Question 1
Multiple ChoiceLaura Cheng, CFA, is preparing an investment recommendation for a group of high-net-worth clients. She summarizes her findings in a brief report but maintains a full analysis on file. According to the CFA Institute Standards of Professional Conduct, Cheng is least likely required to:
Explanation
The CFA Institute Code and Standards do not require members to include a full research report with every recommendation. However, members must maintain records and ensure supporting information is available. They are also required to make reasonable efforts to verify the reliability of third-party research or data used in forming recommendations.
Question 2
Multiple ChoiceDavid Kim, CFA, is drafting a research report on a publicly traded energy company. He incorporates third-party research, summarizes financial statements, and archives relevant documents. According to the CFA Institute Code and Standards, which of the following actions is least likely required or recommended?
Explanation
While it may be a firm policy in some cases, the CFA Institute Code and Standards do not require that all research reports be reviewed by legal counsel. However, proper citation of sources and maintaining records that support the basis of the recommendation are required or strongly recommended practices under the Standards.
Question 3
Multiple ChoicePriya Desai, CFA, is preparing an equity research report for clients of her investment firm. Her report provides detailed analysis, outlines the assumptions behind her valuation model, and discloses potential risks. However, she does not include a specific buy or sell recommendation. According to Standard V(B), Communication with Clients and Prospective Clients, Desai is least likely required to:
Explanation
Standard V(B) does not require members to provide specific buy or sell recommendations in research reports. However, they must clearly communicate the analysis, methodology, assumptions, and any relevant risks so that clients can make informed decisions.
Question 4
Multiple ChoiceLuis Ortega, CFA, manages a portfolio for a long-time client who suddenly needs to liquidate most of her holdings due to a family emergency. Ortega advises her that a rapid sale of these assets may result in lower prices and higher transaction costs, but he assures her he will execute the orders as efficiently as possible. Ortega’s actions are most likely a violation of:
Explanation
Ortega acted appropriately under the CFA Institute Code and Standards. He communicated the risks involved, avoided making misleading promises, and committed to acting in the client’s best interest. No Standard was violated in this situation.
Question 5
Multiple ChoiceMaria Lopez, CFA, conducts extensive research on a new bond issue and finds it offers strong yield potential relative to its credit risk. She verifies all third-party data sources, maintains detailed analysis records, and includes full disclosures in her report. She then sends a general “buy” recommendation to all her firm’s clients via newsletter. Under Standard V(A), Diligence and Reasonable Basis, Lopez has:
Explanation
Standard V(A) requires CFA members to have a reasonable and adequate basis for recommendations and to maintain records to support them. It does not prohibit general recommendations via newsletter, as long as the research is sound and disclosures are complete. Suitability considerations fall under a different standard (Standard III(C)) and apply when acting in an advisory or discretionary capacity, not when issuing general research opinions.
Question 6
Multiple ChoiceAndrea Berman, CFA, is an investment advisor who frequently incorporates third-party economic forecasts and sector analysis into her client recommendations. To remain compliant with the CFA Institute Code and Standards, Berman is most likely required to:
Explanation
According to Standard V(A), Diligence and Reasonable Basis, CFA members must make reasonable efforts to determine that third-party research is based on sound analysis and methodology. While it is good practice to disclose reliance on third-party research, naming specific sources is not strictly required by the Standards. Original research is not mandatory if the third-party work has a reasonable and sound basis.
Question 7
Multiple ChoiceDavid Jennings, CFA, is finalizing a report on Clearwater Electronics, a firm he has been researching for several weeks. Just before completion, a power outage corrupts his hard drive, and all his files are lost, including interview notes, supplier insights, financial models, and internal memos. Under pressure from a client, Jennings reconstructs the report from memory, uses management’s projections with arbitrary adjustments, and copies graphs from another analyst’s report and a market intelligence database—without citing them. According to the CFA Institute Code and Standards, Jennings has:
Explanation
Jennings is in violation of multiple Standards:
Standard V(A) – Diligence and Reasonable Basis: His reconstructed analysis lacks supporting documentation and objectivity.
Standard I(C) – Misrepresentation: He plagiarized content by failing to cite sources of charts and graphs.
Standard V(C) – Record Retention: He failed to maintain appropriate records of his research and analysis, a critical component of professional conduct.
Question 8
Multiple ChoiceJonah Clarke, CFA, has joined the fixed income research team at Northline Advisors. After reviewing the team's files, Clarke realizes there may be gaps in documentation supporting several older bond recommendations. Concerned the firm might not be complying with the CFA Institute’s 7-year record retention requirement, Clarke should:
Explanation
According to Standard V(C) – Record Retention, members must ensure that appropriate records are maintained to support their investment analysis and recommendations. While the responsibility often lies with the firm, the member should take initiative to verify compliance. Creating personal copies or avoiding past records without resolving the issue is not appropriate. Consulting with a supervisor or compliance officer is the correct and professional course of action.
Question 9
Multiple ChoiceTeresa Moore, CFA, is writing a research report on several technology firms. She receives a spreadsheet from a fellow analyst that contains key valuation ratios sourced from Bloomberg. Moore uses several figures directly from the spreadsheet in her report but does not verify their accuracy by cross-checking with Bloomberg or another primary source. According to the CFA Institute Code and Standards, Moore is potentially in violation of:
Explanation
Under Standard V(A), members and candidates must exercise diligence and thoroughness in making investment recommendations. Relying on second-hand data without confirming its accuracy—even if sourced from a reputable third party like Bloomberg—does not meet the requirement of establishing a reasonable basis. Citation alone is not sufficient without verification.
Question 10
Multiple ChoiceSamantha Lee, CFA, is an equity analyst at Ridgeway Securities. Her firm is set to underwrite a new stock offering for Orion BioTech. Ridgeway's senior executive pressures Lee to issue a bullish report to boost investor interest. After completing her independent analysis, Lee determines that the company faces major regulatory hurdles and is overvalued. Despite her concerns, she publishes a glowing report at the executive’s urging. Ridgeway promotes the report to clients ahead of the public offering. Lee has violated:
Explanation
Lee violated Standard V(A) by issuing a favorable recommendation that lacked a reasonable and adequate basis based on her actual analysis. She also violated Standard I(B) by failing to maintain independence and objectivity, allowing pressure from her firm’s management to influence her recommendation. Members must base investment analysis on sound research and act with integrity regardless of external pressure.