO Income Fund (FIF) <br \/>\r<br><br \/>\r<br>Over the past three years, the FIF, with $5 billion in assets, has been the company's best performing mutual fund. Jane Ryan, CFA, managed the FIF for seven years, but resigned one year ago to start her own hedge fund. Under Ryan, the FIF invested in large cap stocks with reliable dividends. The fund's prospectus specifies that FIF will invest only in stocks that have paid a dividend for at least two quarters, and have a market capitalization in excess of $2.5 billion. Foley appointed FIMCO's next best manager (based on 5-year performance numbers) Steve Parsons, CFA, to replace Ryan. Parsons had been a very successful manager of the FIMCO Opportunity Fund, which specialized in small capitalization stocks. Six months after Parsons took over the helm at FIF. the portfolio had changed. The average market capitalization of FIF's holdings was $12.8 billion, as opposed to $21 billion a year ago. Over the same period, the average dividend yield on the portfolio had fallen from 3.8% to 3.1%. The performance of the FIF lagged its peer group for the first time in three years. In response to the lagging performance, Parsons purchased five stocks six months ago. Parsons bought all five stocks, none of which paid a dividend at the time of purchase, in anticipation that each company was likely to initiate dividends in the near future. So far, four of the stocks have initiated dividend payments, and their performance has benefited as a result. The fifth stock did not initiate a dividend, and Parsons sold the position last week. Largely due to the addition of the five new stocks, the FIF's performance has led its peer group over the past six months. <br \/>\r<br><br \/>\r<br>Before leaving FIMCO, Ryan had told Foley that above-average returns from both the management and client side could be gained from entering into the risk-arbitrage hedge fund market. Ryan had tried to convince FIMCO management to enter the risk-arbitrage market, but the firm determined that no one had the experience or research capability to run a risk-arbitrage operation. As a result, Ryan started the Plasma Fund LLC one month after leaving FIMCO. Foley remembers seeing Ryan at the annual FIMCO client dinner parly (before she left the firm) discussing the profits to be made from risk-arbitrage investing with several large FIF shareholders. Ryan mentioned that she would be opening the Plasma Fund to these FIMCO clients, several of whom made substantial investments in the first months of Plasma Fund's life. After Ryan resigned and left her office, Foley performed an inventory of firm assets signed out to Ryan. One of the copies of the proprietary stock selection software packages, FIMCO-SelectStock, assigned to Ryan was missing along with several of the SelectStock operating manuals. When Foley contacts Ryan about the missing software and manuals, Ryan states that the reason she took the SelectStock software was that it was an out of date version that FIMCO's information technology staff had urged all managers to discard. <br \/>\r<br><br \/>\r<br>Which of the following is most likely consistent with CFA Institute Standards of Professional Conduct?<\/div><input type='hidden' name='question_id[]' id='qID_63' value='148563' \/><input type='hidden' id='answerType148563' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148563[]' id='answer-id-604943' class='answer   answerof-148563 ' value='604943'   \/><label for='answer-id-604943' id='answer-label-604943' class=' answer'><span>Lee assumed that Ultra's Tasty IPO position was acceptable as an intraday transaction.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148563[]' id='answer-id-604944' class='answer   answerof-148563 ' value='604944'   \/><label for='answer-id-604944' id='answer-label-604944' class=' answer'><span>Improved performance in Lee's employee benefit plan accounts increases his bonus.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148563[]' id='answer-id-604945' class='answer   answerof-148563 ' value='604945'   \/><label for='answer-id-604945' id='answer-label-604945' class=' answer'><span>Mason relied on Lee's investment decision as adequate rationale to buy into the Tasty IP<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-64' style=';'><div id='questionWrap-64'  class='   watupro-question-id-148564'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>64. <\/span>Susan Foley, CFA, is Chief Investment Officer of Federated Investment Management Co. (FIMCO), a large investment management firm that includes a family of mutual funds as well as individually managed accounts. The individually managed accounts include individuals, personal trusts, and employee benefit plans. In the past few months, Foley has encountered a couple of problems. <br \/>\r<br><br \/>\r<br>The Tasty IPO <br \/>\r<br><br \/>\r<br>Most portfolio managers of FIMCO have not participated in the initial public offering (IPO) market in recent years. However, recent changes to the compensation calculation at FIMCO have tied manager bonuses to portfolio performance. The changes were outlined in a letter that was sent out to clients and prospects shortly before the new bonus structure took effect. Carl Lee, CFA, is one portfolio manager who believes that investing in IPOs may add to his client's equity performance and, in turn, increase his bonus. While Lee's individual clients have done quite well this year, his employee benefit plans have suffered as a result of limited exposure to the strongest performing sector of the market. Lee has placed an order for all employee benefit plans to receive an allocation of the Tasty Doughnut IPO. Tasty is an over-subscribed IPO that Lee knew would make money for his clients. When he placed the order, Lee's assistant reminded him that one pension plan. Ultra Airlines, was explicitly prohibited from investing in IPOs in its investment policy statement, due to the under-funded status of the pension plan. Lee responded that the Tasty IPO would never actually be owned in Ultra's account, because he would sell the IPO stock before the end of the day and realize a profit before the position ever hit the books. <br \/>\r<br><br \/>\r<br>Another manager, Franz Mason, CFA, who manages accounts for about 150 individuals, is also interested in the Tasty IPO. Mason visits Lee's portfolio assistant and quizzes him about Lee's participation in the Tasty deal. Mason is sure that Lee would not have bought into Tasty unless he had done his homework. Mason places an order for 10,000 shares of the IPO. Mason returns to his desk and begins to allocate the IPO shares among his clients. Mason divides his client base into two groups: clients who are income-oriented and clients who arc capital gains-oriented. Mason believes those clients that are income-oriented are fairly risk averse and could not replace lost capital if the Tasty Doughnut deal lost money. Mason believes the capital gains-oriented accounts arc better able to withstand the potential loss associated with the Tasty IPO. Accordingly, Mason allocates his 10,000 share order of the Tasty IPO strictly to his capital appreciation clients using a pro rata allocation based on the size of the assets under management in each account. <br \/>\r<br><br \/>\r<br>FIMCO Income Fund (FIF) <br \/>\r<br><br \/>\r<br>Over the past three years, the FIF, with $5 billion in assets, has been the company's best performing mutual fund. Jane Ryan, CFA, managed the FIF for seven years, but resigned one year ago to start her own hedge fund. Under Ryan, the FIF invested in large cap stocks with reliable dividends. The fund's prospectus specifies that FIF will invest only in stocks that have paid a dividend for at least two quarters, and have a market capitalization in excess of $2.5 billion. Foley appointed FIMCO's next best manager (based on 5-year performance numbers) Steve Parsons, CFA, to replace Ryan. Parsons had been a very successful manager of the FIMCO Opportunity Fund, which specialized in small capitalization stocks. Six months after Parsons took over the helm at FIF. the portfolio had changed. The average market capitalization of FIF's holdings was $12.8 billion, as opposed to $21 billion a year ago. Over the same period, the average dividend yield on the portfolio had fallen from 3.8% to 3.1%. The performance of the FIF lagged its peer group for the first time in three years. In response to the lagging performance, Parsons purchased five stocks six months ago. Parsons bought all five stocks, none of which paid a dividend at the time of purchase, in anticipation that each company was likely to initiate dividends in the near future. So far, four of the stocks have initiated dividend payments, and their performance has benefited as a result. The fifth stock did not initiate a dividend, and Parsons sold the position last week. Largely due to the addition of the five new stocks, the FIF's performance has led its peer group over the past six months. <br \/>\r<br><br \/>\r<br>Before leaving FIMCO, Ryan had told Foley that above-average returns from both the management and client side could be gained from entering into the risk-arbitrage hedge fund market. Ryan had tried to convince FIMCO management to enter the risk-arbitrage market, but the firm determined that no one had the experience or research capability to run a risk-arbitrage operation. As a result, Ryan started the Plasma Fund LLC one month after leaving FIMCO. Foley remembers seeing Ryan at the annual FIMCO client dinner parly (before she left the firm) discussing the profits to be made from risk-arbitrage investing with several large FIF shareholders. Ryan mentioned that she would be opening the Plasma Fund to these FIMCO clients, several of whom made substantial investments in the first months of Plasma Fund's life. After Ryan resigned and left her office, Foley performed an inventory of firm assets signed out to Ryan. One of the copies of the proprietary stock selection software packages, FIMCO-SelectStock, assigned to Ryan was missing along with several of the SelectStock operating manuals. When Foley contacts Ryan about the missing software and manuals, Ryan states that the reason she took the SelectStock software was that it was an out of date version that FIMCO's information technology staff had urged all managers to discard. <br \/>\r<br><br \/>\r<br>Has there been any violation of CFA Institute Standards of Professional Conduct relating to either the change in the average holdings of the FIF during the first six months of Parsons's leadership, or in Parsons's subsequent investment in the non-dividend paying stocks?<\/div><input type='hidden' name='question_id[]' id='qID_64' value='148564' \/><input type='hidden' id='answerType148564' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148564[]' id='answer-id-604946' class='answer   answerof-148564 ' value='604946'   \/><label for='answer-id-604946' id='answer-label-604946' class=' answer'><span>Both actions. The change in average holdings, and the purchase of non-dividend paying stocks, are violations of CFA Institute Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148564[]' id='answer-id-604947' class='answer   answerof-148564 ' value='604947'   \/><label for='answer-id-604947' id='answer-label-604947' class=' answer'><span>The change in average holdings would not have been a violation of CFA Institute Standards if client notification had occurred before the change was initiated.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148564[]' id='answer-id-604948' class='answer   answerof-148564 ' value='604948'   \/><label for='answer-id-604948' id='answer-label-604948' class=' answer'><span>There is no violation regarding the change in average holdings, but the purchase of non-dividend paying stocks is a violation.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-65' style=';'><div id='questionWrap-65'  class='   watupro-question-id-148565'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>65. <\/span>Susan Foley, CFA, is Chief Investment Officer of Federated Investment Management Co. (FIMCO), a large investment management firm that includes a family of mutual funds as well as individually managed accounts. The individually managed accounts include individuals, personal trusts, and employee benefit plans. In the past few months, Foley has encountered a couple of problems. <br \/>\r<br><br \/>\r<br>The Tasty IPO <br \/>\r<br><br \/>\r<br>Most portfolio managers of FIMCO have not participated in the initial public offering (IPO) market in recent years. However, recent changes to the compensation calculation at FIMCO have tied manager bonuses to portfolio performance. The changes were outlined in a letter that was sent out to clients and prospects shortly before the new bonus structure took effect. Carl Lee, CFA, is one portfolio manager who believes that investing in IPOs may add to his client's equity performance and, in turn, increase his bonus. While Lee's individual clients have done quite well this year, his employee benefit plans have suffered as a result of limited exposure to the strongest performing sector of the market. Lee has placed an order for all employee benefit plans to receive an allocation of the Tasty Doughnut IPO. Tasty is an over-subscribed IPO that Lee knew would make money for his clients. When he placed the order, Lee's assistant reminded him that one pension plan. Ultra Airlines, was explicitly prohibited from investing in IPOs in its investment policy statement, due to the under-funded status of the pension plan. Lee responded that the Tasty IPO would never actually be owned in Ultra's account, because he would sell the IPO stock before the end of the day and realize a profit before the position ever hit the books. <br \/>\r<br><br \/>\r<br>Another manager, Franz Mason, CFA, who manages accounts for about 150 individuals, is also interested in the Tasty IPO. Mason visits Lee's portfolio assistant and quizzes him about Lee's participation in the Tasty deal. Mason is sure that Lee would not have bought into Tasty unless he had done his homework. Mason places an order for 10,000 shares of the IPO. Mason returns to his desk and begins to allocate the IPO shares among his clients. Mason divides his client base into two groups: clients who are income-oriented and clients who arc capital gains-oriented. Mason believes those clients that are income-oriented are fairly risk averse and could not replace lost capital if the Tasty Doughnut deal lost money. Mason believes the capital gains-oriented accounts arc better able to withstand the potential loss associated with the Tasty IPO. Accordingly, Mason allocates his 10,000 share order of the Tasty IPO strictly to his capital appreciation clients using a pro rata allocation based on the size of the assets under management in each account. <br \/>\r<br><br \/>\r<br>FIMCO Income Fund (FIF) <br \/>\r<br><br \/>\r<br>Over the past three years, the FIF, with $5 billion in assets, has been the company's best performing mutual fund. Jane Ryan, CFA, managed the FIF for seven years, but resigned one year ago to start her own hedge fund. Under Ryan, the FIF invested in large cap stocks with reliable dividends. The fund's prospectus specifies that FIF will invest only in stocks that have paid a dividend for at least two quarters, and have a market capitalization in excess of $2.5 billion. Foley appointed FIMCO's next best manager (based on 5-year performance numbers) Steve Parsons, CFA, to replace Ryan. Parsons had been a very successful manager of the FIMCO Opportunity Fund, which specialized in small capitalization stocks. Six months after Parsons took over the helm at FIF. the portfolio had changed. The average market capitalization of FIF's holdings was $12.8 billion, as opposed to $21 billion a year ago. Over the same period, the average dividend yield on the portfolio had fallen from 3.8% to 3.1%. The performance of the FIF lagged its peer group for the first time in three years. In response to the lagging performance, Parsons purchased five stocks six months ago. Parsons bought all five stocks, none of which paid a dividend at the time of purchase, in anticipation that each company was likely to initiate dividends in the near future. So far, four of the stocks have initiated dividend payments, and their performance has benefited as a result. The fifth stock did not initiate a dividend, and Parsons sold the position last week. Largely due to the addition of the five new stocks, the FIF's performance has led its peer group over the past six months. <br \/>\r<br><br \/>\r<br>Before leaving FIMCO, Ryan had told Foley that above-average returns from both the management and client side could be gained from entering into the risk-arbitrage hedge fund market. Ryan had tried to convince FIMCO management to enter the risk-arbitrage market, but the firm determined that no one had the experience or research capability to run a risk-arbitrage operation. As a result, Ryan started the Plasma Fund LLC one month after leaving FIMCO. Foley remembers seeing Ryan at the annual FIMCO client dinner parly (before she left the firm) discussing the profits to be made from risk-arbitrage investing with several large FIF shareholders. Ryan mentioned that she would be opening the Plasma Fund to these FIMCO clients, several of whom made substantial investments in the first months of Plasma Fund's life. After Ryan resigned and left her office, Foley performed an inventory of firm assets signed out to Ryan. One of the copies of the proprietary stock selection software packages, FIMCO-SelectStock, assigned to Ryan was missing along with several of the SelectStock operating manuals. When Foley contacts Ryan about the missing software and manuals, Ryan states that the reason she took the SelectStock software was that it was an out of date version that FIMCO's information technology staff had urged all managers to discard. <br \/>\r<br><br \/>\r<br>Which of the following statements is most accurate with regard to Ryan's discussion of the new Plasma Fund with FIMCO clients?<\/div><input type='hidden' name='question_id[]' id='qID_65' value='148565' \/><input type='hidden' id='answerType148565' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148565[]' id='answer-id-604949' class='answer   answerof-148565 ' value='604949'   \/><label for='answer-id-604949' id='answer-label-604949' class=' answer'><span>Ryan is within the CFA Institute Standards because the Plasma Fund was only in the planning stages at the time of her discussion.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148565[]' id='answer-id-604950' class='answer   answerof-148565 ' value='604950'   \/><label for='answer-id-604950' id='answer-label-604950' class=' answer'><span>Ryan is within the CFA Institute Standards by discussing Plasma with the clients, since the product she was discussing did not compete with her present employer (FIMCO) in any way.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148565[]' id='answer-id-604951' class='answer   answerof-148565 ' value='604951'   \/><label for='answer-id-604951' id='answer-label-604951' class=' answer'><span>Ryan has violated CFA Institute Standard IV(A) - Duties to Employers - Loyalty. In the meeting with potential clients, even though FIMCO had no experience or research capability to enter the risk arbitrage market, Ryan is offering an asset management service that is directing funds away from FIMC<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-66' style=';'><div id='questionWrap-66'  class='   watupro-question-id-148566'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>66. <\/span>Susan Foley, CFA, is Chief Investment Officer of Federated Investment Management Co. (FIMCO), a large investment management firm that includes a family of mutual funds as well as individually managed accounts. The individually managed accounts include individuals, personal trusts, and employee benefit plans. In the past few months, Foley has encountered a couple of problems. <br \/>\r<br><br \/>\r<br>The Tasty IPO <br \/>\r<br><br \/>\r<br>Most portfolio managers of FIMCO have not participated in the initial public offering (IPO) market in recent years. However, recent changes to the compensation calculation at FIMCO have tied manager bonuses to portfolio performance. The changes were outlined in a letter that was sent out to clients and prospects shortly before the new bonus structure took effect. Carl Lee, CFA, is one portfolio manager who believes that investing in IPOs may add to his client's equity performance and, in turn, increase his bonus. While Lee's individual clients have done quite well this year, his employee benefit plans have suffered as a result of limited exposure to the strongest performing sector of the market. Lee has placed an order for all employee benefit plans to receive an allocation of the Tasty Doughnut IPO. Tasty is an over-subscribed IPO that Lee knew would make money for his clients. When he placed the order, Lee's assistant reminded him that one pension plan. Ultra Airlines, was explicitly prohibited from investing in IPOs in its investment policy statement, due to the under-funded status of the pension plan. Lee responded that the Tasty IPO would never actually be owned in Ultra's account, because he would sell the IPO stock before the end of the day and realize a profit before the position ever hit the books. <br \/>\r<br><br \/>\r<br>Another manager, Franz Mason, CFA, who manages accounts for about 150 individuals, is also interested in the Tasty IPO. Mason visits Lee's portfolio assistant and quizzes him about Lee's participation in the Tasty deal. Mason is sure that Lee would not have bought into Tasty unless he had done his homework. Mason places an order for 10,000 shares of the IPO. Mason returns to his desk and begins to allocate the IPO shares among his clients. Mason divides his client base into two groups: clients who are income-oriented and clients who arc capital gains-oriented. Mason believes those clients that are income-oriented are fairly risk averse and could not replace lost capital if the Tasty Doughnut deal lost money. Mason believes the capital gains-oriented accounts arc better able to withstand the potential loss associated with the Tasty IPO. Accordingly, Mason allocates his 10,000 share order of the Tasty IPO strictly to his capital appreciation clients using a pro rata allocation based on the size of the assets under management in each account. <br \/>\r<br><br \/>\r<br>FIMCO Income Fund (FIF) <br \/>\r<br><br \/>\r<br>Over the past three years, the FIF, with $5 billion in assets, has been the company's best performing mutual fund. Jane Ryan, CFA, managed the FIF for seven years, but resigned one year ago to start her own hedge fund. Under Ryan, the FIF invested in large cap stocks with reliable dividends. The fund's prospectus specifies that FIF will invest only in stocks that have paid a dividend for at least two quarters, and have a market capitalization in excess of $2.5 billion. Foley appointed FIMCO's next best manager (based on 5-year performance numbers) Steve Parsons, CFA, to replace Ryan. Parsons had been a very successful manager of the FIMCO Opportunity Fund, which specialized in small capitalization stocks. Six months after Parsons took over the helm at FIF. the portfolio had changed. The average market capitalization of FIF's holdings was $12.8 billion, as opposed to $21 billion a year ago. Over the same period, the average dividend yield on the portfolio had fallen from 3.8% to 3.1%. The performance of the FIF lagged its peer group for the first time in three years. In response to the lagging performance, Parsons purchased five stocks six months ago. Parsons bought all five stocks, none of which paid a dividend at the time of purchase, in anticipation that each company was likely to initiate dividends in the near future. So far, four of the stocks have initiated dividend payments, and their performance has benefited as a result. The fifth stock did not initiate a dividend, and Parsons sold the position last week. Largely due to the addition of the five new stocks, the FIF's performance has led its peer group over the past six months. <br \/>\r<br><br \/>\r<br>Before leaving FIMCO, Ryan had told Foley that above-average returns from both the management and client side could be gained from entering into the risk-arbitrage hedge fund market. Ryan had tried to convince FIMCO management to enter the risk-arbitrage market, but the firm determined that no one had the experience or research capability to run a risk-arbitrage operation. As a result, Ryan started the Plasma Fund LLC one month after leaving FIMCO. Foley remembers seeing Ryan at the annual FIMCO client dinner parly (before she left the firm) discussing the profits to be made from risk-arbitrage investing with several large FIF shareholders. Ryan mentioned that she would be opening the Plasma Fund to these FIMCO clients, several of whom made substantial investments in the first months of Plasma Fund's life. After Ryan resigned and left her office, Foley performed an inventory of firm assets signed out to Ryan. One of the copies of the proprietary stock selection software packages, FIMCO-SelectStock, assigned to Ryan was missing along with several of the SelectStock operating manuals. When Foley contacts Ryan about the missing software and manuals, Ryan states that the reason she took the SelectStock software was that it was an out of date version that FIMCO's information technology staff had urged all managers to discard. <br \/>\r<br><br \/>\r<br>Which of the following statements is most accurate with regard to Ryan's taking the out of date version of the SelectStock software?<\/div><input type='hidden' name='question_id[]' id='qID_66' value='148566' \/><input type='hidden' id='answerType148566' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148566[]' id='answer-id-604952' class='answer   answerof-148566 ' value='604952'   \/><label for='answer-id-604952' id='answer-label-604952' class=' answer'><span>The inappropriate misappropriation of the software and manuals is a violation of CFA Institute Standard IV(A) - Duties to Employers - Loyalty, regardless of the circumstances. Written permission from the employer (FIMCO) should have been requested and received.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148566[]' id='answer-id-604953' class='answer   answerof-148566 ' value='604953'   \/><label for='answer-id-604953' id='answer-label-604953' class=' answer'><span>Ryan's possession of the out of date software is perfectly acceptable, since her IT staff had made it clear that is was no longer needed by FIMC<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148566[]' id='answer-id-604954' class='answer   answerof-148566 ' value='604954'   \/><label for='answer-id-604954' id='answer-label-604954' class=' answer'><span>Ryan's possession of the out of date software is perfectly acceptable, since the software is of no use to FIMCO, and the fact that it was an outdated version indicates that it had no economic value.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-67' style=';'><div id='questionWrap-67'  class='   watupro-question-id-148567'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>67. <\/span>Martha Gillis, CFA, trades currencies for Trent, LLC. Trent is one of the largest investment firms in the world, and its foreign currency department trades more currency on a daily basis than any other firm. Gillis specializes in currencies of emerging nations. <br \/>\r<br><br \/>\r<br>Gillis received an invitation from the new Finance Minister of Binaria, one of the emerging nations included in Gillis's portfolio. The minister has proposed a number of fiscal reforms that he hopes will help support Binaria's weakening currency. He is asking currency specialists from several of the largest foreign exchange banks to visit Binaria for a conference on the planned reforms. Because of its remote location, Binaria will pay all travel expenses of the attendees, as well as lodging in government-owned facilities in the capital city. As a further inducement, attendees will also receive small bags of uncut emeralds (as emeralds are a principal export of Binaria), with an estimated market value of $500. <br \/>\r<br><br \/>\r<br>Gillis has approximately 25 clients that she deals with regularly, most of whom are large financial institutions interested in trading currencies. One of the services Gillis provides to these clients is a weekly summary of important trends in the emerging market currencies she follows. Gillis talks to local government officials and reads research reports prepared by local analysts, which are paid for by Trent. These inputs, along with Gillis's interpretation, form the basis of most of Gillis's weekly reports. <br \/>\r<br><br \/>\r<br>Gillis decided to attend the conference in Binaria. In anticipation of a favorable reception for the proposed reforms, Gillis purchased a long Binaria currency position in her personal account before leaving on the trip. After hearing the finance minister's proposals in person, however, she decides that the reforms are poorly timed and likely to cause the currency to depreciate. She issues a negative recommendation upon her return. Before issuing the recommendation, she liquidates the long position in her personal account but does not take a short position. <br \/>\r<br><br \/>\r<br>Gillis's supervisor, Steve Howlett, CFA, has been reviewing Gillis's personal trading. Howlett has not seen any details of the Binaria currency trade but has found two other instances in the past year where he believes Gillis has violated Trent's written policies regarding trading in personal accounts. <br \/>\r<br><br \/>\r<br>One of the currency trading strategies employed by Trent is based on interest rate parity. Trent monitors spot exchange rates, forward rates, and short-term government interest rates. On the rare occasions when the forward rates do not accurately reflect the interest differential between two countries, Trent places trades to take advantage of the riskless arbitrage opportunity. Because Trent is such a large player in the exchange markets, its transactions costs are very low, and Trent is often able to take advantage of mispricings that are too small for others to capitalize on. In describing these trading opportunities to clients, Trent suggests that &quot;clients willing to participate in this type of arbitrage strategy are guaranteed riskless profits until the market pricing returns to equilibrium.&quot; <br \/>\r<br><br \/>\r<br>According to CFA Institute Standards of Professional Conduct, Gillis may accept the invitation to attend the conference in Binaria without violating the Standards:<\/div><input type='hidden' name='question_id[]' id='qID_67' value='148567' \/><input type='hidden' id='answerType148567' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148567[]' id='answer-id-604955' class='answer   answerof-148567 ' value='604955'   \/><label for='answer-id-604955' id='answer-label-604955' class=' answer'><span>so long as she pays her own travel expenses and refuses the gift of emeralds.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148567[]' id='answer-id-604956' class='answer   answerof-148567 ' value='604956'   \/><label for='answer-id-604956' id='answer-label-604956' class=' answer'><span>so long as she refuses the gift of emeralds.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148567[]' id='answer-id-604957' class='answer   answerof-148567 ' value='604957'   \/><label for='answer-id-604957' id='answer-label-604957' class=' answer'><span>since she would be the guest of a sovereign government.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-68' style=';'><div id='questionWrap-68'  class='   watupro-question-id-148568'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>68. <\/span>Martha Gillis, CFA, trades currencies for Trent, LLC. Trent is one of the largest investment firms in the world, and its foreign currency department trades more currency on a daily basis than any other firm. Gillis specializes in currencies of emerging nations. <br \/>\r<br><br \/>\r<br>Gillis received an invitation from the new Finance Minister of Binaria, one of the emerging nations included in Gillis's portfolio. The minister has proposed a number of fiscal reforms that he hopes will help support Binaria's weakening currency. He is asking currency specialists from several of the largest foreign exchange banks to visit Binaria for a conference on the planned reforms. Because of its remote location, Binaria will pay all travel expenses of the attendees, as well as lodging in government-owned facilities in the capital city. As a further inducement, attendees will also receive small bags of uncut emeralds (as emeralds are a principal export of Binaria), with an estimated market value of $500. <br \/>\r<br><br \/>\r<br>Gillis has approximately 25 clients that she deals with regularly, most of whom are large financial institutions interested in trading currencies. One of the services Gillis provides to these clients is a weekly summary of important trends in the emerging market currencies she follows. Gillis talks to local government officials and reads research reports prepared by local analysts, which are paid for by Trent. These inputs, along with Gillis's interpretation, form the basis of most of Gillis's weekly reports. <br \/>\r<br><br \/>\r<br>Gillis decided to attend the conference in Binaria. In anticipation of a favorable reception for the proposed reforms, Gillis purchased a long Binaria currency position in her personal account before leaving on the trip. After hearing the finance minister's proposals in person, however, she decides that the reforms are poorly timed and likely to cause the currency to depreciate. She issues a negative recommendation upon her return. Before issuing the recommendation, she liquidates the long position in her personal account but does not take a short position. <br \/>\r<br><br \/>\r<br>Gillis's supervisor, Steve Howlett, CFA, has been reviewing Gillis's personal trading. Howlett has not seen any details of the Binaria currency trade but has found two other instances in the past year where he believes Gillis has violated Trent's written policies regarding trading in personal accounts. <br \/>\r<br><br \/>\r<br>One of the currency trading strategies employed by Trent is based on interest rate parity. Trent monitors spot exchange rates, forward rates, and short-term government interest rates. On the rare occasions when the forward rates do not accurately reflect the interest differential between two countries, Trent places trades to take advantage of the riskless arbitrage opportunity. Because Trent is such a large player in the exchange markets, its transactions costs are very low, and Trent is often able to take advantage of mispricings that are too small for others to capitalize on. In describing these trading opportunities to clients, Trent suggests that &quot;clients willing to participate in this type of arbitrage strategy are guaranteed riskless profits until the market pricing returns to equilibrium.&quot; <br \/>\r<br><br \/>\r<br>Given that Gillis's weekly reports to clients are market summaries rather than specific investment recommendations, what are her record-keeping obligations according to CFA Institute Standards of Professional Conduct? Gillis must:<\/div><input type='hidden' name='question_id[]' id='qID_68' value='148568' \/><input type='hidden' id='answerType148568' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148568[]' id='answer-id-604958' class='answer   answerof-148568 ' value='604958'   \/><label for='answer-id-604958' id='answer-label-604958' class=' answer'><span>maintain records of her conversations with local government officials and also keep copies of the research reports prepared by local analysts.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148568[]' id='answer-id-604959' class='answer   answerof-148568 ' value='604959'   \/><label for='answer-id-604959' id='answer-label-604959' class=' answer'><span>only maintain records of her conversations with local government officials and her own summaries of the research reports prepared by local analysts.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148568[]' id='answer-id-604960' class='answer   answerof-148568 ' value='604960'   \/><label for='answer-id-604960' id='answer-label-604960' class=' answer'><span>keep her own summaries of the research reports prepared by local analysts, but she has no obligation to maintain records of her conversations with local government officials.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-69' style=';'><div id='questionWrap-69'  class='   watupro-question-id-148569'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>69. <\/span>Martha Gillis, CFA, trades currencies for Trent, LLC. Trent is one of the largest investment firms in the world, and its foreign currency department trades more currency on a daily basis than any other firm. Gillis specializes in currencies of emerging nations. <br \/>\r<br><br \/>\r<br>Gillis received an invitation from the new Finance Minister of Binaria, one of the emerging nations included in Gillis's portfolio. The minister has proposed a number of fiscal reforms that he hopes will help support Binaria's weakening currency. He is asking currency specialists from several of the largest foreign exchange banks to visit Binaria for a conference on the planned reforms. Because of its remote location, Binaria will pay all travel expenses of the attendees, as well as lodging in government-owned facilities in the capital city. As a further inducement, attendees will also receive small bags of uncut emeralds (as emeralds are a principal export of Binaria), with an estimated market value of $500. <br \/>\r<br><br \/>\r<br>Gillis has approximately 25 clients that she deals with regularly, most of whom are large financial institutions interested in trading currencies. One of the services Gillis provides to these clients is a weekly summary of important trends in the emerging market currencies she follows. Gillis talks to local government officials and reads research reports prepared by local analysts, which are paid for by Trent. These inputs, along with Gillis's interpretation, form the basis of most of Gillis's weekly reports. <br \/>\r<br><br \/>\r<br>Gillis decided to attend the conference in Binaria. In anticipation of a favorable reception for the proposed reforms, Gillis purchased a long Binaria currency position in her personal account before leaving on the trip. After hearing the finance minister's proposals in person, however, she decides that the reforms are poorly timed and likely to cause the currency to depreciate. She issues a negative recommendation upon her return. Before issuing the recommendation, she liquidates the long position in her personal account but does not take a short position. <br \/>\r<br><br \/>\r<br>Gillis's supervisor, Steve Howlett, CFA, has been reviewing Gillis's personal trading. Howlett has not seen any details of the Binaria currency trade but has found two other instances in the past year where he believes Gillis has violated Trent's written policies regarding trading in personal accounts. <br \/>\r<br><br \/>\r<br>One of the currency trading strategies employed by Trent is based on interest rate parity. Trent monitors spot exchange rates, forward rates, and short-term government interest rates. On the rare occasions when the forward rates do not accurately reflect the interest differential between two countries, Trent places trades to take advantage of the riskless arbitrage opportunity. Because Trent is such a large player in the exchange markets, its transactions costs are very low, and Trent is often able to take advantage of mispricings that are too small for others to capitalize on. In describing these trading opportunities to clients, Trent suggests that &quot;clients willing to participate in this type of arbitrage strategy are guaranteed riskless profits until the market pricing returns to equilibrium.&quot; <br \/>\r<br><br \/>\r<br>Regarding Gillis's transactions in the Binaria currency, the Standards have been violated by:<\/div><input type='hidden' name='question_id[]' id='qID_69' value='148569' \/><input type='hidden' id='answerType148569' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148569[]' id='answer-id-604961' class='answer   answerof-148569 ' value='604961'   \/><label for='answer-id-604961' id='answer-label-604961' class=' answer'><span>taking the long position and by selling the position before issuing a recommendation to clients.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148569[]' id='answer-id-604962' class='answer   answerof-148569 ' value='604962'   \/><label for='answer-id-604962' id='answer-label-604962' class=' answer'><span>selling the position before issuing the recommendation to clients, although taking the long position was not a violation.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148569[]' id='answer-id-604963' class='answer   answerof-148569 ' value='604963'   \/><label for='answer-id-604963' id='answer-label-604963' class=' answer'><span>not disclosing the trades in her report since the trades are acceptable so long as they are disclosed.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-70' style=';'><div id='questionWrap-70'  class='   watupro-question-id-148570'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>70. <\/span>Martha Gillis, CFA, trades currencies for Trent, LLC. Trent is one of the largest investment firms in the world, and its foreign currency department trades more currency on a daily basis than any other firm. Gillis specializes in currencies of emerging nations. <br \/>\r<br><br \/>\r<br>Gillis received an invitation from the new Finance Minister of Binaria, one of the emerging nations included in Gillis's portfolio. The minister has proposed a number of fiscal reforms that he hopes will help support Binaria's weakening currency. He is asking currency specialists from several of the largest foreign exchange banks to visit Binaria for a conference on the planned reforms. Because of its remote location, Binaria will pay all travel expenses of the attendees, as well as lodging in government-owned facilities in the capital city. As a further inducement, attendees will also receive small bags of uncut emeralds (as emeralds are a principal export of Binaria), with an estimated market value of $500. <br \/>\r<br><br \/>\r<br>Gillis has approximately 25 clients that she deals with regularly, most of whom are large financial institutions interested in trading currencies. One of the services Gillis provides to these clients is a weekly summary of important trends in the emerging market currencies she follows. Gillis talks to local government officials and reads research reports prepared by local analysts, which are paid for by Trent. These inputs, along with Gillis's interpretation, form the basis of most of Gillis's weekly reports. <br \/>\r<br><br \/>\r<br>Gillis decided to attend the conference in Binaria. In anticipation of a favorable reception for the proposed reforms, Gillis purchased a long Binaria currency position in her personal account before leaving on the trip. After hearing the finance minister's proposals in person, however, she decides that the reforms are poorly timed and likely to cause the currency to depreciate. She issues a negative recommendation upon her return. Before issuing the recommendation, she liquidates the long position in her personal account but does not take a short position. <br \/>\r<br><br \/>\r<br>Gillis's supervisor, Steve Howlett, CFA, has been reviewing Gillis's personal trading. Howlett has not seen any details of the Binaria currency trade but has found two other instances in the past year where he believes Gillis has violated Trent's written policies regarding trading in personal accounts. <br \/>\r<br><br \/>\r<br>One of the currency trading strategies employed by Trent is based on interest rate parity. Trent monitors spot exchange rates, forward rates, and short-term government interest rates. On the rare occasions when the forward rates do not accurately reflect the interest differential between two countries, Trent places trades to take advantage of the riskless arbitrage opportunity. Because Trent is such a large player in the exchange markets, its transactions costs are very low, and Trent is often able to take advantage of mispricings that are too small for others to capitalize on. In describing these trading opportunities to clients, Trent suggests that &quot;clients willing to participate in this type of arbitrage strategy are guaranteed riskless profits until the market pricing returns to equilibrium.&quot; <br \/>\r<br><br \/>\r<br>According to CFA Institute Standards of Professional Conduct, Howlett's best course of action with regard to the suspected violations by Gillis would be to:<\/div><input type='hidden' name='question_id[]' id='qID_70' value='148570' \/><input type='hidden' id='answerType148570' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148570[]' id='answer-id-604964' class='answer   answerof-148570 ' value='604964'   \/><label for='answer-id-604964' id='answer-label-604964' class=' answer'><span>meet with Gillis in person, explain the nature of the violations, and seek assurances that such violations will not recur.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148570[]' id='answer-id-604965' class='answer   answerof-148570 ' value='604965'   \/><label for='answer-id-604965' id='answer-label-604965' class=' answer'><span>warn Gillis to cease the trading activities and report the violation to Howlett's supervisor immediately.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148570[]' id='answer-id-604966' class='answer   answerof-148570 ' value='604966'   \/><label for='answer-id-604966' id='answer-label-604966' class=' answer'><span>place limits on Gillis's personal trading and increase monitoring of Gillis's personal trades.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-71' style=';'><div id='questionWrap-71'  class='   watupro-question-id-148571'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>71. <\/span>Martha Gillis, CFA, trades currencies for Trent, LLC. Trent is one of the largest investment firms in the world, and its foreign currency department trades more currency on a daily basis than any other firm. Gillis specializes in currencies of emerging nations. <br \/>\r<br><br \/>\r<br>Gillis received an invitation from the new Finance Minister of Binaria, one of the emerging nations included in Gillis's portfolio. The minister has proposed a number of fiscal reforms that he hopes will help support Binaria's weakening currency. He is asking currency specialists from several of the largest foreign exchange banks to visit Binaria for a conference on the planned reforms. Because of its remote location, Binaria will pay all travel expenses of the attendees, as well as lodging in government-owned facilities in the capital city. As a further inducement, attendees will also receive small bags of uncut emeralds (as emeralds are a principal export of Binaria), with an estimated market value of $500. <br \/>\r<br><br \/>\r<br>Gillis has approximately 25 clients that she deals with regularly, most of whom are large financial institutions interested in trading currencies. One of the services Gillis provides to these clients is a weekly summary of important trends in the emerging market currencies she follows. Gillis talks to local government officials and reads research reports prepared by local analysts, which are paid for by Trent. These inputs, along with Gillis's interpretation, form the basis of most of Gillis's weekly reports. <br \/>\r<br><br \/>\r<br>Gillis decided to attend the conference in Binaria. In anticipation of a favorable reception for the proposed reforms, Gillis purchased a long Binaria currency position in her personal account before leaving on the trip. After hearing the finance minister's proposals in person, however, she decides that the reforms are poorly timed and likely to cause the currency to depreciate. She issues a negative recommendation upon her return. Before issuing the recommendation, she liquidates the long position in her personal account but does not take a short position. <br \/>\r<br><br \/>\r<br>Gillis's supervisor, Steve Howlett, CFA, has been reviewing Gillis's personal trading. Howlett has not seen any details of the Binaria currency trade but has found two other instances in the past year where he believes Gillis has violated Trent's written policies regarding trading in personal accounts. <br \/>\r<br><br \/>\r<br>One of the currency trading strategies employed by Trent is based on interest rate parity. Trent monitors spot exchange rates, forward rates, and short-term government interest rates. On the rare occasions when the forward rates do not accurately reflect the interest differential between two countries, Trent places trades to take advantage of the riskless arbitrage opportunity. Because Trent is such a large player in the exchange markets, its transactions costs are very low, and Trent is often able to take advantage of mispricings that are too small for others to capitalize on. In describing these trading opportunities to clients, Trent suggests that &quot;clients willing to participate in this type of arbitrage strategy are guaranteed riskless profits until the market pricing returns to equilibrium.&quot; <br \/>\r<br><br \/>\r<br>Based on the information given, and according to CFA Institute Standards, which of the following statements best describes Trent's compliance procedures relating to personal trading in foreign currencies? The compliance procedures:<\/div><input type='hidden' name='question_id[]' id='qID_71' value='148571' \/><input type='hidden' id='answerType148571' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148571[]' id='answer-id-604967' class='answer   answerof-148571 ' value='604967'   \/><label for='answer-id-604967' id='answer-label-604967' class=' answer'><span>appear adequate since Howlett was able to identify potential violations.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148571[]' id='answer-id-604968' class='answer   answerof-148571 ' value='604968'   \/><label for='answer-id-604968' id='answer-label-604968' class=' answer'><span>appear adequate, but Howlett's monitoring of Gillis's trades indicates poor supervisory responsibility.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148571[]' id='answer-id-604969' class='answer   answerof-148571 ' value='604969'   \/><label for='answer-id-604969' id='answer-label-604969' class=' answer'><span>should include both duplicate confirmations of transactions and preclearance procedures for personal trades.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-72' style=';'><div id='questionWrap-72'  class='   watupro-question-id-148572'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>72. <\/span>Martha Gillis, CFA, trades currencies for Trent, LLC. Trent is one of the largest investment firms in the world, and its foreign currency department trades more currency on a daily basis than any other firm. Gillis specializes in currencies of emerging nations. <br \/>\r<br><br \/>\r<br>Gillis received an invitation from the new Finance Minister of Binaria, one of the emerging nations included in Gillis's portfolio. The minister has proposed a number of fiscal reforms that he hopes will help support Binaria's weakening currency. He is asking currency specialists from several of the largest foreign exchange banks to visit Binaria for a conference on the planned reforms. Because of its remote location, Binaria will pay all travel expenses of the attendees, as well as lodging in government-owned facilities in the capital city. As a further inducement, attendees will also receive small bags of uncut emeralds (as emeralds are a principal export of Binaria), with an estimated market value of $500. <br \/>\r<br><br \/>\r<br>Gillis has approximately 25 clients that she deals with regularly, most of whom are large financial institutions interested in trading currencies. One of the services Gillis provides to these clients is a weekly summary of important trends in the emerging market currencies she follows. Gillis talks to local government officials and reads research reports prepared by local analysts, which are paid for by Trent. These inputs, along with Gillis's interpretation, form the basis of most of Gillis's weekly reports. <br \/>\r<br><br \/>\r<br>Gillis decided to attend the conference in Binaria. In anticipation of a favorable reception for the proposed reforms, Gillis purchased a long Binaria currency position in her personal account before leaving on the trip. After hearing the finance minister's proposals in person, however, she decides that the reforms are poorly timed and likely to cause the currency to depreciate. She issues a negative recommendation upon her return. Before issuing the recommendation, she liquidates the long position in her personal account but does not take a short position. <br \/>\r<br><br \/>\r<br>Gillis's supervisor, Steve Howlett, CFA, has been reviewing Gillis's personal trading. Howlett has not seen any details of the Binaria currency trade but has found two other instances in the past year where he believes Gillis has violated Trent's written policies regarding trading in personal accounts. <br \/>\r<br><br \/>\r<br>One of the currency trading strategies employed by Trent is based on interest rate parity. Trent monitors spot exchange rates, forward rates, and short-term government interest rates. On the rare occasions when the forward rates do not accurately reflect the interest differential between two countries, Trent places trades to take advantage of the riskless arbitrage opportunity. Because Trent is such a large player in the exchange markets, its transactions costs are very low, and Trent is often able to take advantage of mispricings that are too small for others to capitalize on. In describing these trading opportunities to clients, Trent suggests that &quot;clients willing to participate in this type of arbitrage strategy are guaranteed riskless profits until the market pricing returns to equilibrium.&quot; <br \/>\r<br><br \/>\r<br>Trent's arbitrage trading based on interest rate parity is successful mostly due to Trent's large size, which provides it with an advantage relative to smaller, competing currency trading firms. Has Trent violated CFA Institute Standards of Professional Conduct with respect to its trading strategy or its guarantee of results?<\/div><input type='hidden' name='question_id[]' id='qID_72' value='148572' \/><input type='hidden' id='answerType148572' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148572[]' id='answer-id-604970' class='answer   answerof-148572 ' value='604970'   \/><label for='answer-id-604970' id='answer-label-604970' class=' answer'><span>The trading strategy and guarantee of results arc both violations cf CFA Institute Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148572[]' id='answer-id-604971' class='answer   answerof-148572 ' value='604971'   \/><label for='answer-id-604971' id='answer-label-604971' class=' answer'><span>The trading strategy is legitimate and does not violate CFA Institute Standards, but the guarantee of investment return is a violation of Standards.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148572[]' id='answer-id-604972' class='answer   answerof-148572 ' value='604972'   \/><label for='answer-id-604972' id='answer-label-604972' class=' answer'><span>Both the trading strategy and guarantee statement comply with CFA Institute Standards.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-73' style=';'><div id='questionWrap-73'  class='   watupro-question-id-148573'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>73. <\/span>SIMULATION <br \/>\r<br>Ota L'Abbe, a supervisor at an investment research firm, has asked one of the junior analysts, Andreas Hally, to draft a research report dealing with various accounting issues. <br \/>\r<br><br \/>\r<br>Excerpts from the request are as follows: <br \/>\r<br>&#8226; \u201cThere's an exciting company that we're starting to follow these days. It's called Snowboards and Skateboards, Inc. They are a multinational company with operations and a head office based in the resort town of Whistler in western Canada. However, they also have a significant subsidiary located in the United States.&quot; <br \/>\r<br>&#8226; &quot;Look at the subsidiary and deal with some foreign currency issues including the specific differences between the temporal and all-current methods of translation, as well as the effect on financial ratios.&quot; <br \/>\r<br>&#8226; &quot;The attached file contains the September 30, 2008, financial statements of the U.S. subsidiary. Translate the financial statements into Canadian dollars in a manner consistent with U.S. GAAP.&quot; <br \/>\r<br><br \/>\r<br>The following are statements from the research report subsequently written by Hally: <br \/>\r<br>Statement 1: Subsidiaries whose operations are well integrated with the parent will use the all-current method of translation. <br \/>\r<br>Statement 2: Self-contained, independent subsidiaries whose operating, investing, and financing activities are primarily located in the local market will use the temporal method of translation. <br \/>\r<br><br><img decoding=\"async\" width=650 height=466 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image002-41.jpg\" v:shapes=\"_x0000_i1027\"><br><br \/>\r<br>Other information to be considered <br \/>\r<br>&#8226; Exchange rates (CAD\/USD) <br \/>\r<br><br><img decoding=\"async\" width=415 height=174 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image005-6.jpg\" v:shapes=\"_x0000_i1028\"><br><br \/>\r<br>&#8226; Beginning inventory for fiscal 2008 had been purchased evenly throughout fiscal 2007. The company uses the FIFO inventory value method. <br \/>\r<br>&#8226; Dividends of USD 25,000 were paid to the shareholders on June 30, 2008. <br \/>\r<br>&#8226; All of the remaining inventory at the end of fiscal 2008 was purchased evenly throughout fiscal 2008. <br \/>\r<br>&#8226; All of the PP&amp;E was purchased, and all of the common equity was issued at the inception of the company on October 1, 2004. No new PP&amp;E has been acquired, and no additional common stock has been issued since then. However, they plan to purchase new PP&amp;E starting in fiscal 2009. <br \/>\r<br>&#8226; The beginning retained earnings balance for fiscal 2008 was CAD 1,550,000. <br \/>\r<br>&#8226; The accounts payable on the fiscal 2008 balance sheet were all incurred on June 30, 2008. <br \/>\r<br>&#8226; The U.S. subsidiary's operations are highly integrated with the main operations in Canada. <br \/>\r<br>&#8226; The remeasured inventory for 2008 using the temporal method is CAD 810,000. <br \/>\r<br>&#8226; All monetary asset and liability balances are the same as they were at the end of the 2007 fiscal year, except that long-term debt was USD 467,700. <br \/>\r<br>&#8226; Costs of goods sold under the temporal method in 2008 is CAD 1,667,250. <br \/>\r<br><br \/>\r<br>Which of the following best describes the effect on the parent's fiscal 2008 sales when translated to Canadian dollars? Sales, relative to what it would have been if the CAD\/USD exchange rate had not changed, will be:<\/div><input type='hidden' name='question_id[]' id='qID_73' value='148573' \/><input type='hidden' id='answerType148573' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148573[]' id='answer-id-604973' class='answer   answerof-148573 ' value='604973'   \/><label for='answer-id-604973' id='answer-label-604973' class=' answer'><span>lower because the<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148573[]' id='answer-id-604974' class='answer   answerof-148573 ' value='604974'   \/><label for='answer-id-604974' id='answer-label-604974' class=' answer'><span>dollar depreciated during fiscal 2008.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148573[]' id='answer-id-604975' class='answer   answerof-148573 ' value='604975'   \/><label for='answer-id-604975' id='answer-label-604975' class=' answer'><span>higher because the average value of the Canadian dollar depreciated during fiscal 2008.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148573[]' id='answer-id-604976' class='answer   answerof-148573 ' value='604976'   \/><label for='answer-id-604976' id='answer-label-604976' class=' answer'><span>lower because the<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148573[]' id='answer-id-604977' class='answer   answerof-148573 ' value='604977'   \/><label for='answer-id-604977' id='answer-label-604977' class=' answer'><span>dollar appreciated during fiscal 2008.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-74' style=';'><div id='questionWrap-74'  class='   watupro-question-id-148574'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>74. <\/span>SIMULATION <br \/>\r<br>Ota L'Abbe, a supervisor at an investment research firm, has asked one of the junior analysts, Andreas Hally, to draft a research report dealing with various accounting issues. <br \/>\r<br><br \/>\r<br>Excerpts from the request are as follows: <br \/>\r<br>&#8226; \u201cThere's an exciting company that we're starting to follow these days. It's called Snowboards and Skateboards, Inc. They are a multinational company with operations and a head office based in the resort town of Whistler in western Canada. However, they also have a significant subsidiary located in the United States.&quot; <br \/>\r<br>&#8226; &quot;Look at the subsidiary and deal with some foreign currency issues including the specific differences between the temporal and all-current methods of translation, as well as the effect on financial ratios.&quot; <br \/>\r<br>&#8226; &quot;The attached file contains the September 30, 2008, financial statements of the U.S. subsidiary. Translate the financial statements into Canadian dollars in a manner consistent with U.S. GAAP.&quot; <br \/>\r<br><br \/>\r<br>The following are statements from the research report subsequently written by Hally: <br \/>\r<br>Statement 1: Subsidiaries whose operations are well integrated with the parent will use the all-current method of translation. <br \/>\r<br>Statement 2: Self-contained, independent subsidiaries whose operating, investing, and financing activities are primarily located in the local market will use the temporal method of translation. <br \/>\r<br><br><img decoding=\"async\" width=650 height=466 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image002-42.jpg\" v:shapes=\"_x0000_i1029\"><br><br \/>\r<br>Other information to be considered <br \/>\r<br>&#8226; Exchange rates (CAD\/USD) <br \/>\r<br><br><img decoding=\"async\" width=415 height=174 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image006-32.jpg\" v:shapes=\"_x0000_i1030\"><br><br \/>\r<br>&#8226; Beginning inventory for fiscal 2008 had been purchased evenly throughout fiscal 2007. The company uses the FIFO inventory value method. <br \/>\r<br>&#8226; Dividends of USD 25,000 were paid to the shareholders on June 30, 2008. <br \/>\r<br>&#8226; All of the remaining inventory at the end of fiscal 2008 was purchased evenly throughout fiscal 2008. <br \/>\r<br>&#8226; All of the PP&amp;E was purchased, and all of the common equity was issued at the inception of the company on October 1, 2004. No new PP&amp;E has been acquired, and no additional common stock has been issued since then. However, they plan to purchase new PP&amp;E starting in fiscal 2009. <br \/>\r<br>&#8226; The beginning retained earnings balance for fiscal 2008 was CAD 1,550,000. <br \/>\r<br>&#8226; The accounts payable on the fiscal 2008 balance sheet were all incurred on June 30, 2008. <br \/>\r<br>&#8226; The U.S. subsidiary's operations are highly integrated with the main operations in Canada. <br \/>\r<br>&#8226; The remeasured inventory for 2008 using the temporal method is CAD 810,000. <br \/>\r<br>&#8226; All monetary asset and liability balances are the same as they were at the end of the 2007 fiscal year, except that long-term debt was USD 467,700. <br \/>\r<br>&#8226; Costs of goods sold under the temporal method in 2008 is CAD 1,667,250. <br \/>\r<br><br \/>\r<br>As compared to the temporal method, which of the following financial statement elements of the parent are lower under the all-current method?<\/div><input type='hidden' name='question_id[]' id='qID_74' value='148574' \/><input type='hidden' id='answerType148574' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148574[]' id='answer-id-604978' class='answer   answerof-148574 ' value='604978'   \/><label for='answer-id-604978' id='answer-label-604978' class=' answer'><span>Cash and accounts receivable.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148574[]' id='answer-id-604979' class='answer   answerof-148574 ' value='604979'   \/><label for='answer-id-604979' id='answer-label-604979' class=' answer'><span>Depreciation expense and cost of goods sold.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148574[]' id='answer-id-604980' class='answer   answerof-148574 ' value='604980'   \/><label for='answer-id-604980' id='answer-label-604980' class=' answer'><span>Common stock and dividends paid.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-75' style=';'><div id='questionWrap-75'  class='   watupro-question-id-148575'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>75. <\/span>SIMULATION <br \/>\r<br>Ota L'Abbe, a supervisor at an investment research firm, has asked one of the junior analysts, Andreas Hally, to draft a research report dealing with various accounting issues. <br \/>\r<br><br \/>\r<br>Excerpts from the request are as follows: <br \/>\r<br>&#8226; \u201cThere's an exciting company that we're starting to follow these days. It's called Snowboards and Skateboards, Inc. They are a multinational company with operations and a head office based in the resort town of Whistler in western Canada. However, they also have a significant subsidiary located in the United States.&quot; <br \/>\r<br>&#8226; &quot;Look at the subsidiary and deal with some foreign currency issues including the specific differences between the temporal and all-current methods of translation, as well as the effect on financial ratios.&quot; <br \/>\r<br>&#8226; &quot;The attached file contains the September 30, 2008, financial statements of the U.S. subsidiary. Translate the financial statements into Canadian dollars in a manner consistent with U.S. GAAP.&quot; <br \/>\r<br><br \/>\r<br>The following are statements from the research report subsequently written by Hally: <br \/>\r<br>Statement 1: Subsidiaries whose operations are well integrated with the parent will use the all-current method of translation. <br \/>\r<br>Statement 2: Self-contained, independent subsidiaries whose operating, investing, and financing activities are primarily located in the local market will use the temporal method of translation. <br \/>\r<br><br><img decoding=\"async\" width=650 height=466 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image002-43.jpg\" v:shapes=\"_x0000_i1031\"><br><br \/>\r<br>Other information to be considered <br \/>\r<br>&#8226; Exchange rates (CAD\/USD) <br \/>\r<br><br><img decoding=\"async\" width=415 height=174 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image007-4.jpg\" v:shapes=\"_x0000_i1032\"><br><br \/>\r<br>&#8226; Beginning inventory for fiscal 2008 had been purchased evenly throughout fiscal 2007. The company uses the FIFO inventory value method. <br \/>\r<br>&#8226; Dividends of USD 25,000 were paid to the shareholders on June 30, 2008. <br \/>\r<br>&#8226; All of the remaining inventory at the end of fiscal 2008 was purchased evenly throughout fiscal 2008. <br \/>\r<br>&#8226; All of the PP&amp;E was purchased, and all of the common equity was issued at the inception of the company on October 1, 2004. No new PP&amp;E has been acquired, and no additional common stock has been issued since then. However, they plan to purchase new PP&amp;E starting in fiscal 2009. <br \/>\r<br>&#8226; The beginning retained earnings balance for fiscal 2008 was CAD 1,550,000. <br \/>\r<br>&#8226; The accounts payable on the fiscal 2008 balance sheet were all incurred on June 30, 2008. <br \/>\r<br>&#8226; The U.S. subsidiary's operations are highly integrated with the main operations in Canada. <br \/>\r<br>&#8226; The remeasured inventory for 2008 using the temporal method is CAD 810,000. <br \/>\r<br>&#8226; All monetary asset and liability balances are the same as they were at the end of the 2007 fiscal year, except that long-term debt was USD 467,700. <br \/>\r<br>&#8226; Costs of goods sold under the temporal method in 2008 is CAD 1,667,250. <br \/>\r<br><br \/>\r<br>Using the appropriate translation method, which of the following best describes the effect of changing exchange rates on the parent's fiscal 2008 financial statements?<\/div><input type='hidden' name='question_id[]' id='qID_75' value='148575' \/><input type='hidden' id='answerType148575' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148575[]' id='answer-id-604981' class='answer   answerof-148575 ' value='604981'   \/><label for='answer-id-604981' id='answer-label-604981' class=' answer'><span>An accumulated loss of CAD 242,100 is reported in the shareholders' equity.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148575[]' id='answer-id-604982' class='answer   answerof-148575 ' value='604982'   \/><label for='answer-id-604982' id='answer-label-604982' class=' answer'><span>A loss of CAD 31,200 is recognized in the income statement.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148575[]' id='answer-id-604983' class='answer   answerof-148575 ' value='604983'   \/><label for='answer-id-604983' id='answer-label-604983' class=' answer'><span>A gain of CAD 27,400 is recognized in the income statement.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-76' style=';'><div id='questionWrap-76'  class='   watupro-question-id-148576'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>76. <\/span>SIMULATION <br \/>\r<br>Ota L'Abbe, a supervisor at an investment research firm, has asked one of the junior analysts, Andreas Hally, to draft a research report dealing with various accounting issues. <br \/>\r<br><br \/>\r<br>Excerpts from the request are as follows: <br \/>\r<br>&#8226; \u201cThere's an exciting company that we're starting to follow these days. It's called Snowboards and Skateboards, Inc. They are a multinational company with operations and a head office based in the resort town of Whistler in western Canada. However, they also have a significant subsidiary located in the United States.&quot; <br \/>\r<br>&#8226; &quot;Look at the subsidiary and deal with some foreign currency issues including the specific differences between the temporal and all-current methods of translation, as well as the effect on financial ratios.&quot; <br \/>\r<br>&#8226; &quot;The attached file contains the September 30, 2008, financial statements of the U.S. subsidiary. Translate the financial statements into Canadian dollars in a manner consistent with U.S. GAAP.&quot; <br \/>\r<br><br \/>\r<br>The following are statements from the research report subsequently written by Hally: <br \/>\r<br>Statement 1: Subsidiaries whose operations are well integrated with the parent will use the all-current method of translation. <br \/>\r<br>Statement 2: Self-contained, independent subsidiaries whose operating, investing, and financing activities are primarily located in the local market will use the temporal method of translation. <br \/>\r<br><br><img decoding=\"async\" width=650 height=466 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image002-44.jpg\" v:shapes=\"_x0000_i1035\"><br><br \/>\r<br>Other information to be considered <br \/>\r<br>&#8226; Exchange rates (CAD\/USD) <br \/>\r<br><br><img decoding=\"async\" width=415 height=174 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image007-5.jpg\" v:shapes=\"_x0000_i1036\"><br><br \/>\r<br>&#8226; Beginning inventory for fiscal 2008 had been purchased evenly throughout fiscal 2007. The company uses the FIFO inventory value method. <br \/>\r<br>&#8226; Dividends of USD 25,000 were paid to the shareholders on June 30, 2008. <br \/>\r<br>&#8226; All of the remaining inventory at the end of fiscal 2008 was purchased evenly throughout fiscal 2008. <br \/>\r<br>&#8226; All of the PP&amp;E was purchased, and all of the common equity was issued at the inception of the company on October 1, 2004. No new PP&amp;E has been acquired, and no additional common stock has been issued since then. However, they plan to purchase new PP&amp;E starting in fiscal 2009. <br \/>\r<br>&#8226; The beginning retained earnings balance for fiscal 2008 was CAD 1,550,000. <br \/>\r<br>&#8226; The accounts payable on the fiscal 2008 balance sheet were all incurred on June 30, 2008. <br \/>\r<br>&#8226; The U.S. subsidiary's operations are highly integrated with the main operations in Canada. <br \/>\r<br>&#8226; The remeasured inventory for 2008 using the temporal method is CAD 810,000. <br \/>\r<br>&#8226; All monetary asset and liability balances are the same as they were at the end of the 2007 fiscal year, except that long-term debt was USD 467,700. <br \/>\r<br>&#8226; Costs of goods sold under the temporal method in 2008 is CAD 1,667,250. <br \/>\r<br><br \/>\r<br>As compared to the temporal method, the parent's fixed asset turnover for fiscal 2008 using the all-current method is:<\/div><input type='hidden' name='question_id[]' id='qID_76' value='148576' \/><input type='hidden' id='answerType148576' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148576[]' id='answer-id-604984' class='answer   answerof-148576 ' value='604984'   \/><label for='answer-id-604984' id='answer-label-604984' class=' answer'><span>higher.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148576[]' id='answer-id-604985' class='answer   answerof-148576 ' value='604985'   \/><label for='answer-id-604985' id='answer-label-604985' class=' answer'><span>lower.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148576[]' id='answer-id-604986' class='answer   answerof-148576 ' value='604986'   \/><label for='answer-id-604986' id='answer-label-604986' class=' answer'><span>the same.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-77' style=';'><div id='questionWrap-77'  class='   watupro-question-id-148577'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>77. <\/span>SIMULATION <br \/>\r<br>Ota L'Abbe, a supervisor at an investment research firm, has asked one of the junior analysts, Andreas Hally, to draft a research report dealing with various accounting issues. <br \/>\r<br><br \/>\r<br>Excerpts from the request are as follows: <br \/>\r<br>&#8226; \u201cThere's an exciting company that we're starting to follow these days. It's called Snowboards and Skateboards, Inc. They are a multinational company with operations and a head office based in the resort town of Whistler in western Canada. However, they also have a significant subsidiary located in the United States.&quot; <br \/>\r<br>&#8226; &quot;Look at the subsidiary and deal with some foreign currency issues including the specific differences between the temporal and all-current methods of translation, as well as the effect on financial ratios.&quot; <br \/>\r<br>&#8226; &quot;The attached file contains the September 30, 2008, financial statements of the U.S. subsidiary. Translate the financial statements into Canadian dollars in a manner consistent with U.S. GAAP.&quot; <br \/>\r<br><br \/>\r<br>The following are statements from the research report subsequently written by Hally: <br \/>\r<br>Statement 1: Subsidiaries whose operations are well integrated with the parent will use the all-current method of translation. <br \/>\r<br>Statement 2: Self-contained, independent subsidiaries whose operating, investing, and financing activities are primarily located in the local market will use the temporal method of translation. <br \/>\r<br><br><img decoding=\"async\" width=650 height=466 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image002-45.jpg\" v:shapes=\"_x0000_i1037\"><br><br \/>\r<br>Other information to be considered <br \/>\r<br>&#8226; Exchange rates (CAD\/USD) <br \/>\r<br><br><img decoding=\"async\" width=415 height=174 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image007-6.jpg\" v:shapes=\"_x0000_i1038\"><br><br \/>\r<br>&#8226; Beginning inventory for fiscal 2008 had been purchased evenly throughout fiscal 2007. The company uses the FIFO inventory value method. <br \/>\r<br>&#8226; Dividends of USD 25,000 were paid to the shareholders on June 30, 2008. <br \/>\r<br>&#8226; All of the remaining inventory at the end of fiscal 2008 was purchased evenly throughout fiscal 2008. <br \/>\r<br>&#8226; All of the PP&amp;E was purchased, and all of the common equity was issued at the inception of the company on October 1, 2004. No new PP&amp;E has been acquired, and no additional common stock has been issued since then. However, they plan to purchase new PP&amp;E starting in fiscal 2009. <br \/>\r<br>&#8226; The beginning retained earnings balance for fiscal 2008 was CAD 1,550,000. <br \/>\r<br>&#8226; The accounts payable on the fiscal 2008 balance sheet were all incurred on June 30, 2008. <br \/>\r<br>&#8226; The U.S. subsidiary's operations are highly integrated with the main operations in Canada. <br \/>\r<br>&#8226; The remeasured inventory for 2008 using the temporal method is CAD 810,000. <br \/>\r<br>&#8226; All monetary asset and liability balances are the same as they were at the end of the 2007 fiscal year, except that long-term debt was USD 467,700. <br \/>\r<br>&#8226; Costs of goods sold under the temporal method in 2008 is CAD 1,667,250. <br \/>\r<br><br \/>\r<br>Suppose the parent uses the all-current method to translate the subsidiary for fiscal 2008. Will return on assets and net profit margin in U.S. dollars before translation be the same as, or different than, the translated Canadian dollar ratios? <br \/>\r<br><br><img decoding=\"async\" width=391 height=132 src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/uploads\/2020\/09\/image013-5.jpg\" v:shapes=\"_x0000_i1039\"><br><\/div><input type='hidden' name='question_id[]' id='qID_77' value='148577' \/><input type='hidden' id='answerType148577' value='textarea'><!-- end question-content--><\/div><div class='question-choices '><p><textarea name='answer-148577[]' id='textarea_q_148577' class='watupro-textarea-medium' rows='5' cols='80'><\/textarea>\n<\/p><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-78' style=';'><div id='questionWrap-78'  class='   watupro-question-id-148578'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>78. <\/span>Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation at the request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings in various industries. Specifically, Stephenson is interested in the effects of Iberia's investments on its financial performance and has decided to focus on two investments: Midland Incorporated and Odessa Company. <br \/>\r<br><br \/>\r<br>Midland Incorporated <br \/>\r<br>On December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for 80 million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia's investment in Midland was 89 million at the end of 2008 and 85 million at the end of 2009. For the year ended 2008, Midland reported net income of 30 million and paid dividends of 10 million. For the year ended 2009, Midland reported a loss of 5 million and paid dividends of 4 million. <br \/>\r<br><br \/>\r<br>During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold all of the goods to a third party in 2010. <br \/>\r<br><br \/>\r<br>Odessa Company <br \/>\r<br>On January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-term investment. The purchase price was 20 per share and on December 31, 2009, the market price of Odessa was 17 per share. The decline in value was considered temporary. For the year ended 2009, Odessa reported net income of 750 million and paid a dividend of 3 per share. Iberia considers its investment in Odessa as an investment in financial assets. <br \/>\r<br><br \/>\r<br>In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him to draft a report on accounting methods and ratio analysis. The following are statements from Stephenson's research report. <br \/>\r<br><br \/>\r<br>Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account for joint ventures. <br \/>\r<br><br \/>\r<br>Statement 2: In general, if the parent's consolidated net income is positive, the equity method reports a higher net profit margin than the acquisition method. <br \/>\r<br><br \/>\r<br>Which of the following is the most appropriate classification of Iberia's investment in Odessa Corporation?<\/div><input type='hidden' name='question_id[]' id='qID_78' value='148578' \/><input type='hidden' id='answerType148578' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148578[]' id='answer-id-604988' class='answer   answerof-148578 ' value='604988'   \/><label for='answer-id-604988' id='answer-label-604988' class=' answer'><span>Held-to-maturity.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148578[]' id='answer-id-604989' class='answer   answerof-148578 ' value='604989'   \/><label for='answer-id-604989' id='answer-label-604989' class=' answer'><span>Held-for-trading.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148578[]' id='answer-id-604990' class='answer   answerof-148578 ' value='604990'   \/><label for='answer-id-604990' id='answer-label-604990' class=' answer'><span>Available-for-sale.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-79' style=';'><div id='questionWrap-79'  class='   watupro-question-id-148579'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>79. <\/span>Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation at the request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings in various industries. Specifically, Stephenson is interested in the effects of Iberia's investments on its financial performance and has decided to focus on two investments: Midland Incorporated and Odessa Company. <br \/>\r<br><br \/>\r<br>Midland Incorporated <br \/>\r<br>On December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for 80 million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia's investment in Midland was 89 million at the end of 2008 and 85 million at the end of 2009. For the year ended 2008, Midland reported net income of 30 million and paid dividends of 10 million. For the year ended 2009, Midland reported a loss of 5 million and paid dividends of 4 million. <br \/>\r<br><br \/>\r<br>During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold all of the goods to a third party in 2010. <br \/>\r<br><br \/>\r<br>Odessa Company <br \/>\r<br>On January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-term investment. The purchase price was 20 per share and on December 31, 2009, the market price of Odessa was 17 per share. The decline in value was considered temporary. For the year ended 2009, Odessa reported net income of 750 million and paid a dividend of 3 per share. Iberia considers its investment in Odessa as an investment in financial assets. <br \/>\r<br><br \/>\r<br>In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him to draft a report on accounting methods and ratio analysis. The following are statements from Stephenson's research report. <br \/>\r<br><br \/>\r<br>Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account for joint ventures. <br \/>\r<br><br \/>\r<br>Statement 2: In general, if the parent's consolidated net income is positive, the equity method reports a higher net profit margin than the acquisition method. <br \/>\r<br><br \/>\r<br>What amount should Iberia recognize in its 2009 income statement as a result of its investments in Midland and Odessa?<\/div><input type='hidden' name='question_id[]' id='qID_79' value='148579' \/><input type='hidden' id='answerType148579' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148579[]' id='answer-id-604991' class='answer   answerof-148579 ' value='604991'   \/><label for='answer-id-604991' id='answer-label-604991' class=' answer'><span>1 million profit.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148579[]' id='answer-id-604992' class='answer   answerof-148579 ' value='604992'   \/><label for='answer-id-604992' id='answer-label-604992' class=' answer'><span>2 million profit.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148579[]' id='answer-id-604993' class='answer   answerof-148579 ' value='604993'   \/><label for='answer-id-604993' id='answer-label-604993' class=' answer'><span>3 million loss.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-80' style=';'><div id='questionWrap-80'  class='   watupro-question-id-148580'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>80. <\/span>Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation at the request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings in various industries. Specifically, Stephenson is interested in the effects of Iberia's investments on its financial performance and has decided to focus on two investments: Midland Incorporated and Odessa Company. <br \/>\r<br><br \/>\r<br>Midland Incorporated <br \/>\r<br>On December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for 80 million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia's investment in Midland was 89 million at the end of 2008 and 85 million at the end of 2009. For the year ended 2008, Midland reported net income of 30 million and paid dividends of 10 million. For the year ended 2009, Midland reported a loss of 5 million and paid dividends of 4 million. <br \/>\r<br><br \/>\r<br>During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold all of the goods to a third party in 2010. <br \/>\r<br><br \/>\r<br>Odessa Company <br \/>\r<br>On January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-term investment. The purchase price was 20 per share and on December 31, 2009, the market price of Odessa was 17 per share. The decline in value was considered temporary. For the year ended 2009, Odessa reported net income of 750 million and paid a dividend of 3 per share. Iberia considers its investment in Odessa as an investment in financial assets. <br \/>\r<br><br \/>\r<br>In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him to draft a report on accounting methods and ratio analysis. The following are statements from Stephenson's research report. <br \/>\r<br><br \/>\r<br>Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account for joint ventures. <br \/>\r<br><br \/>\r<br>Statement 2: In general, if the parent's consolidated net income is positive, the equity method reports a higher net profit margin than the acquisition method. <br \/>\r<br><br \/>\r<br>What amount should Iberia report on its balance sheet at the end of 2009 as a result of its investments in Midland and Odessa?<\/div><input type='hidden' name='question_id[]' id='qID_80' value='148580' \/><input type='hidden' id='answerType148580' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148580[]' id='answer-id-604994' class='answer   answerof-148580 ' value='604994'   \/><label for='answer-id-604994' id='answer-label-604994' class=' answer'><span>84.4 million.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148580[]' id='answer-id-604995' class='answer   answerof-148580 ' value='604995'   \/><label for='answer-id-604995' id='answer-label-604995' class=' answer'><span>101.4 million.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148580[]' id='answer-id-604996' class='answer   answerof-148580 ' value='604996'   \/><label for='answer-id-604996' id='answer-label-604996' class=' answer'><span>102.0 million.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div class='watu-question ' id='question-81' style=';'><div id='questionWrap-81'  class='   watupro-question-id-148581'>\n\t\t\t<div class='question-content'><div><span class='watupro_num'>81. <\/span>Bryan Stephenson is an equity analyst and is developing a research report on Iberia Corporation at the request of his supervisor. Iberia is a conglomerate entity with significant corporate holdings in various industries. Specifically, Stephenson is interested in the effects of Iberia's investments on its financial performance and has decided to focus on two investments: Midland Incorporated and Odessa Company. <br \/>\r<br><br \/>\r<br>Midland Incorporated <br \/>\r<br>On December 31, 2007, Iberia purchased 5 million common shares of Midland Incorporated for 80 million. Midland has a total of 12.5 million common shares outstanding. The market value of Iberia's investment in Midland was 89 million at the end of 2008 and 85 million at the end of 2009. For the year ended 2008, Midland reported net income of 30 million and paid dividends of 10 million. For the year ended 2009, Midland reported a loss of 5 million and paid dividends of 4 million. <br \/>\r<br><br \/>\r<br>During 2010, Midland sold goods to Iberia and reported 20% gross profit from the sale. Iberia sold all of the goods to a third party in 2010. <br \/>\r<br><br \/>\r<br>Odessa Company <br \/>\r<br>On January 2, 2009, Iberia purchased 1 million common shares of Odessa Company as a long-term investment. The purchase price was 20 per share and on December 31, 2009, the market price of Odessa was 17 per share. The decline in value was considered temporary. For the year ended 2009, Odessa reported net income of 750 million and paid a dividend of 3 per share. Iberia considers its investment in Odessa as an investment in financial assets. <br \/>\r<br><br \/>\r<br>In addition, Iberia has a number of foreign investments, so Stephenson's supervisor has asked him to draft a report on accounting methods and ratio analysis. The following are statements from Stephenson's research report. <br \/>\r<br><br \/>\r<br>Statement 1: Under U.S. GAAP, firms are required to use proportionate consolidation to account for joint ventures. <br \/>\r<br><br \/>\r<br>Statement 2: In general, if the parent's consolidated net income is positive, the equity method reports a higher net profit margin than the acquisition method. <br \/>\r<br><br \/>\r<br>What adjustment, if any, must Iberia make to its 2010 income statement as a result of the intercompany transaction with Midland?<\/div><input type='hidden' name='question_id[]' id='qID_81' value='148581' \/><input type='hidden' id='answerType148581' value='checkbox'><!-- end question-content--><\/div><div class='question-choices watupro-choices-columns '><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148581[]' id='answer-id-604997' class='answer   answerof-148581 ' value='604997'   \/><label for='answer-id-604997' id='answer-label-604997' class=' answer'><span>Sales and cost of goods sold should be reduced by Iberia's pro-rata ownership interest in the intercompany sale.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148581[]' id='answer-id-604998' class='answer   answerof-148581 ' value='604998'   \/><label for='answer-id-604998' id='answer-label-604998' class=' answer'><span>Midland's net income should be reduced by 20% of the gross profit from the intercompany sale.<\/span><\/label><\/div><div class='watupro-question-choice  ' dir='auto' ><input type='checkbox' name='answer-148581[]' id='answer-id-604999' class='answer   answerof-148581 ' value='604999'   \/><label for='answer-id-604999' id='answer-label-604999' class=' answer'><span>No adjustment is necessary.<\/span><\/label><\/div><!-- end question-choices--><\/div><!-- end questionWrap--><\/div><\/div><div style='display:none' id='question-82'>\n\t<div class='question-content'>\n\t\t<img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/plugins\/watupro\/img\/loading.gif\" width=\"16\" height=\"16\" alt=\"Loading...\" title=\"Loading...\" \/>&nbsp;Loading...\t<\/div>\n<\/div>\n\n<br \/>\n\t\n\t\t\t<div class=\"watupro_buttons flex \" id=\"watuPROButtons4666\" >\n\t\t  <div id=\"prev-question\" style=\"display:none;\"><input type=\"button\" value=\"&lt; Previous\" onclick=\"WatuPRO.nextQuestion(event, 'previous');\"\/><\/div>\t\t  \t\t  \t\t   \n\t\t   \t  \t\t<div><input type=\"button\" name=\"action\" class=\"watupro-submit-button\" onclick=\"WatuPRO.submitResult(event)\" id=\"action-button\" value=\"View Results\"  \/>\n\t\t<\/div>\n\t\t<\/div>\n\t\t\n\t<input type=\"hidden\" name=\"quiz_id\" value=\"4666\" id=\"watuPROExamID\"\/>\n\t<input type=\"hidden\" name=\"start_time\" id=\"startTime\" value=\"2026-05-13 08:05:38\" \/>\n\t<input type=\"hidden\" name=\"start_timestamp\" id=\"startTimeStamp\" value=\"1778659538\" \/>\n\t<input type=\"hidden\" name=\"question_ids\" value=\"\" \/>\n\t<input type=\"hidden\" name=\"watupro_questions\" value=\"148501:604758,604759,604760 | 148502:604761,604762,604763 | 148503:604764,604765,604766 | 148504:604767,604768,604769 | 148505:604770,604771,604772 | 148506:604773,604774,604775 | 148507:604776,604777,604778 | 148508:604779,604780,604781 | 148509:604782,604783,604784 | 148510:604785,604786,604787 | 148511:604788,604789,604790 | 148512:604791,604792,604793 | 148513:604794,604795,604796 | 148514:604797,604798,604799 | 148515:604800,604801,604802 | 148516:604803,604804,604805 | 148517:604806,604807,604808 | 148518:604809,604810,604811 | 148519:604812,604813,604814 | 148520:604815,604816,604817 | 148521:604818,604819,604820 | 148522:604821,604822,604823 | 148523:604824,604825,604826 | 148524:604827,604828,604829 | 148525:604830,604831,604832 | 148526:604833,604834,604835 | 148527:604836,604837,604838 | 148528:604839,604840,604841 | 148529:604842,604843,604844 | 148530:604845,604846,604847 | 148531:604848,604849,604850 | 148532:604851,604852,604853 | 148533:604854,604855,604856 | 148534:604857,604858,604859 | 148535:604860,604861,604862 | 148536:604863,604864,604865 | 148537:604866,604867,604868 | 148538:604869,604870,604871 | 148539:604872,604873,604874 | 148540:604875,604876,604877 | 148541:604878,604879,604880 | 148542:604881,604882,604883 | 148543:604884,604885,604886 | 148544:604887,604888,604889 | 148545:604890,604891,604892 | 148546:604893 | 148547:604894,604895,604896 | 148548:604897,604898,604899 | 148549:604900,604901,604902 | 148550:604903,604904,604905 | 148551:604906,604907,604908 | 148552:604909,604910,604911 | 148553:604912,604913,604914 | 148554:604915,604916,604917 | 148555:604918,604919,604920 | 148556:604921,604922,604923 | 148557:604924,604925,604926 | 148558:604927,604928,604929 | 148559:604930,604931,604932 | 148560:604933,604934,604935 | 148561:604936,604937,604938,604939 | 148562:604940,604941,604942 | 148563:604943,604944,604945 | 148564:604946,604947,604948 | 148565:604949,604950,604951 | 148566:604952,604953,604954 | 148567:604955,604956,604957 | 148568:604958,604959,604960 | 148569:604961,604962,604963 | 148570:604964,604965,604966 | 148571:604967,604968,604969 | 148572:604970,604971,604972 | 148573:604973,604974,604975,604976,604977 | 148574:604978,604979,604980 | 148575:604981,604982,604983 | 148576:604984,604985,604986 | 148577:604987 | 148578:604988,604989,604990 | 148579:604991,604992,604993 | 148580:604994,604995,604996 | 148581:604997,604998,604999\" \/>\n\t<input type=\"hidden\" name=\"no_ajax\" value=\"0\">\t\t\t<\/form>\n\t<p>&nbsp;<\/p>\n<\/div>\n\n<script type=\"text\/javascript\">\n\/\/jQuery(document).ready(function(){\ndocument.addEventListener(\"DOMContentLoaded\", function(event) { \t\nvar question_ids = \"148501,148502,148503,148504,148505,148506,148507,148508,148509,148510,148511,148512,148513,148514,148515,148516,148517,148518,148519,148520,148521,148522,148523,148524,148525,148526,148527,148528,148529,148530,148531,148532,148533,148534,148535,148536,148537,148538,148539,148540,148541,148542,148543,148544,148545,148546,148547,148548,148549,148550,148551,148552,148553,148554,148555,148556,148557,148558,148559,148560,148561,148562,148563,148564,148565,148566,148567,148568,148569,148570,148571,148572,148573,148574,148575,148576,148577,148578,148579,148580,148581\";\nWatuPROSettings[4666] = {};\nWatuPRO.qArr = question_ids.split(',');\nWatuPRO.exam_id = 4666;\t    \nWatuPRO.post_id = 19009;\nWatuPRO.store_progress = 0;\nWatuPRO.curCatPage = 1;\nWatuPRO.requiredIDs=\"0\".split(\",\");\nWatuPRO.hAppID = \"0.50438300 1778659538\";\nvar url = \"https:\/\/www.dumpsbase.com\/freedumps\/wp-content\/plugins\/watupro\/show_exam.php\";\nWatuPRO.examMode = 1;\nWatuPRO.siteURL=\"https:\/\/www.dumpsbase.com\/freedumps\/wp-admin\/admin-ajax.php\";\nWatuPRO.emailIsNotRequired = 0;\nWatuPROIntel.init(4666);\nWatuPRO.inCategoryPages=1;});    \t \n<\/script>\n\n\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10123,11743],"tags":[11737,11738,11739,11740,11741,11742],"class_list":["post-19009","post","type-post","status-publish","format-standard","hentry","category-cfa-institute","category-level-2-cfa-exam","tag-cfa-level-2","tag-cfa-level-2-dumps","tag-cfa-level-2-dumps-questions","tag-cfa-level-2-exam-dumps","tag-cfa-level-2-exam-questions","tag-cfa-level-2-free-dumps"],"_links":{"self":[{"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/posts\/19009","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/comments?post=19009"}],"version-history":[{"count":1,"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/posts\/19009\/revisions"}],"predecessor-version":[{"id":19014,"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/posts\/19009\/revisions\/19014"}],"wp:attachment":[{"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/media?parent=19009"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/categories?post=19009"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dumpsbase.com\/freedumps\/wp-json\/wp\/v2\/tags?post=19009"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}