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Sample Examination 1 for 1998 Candidates CFA® Level I 120 Questions 3 Hours

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Sample Examination 1 for 1998 Candidates CFA® Level I 120 Questions 3 Hours Sample Examination 1 for 1998 Candidates CFA® Level I 120 Questions 3 Hours AIMR has constructed two sample examinations to help candidates practice taking multiple choice tests. Each 120-question sample examination represents a three-hour section (one- half the regular examination time). By combining the two sample examinations provided, candidates have the equivalent of one full six-hour test. To simulate realistic examination- day conditions, candidates may want to set aside a block of three hours in which to take each sample examination. Doing so will allow 1 ½ minutes, on average, for each question. The sample examinations are intended only to give candidates practice at answering questions that are similar in style to those that will appear on the 1998 CFA Level I examination. None of these sample questions will appear on that examination. Candidates should not rely on the sample examinations as their only means of preparing for the 1998 CFA Level I examination. Careful reading and study of the readings listed in the 1998 CFA Level I Study Guide are essential to being well prepared. AIMR strives to be accurate with the guideline answers to the sample examinations. If you detect any irregularities, please submit them by fax to: Coordinator, Level I Examination at (804)980-3670. Corrections will be printed in the Candidate Bulletin or will be sent by mail to all candidates. No individual replies will be given. Sample Examination Structure Question Topic Percent Number 1-18 Ethical and Professional Standards 15 18 19-36 Quantitative Analysis 15 18 37-50 Economics 12 14 51-80 Accounting and Corporate Finance 25 30 81-92 Global Markets and Instruments 12 12 93-106 Asset Valuation 12 14 107-120 Portfolio Management 12 14 Total 100%* 120 * The percentages do not add exactly to 100% because of rounding. ©Association for Investment Management and Research 1 QUESTIONS 1 THROUGH 18 RELATE TO ETHICAL AND PROFESSIONAL STANDARDS AND ARE ALLOCATED 27 MINUTES (OR 1 ½ MINUTES EACH). 1. To fulfill their obligation regarding informing their employer of their obligation to comply with the Code and Standards, members: A. Can notify their employer of their obligation to comply with the Code and Standards via e-mail. B. Must inform their immediate supervisor, in writing, of their obligation to comply with the Code and Standards. C. Need not inform their employer of their obligation to comply with the Code and Standards if the employer has publicly adopted AIMR's Code and Standards as part of its firm's policies. D. All of the above. 2. Anderb, a portfolio manager for XYZ Investment Management Company—a registered investment organization that advises investment companies and private accounts—was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Anderb’s portfolio account transactions, and her required monthly reports of personal stock transactions. Anderb has been using Jonelli, a broker, almost exclusively for portfolio account brokerage transactions. For securities in which Jonelli’s firm makes a market, Jonelli has been giving Anderb lower prices for personal purchases and higher prices for personal sales than Jonelli gives Anderb’s portfolio accounts and other investors. Anderb has been filing monthly reports with Bates only in those months in which she has no personal transactions, which is about every fourth month. Which of the following applies/apply? I. Anderb violated the Code and Standards in that she failed to disclose to her employer her personal transactions. II. Anderb violated the Code and Standards by breaching her fiduciary duty to her clients. III. Bates violated the Code and Standards by failing to enforce reasonable procedures for supervising and monitoring Anderb in Anderb’s trading for her own account. A. I only. B. I and II only. C. II and III only. D. I, II, and III. 2 ©Association for Investment Management and Research 3. Saunders, a mining analyst for Hokassen Investments, has completed his analysis of Okun Drilling & Mining for a wealthy client of Hokassen. He has concluded that, based on core samples and geological surveys of land owned or leased by Okun, the company has in excess of 1 million ounces of gold available to mine. Saunders drafts a research report stating the following: "Based on the fact that the company has 1 million ounces of gold to be mined, I recommend purchasing Okun stock for your portfolio." If Saunders presents his report to the wealthy client, he will have: A. Violated the AIMR Standards of Professional Conduct because he did not distinguish between fact and opinion. B. Violated the AIMR Standards of Professional Conduct because he made conclusions based only on his own research. C. Violated the AIMR Standards of Professional Conduct because he did not indicate the basic characteristics of the investment. D. Complied with the AIMR Standards of Professional Conduct. 4. All of the following statements about the payment of brokerage commissions (soft dollars) are true EXCEPT: A. brokerage commissions should be directed in the best interests of the client. B. brokerage commissions may be directed to pay for the investment manager's operating expenses. C. brokerage commissions may be directed to pay for securities research used in managing the client's portfolio. D. brokerage commissions paid should be commensurate with the value of the brokerage and research services received. 5. John Vickery, a trustee for the pension plan of Richardson Industries, has just received a commission schedule from XYZ Brokerage, a firm with which he is not now trading. The fee schedule is lower than the schedule of ABC Brokerage, which is the firm Vickery now uses for most transactions. ABC also provides research data and performance measurement for the pension plan, services that XYZ cannot handle. Vickery is concerned that he may be violating his fiduciary duty of loyalty by not using the lowest cost brokerage firm. Based on AIMR Standards of Professional Conduct, which of the following statements is true? A. Vickery will violate his fiduciary duty unless he immediately begins trading through XYZ. B. Vickery will not violate his fiduciary duty unless he personally profits from his relationship with ABC. C. Vickery can continue to trade through ABC if he determines, in good faith, that the value of the services is commensurate with the cost. D. The "safe harbor" concept allows fiduciaries to pay higher commissions even though the services are not fully commensurate with the cost. ©Association for Investment Management and Research 3 6. Tony Clinton, a portfolio manager with Northwest Bank, has just been given investment authority for a newly-acquired pension account. Client objectives have not yet been established. On the day Clinton was given the account, $2 million of the account’s bond holdings, representing 4 percent of the portfolio, matured. Based on AIMR Standards of Professional Conduct, which of the following is Clinton's best course of action on that day? A. Make no decision until the client’s objectives are established. B. Invest the proceeds in line with the bank's current asset allocation strategy. C. Invest the proceeds in cash equivalents until Clinton can arrange a meeting with the client to establish fund objectives. D. Contact the client's former investment advisor to find out the appropriate investment action based on previously-used guidelines. 7. Jim Orlando, CFA, is a research analyst with a brokerage firm. He decided to change his recommendation on the common stock of Alpha Company from a "buy" to a "sell." He faxed this change in investment advice to all his current customers. The next day, a new customer called to buy 500 shares of Alpha Company. According to AIMR Standards of Professional Conduct, Orlando: A. should advise the customer of the change in recommendation before accepting the order. B. may accept the order because he has complied with the standard on fair dealing with customers. C. may accept the order when the customer specifies in writing that he was notified of the change in the recommendation. D. should delay executing the order until five days have elapsed after the communication of the change in recommendation. 8. Which of the following statements is a recommendation of the Standards of Practice Handbook with regards to personal investing? A. Preclearance of all trades. B. Disclosure of all holdings in which the employee has a beneficial interest. C. Restrictions on participation in an IPO of equity or equity-related securities. D. All of the above. 4 ©Association for Investment Management and Research 9. Don Smith, a CFA candidate employed by Hunter Investment Counselors, Inc., provides investment advice to the board of trustees of a private university endowment fund. The trustees have given Smith the fund's financial information, including planned expenditures. Smith received a phone call on Friday afternoon from Mark Murdock, a prominent alumnus, requesting that Smith fax to him comprehensive financial information about the fund. According to Murdock, he has a potential contributor but needs the information today to close the deal and cannot contact any of the trustees. Based on AIMR Standards of Professional Conduct, Smith may: A. send Murdock the information because disclosure would benefit the client. B. send Murdock the information provided Smith promptly notifies the trustees. C. send Murdock the information because it is not material nonpublic information. D. not send Murdock the information because Smith must preserve confidentiality. 10. Jane Doe, a CFA candidate, is a junior research analyst with Howard & Sons, a brokerage and investment banking firm. Howard's mergers and acquisitions department, which handles mergers and acquisitions, has represented Britland Company in all its acquisitions for the past 20 years. Two of Howard's senior officers are directors of various Britland subsidiaries.
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