Question 1
Multiple ChoiceElena Ruiz, a Level II CFA candidate, wants to increase her firm's holdings in a lightly traded biotech company, Genovax. Aware that a large market order might spike the price, Ruiz places several smaller orders through different brokers throughout the day to avoid market attention. She does not share any information or commentary with others about the stock.
According to Standard II(B), Market Manipulation, Ruiz’s actions are:
Explanation
Standard II(B) prohibits transaction-based manipulation, which includes trading activity intended to mislead market participants by distorting price or volume. By breaking up trades to obscure her activity, Ruiz is attempting to avoid market impact in a deceptive manner, thus violating this standard.
Question 2
Multiple ChoiceSamantha Ellis, CFA, is preparing a client presentation that includes economic forecasts. To illustrate her points, she copies a chart from a subscription-based research publication without attribution and inserts it into her slideshow. She believes that since the chart supports commonly accepted views, citing the source is unnecessary.
According to the CFA Institute Standards of Professional Conduct, Ellis’s actions are:
Explanation
Under Standard I(C) – Misrepresentation, members and candidates must not use materials prepared by others without proper attribution. Even if the chart reflects public sentiment or consensus, failure to identify the source constitutes a misrepresentation and violates the CFA Institute Code and Standards.
Question 3
Multiple ChoiceDavid Ko, CFA, is analyzing market prospects for SteelBay Corp. During his research, he observes that several trucks labeled with the logo of Titan Aerospace, a major defense contractor, have made frequent deliveries to SteelBay’s facility over the past month. He also learns from a neighbor—whose cousin works at a local diner near SteelBay—that several individuals wearing Titan Aerospace security badges have been seen entering SteelBay’s executive wing. Based on this, and publicly known information that Titan is expanding its defense division, Ko believes a major supply contract is imminent and considers purchasing SteelBay shares for client portfolios.
Under the CFA Institute Code of Ethics and Standards of Professional Conduct, Ko:
Explanation
Under Standard II(A) – Material Nonpublic Information, members may use the mosaic theory, which allows them to combine public information with nonmaterial nonpublic information to form investment conclusions. Since Ko’s insights were derived from observation and immaterial tips—not misappropriated confidential data—he may act on them.
Question 4
Multiple ChoiceMarcus Bell, a Level I CFA candidate, is taking the exam during the afternoon session. His coworker, Amanda Leung, is also a Level I candidate but has been scheduled for the morning session. Before Amanda takes her exam, Marcus asks her to jot down anything she remembers and send it to him during her lunch break. Amanda agrees to take note of the broad concepts covered but promises not to share any specific questions. After her session, she texts Marcus a list of five topic areas that were heavily emphasized.
According to the CFA Institute Code and Standards, which of the following is most accurate?
Explanation
Under Standard VII(A) – Conduct as Participants in CFA Institute Programs, candidates are prohibited from disclosing or soliciting information about exam content, including which topics were or were not tested. Sharing or requesting this information undermines exam integrity and is a clear violation for both parties.
Question 5
Multiple ChoiceNatalie Chen, CFA, is a portfolio manager at Rosebridge Wealth, where she manages retirement accounts for several institutions. She reads a breaking news update from a reputable financial news outlet stating that Horizon Tech will offer a share buyback program at a 20% premium for the first 500,000 shares tendered. Chen immediately places an order to tender shares from her personal investment account and delays executing the tender for client portfolios until the following morning.
According to the CFA Institute Standards of Professional Conduct, Chen is most likely in violation of:
Explanation
Under Standard VI(B) – Priority of Transactions, CFA members and candidates must ensure that client and employer transactions take precedence over personal transactions. Chen acted in her own interest before her clients’, violating the standard—even though the information was publicly available.
Question 6
Multiple ChoiceJordan Blake, a CFA candidate, works as a junior analyst for a hedge fund. During a business trip, Blake dines with a former college friend and decides to submit the dinner expense as a client entertainment charge, even though no client was present. The amount is within the firm’s allowable limits. A week later, feeling uneasy, Blake informs his supervisor about the misrepresented charge and reimburses the firm in full.
According to the CFA Institute Standards of Professional Conduct, Blake’s behavior is best described as:
Explanation
Under Standard I(D) – Misconduct, CFA members and candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit. Submitting a knowingly false expense—even if later corrected—is a violation because the initial action was deceptive and unethical.
Question 7
Multiple ChoiceMelanie Torres, CFA, is the head of research at Alder Ridge Partners and oversees a team of ten analysts. Five of the analysts are CFA charterholders. The firm maintains a well-documented compliance manual, which Melanie is responsible for enforcing. To uphold her responsibilities as a supervisor, she is reviewing her oversight procedures.
Which of the following actions is least likely to align with Melanie’s supervisory responsibilities under the CFA Institute Standards of Professional Conduct?
Explanation
Under Standard IV(C) – Responsibilities of Supervisors, CFA members must make reasonable efforts to ensure that those subject to their supervision comply with applicable laws and the Code and Standards. Delegating oversight solely to the compliance department does not absolve a supervisor of their direct responsibility.
Question 8
Multiple ChoiceDerek Huang, CFA, has an agreement with Summit Realty to lease a downtown office at a discounted rate in exchange for promoting Summit’s services to his high-net-worth clients. He also receives a fixed referral commission from Legacy Tax Group for each client he sends their way. When meeting with new client Eva Monroe, Huang discusses estate planning strategies and recommends Legacy Tax Group for tax services, while also holding their meeting at his Summit Realty-leased office.
According to the CFA Institute Standards of Professional Conduct, what must Huang disclose to Monroe?
Explanation
Under Standard VI(C) – Referral Fees, members and candidates must disclose to clients and prospective clients any compensation or benefit received or paid to others for the recommendation of services. This includes office discounts, referral fees, and any other forms of consideration.
Question 9
Multiple ChoiceJason Ortega, CFA, manages several discretionary accounts and directs client brokerage commissions toward services intended to enhance portfolio management. He uses soft dollars to obtain a subscription to a market analytics platform and to fund the redesign of his firm’s website to attract new clients.
According to the CFA Institute Standards of Professional Conduct, has Ortega violated the Standard concerning loyalty, prudence, and care?
Explanation
Under Standard III(A) – Loyalty, Prudence, and Care, soft dollars must be used for the benefit of the client. Purchasing tools that enhance investment decision-making, such as research or analytics, is generally acceptable. However, using client brokerage to fund marketing or business development activities, like website redesigns, provides no direct client benefit and violates the Standard.
Question 10
Multiple ChoiceEmily Navarro, a CFA candidate, is finalizing a research report on BrightSpan Technologies. Her initial projections indicate below-average performance for the next two quarters. As part of her due diligence, she sends the draft to BrightSpan’s CFO, who responds with revised estimates projecting a strong earnings recovery. Without verifying or conducting additional analysis, Navarro replaces her original figures with the CFO’s projections and publishes the report. While the report includes relevant company data, it heavily emphasizes the new earnings forecast.
According to the CFA Institute Standards of Professional Conduct, Navarro:
Explanation
Under Standard V(B) – Communication with Clients and Prospective Clients, analysts must thoroughly evaluate information from external sources, including company management, before including it in research. Navarro's failure to independently analyze or verify the CFO’s projections before including them in the report constitutes a violation of this Standard.