Latest CFA Level 3 Exam Questions and Answers, Sample Questions

Question #1

Stephanie Mackley is a portfolio manager for Durango Wealth Management (DWM), a regional money manager catering to wealthy investors in the southwestern portion of the United States. Mackley's clients vary widely in terms of their age, net worth, and investment objectives, but all must have at least $1 million in net assets before she will accept them as clients.Many of Mackley’s clients are referred to her by Kern & Associates, an accounting and consulting firm. DWM does not provide any direct compensation

A. o Yes

B. es No

C. es Yes

View answer

Correct Answer: C

Question #2

John Green, CFA, is a sell-side technology analyst at Federal Securities, a large global investment banking and advisory firm. In many of his recent conversations with executives at the firms he researches, Green has heard disturbing news. Most of these firms are lowering sales estimates for the coming year. However, the stock prices have been stable despite management's widely disseminated sales warnings. Green is preparing his quarterly industry analysis and decides to seek further input. He calls Alan Vo

A. reen has misrepresented the expected performance of the IPOs, but has dealt fairly with clients

B. reen has misrepresented the expected performance of the IPOs and has not dealt fairly with clients

C. reen has not misrepresented the expected performance of the IPOs, but he has not dealt fairly with clients

View answer

Correct Answer: B

Question #3

John Green, CFA, is a sell-side technology analyst at Federal Securities, a large global investment banking and advisory firm. In many of his recent conversations with executives at the firms he researches, Green has heard disturbing news. Most of these firms are lowering sales estimates for the coming year. However, the stock prices have been stable despite management's widely disseminated sales warnings. Green is preparing his quarterly industry analysis and decides to seek further input. He calls Alan Vo

A. oth Ybarra and Cliff have violated CFA Institute Standards

B. either has violated CFA Institute Standards

C. barra has violated CFA Institute Standards, while Cliff has not

View answer

Correct Answer: A

Question #4

Cynthia Farmington, CFA, manages the Lewis family's $600 million securities portfolio. Farmington and the Lewis family have agreed that they should hire a manager of alternative investments to manage a portion of the portfolio containing those assets. As part of the hiring process, they attempted to do the necessary due diligence. They assessed each manager's organization, the relative efficiency of the markets each manager has invested in, the character of each manager, and the service providers, such as l

A. he horizon is too short

B. oo few positions for proper diversification

C. oo much invested given the 3izc of the overall portfolio

View answer

Correct Answer: A

Question #5

Travis Smith, CFA, is chief economic strategist and market analyst for Nashville Capital Management. He is developing a forecast of the S&P 500 stock market index utilizing different approaches.Using microeconomic analysis, Smith wants to value the S&P using a dividend discount model (DDM) valuation approach. The trailing recent 52-week dividend for the S&P 500 equaled $60. Used as a proxy for the nominal risk-free rate, Treasury rates are as follows:• 3-month T-bill rate: 3.5%• 30-year T-bond rate: 5.0%Smi

A. 45

B. 50

C. 915

View answer

Correct Answer: B

Question #6

Lucy Sakata, CFA and Gary Lowenstein, CFA are portfolio managers for the Murray Funds, a provider of investment funds to institutional and wealthy individual investors. Murray frequently indexes in developed markets, but uses full blown active management in less efficient markets and when they think their analysts have a particular expertise. The vast majority of Murray's clients attempt to minimize tracking error.One of the Murray's funds invests in a Hong Kong index and is marketed as a way for investors

A. alue

B. rowth

C. arket-oriented

View answer

Correct Answer: A

Question #7

Mark Stober, William Robertson, and James McGuire are consultants for a regional pension consultancy. One of their clients, Richard Smitherspoon, chief investment officer of Quality Car Part Manufacturing, recently attended a conference on risk management topics for pension plans. Smitherspoon is a conservative manager who prefers to follow a long-term investment strategy with little portfolio turnover. Smitherspoon has substantial experience in managing a defined benefit plan but has little experience with

A. nly Stober is correct

B. nly Robertson is correct

C. oth are correct -OR- both are incorrect

View answer

Correct Answer: A

Question #8

Robert Keith, CFA, has begun a new job at CMT Investments as Head of Compliance. Keith has just completed a review of all of CMT's operations, and has interviewed all the firm's portfolio managers. Many are CFA charterholders, but some are not. Keith intends to use the CFA Institute Code and Standards, as well as the Asset Manager Code of Professional Conduct, as ethical guidelines for CMT to follow.In the course of Keith's review of the firm's overall practices, he has noted a few situations which potentia

A. MT must adopt the Asset Manager Code of Conduct, as required by the CFA Institute Code and Standards

B. lthough adoption of the CFA Institute Asset Manager Code of Conduct is not a requirement, the Standards of Practice encourage firms to adopt this Code

C. he Standards of Practice do not require CMT to adopt the Asset Manager Code of Conduct, nor is there a requirement to publish a detailed procedural manual

View answer

Correct Answer: B

Question #9

Johnny Bracco, CFA, is a portfolio manager in the trust department of Canada National (CNL) in Toronto. CNL is a financial conglomerate with many divisions. In addition to the trust department, the firm sells financial products and has a research department, a trading desk, and an investment banking division.Part of the company's operating procedures manual contains detailed information on how the firm allocates shares in oversubscribed stock offerings. Allocation is effected on a pro rata basis based upon

A. es, since this behavior, if witnessed by a client of the firm, would most likely be viewed negatively

B. o

C. es, since any unethical behavior constitutes a moral absolute violation

View answer

Correct Answer: A

Question #10

Wealth Management's top economist, Frederick Milton, is an economic cycle forecaster- Milton's economic forecasts indicate an economic upswing that will impact all goods and services sectors. Milton presents his economic findings to the rest of Wealth Management's professionals at their monthly meeting. All are excited about Milton's forecast of an improving economic condition that should translate into a steadily rising stock market.Nathaniel Norton and Timothy Tucker have confidence in Milton's capabiliti

A. PPI strategies represent the purchase of portfolio insurance because they will buy stocks a3 they rise and sell them as they fall

B. PPI strategies offer good upside potential because they increase exposure to risky assets as the market rises

C. ue to the concave nature of CPPI strategies, they offer good downside protection

View answer

Correct Answer: C

Question #11

Sue Gano and Tony Cismesia are performance analysts for the Barth Group. Barth provides consulting and compliance verification for investment firms wishing to adhere to the Global Investment Performance Standards (GIPS ®). The firm also provides global performance evaluation and attribution services for portfolio managers. Barth recommends the use of GIPS to its clients due to its prominence as the standard for investment performance presentation.One of the Barth Group's clients, Nigel Investment Advisors,

A. es

B. o, only statement 1 is correct

C. o, both statements are incorrect

View answer

Correct Answer: B

Question #12

Jack Mercer and June Seagram are investment advisors for Northern Advisors. Mercer graduated from a prestigious university in London eight years ago, whereas Seagram is newly graduated from a mid-western university in the United States. Northern provides investment advice for pension funds, foundations, endowments, and trusts. As part of their services, they evaluate the performance of outside portfolio managers. They are currently scrutinizing the performance of several portfolio managers who work for the

A. nly Mercer is correct

B. nly Seagram is correct

C. oth are correct

View answer

Correct Answer: C

Question #13

Jack Rose and Ryan Boatman are analysts with Quincy Consultants. Quincy provides advice on risk management and performance presentation to pension plans, insurance firms, and other institutional portfolio managers throughout the United States and Canada.Rose and Boatman are preparing an analysis of the defined benefit pension plans for four mature corporations in the United States. In an effort to ascertain the risk to the firm's shareholders from the plans. Rose and Boatman gather the information in Figure

A. irm

B. irms B and C

C. irm D

View answer

Correct Answer: C

Question #14

Harold Chang, CFA, has been the lead portfolio manager for the Woodlock Management Group (WMG) for the last five years. WMG runs several equity and fixed income portfolios, all of which are authorized to use derivatives as long as such positions are consistent with the portfolio's strategy. The WMG Equity Opportunities Fund takes advantage of long and short profit opportunities in equity securities. The fund's positions are often a relatively large percentage of the issuer's outstanding shares and fund trad

A. his is a violation of CFA Institute Standards due to use of the funds from the short position being used to partially pay for the long position

B. his is a violation of CFA Institute Standards since the immediate upward movement in GreenCo stock price was a result of the transaction artificially manipulating the market

C. o violation of CFA Institute Standards has occurred

View answer

Correct Answer: C

Question #15

Hilda Olson covers the chemical industry for Bern Securities. Based on conversations with two executives of InterChem, a major producer of synthetic fabrics, she issues a generalized sector report claiming that "according to a survey of industry executives, rayon feedstocks will be in short supply for at least the next 12 months." In addition, Olson recommends Han Chemical, a major producer of rayon, which has routinely reported higher profits than its competitors and should be well positioned to gain furth

A. cceptable since it is clearly an opinion

B. cceptable since it is supported with facts regarding industry supply and demand

C. nacceptable since she has not provided enough information for investors to assess Han's risk

View answer

Correct Answer: C

Question #16

Johnny Bracco, CFA, is a portfolio manager in the trust department of Canada National (CNL) in Toronto. CNL is a financial conglomerate with many divisions. In addition to the trust department, the firm sells financial products and has a research department, a trading desk, and an investment banking division.Part of the company's operating procedures manual contains detailed information on how the firm allocates shares in oversubscribed stock offerings. Allocation is effected on a pro rata basis based upon

A. nly Gun's statement is correct

B. nly Bracco's statement is correct

C. oth are correct or both are incorrect

View answer

Correct Answer: C

Question #17

Jimena Mora, CFA and Jack Wieters, CFA are economists for Otterbein Forecasting. Otterbein provides economic consulting and forecasting services for institutional investors, medium-sized investment banks, and corporations. In order to forecast the performance of asset classes and formulate strategic asset allocations, Mora and Wieters are currently examining the capital market expectations for four developed countries: Alzano, Lombardo, Bergamo, and Linden. Wieters was hired in 2009 and Mora is his supervis

A. he economy is likely to expand in the future

B. he economy is likely to contract in the future

C. he economy is likely to experience no growth in the future

View answer

Correct Answer: B

Question #18

Shirley Riley, CFA, has just been promoted, from vice president of trading to chief investment officer (CIO) at Crane & Associates, LLC (CA), a large investment management firm. Riley has been with CA for eight years, but she has much to learn as she assumes her new duties as CIO. Riley has decided to hire Denny Simpson, CFA, as the new compliance officer for CA, Riley and Simpson have been reviewing procedures and policies throughout the firm and have discovered several potential issues.Communications with

A. olicies on both portfolio manager and employee participation in IPOs are not consistent with the Asset Manager Code of Professional Conduct

B. he employee participation in IPOs policy is consistent with the Asset Manager Code, as is the portfolio manager's policy on participation in IPOs

C. he portfolio manager's policy on IPOs is not consistent with the Asset Manager Code, however the employee policy on IPOs is consistent with the Asset Manager Code

View answer

Correct Answer: A

Question #19

Arthur Campbell, CFA, is the founder of Campbell Capital Management (CCM), a money management firm focused solely on high net worth individuals. Campbell started CCM two years ago after a 25-year career with a large bank trust department. CCM provides portfolios tailored to match the unique situation of each individual client. All of CCM's clientele have balanced portfolios. CCM does not use derivatives or exotic instruments to manage any of its portfolios. CCM's equity style is defined as growth at a reaso

A. 0

B. 0

C. 1

View answer

Correct Answer: C

Question #20

Daniel Castillo and Ramon Diaz are chief investment officers at Advanced Advisors (AA), a boutique fixed- income firm based in the United States. AA employs numerous quantitative models to invest in both domestic and international securities.During the week, Castillo and Diaz consult with one of their investors, Sally Michaels. Michaels currently holds a $10,000,000 fixed-income position that is selling at par. The maturity is 20 years, and the coupon rate of 7% is paid semiannually. Her coupons can be rein

A.

B. 0

C. 1

View answer

Correct Answer: B

Question #21

Daniel Castillo and Ramon Diaz are chief investment officers at Advanced Advisors (AA), a boutique fixed- income firm based in the United States. AA employs numerous quantitative models to invest in both domestic and international securities.During the week, Castillo and Diaz consult with one of their investors, Sally Michaels. Michaels currently holds a $10,000,000 fixed-income position that is selling at par. The maturity is 20 years, and the coupon rate of 7% is paid semiannually. Her coupons can be rein

A.

B.

C.

View answer

Correct Answer: C

Question #22

Harold Chang, CFA, has been the lead portfolio manager for the Woodlock Management Group (WMG) for the last five years. WMG runs several equity and fixed income portfolios, all of which are authorized to use derivatives as long as such positions are consistent with the portfolio's strategy. The WMG Equity Opportunities Fund takes advantage of long and short profit opportunities in equity securities. The fund's positions are often a relatively large percentage of the issuer's outstanding shares and fund trad

A. oes not violate any Standards

B. eed only be disclosed to WMG to be acceptable

C. s acceptable only if disclosed to WMG and to clients and prospective clients

View answer

Correct Answer: C

Question #23

Sue Gano and Tony Cismesia are performance analysts for the Barth Group. Barth provides consulting and compliance verification for investment firms wishing to adhere to the Global Investment Performance Standards (GIPS ®). The firm also provides global performance evaluation and attribution services for portfolio managers. Barth recommends the use of GIPS to its clients due to its prominence as the standard for investment performance presentation.One of the Barth Group's clients, Nigel Investment Advisors,

A. he composite can be formed and the composite must report all performance statistics

B. he composite can be formed, however the number of portfolios and dispersion does not have to be reported

C. he composite cannot be formed because it has less than six portfolios in it, so there are no presentation requirements

View answer

Correct Answer: B

Question #24

Robert Keith, CFA, has begun a new job at CMT Investments as Head of Compliance. Keith has just completed a review of all of CMT's operations, and has interviewed all the firm's portfolio managers. Many are CFA charterholders, but some are not. Keith intends to use the CFA Institute Code and Standards, as well as the Asset Manager Code of Professional Conduct, as ethical guidelines for CMT to follow.In the course of Keith's review of the firm's overall practices, he has noted a few situations which potentia

A. oth Provisions are correct

B. nly Provision 1 is correct

C. nly Provision 2 is correct

View answer

Correct Answer: A

Question #25

Harold Chang, CFA, has been the lead portfolio manager for the Woodlock Management Group (WMG) for the last five years. WMG runs several equity and fixed income portfolios, all of which are authorized to use derivatives as long as such positions are consistent with the portfolio's strategy. The WMG Equity Opportunities Fund takes advantage of long and short profit opportunities in equity securities. The fund's positions are often a relatively large percentage of the issuer's outstanding shares and fund trad

A. oth of Chang's comments are correct

B. either of Chang's comments is correct

C. nly Chang's comments regarding disclosure of investment processes are correct

View answer

Correct Answer: C

Question #26

Shirley Riley, CFA, has just been promoted, from vice president of trading to chief investment officer (CIO) at Crane & Associates, LLC (CA), a large investment management firm. Riley has been with CA for eight years, but she has much to learn as she assumes her new duties as CIO. Riley has decided to hire Denny Simpson, CFA, as the new compliance officer for CA, Riley and Simpson have been reviewing procedures and policies throughout the firm and have discovered several potential issues.Communications with

A. iven the adequate disclosures, use of soft dollars for both BTN and BTR is acceptable

B. se of soft dollars for BTN is acceptable, but not for BTR

C. either of these publications provide direct benefit to the client, thus neither may be paid for with soft dollars

View answer

Correct Answer: B

Question #27

Rowan Brothers is a full service investment firm offering portfolio management and investment banking services. For the last ten years, Aaron King, CFA, has managed individual client portfolios for Rowan Brothers, most of which are trust accounts over which King has full discretion. One of King's clients, Shelby Pavlica, is a widow in her late 50s whose husband died and left assets of over $7 million in a trust, for which she is the only beneficiary.Pavlica's three children are appalled at their mother's sp

A. ing may not accept the directorship since it creates a conflict of interest

B. ing may accept the directorship as long as it is disclosed to clients and prospects

C. ing may accept the directorship as long as it is disclosed to his employer, clients, and prospects

View answer

Correct Answer: C

Question #28

Ellen Truxel is the principal at Truxel Investment Management. Her firm uses bonds for income enhancement as well as capital gains. She occasionally uses sector quality bets and yield curve positioning to exploit her beliefs on the relative changes in sector credit quality and the direction of interest rates. She has recently hired John Timberlake to assist her in preparing data for the analysis of bond portfolios. Timberlake is a recent graduate of an outstanding undergraduate program in finance.Truxel is

A. BB

B. AA

C. A and A, which contribute about the same

View answer

Correct Answer: B

Question #29

Pace Insurance is a large, multi-line insurance company that also owns several proprietary mutual funds. The funds are managed individually, but Pace has an investment committee that oversees all of the funds. This committee is responsible for evaluating the performance of the funds relative to appropriate benchmarks and relative to the stated investment objectives of each individual fund. During a recent investment committee meeting, the poor performance of Pace's equity mutual funds was discussed. In part

A. oss aversion

B. indsight bias

C. oney illusion

View answer

Correct Answer: A

Question #30

Robert Keith, CFA, has begun a new job at CMT Investments as Head of Compliance. Keith has just completed a review of all of CMT's operations, and has interviewed all the firm's portfolio managers. Many are CFA charterholders, but some are not. Keith intends to use the CFA Institute Code and Standards, as well as the Asset Manager Code of Professional Conduct, as ethical guidelines for CMT to follow.In the course of Keith's review of the firm's overall practices, he has noted a few situations which potentia

A. roxies, since they have economic value to the client, must always be voted on, whether on routine or non- routine issues

B. anagers may exercise discretion, and especially in the case of index funds, they do not have to vote proxies

C. roxy issues that are not routine will require more analysis

View answer

Correct Answer: C

Question #31

Kim Simpson, CFA, manages a $75 million multi-cap growth portfolio. Simpson utilizes a growth at a reasonable price (GARP) investment strategy and her investment universe consists of small, medium and large capitalization stocks. She turns the entire portfolio over once each year. Simpson is concerned about the amount of trading costs she has generated through the implementation of her investment strategy. Simpson decides to conduct a trade cost analysis with the cooperation of her trader, Janet Long, CFA.

A. nly the market liquidity statement is correct

B. nly the market quality statement is correct

C. oth statements are correct

View answer

Correct Answer: B

Question #32

Johnny Bracco, CFA, is a portfolio manager in the trust department of Canada National (CNL) in Toronto. CNL is a financial conglomerate with many divisions. In addition to the trust department, the firm sells financial products and has a research department, a trading desk, and an investment banking division.Part of the company's operating procedures manual contains detailed information on how the firm allocates shares in oversubscribed stock offerings. Allocation is effected on a pro rata basis based upon

A. iolated soft dollar standards because he did not satisfy the requirement of best execution

B. iolated the soft dollar standards because client brokerage is to be used only for research purposes to benefit the client

C. ot violated any soft dollar standards since Carobilo directed the trades to a specific broker

View answer

Correct Answer: C

Question #33

Ellen Truxel is the principal at Truxel Investment Management. Her firm uses bonds for income enhancement as well as capital gains. She occasionally uses sector quality bets and yield curve positioning to exploit her beliefs on the relative changes in sector credit quality and the direction of interest rates. She has recently hired John Timberlake to assist her in preparing data for the analysis of bond portfolios. Timberlake is a recent graduate of an outstanding undergraduate program in finance.Truxel is

A. oth are correct

B. either is correct

C. ne is correct

View answer

Correct Answer: C

Question #34

Wealth Management's top economist, Frederick Milton, is an economic cycle forecaster- Milton's economic forecasts indicate an economic upswing that will impact all goods and services sectors. Milton presents his economic findings to the rest of Wealth Management's professionals at their monthly meeting. All are excited about Milton's forecast of an improving economic condition that should translate into a steadily rising stock market.Nathaniel Norton and Timothy Tucker have confidence in Milton's capabiliti

A. uy and hold

B. onstant mix

C. onstant proportion portfolio insurance

View answer

Correct Answer: B

Question #35

Wealth Management's top economist, Frederick Milton, is an economic cycle forecaster- Milton's economic forecasts indicate an economic upswing that will impact all goods and services sectors. Milton presents his economic findings to the rest of Wealth Management's professionals at their monthly meeting. All are excited about Milton's forecast of an improving economic condition that should translate into a steadily rising stock market.Nathaniel Norton and Timothy Tucker have confidence in Milton's capabiliti

A. eallocate an additional $50,000 to equity

B. eallocate the entire $120,000 to debt and cash

C. ake no adjustments

View answer

Correct Answer: C

Question #36

Hilda Olson covers the chemical industry for Bern Securities. Based on conversations with two executives of InterChem, a major producer of synthetic fabrics, she issues a generalized sector report claiming that "according to a survey of industry executives, rayon feedstocks will be in short supply for at least the next 12 months." In addition, Olson recommends Han Chemical, a major producer of rayon, which has routinely reported higher profits than its competitors and should be well positioned to gain furth

A. onsistent with CFA Institute Standards

B. mproper with respect to both the investigation procedures and the periodic reminders

C. mproper regarding the periodic reminders, as these do not constitute regular training

View answer

Correct Answer: A

Question #37

Cindy Hatcher, CFA, has spent the last ten years as a portfolio manager with Bernhardt Capital. While working for Bernhardt, Hatcher was responsible for maintaining and improving the company's code of ethics and guidelines for ethical money management. As a result of Hatcher's efforts, Bernhardt saw a dramatic decline in the number of complaints received from their individual and institutional customers.One of Bernhardt's direct competitors, Smith Investments, is keenly aware of Hatcher's reputation for eth

A. mplement a policy prohibiting trades in accounts belonging to relatives of Smith employees

B. estrict trades on relatives' accounts until all other trades have been placed for Smith's other clients

C. o new policy is necessary since the current policy doesn't violate the Code and Standards

View answer

Correct Answer: C

Question #38

Cynthia Farmington, CFA, manages the Lewis family's $600 million securities portfolio. Farmington and the Lewis family have agreed that they should hire a manager of alternative investments to manage a portion of the portfolio containing those assets. As part of the hiring process, they attempted to do the necessary due diligence. They assessed each manager's organization, the relative efficiency of the markets each manager has invested in, the character of each manager, and the service providers, such as l

A. nly Farmington is correct

B. nly Carnegie is correct

C. oth are correct -OR- both are incorrect

View answer

Correct Answer: C

Question #39

Travis Smith, CFA, is chief economic strategist and market analyst for Nashville Capital Management. He is developing a forecast of the S&P 500 stock market index utilizing different approaches.Using microeconomic analysis, Smith wants to value the S&P using a dividend discount model (DDM) valuation approach. The trailing recent 52-week dividend for the S&P 500 equaled $60. Used as a proxy for the nominal risk-free rate, Treasury rates are as follows:• 3-month T-bill rate: 3.5%• 30-year T-bond rate: 5.0%Smi

A.

B.

C.

View answer

Correct Answer: C

Question #40

Dynamic Investment Services (DIS) is a global, full-service investment advisory firm based in the United States. Although the firm provides numerous investment services, DIS specializes in portfolio management for individual and institutional clients and only deals in publicly traded debt, equity, and derivative instruments.Walter Fried, CFA, is a portfolio manager and the director of DIS's offices in Austria. For several years, Fried has maintained a relationship with a local tax consultant. The consultant

A. o

B. es, because client confidentiality is being undermined by the arrangement

C. es, because it involves non-monetary compensation with no observable cost

View answer

Correct Answer: B

Question #41

Theresa Bair, CFA, a portfolio manager for Brinton Investment Company (BIC), has recently been promoted to lead portfolio manager for her firm's new small capitalization closed-end equity fund, the Quaker Fund. BIC is an asset management firm headquartered in Holland with regional offices in several other European countries. After accepting the position, Bair received a letter from the three principals of BIC. The letter congratulated Bair on her accomplishment and new position with the firm and also provid

A. o Yes

B. es No

C. o No

View answer

Correct Answer: B

Question #42

Sue Gano and Tony Cismesia are performance analysts for the Barth Group. Barth provides consulting and compliance verification for investment firms wishing to adhere to the Global Investment Performance Standards (GIPS ®). The firm also provides global performance evaluation and attribution services for portfolio managers. Barth recommends the use of GIPS to its clients due to its prominence as the standard for investment performance presentation.One of the Barth Group's clients, Nigel Investment Advisors,

A. he historical and future record of performance of the Cypress University portfolio should be kept in the Global Equity Growth composite

B. ecause the Cypress University portfolio is nondiscretionary, its future record of performance must be removed from the Global Equity Growth composite

C. ecause the Cypress University portfolio is nondiscretionary, its historical and future record of performance must be removed from the Global Equity Growth composite

View answer

Correct Answer: A

Question #43

Paul Dennon is senior manager at Apple Markets Associates, an investment advisory firm. Dennon has been examining portfolio risk using traditional methods such as the portfolio variance and beta. He has ranked portfolios from least risky to most risky using traditional methods.Recently, Dennon has become more interested in employing value at risk (VAR) to determine the amount of money clients could potentially lose under various scenarios. To examine VAR, Paul selects a fund run solely for Apple's largest c

A. onte Carlo VAR analysis is limited to normal or near-normal distribution assumptions for input variables

B. he convergence value for the Monte Carlo model should have been stated as $26 million rather than $19 million

C. utputs from the Monte Carlo model are not forward looking since the major assumptions used in the model are based on historical data

View answer

Correct Answer: B

Question #44

Rowan Brothers is a full service investment firm offering portfolio management and investment banking services. For the last ten years, Aaron King, CFA, has managed individual client portfolios for Rowan Brothers, most of which are trust accounts over which King has full discretion. One of King's clients, Shelby Pavlica, is a widow in her late 50s whose husband died and left assets of over $7 million in a trust, for which she is the only beneficiary.Pavlica's three children are appalled at their mother's sp

A. o

B. es, because he violated his client's confidentiality

C. es, because he created a conflict of interest between himself and his employer

View answer

Correct Answer: B

Question #45

Lucy Sakata, CFA and Gary Lowenstein, CFA are portfolio managers for the Murray Funds, a provider of investment funds to institutional and wealthy individual investors. Murray frequently indexes in developed markets, but uses full blown active management in less efficient markets and when they think their analysts have a particular expertise. The vast majority of Murray's clients attempt to minimize tracking error.One of the Murray's funds invests in a Hong Kong index and is marketed as a way for investors

A. lliquid stocks comprising the index

B. he weighting scheme of the index

C. he lack of potential excess returns

View answer

Correct Answer: B

Question #46

Jacques Lepage, CFA, is a portfolio manager for MontBlanc Securities and holds 4 million shares of AirCon in client portfolios. Lepage issues periodic research reports on AirCon to both discretionary and nondiscretionary accounts. In his October investment report, Lepage stated, "In my opinion, AirCon is entering a phase, which could put it 'in play' as a takeover target. Nonetheless, this possibility appears to be fully reflected in the market value of the stock."One month has passed since Lepage's October

A. oes not violate CFA Institute Standards on fair dealing

B. iolates CFA Institute Standards since he obtained the shares through trades that altered the market price of the stock

C. iolates CFA Institute Standards since he has a fiduciary responsibility to see that the charitable trusts receive full allocations prior to the performance-based fee accounts

View answer

Correct Answer: A

Question #47

Ellen Truxel is the principal at Truxel Investment Management. Her firm uses bonds for income enhancement as well as capital gains. She occasionally uses sector quality bets and yield curve positioning to exploit her beliefs on the relative changes in sector credit quality and the direction of interest rates. She has recently hired John Timberlake to assist her in preparing data for the analysis of bond portfolios. Timberlake is a recent graduate of an outstanding undergraduate program in finance.Truxel is

A. oth are correct

B. either is correct

C. ne is correct

View answer

Correct Answer: A

Question #48

Pace Insurance is a large, multi-line insurance company that also owns several proprietary mutual funds. The funds are managed individually, but Pace has an investment committee that oversees all of the funds. This committee is responsible for evaluating the performance of the funds relative to appropriate benchmarks and relative to the stated investment objectives of each individual fund. During a recent investment committee meeting, the poor performance of Pace's equity mutual funds was discussed. In part

A. onservatism (anchoring-and-adjustment)

B. egret minimization

C. ambler's fallacy

View answer

Correct Answer: C

Question #49

Daniel Castillo and Ramon Diaz are chief investment officers at Advanced Advisors (AA), a boutique fixed- income firm based in the United States. AA employs numerous quantitative models to invest in both domestic and international securities.During the week, Castillo and Diaz consult with one of their investors, Sally Michaels. Michaels currently holds a $10,000,000 fixed-income position that is selling at par. The maturity is 20 years, and the coupon rate of 7% is paid semiannually. Her coupons can be rein

A.

B. 2

C.

View answer

Correct Answer: B

Question #50

Dynamic Investment Services (DIS) is a global, full-service investment advisory firm based in the United States. Although the firm provides numerous investment services, DIS specializes in portfolio management for individual and institutional clients and only deals in publicly traded debt, equity, and derivative instruments.Walter Fried, CFA, is a portfolio manager and the director of DIS's offices in Austria. For several years, Fried has maintained a relationship with a local tax consultant. The consultant

A. es

B. o, because she acted in her clients best interest by reducing portfolio risk while increasing portfolio return

C. o, because she treated all clients fairly by applying the strategy to both individual and institutional clients

View answer

Correct Answer: A

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