CFA Program Level I for February 2024

Ethics (Solution)
1.

A. Correct. CFA charterholders and candidates must place the integrity of the investment profession
and the interests of clients above their own personal interests.

B. Incorrect. CFA charterholders and candidates must promote the integrity and viability of the
global capital markets for the ultimate benefit of society.

C. Incorrect. Charterholders and candidates must practice and encourage others to participate in a
professional and ethical manner that will reflect credit on themselves and the profession. By
ignoring unprofessional conduct of others, a member or candidate is not encouraging others to
behave in a manner that reflects well on the profession

Ethical and Professional Standards: identify the six components of the Code of Ethics and the seven
Standards of Professional Conduct

2.

A. Incorrect. A profession is based on a specialized knowledge and skills, not basic knowledge.

B. Correct. A profession is practiced by members who share and agree to adhere to a common code
of ethics, and a profession is based on a specialized knowledge and skills and service to others.

C. Incorrect. A profession is based on service to others that may not necessarily mean the interests
of its members come first.

Ethical and Professional Standards: describe the role of a code of ethics in defining a profession

3.

A. Incorrect. Justice is often considered an ethical principle in most societies.

B. Correct. Most societies acknowledge the ethical principles of honesty, fairness or justice,
diligence, and respect for the rights of others. Duplicity or deception would be in violation of most
ethical principles

C. incorrect. Dingence is often considered an ethical principle in most societies

Ethical and Professional Standards: explain ethics

4.

A. Correct as members and candidates must self-disclose on the annual Professional Conduct
Statement all matters that question their professional conduct, such as involvement in civil litigation
or a criminal investigation or being the subject of a written complaint

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CFA Program Level I for February 2024

B. Incorrect as the Code and Standards do not prohibit a member from accepting a bonus while an
investigation into his professional behavior is conducted. In this case, the member's actions have
been questioned but he has not yet had an opportunity to defend his behavior and may in fact have
acted within his authority and earned the compensation fairly

C. Incorrect as the Code does not require a member to request a suspension of their membership
while a complaint is being investigated.

Ethical and Professional Standards: explain the ethical responsibilities required by the Code and
Standards, including the sub-sections of each Standard

5.

A. Correct as soliciting the bank's client did not violate Standard IV(A)-Loyalty because the manager
is no longer an employee of the bank and there is no indication she obtained the client information
from bank sources. The member, however, has violated Standard V(C)-Record Retention, because
when she left the bank she took the property of the bank without express permission to do so. In
addition, the analyst violated Standard (C)- Misrepresentation by creating research materials
without attribution which is demonstrated when the manager adds to the new report a real estate
study she saw in the Wall Street Journal, referencing the Journal only. In all instances, a member or
candidate must cite the actual source of the information. If she does not obtain the report and
review the information, the manager runs the risk of relying on second-hand information that may
misstate facts. Best practice would be either to obtain the complete study from its original author
and cite only that author or to use the information provided by the intermediary and cite both
sources.

B. Incorrect because according to Standard V(C)-Record Retention, when a member or candidate

leaves a firm to seek other employment, the member or candidate cannot take the property of the
firm, including originals or copies of supporting records of the member's or candidate's work to the
new employer without the express consent of the previous employer.

C. Incorrect because the analyst violated Standard I(C)-Misrepresentation by creating research

materials without attribution, which is demonstrated when the manager adds to the new report a
real estate study she saw in the Wall Street Journal, referencing the Journal only. In all instances, a
member or candidate must cite the actual source of the information. If she does not obtain the
report and review the information, the manager runs the risk of relying on second-hand information
that may misstate facts: Best practice would be to either obtain the complete study from its original
author and cite only that author or to use the information provided by the intermediary and cite
both sources.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

6.

A. Correct because (1) Kim discusses his concerns with Frost before executing the trade, (2) Frost
acknowledges this discussion and accepts the conditions of unsuitability. (3) Kim's firm does not
require approval for unsuitable trades since it has no policy on the subject, and (4) the request does
not have a material impact on Frost's portfolio since it represents only one percent of its value,

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CFA Program Level I for February 2024

hence no modification of the IPS is required. According to Standard III(C), Suitability, in cases of
unsolicited trade requests that a member or candidate knows are unsuitable for a client, the
member or candidate should refrain from making the trade until he or she discusses

the concerns with the client. Following the discussion, the member or candidate may follow his or
her firm's policies regarding the necessary client approval for executing unsuitable trades. At a
minimum, the client should acknowledge the discussion and accept the conditions that make the
recommendation unsuitable Should the unsolicited request be expected to have a malertat impact
on the portfolio, the member or candidate should use this opportunity to update the investment
policy statement.

B. Incorrect because according to Standard III(C), Suitability, members may execute unsuitable
trades tot cheats under certain conditions, which Kim fulfills, as described in the response rationale
for the correct answer.

C.Incorrect because according to Standard III(C) Suitabally, Kim is not required to update Frost's IPS
since the trade size is immaterial, as described in the response rationale for the correct answer

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

7.

A. Incorrect because a recommended procedure for Standard III (A). Loyalty, Prudence, and Care is
members and candidates must disclose all actual and potential conflicts of interest so that clients
can evaluate those conflicts. They do not need to eliminate all actual and potential conflicts of
interest.

B. Correct because a recommended procedure for Standard III (A), Loyalty, Prudence, and Care is
members and candidates should make their clients aware of all forms of manager compensation.

C. Incorrect because a recommended procedure for Standard III (A), Loyalty, Prudence, and Care is
members and candidates with control of client assets (1) should submit to each client, at least
quarterly, an itemized statement showing the funds and securities in the custody. It is a
recommended procedure to submit at least quarterly, not annually, itemized statements to clients.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

8.

A. Incorrect because according to Standard I (B), Independence and Objectivity, authors of issuer-
paid research can accept cash compensation but need to avoid compensation that could influence
its research, such as equity. Independent analysts must also strictly limit the type of compensation
that they accept for conducting issuer-paid research. Otherwise, the content and conclusions of the
reports could reasonably be expected to be determined or affected by compensation from the
sponsoring companies. Compensation that might influence the research report could be direct, such
as payment based on the conclusions of the report, or indirect, such as stock warrants or other
equity instruments that could increase in value on the basis of positive coverage in the report.

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CFA Program Level I for February 2024

B. Correct because according to Standard I (B), Independence and Objectivity, members are required
to disclose their compensation. Members and candidates must adhere to strict standards of conduct
that govern how the research is to be conducted and what disclosures must be made in the report.
Analysts must engage in thorough, independent, and unbiased analysis and must fully disclose
potential conflicts of interest, including the nature of their compensation.

C. Incorrect because according to Standard I (B), Independence and Objectivity, members are not
required to decline to write the report if their firm provides investment banking services to the
company. Members and candidates must adhere to strict standards of conduct that govern how the
research is to be conducted and what disclosures must be made in the report. Analysts must engage
in thorough, independent, and unbiased analysis and must fully disclose potential conflicts of
interest. So, members need not decline to write the report if a potential conflict of interest exists
(such as their firm providing investment banking services), although they do need to disclose such
conflicts.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

9.

A. Incorrect because according to Standard V(B), Communication with Clients and Prospective
Clients, if recommendations are contained in capsule form (such as a recommended stock list),
members and candidates should notify clients that additional information and analyses are available
from the producer of the report. Julies has not violated the Standards by emailing stock
recommendations to her clients in capsule form because he offers additional information upon
request

B. Correct because according to Standard I(C). Misrepresentation members and Candidates must not
knowingly make any misrepresentations relating to investment analysis recommendations, actions,
or other professional activities. By using Pil's marketing brochure that inflates performance to
present to prospective clients, Jules has violated Standard I(C).

C. Incorrect because according to Standard V(B), Communication with Clients and Prospective
Clients, if recommendations are contained in capsule form (such as a recommended stock list),
members and candidates should notify clients that additional information and analyses are available
from the producer of the report. Julies has not violated the Standards by emailing stock
recommendations to her clients in capsule form because he offers additional information upon
request.

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards.

10.

A. Incorrect because Jennings violated Standard II (A), Material Nonpublic Information, by sharing
what she overheard from United Retail CEO with her sister, as described in the response rationale
for the correct answer.

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CFA Program Level I for February 2024

B. Correct because according to Standard II (A), Material Nonpublic Information, Members and
Candidates who possess material nonpublic information that could affect the value of an investment
must not act or cause others to act on the information. Also, la formation is "material" if its
disclosure would probably have an impact on the price of a security or if reasonable investors would
want to know the information before making an investment decision such as the results of an
upcoming quarterly report from a reliable source (the CEO), Jennings prompted her sister to act on
it, hence, violated the Standard.

C. Incorrect because according to Standard II (A) Material Nonpublic Information. The analyst may
use significant conclusions derived from the analysis of public and non material nonpublic
Information as the basis for investment recommendations and decisions even if those conclusions
would have been material inside information had they been communicated directly to the analyst by
a company. Under the "mosaic theory, financial analysts are free to act on this collection, or mosaic,
of information without risking violation. In this case, Jennings uses public and material nonpublic
information to arrive at her recommendation, nence no violation.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

11.

A. Incorrect because according to Standard II(A) Material Nonpublic Information, information

regarding orders before execution may be material, but not after execution. Material information
may include, but is not limited to, information on the following: orders for large trades before they
are executed.

B. Correct because according to Standard II(A) Material Nonpublic Information, material information
may include, but is not limited to, information on the following: significant legal disputes.

C. Incorrect because according to Standard II(A) Material Nonpublic Information, information

discussed at an annual general meeting is not nonpublic since the information is widely available.
Information is 'nonpublic' until it has been disseminated or is available to the marketplace in general
(as opposed to a select group of investors).

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

12.

A. Incorrect because according to Standard III (B), Fair Dealing, the member is required to treat all
clients in a fair and impartial manner,not necessarily an equal manner, as described in the response
rationale for the correct answer.

B. Correct all because according to Standard III (B), Fair Dealing, members and candidates must
make every effort to treat all individual and institutional clients in a fair and impartial manner.
Additionally, the term 'fairly' implies that the member or candidate must take care not to
discriminate against any clients when disseminating investment recommendations or taking
investment action. Standard III(B) does not state 'equally' because members and candidates could
not possibly reach all clients at exactly the same time..

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CFA Program Level I for February 2024

C. Incorrect because according to Standard III (B), Fair Dealing, the member is required to treat all
clients in a fair and impartial manner, not necessarily an equal manner, as described in the response
rationale for the correct answer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

13.

A. Incorrect because according to Standard III (B), Fair Dealing, Members and candidates should
disclose to all clients whether the organization offers different levels of service to clients for the
same fee or different fees. Different levels of service should not be offered to clients selectively.

B. Correct because according to Standard III (B), Fair Dealing, Members and candidates should
disclose to clients and prospective clients how they select accounts to participate in an order.

C. Incorrect because Members and candidates should make reasonable efforts to limit the number
of people who are privy to the fact that a recommendation is going to be disseminated. All staff
should not be informed to avoid risk of leakage of recommendations before dissemination.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

14.

A. Incorrect because according to Standard IV(A), Loyalty, a member or candidate who is

contemplating seeking other employment must not contact existing clients or potential clients prior
to leaving his or her employer for purposes of soliciting their business for the new employer.
Therefore, Statement 1 is not accurate.

B. Correct because according to Standard IV(A), Loyalty, a departing employee is generally free to
make arrangements or preparations to go into a competitive business before terminating the
relationship with his or her employer as long as such preparations do not breach the employee's
duty of loyalty. Also, Allen's [the member's] preparation for the new business by registering with the
regulatory authorities does not conflict with the work for her employer if the preparations have
been done on Allen's [the member's] own time outside the office and if Allen [the member] will not
be soliciting clients for the business or otherwise operating the new company until she has left her
current employer. Therefore, Statement 2 is accurate.

C. Incorrect because, as described in the rationale for the correct answer, only Statement 2 is
accurate. A member or candidate who is contemplating seeking other employment must not contact
existing clients or potential clients prior to leaving his or her employer for purposes of soliciting their
business for the new employer. Therefore, Statement 1 is in not accurate.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

15.

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CFA Program Level I for February 2024

A. Incorrect because according to Standard VI(A), Disclosure of Conflicts, buy-side members and
candidates should disclose their procedures for reporting requirements for personal transactions.
Therefore, disclosing a beneficial ownership in any security is not a requirement.

B. Correct because according to Standard VI(A), Disclosure of Conflicts, buy-side members and
candidates should disclose their procedures for reporting requirements for personal transactions.
Conflicts arising from personal investing are discussed more fully in the guidance for Standard VI(B).
Therefore, not disclosing the procedure for a buy-side member is a violation.

C. Incorrect because according to Standard VI(B), Priority of Transactions, investment personnel

involved in the investment decision-making process should establish blackout periods prior to trades
for clients so that managers cannot take advantage of their knowledge of client activity by "front-
running" client trades (trading for one's personal account before trading for client accounts).
Therefore, blackout period is not to restrict trading for clients.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

16.

A. Incorrect because according to Standard VI(B). Priority of Transactions, family accounts that are
client accounts should be treated like any other firm account and should neither be given special
treatment nor be disadvantaged because of the family relationship. If a member or candidate has a
beneficial ownership in the account, however, the member or candidate may be subject to
preclearance or reporting requirements of the employer or applicable law. Mak should treat his
brother's fee paying account like any other firm account and should not be disadvantaged.
Therefore, Mak's actions are not consistent with the Standard relating to priority of transactions.

B. Correct because according to Standard VI(B) Priority of Transactions, family accounts that are
client accounts should be treated like any other firm account and should neither be given special
treatment nor be disadvantaged because of the family relationship. If a member or candidate has a
beneficial ownership in the account, however, the member or candidate may be subject to
preclearance or reporting requirements of the employer or applicable law. Mak should treat his
brother's fee paying account like any other tinm account and should not be disadvantaged.
Therefore. Mak's actions are not consistent with the Standard relating to prionty of transactions

C. Incorrect because according to Standard V(A), Diligence and Reasonable Basis, Members and
Candidates must 1. Exercise diligence, independence, and thoroughness in analyzing investments,
making investment recommendations, and taking investment actions. 2. Have a reasonable and
adequate basis, supported by appropriate research and investigation, for any investment analysis,
recommendation, or action. Mak has completed a comprehensive research before buying AOT's
stock for his clients. Therefore, Mak's actions are consistent with the Standard relating to diligence
and reasonable basis

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

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CFA Program Level I for February 2024

17.

A. Incorrect because once a firm claims compliance with the Standards, they may voluntarily hire an
independent third party to perform a verification in order to increase confidence in the firm's claim
of compliance. Therefore, verification is voluntary, not mandatory.

B. Incorrect because firms self-regulate their claim of compliance and once a firm claims compliance
with the Standards, they may voluntarily hire an independent third party to perform a verification in
order to increase confidence in the firm's claim of compliance. Therefore, a firm cannot certify its
own claim of compliance.

C. Correct because according to GIPS, Verification is a process by which an independent verification

firm (verifier) conducts testing of a firm on a firm-wide basis in accordance with the required
verification procedures of the GIPS standards. Verification provides assurance on whether the firm's
policies and procedures related to composite and pooled fund maintenance, as well as the
calculation, presentation, and distribution of performance, have been designed in compliance with
the GIPS standards and have been implemented on a firm-wide basis

Ethical and Professional Standards: describe the concept of independent verification

18.

A. Incorrect because Standard VII (A), Conduct as Participants in CFA Institute Programs, does not
prohibit candidates from discussing nonconfidential information or curriculum material with others
or in study groups in preparation for the exam. Therefore, the candidate has not violated Standard
VII (A) by discussing broad topic areas covered in the curriculum in an online forum..

B. Correct because according to Standard VII (A) Conduct as Participants in CFA Institute Programs,
CFA Institute program rules, regulations, and policies prohibit candidates from disclosing confidential
material gained during the exam process. Examples of information that cannot be disclosed by
candidates sitting for an exam include but are not limited to broad topical areas and formulas tested
or not tested on the exam. Therefore, the candidate has violated Standard VII (A) by telling her
brother how glad she was that no questions aboal the binomial model were asked.

C. Incorrect because Standard VII (A), Conduct as Participants in CFA Institute Programs, does not
cover expressing opinions regarding CFA Institute, the CFA Program, or other CFA Institute
programs. Members and candidates are free to disagree and express their disagreement with CFA
Institute on its policies, its procedures, or any advocacy positions taken by the organization. When
expressing a personal opinion, a candidate is prohibited from disclosing content-specific
information, including any actual exam question and the information as to subject matter covered or
not covered in the exam. Therefore, the candidate has not violated Standard VII (A) by publishing on
a social media website her disappointment about what she thinks is an overly academic CFA
Program.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

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CFA Program Level I for February 2024

19.

A. Incorrect because Lumunon has violated not only Standard I (C), Misrepresentation, but also
Standard III (D), Performance Presentation, as described in the rationale for the correct answer

B. Incorrect because Lumunon has violated not only Standard III (D), Performance Presentation, but
also Standard I (C), Misrepresentation, as described in the rationale for the correct answer.

C. Correct because according to Standard I (C), Misrepresentation, a member or candidate must not
knowingly omit or misrepresent information or give a false impression of a firm, organization, or
security in the member's or candidate's oral representations, advertising (whether in the press or
through brochures), electronic communications, or written materials (whether publicly disseminated
or not). By showing investment results of only one "balanced" account, and failing to disclose that
that this is the best-performing account and that half of the balanced accounts underperformed the
benchmark, Lumunon has violated Standard I (C). Further Standard III (D), Performance
Presentation, requires members and candidates to avoid misstating performance or misleading
clients and prospective clients about the investment performance of members or candidates or their
firms. This standard encourages full disclosure of investment performance data to clients and
prospective clients. Thus, Lumunon has also violated Standard III (D).

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

20.

A. Incorrect because according to Standard I(A), Knowledge of the Law. Members and Candidates
must not knowingly participate or assist in and must dissociate from any violation of such laws, rules,
or regulations. In this case, by staying silent in a client meeting in which he knows false Information
is being given to a potential investor that could cause harm to that investor, Kope would be seen as
assisting Bose in providing that false information, even though Kope is not actively engaging in the
misconduct himself Kope should report her conduct to the fund's compliance department for it to
address and should dissociate himself from activities Involving Bose and report Bose's conduct to the
fund's compliance department.

B. Incorrect because according to Standard (A). Knowledge of the Law, Members and Candidates
must not Imevtogly participate or assist in and must dissectate from any olation of such laws, rules,
or regulations in this case. Kope should report Bose's conduct to the fund's compuance department
for it to address and should report Bose's conduct to the fund's compliance department and
dissociate himself from activities involving Bose.

C. Correct because according to Standard I(A), Knowledge of the Law, Members and Candidates
must not knowingly participate or assist in and must dissociate from any violation of such laws, rules
or regulations In this case, by staying silent in a client meeting in which he knows talse information is
being given to a potential investor that could cause harm to mat insesta Kope would be seen as
assisting Bose in providing that false information, even though Kope is not actively engaging in the
misconduct himself Kope should report her conduct to the fund's compliance department forff to
address and should dissociate namsell frors activities involving Bose and report Bose's conduct to
the fund's compliance deperpent

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CFA Program Level I for February 2024

Ethical and Professional Standards: explain how the practices, policies, and conduct do or do not
violate the CFA Institute Code of Ethics and Standards of Professional Conduct

21.

A. Correct because according to recommended procedures for compliance with Standard IV (C),
Responsibilities of Supervisors, Stand-alone codes of ethics should be written in plain language and
should address general fiduciary concepts.

B. Incorrect because according to recommended procedures for compliance with Standard IV (C),
Responsibilities of Supervisors, Mingling compliance procedures in the firm's code of the ethics goes
against the goal of reinforcing ethical obligations of employees.

C. Incorrect because according to recommended procedures for compliance with Standard IV (C),
Responsibilities of Supervisors, Members and candidates should encourage their employers to
provide their codes of ethics to clients.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

22.

A. Correct because according to Standard V(A) Investment Analysis, Recommendations, and Actions
– Diligence and Reasonable Basis, Members and Candidates must: Exercise diligence, independence,
and thoroughness in analyzing investments, making investment recommendations, and taking
investment actions.

B. Incorrect because the guidance for Standard V(A) Diligence and Reasonable Basis states that
although they are not required to become experts in every technical aspect of the models, they must
understand the assumptions and limitations inherent in any model and how the results were used in
the decision-making process.

C. Incorrect because the guidance for Standard V(A) Diligence and Reasonable Basis states that in
some instances, a member or candidate will not agree with the view of the group. If, however, the
member or candidate believes that the consensus opinion has a reasonable and adequate basis and
is independent and objective, the member or candidate need not decline to be identified with the
report. If the member or candidate is confident in the process, the member or candidate does not
need to dissociate from the report even if it does not reflect his or her opinion.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

23.

A. Incorrect because Standard VII(A) does not cover expressing opinions regarding CFA Institute, the
CFA Program, or other CFA Institute programs. Members and candidates are free to disagree and
express their disagreement with CFA Institute on its policies, its procedures, or any advocacy

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CFA Program Level I for February 2024

positions taken by the organization. So, Comment 1 does not violate the Standard as it reflects
Banerjee's opinion

B. Correct because according to Standard VII(A), when expressing a personal opinion, a candidate is
prohibited from disclosing content-specific information, including any actual exam question and the
information as to subject matter covered or not covered in the exam. By making Comment 2,
Banerjee may have provided information on the subject matter covered on the exam and hence
violated the Standard

C. Incorrect because Standard VII(A) does not cover expressing opinions regarding CFA Institute, the
CFA Program, or other CFA Institute programs. Members and candidates are free to disagree and
express their disagreement with CFA Institute on its policies, its procedures, or any advocacy
positions taken by the organization. So, Comment 1 does not violate the Standard as it reflects
Banerjee's opinion. However, in making Comment 2, Banerjee may have provided information on
the subject matter covered on the exam and hence violated the Standard.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

24.

A. Incorrect because according to Standard II(B), Market Manipulation, transaction-based

manipulation includes, but is not limited to, the following: transactions that artificially affect prices
or volume to give the impression of activity or price movement in a financial instrument, which
represent a diversion from the expectations of a fair and efficient market, and securing a controlling,
dominant position in a financial instrument to exploit and manipulate the price of a related
derivative and/or the underlying asset. Also, the intent of the action is critical to determining
whether it is a violation of this standard. Despite the losses Activity 1 is a violation of Standard II(B)
because the intent was to influence the price of the underlying Activity 2 is also a violation as the
intent was to increase the volume of the stock.

B. Incorrect because according to Standard II(B), Market Manipulation, transaction-based

manipulation includes, but is not limited to, the following: transactions that artificially affect prices
or volume to give the impression of activity or price movement in a financial instrument, which
represent a diversion from the expectations of a fair and efficient market, and securing a controlling,
dominant position in a financial instrument to exploit and manipulate the price of a related
derivative and/or the underlying asset. Also, the intent of the action is critical to determining
whether it is a violation of this standard. Activity 2 is a violation as the intent was to increase the
volume of the stock. Despite the losses, Activity 1 is also a violation of Standard II(B) because the
intent was to influence the price of the underlying.

C. Correct because according to Standard II(B), Market Manipulation, transaction-based

manipulation includes, but is not limited to, the following: transactions that artificially affect prices
or volume to give the impression of activity or price movement in a financial instrument, which
represent a diversion from the expectations of a fair and efficient market, and securing a controlling,
dominant position in a financial instrument to exploit and manipulate the price of a related
derivative and/or the underlying asset. Also, the intent of the action is critical to determining
whether it is a violation of this standard." Despite the losses, Activity 1 is a violation of Standard II(B)

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CFA Program Level I for February 2024

because the intent was to influence the price of the underlying. Activity 2 is also a violation as the
intent was to increase the volume of the stock.

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

25.

A. Incorrect because according to the GIPS standards, a claim of compliance requires that all fee-
paying discretionary accounts managed by the firm be included in at least one composite. Non-
discretionary portfolios must not be included in a firm's composites. Fee-paying non-discretionary
portfolios do not have to be included.

B. Correct because according to the GIPS standards. A composite is an aggregation of one or more
portfolios managed according to a similar investment mandate, objective, or strategy

C. Incorrect because according to the GIPS standards, the determination of which portfolios to
include in the Composite should be done according to pre-established criteria (i.e., on an ex-ante
basis), not after the fact. Basing it on actual performance would require the aggregation to be done
after the fact which is incorrect.

Ethical and Professional Standards: explain the purpose of composites in performance reporting

26.

A. Incorrect because Holm violated both Standards III (A) and VI (C), as described in the Response
Rationale for the correct answer

B. Incorrect because Holm violated both Standards III (A) and VI (C), as described in the Response
Rationale for the correct answer

C. Correct because according to Standard III (A), Loyalty, Prudence and Care. Conflicts may arise
when an investment manager uses client brokerage to purchase research services, a practice
commonly called 'soft dollars' or 'soft commissions. A member or candidate who pays a higher
brokerage commission than he or she would normally pay to allow for the purchase of goods or
services, without corresponding benefit to the client, violates the duty of loyalty to the client. Paying
higher fees in return for referrals does not represent a corresponding benefit to Holm's clients.
Therefore, this arrangement violates the duty of loyalty to his clients. In addition, Holm has violated
Standard VI (C), Referral Fees, which states the responsibility of members and candidates to inform
their employer, clients, and prospective clients of any benefit received for referrals of customers and
clients.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

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CFA Program Level I for February 2024

27.

A. Correct because according to Standard I (D), Misconduct, personal bankruptcy may not reflect on
the integrity or trustworthiness of the person declaring bankruptcy, but if the circumstances of the
bankruptcy involve fraudulent or deceitful business conduct, the bankruptcy may be a violation of
this standard. Also, generally, Standard I(D) is not meant to cover legal transgressions resulting from
acts of civil disobedience in support of personal beliefs because such conduct does not reflect poorly
on the member's or candidate's professional reputation, integrity, or competence. Therefore,
Fischer has not violated Standard I (D). Further, Standard III (A). Loyalty, Prudence, and Care, states
that Members and Candidates have a duty of loyalty to their clients and must act with reasonable
care and exercise prudent judgment. Members and Candidates must act for the benefit of their
clients and place their clients' interests before their employer's or their own interests. Neither
Fischer's bankruptcy no nor the act of trespassing during a protest imposes on her duty of loyalty to
her clients. She has not violated Standard III (A).

B. Incorrect because according to Standard I (D), Misconduct, personal bankruptcy may not reflect
on the integrity or trustworthiness of the person declaring bankruptcy, but if the circumstances of
the bankruptcy involve fraudulent or deceitful business conduct, the bankruptcy may be a violation
of this standard. Also, generally, Standard I(D) is not meant to cover legal transgressions resulting
from acts of civil disobedience in support of personal beliefs because such conduct does not reflect
poorly on the member's or candidate's professional reputation, integrity, or competence. Therefore,
Fischer has not violated Standard I (D).

C. Incorrect because according to Standard III (A), Loyalty, Prudence, and Care, Members and
Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise
prudent judgment. Members and Candidates must act for the benefit of their clients and place their
clients' interests before their employer's or their own interests. Neither Fischer's bankruptcy no nor
the act of trespassing during a protest imposes on her duty of loyalty to her clients. She has not
violated Standard III (A).

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

28.

A. Incorrect because according to the recommended procedures for compliance with Standard I (B).
Independence and Objectivity. Members and candidates should encourage their investment firms to
develop formal policies related to employee purchases of equity or equity related tPOS Firms should
require prior approval for employee participation to IPOS with prompf disclosure of investatent
actions taken following the offering. So, the recommendation is to have regulation around IPOs: but
not explicitly pronins them

B. Correct because according to the recommended procedures for compliance with Standard I (B),
Independence and Objectivity, Create a restricted list if the firm is unwilling to permit dissemination
of adverse opinions about a corporate client, members and candidates should encourage the firm to
remove the controversial company from the research universe and put it on a restricted list so that
the firm disseminates only factual information about the company.

C. Incorrect because according to the recommended procedures for compliance with Standard I (B),
Independence and Objectivity, Firms should provide every employee with the procedures and

13
CFA Program Level I for February 2024

policies for reporting potentially unethical behavior, violations of regulations, or other activities that
may harm the firm's reputation. So, should provide to every firms should provide to every employee,
not every client.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

29.

A. Incorrect because according to the recommended procedures for compliance with Standard I(D),
misconduct, members and candidates should encourage their firms to adopt the following policies
and procedures to support the principles of Standard I(D). List of violations: Disseminate to all
employees a list of potential violations and associated disciplinary sanctions, up to and including
dismissal from the firm. Dissemination to clients is not among the recommended procedures

B. Correct because according to the recommended procedures for compliance with Standard I(D),
misconduct, members and candidates should encourage their firms to adopt the following policies
and procedures to support the principles of Standard I(D):
List of violations: Disseminate to all employees a list of potential violations and associated
disciplinary sanctions, up to and including dismissal from the firm.

C. Incorrect because according to the recommended procedures for compliance with Standard I(D),
misconduct, members and candidates should encourage their firms to adopt the following policies
and procedures to support the principles of Standard I(D): List of violations: Disseminate to all
employees a list of potential violations and associated disciplinary sanctions, up to and including
dismissal from the firm. Dissemination to clients is not among the recommended procedures.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

30.

A. Incorrect because according to the recommended procedures for compliance with the Standard 1
(D). Misconduct, members should encourage their firms to check references of potential employees
to ensure that they are of good character and not ineligible to work in the investment industry
because of past infractions of the law. However, the Standard does not recommend to conduct
background checks of all current (as opposed to potential) employees once per year.

B. Correct because according to the recommended procedures for compliance with the Standard I
(D), members should encourage their firms to develop and/or adopt a code of ethics to which every
employee must subscribe.

C. Incorrect because according to the recommended procedures for compliance with the Standard I
(D), Misconduct, members should encourage their firms to check references of potential employees
to ensure that they are of good character and not ineligible to work in the investment industry
because of past infractions of the law. Therefore, the recommendation is to check references of
potential employees, not clients.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

14
CFA Program Level I for February 2024

31.

A. Incorrect because according to Standard III (A), Loyalty, Prudence, and Care, a cost-benefit
analysis may show that voting all proxies may not benefit the client, so voting proxies may not be
necessary in all instances.

B. Correct because according to Standard III (A), Loyalty, Prudence, and Care, proxies have economic
value to a client, and members and candidates must ensure that they properly safeguard and
maximize this value.

C. Incorrect because according to Standard III (A), Loyalty, Prudence, and Care, an investment
manager who fails to vote, casts a vote without considering the impact of the question, or votes
blindly with management on nonroutine governance issues (e.g., a change in company
capitalization) may violate this standard. Therefore, the statement that consistent application of
proxy policies includes voting with management on all nonroutine governance matters is not
accurate.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

32.

A. Incorrect because according to Standard IV (A), Loyalty, employers must recognize the duties and
responsibilities that they owe to their employees if they expect to have content and productive
employees. Further, this standard is not meant to be a blanket requirement to place employer
interests ahead of personal interests in all matters. Therefore, Statement 1 - employees must place
employer interests ahead of personal interests in all matters – is not accurate.

B. Correct because according to Standard IV (A), Loyalty, the employer is responsible for a positive
working environment, which includes an ethical workplace. Senior management has the additional
responsibility to devise compensation structures and incentive arrangements that do not encourage
unethical behavior. Therefore, Statement 2 is accurate.

C. Incorrect because according to Standard IV (A), Loyalty, employers must recognize the duties and
responsibilities that they owe to their employees if they expect to have content and productive
employees. Further, this standard is not meant to be a blanket requirement to place employer
interests ahead of personal interests in all matters. Therefore, Statement 1 - employees must place
employer interests ahead of personal interests in all matters - is not accurate

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

33.

A. Correct because according to Standard I(A) Knowledge of the Law, if a member or candidate has
reasonable grounds to believe that imminent or ongoing client or employer activities are illegal or
unethical, the member or candidate must disassociate, or separate, from the activity. Inaction

15
CFA Program Level I for February 2024

combined with continuing association with those involved in illegal or unethical conduct may be
constructed as participation or assistance in the illegal or unethical conduct.

B. Incorrect because according to Standard VI(A), Disclosure of Conflicts, Members and Candidates
must make full and fair disclosure of all matters that could reasonably be expected to impair their
independence and objectivity or interfere with respective duties to their clients, prospective clients,
and employer. Members and Candidates must ensure that such disclosures are prominent, are
delivered in plain language, and communicate the relevant information effectively. This Standard
does not apply to guiding a member's behaviour for cases in which the member believe that a
colleague participates in unethical behaviour. Here, the member has not violated Standard VI (A).

C. Incorrect because according to Standard VI(A), Disclosure of Conflicts, Members and Candidates
must make full and fair disclosure of all matters that could reasonably be expected to impair their
independence and objectivity or interfere with respective duties to their clients, prospective clients,
and employer. Members and Candidates must ensure that such disclosures are prominent, are
delivered in plain language, and communicate the relevant information effectively. This Standard
does not apply to guiding a member's behavior for cases in which the member believe that a
colleague participates in unethical behavior. Here, the member has not violated Standard VI (A).

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

34.

A. Incorrect because according to Standard IV (A), Loyalty, this standard is not meant to be a blanket
requirement to place employer interests ahead of personal interests in all matters. The standard
does not require members and candidates to subordinate important personal and family obligations
to thea week.

B. Correct because although Standard IV (A) Loyalty does not preclude members of cendinates from
entering into anundependers trusses while still employed, members and candidates who plan to
engage in independent practice for compensation must notify their employer and desonne the types
of services they will render prospective todepennant clients, the expected duranine of the services,
and the pampasan fer ine services Members and candidates should not rentier services anal they
receive consent from their employer to all of the terms of the arrangement

C. Incorrect because according to Standard IV (A), Loyalty, circumstances may arise (eg, when an
employer is engaged in illegal or unethical activity) in which members and candidates must act
contrary to their employer's interests in order to comply with their duties to the market and clients.
In such instances, activities that would normally violate a member's or candidate's duty to his or her
employer (such as contradicting employer Instructions, violating certain policies and procedures, or
preserving a record by copying employer records) may be justified.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

16
CFA Program Level I for February 2024

35.

A. Incorrect because Milton must disclose that he receives a bonus for using the firm's proprietary
funds to the client, so he is in violation of Standard III (A), Loyalty, Prudence, and Care, as described
in the rationale for the correct answer.

B. Incorrect because Standard III (C), Suitability, requires that members and candidates who are in an
investment advisory relationship with clients consider carefully the needs, circumstances, and
objectives of the clients when determining the appropriateness and suitability of a given investment
or course of investment action. Milton is making his investment decisions for his clients based on
their objectives and risk tolerance, and suitability, and therefore is not in violation of this Standard.

C. Correct because according to Standard III (A). Loyalty, Prudence, and Care. Particular care must be
taken to detect whether the goals of the Investment manager or the firm in conducting business
selling products and executing security transactions potentially conflict with the best interests and
objectives of the client. When members and candidates cannot avolo potential conflicts between
their firm and clients interests, they must provide clear and factual disclosures of the circumstances
to the clients. Milton must disclose that he receives a bonus for using the firm's proprietary funds to
the client, and is in violation of this Standard.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

36.

A. Correct because according to Standard I(B), Independence and Objectivity, members and
Candidates must use reasonable care and judgment to achieve and maintain independence and
objectivity in their professional activities.

As for Procedure 1, restrict investments: Members and candidates should encourage their
investment firms to develop formal policies approval for employee related to employee purchases of
equity or equity-related IPOS. Firms should require prior participation in IPOS, with prompt
disclosure of investment actions taken following the should be imposed on investment personnel
acquiring securities in private placements.

offering. Strict limits

As for Procedure 2, restrict special cost arrangements: When attending meetings at an issuer's
headquarters, members and candidates should pay for commercial transportation and hotel
charges. No corporate issuer should reimburse members or candidates for air transportation.

B. Incorrect because Procedure 1 is among the recommended procedures for compliance with the
Standard relating to independence and objectivity, but Procedure 3 is not.

As for Procedure 3, create a restricted list. If the firm is unwilling to permit dissemination of adverse
opinions about a corporate client, members and candidates should encourage the firm to remove
the controversial company from the research universe and put it on a restricted list so that the firm
disseminates only factual information about the company. Thus, putting the company on the
restricted list is among the recommended procedures.

C. Incorrect because Procedure 2 is among the recommended procedures for compliance with the
Standard relating to independence and objectivity, but Procedure 3 is not.

17
CFA Program Level I for February 2024

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

37.

A. Incorrect because according to Standard III (A), Loyalty, Prudence, and Care, the shareholders are
not the beneficiaries of his fund. When the manager is responsible for the portfolios of pension
plans or trusts, however, the client is not the person or entity who hires the manager but, rather, the
beneficiaries of the plan or trust. The duty of loyalty is owed to the ultimate beneficiaries.

B. Incorrect because according to Standard III (A), Loyalty, Prudence, and Care, the shareholders are
not the beneficiaries of his fund. When the manager is responsible for the portfolios of pension
plans or trusts, however, the client is not the person or entity who hires the manager but, rather, the
beneficiaries of the plan or trust. The duty of loyalty is owed to the ultimate beneficiaries.

C. Correct because according to Standard III (A), Loyalty, Prudence, and Care, the shareholders are
not the beneficianes of his fund. When the manager is responsible for the portfolios of pension plans
or trusts, however, the client is not the person or entity who hires the manager but, rather, the
beneficiaries of the plan or trust. The duty of loyalty is owed to the ultimate beneficiaries.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

38.

A. Correct because according to Standard I(D), Misconduct, Members and Candidates must not
engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that
reflects adversely on their professional reputation, Integrity, or competence. Joon's actions do not
result from fraudulent or deceitful business conduct and personal bankruptcy may not reflect on the
integrity or trustworthiness of the person declaring bankruptcy. Also, according to Standard III(A),
Loyalty, Prudence, and Care, Members and Candidates must act for the benefit of their clients and
place their clients' interests before their employer's or their own interests. There is nothing here to
suggest that Joon has not acted for the benefit of his clients.

B. Incorrect because according to Standard I(D), Misconduct, Members and Candidates must not
engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that
reflects adversely on their professional reputation, integrity, or competence. Joon's actions do not
result from fraudulent or deceitful business conduct and personal bankruptcy may not reflect on the
integrity or trustworthiness of the person declaring bankruptcy. So, Joon has not violated this
Standard.

C. Incorrect because according to Standard III(A), Loyalty, Prudence, and Care, Members and
Candidates must act for the benefit of their clients and place their clients' interests before their
employer's or their own interests. There is nothing here to suggest that Joon has not acted for the
benefit of his clients. So, Joon has not violated this Standard.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

18
CFA Program Level I for February 2024

39.

A. Correct because according to Standard II (B), Market Manipulation, Transaction-based

manipulation involves instances where a member or candidate knew or should have known that his
or her actions could affect the pricing of a security. This type of manipulation includes, but is not
limited to, the following securing a controlling, dominant position in a financial instrument to exploit
and manipulate the price of a related derivative and/or the underlying asset.

B. Incorrect because according to Standard II (B), Market Manipulation, Information-based

manipulation includes, but is not limited to, spreading false rumors to induce trading by others.
Here, the member is not engaging in spreading rumors or alike, the member actions are not an
example of information-based manipulation

C. Incorrect because the member has violateo Standard II (B), Market Manipulation, by engaging in
transaction- based manipulation, as described in the response rationale for the correct answer.
Meanwhile, Information-based manipulation includes, but is not limited to, spreading false rumors
to induce trading by others.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

40.

A. Correct because commodity investments may involve investing in actual physical commodities or
in producers of commodities. Commodities are considered either 'hard' (those mined, such as
copper, or extracted, such as oil) or 'soft' (those grown over a period of time, such as livestock,
grains, and cash crops, such as coffee).

B. Incorrect because timberland is a separate component of natural resources include commodities

(hard and soft), agricultural describe features of commodities and their investment characteristics

C. Correct because according to Standard III (D), Performance Presentation, "[m]embers and
candidates can also meet their obligations under Standard III (D) [relating to performance
presentation] by...■ including disclosures that fully explain the performance results being reported
(for example, stating, when appropriate, that results are simulated when model results are used,
clearly indicating when the performance record is that of a prior entity, or disclosing whether the
performance is gross of fees, net of fees, or after tax)..." Hence, the use of simulated results should
be disclosed.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

41.

A. Incorrect because according to Standard III (D), Performance Presentation, information should be
made available to both clients and prospects on request, as described in the response rationale for
the correct answer.

19
CFA Program Level I for February 2024

B. Incorrect because according to Standard III (D), Performance Presentation, information should be
made available to both clients and prospects on request, as described in the response rationale for
the correct answer.

C. Correct because according to Standard III (D), Performance Presentation, if the presentation is
brief, the member or candidate must make available to clients and prospects, on request, the
detailed information supporting that communication. Best practice dictates that brief presentations
include a reference to the limited nature of the information provided.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

42.

A. Correct because according to Standard III (C), Suitability, Some members and candidates do not
manage money for individuals but are responsible for managing a fund to an index or an expected
mandate. The responsibility of these members and candidates is to invest in a manner consistent
with the stated mandate.

B. Incorrect because according to Standard III (C), Suitability, Members and candidates who manage
pooled assets to a specific mandate are not responsible for determining the suitability of the fund as
an investment for investors who may be purchasing shares in the fund. The responsibility for
determining the suitability of an investment for clients can be conferred only on members and
candidates who have an advisory relationship with clients. Therefore, members managing a mutual
fund to a mandate are not required to determine the suitability of the fund for investors who may
be purchasing shares in the fund.

C. Incorrect because according to Standard III (C), Suitability, Members and candidates who manage
pooled assets to a specific mandate are not responsible for determining the suitability of the fund as
an investment for investors who may be purchasing shares in the fund. The responsibility for
determining the suitability of an investment for clients can be conferred only on members and
candidates who have an advisory relationship with clients. Therefore, members managing a mutual
fund to a mandate are not required to determine the suitability of the fund for investors who may
be purchasing shares in the fund.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

43.

A. Incorrect because Hicks violated Standard III (E), Preservation of Confidentiality, by providing e-
mails of his former clients to his friend, as described in the response rationale for the correct
answer.

B. Incorrect because according to Standard I (D), Misconduct, Personal bankruptcy may not reflect
on the integrity or trustworthiness of the person declaring bankruptcy, but if the circumstances of
the bankruptcy involve fraudulent or deceitful business conduct, the bankruptcy may be a violation
of this standard. In this case Moll's bankruptcy is due to medical bills, thus a personal rather than a
professional matter, hence no violation.

20
CFA Program Level I for February 2024

C. Correct because according to Standard III (E), Preservation of Confidentiality. This standard
protects the confidentiality of client information even if the person or entity is no longer a client of
the member or candidate. Therefore, members and Code of candidates must continue to maintain
the confidentiality of client records even after the client relationship has ended. Thus revealing e-
mails of former clients is a violation

Ethical and Professional Standards: demonstrate the application of the Ethics and Standards of
Professional Conduct to situations involving issues of professional integrity

44.

A. Incorrect because Dixon violates Standard III(D), Performance Presentation, by telling his clients
they can expect a return of 5% in the next three years as described in the response rationale of the
correct answer.

B. Incorrect because Dixon violates Standard III(D), Performance Presentation, by telling his clients
they can expect a return of 5% in the next three years as described in the response rationale of the
correct answer.

C. Correct because according to Standard III(D), Performance Presentation, members and candidates
should not state or imply that clients will obtain or benefit from a rate of return that was generated
in the past. Also, If the presentation is brief, the member or candidate must make available to clients
and prospects, on request, the detailed information supporting that communication.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

45.

A. Incorrect because according to Standard IV (B), Additional Compensation Arrangements,

compensation and benefits include direct compensation by the client and any indirect compensation
or other benefits received from third parties. Thus a member may accept compensation from both
existing clients and other third parties but must gain consent in writing from both parties before
accepting the compensation.

B. Incorrect because according to Standard IV (B), Additional Compensation Arrangements, members

must obtain permission from their employer before accepting compensation or other benefits from
third parties for the services rendered to the employer or for any services that might create a
conflict with their employer pinterest

C. Correct because according to Standard IV (B), Additional Compensation Arrangements, Members

and Candidates must not accept gets, benefits, compensation or cotiskistatxin that carpetes with or
might reasonably be expected to create a conflict of interest with their employer's interest unless
they obtain written consent from all parties involved Also Standard IV (B) requires members and
candidates to obtain permission from their employer before accepting compensation or ntiler
heretis fem third parties for the services rendered so the employer or to any services foat might
create a content with theicemployer's interest Thos le consent in writing term both panties is
needed before accepting the compensation

21
CFA Program Level I for February 2024

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

46.

A. Incorrect because Standard IV (B), Additional Compensation Arrangements, requires Run to obtain
written consent from his employer before accepting both the beach home offer and the family flight
voucher. By failing to obtain his employer's consent, Run has violated Standard IV (B), as described in
the response rationale for the correct answer.

B. Incorrect because Standard IV (B), Additional Compensation Arrangements, requires Run to obtain
written consent from his employer before accepting not only the beach home offer but also the
family flight voucher. Therefore, as described in the response rationale for the correct answer, Run
has violated Standard IV (B) by accepting both the beach home offer and the family flight voucher
without informing his employer.

C. Correct because according to Standard IV (B), Additional Compensation Arrangements, Members

and Candidates must not accept gifts, benefits, compensation, or consideration that competes with
or might reasonably be expected to create a conflict of interest with their employer's interest unless
they obtain written consent from all parties involved. Further, Standard IV (B) states: Compensation
and benefits include direct compensation by the client and any indirect compensation or other
benefits received from third parties. Therefore, Run has to obtain written consent from his employer
before accepting the beach home offer and the family flight voucher By failing to do so, Run has
violated Standard IV (B).

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

47.

A. Correct because according to Standard III (C). Suitability, suitability review can be done most
effectively when the client fully discloses his or her complete financial portfolio, including those
portions not managed by the member or candidate. If clients withhold information about their
financial portfolios, the suitability analysis conducted by members and candidates cannot be
expected to be complete; it must be based on the information provided. Ayers may develop an
investment program that is suitable for the client without knowing about their other assets, even
though the information is not complete In addition Standard III (C) also states after formulating long-
term capital market expectations, members and candidates can assist in developing an appropriate
strategic asset allocation and investment program for the client, whether these are presented in
separate documents or incorporated in the IPS or in appendices to the IPS, Ayers may keep these
records in a separate document.

B. Incorrect because using separate documents for the investment program is allowed by Standard
III (C). Suitability, as stated in the rationale for the correct answer.

C. Incorrect because members are allowed by Standard III (C), Suitability, to develop an investment
program as best they can given incomplete information about all of the client's assets, as stated in
the rationale for the correct answer.

22
CFA Program Level I for February 2024

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

48.

A. Incorrect because Standard IV (C) Responsibilities of Supervisors encourages members and

candidates to recommend that their employers to adopt a code of ethics, but it does not require the
member to decline supervisory responsibilities if no code of ethics in place. A member or candidate
with supervisory responsibilities should bring an inadequate compliance system to the attention of
the firm's senior managers and recommend corrective action. If the member or candidate clearly
cannot discharge supervisory responsibilities because of the absence of a compliance system of
because of an inadequate compliance system, the member or candidate should decline in winting to
accept supervisory responsibility until the firm adopts reasonable procedures to allow adequate
exercise of supersof responsibility.

B. Incorrect because sccording to Standard IV(C) Responsibilities of Supervisors. Members and

Candidates may delegate supervisory duties to subordinates who directly oversee the other
employees.

C. Correct because according to Standard IV (C) Responsibilities of Supervisors, once a supervises

learns that sri ehiployee has violated or may tave violated the law or the Code and Standards, the
supervisor most promptly situate an assessment to defermine the extent of the wrongdoing. Relying
on an employee's statements about the exdent of the violation be assurances that the wrongdoing
will not reoccur is not enough.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

49.

A. Incorrect because according to Standard IV(A). Loyalty, in matters related to their employment,
Members and Candidates must act for the benefit of their employer and not deprive their employer
of the advantage of their skills and abilities, divulge confidential information, or otherwise cause
harm to their employer. Activities that might constitute a violation, especially in combination,
include the following: misappropriation of clients or client lists. Therefore, emailing himself a list of
his clients when leaving his employer is not permitted by Standard IV(A).

B. Incorrect because according to Standard IV(A), Loyalty, Included in Standard IV(A) is the
requirement that members and candidates abstain from independent competitive activity that could
conflict with the interests of their employer. Although Standard IV(A) does not preclude members or
candidates from entering into an independent business while still employed, members and
candidates who plan to engage in independent practice for compensation must notify their
employer and describe the types of services they will render to prospective independent clients, the
expected duration of the services, and the compensation for the services. Members and candidates
should not render competitive services until they receive consent from their employer to all of the
terms of the arrangement.

C. Correct because according to Standard IV(A). Loyalty, the standard does not prohibit former
employees from contacting clients of their previous firm as long as the contact information does not

23
CFA Program Level I for February 2024

come from the records of the former employer or violate an applicable 'noncompete agreement.
Members and candidates are free to use public information after departing to contact former clients
without violating Standard IV(A) as long as there is no specific agreement not to do so.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

50.

A. Incorrect because according to Standard V (A), Diligence and Reasonable Basis, to use quantitative
models in her investment research, a member is not required to personally develop or co-develop
the model. The Standard requires a member to understand the assumptions and limitations inherent
in the model developed by others, as described in the response rationale for the correct answer.

B. Incorrect because according to Standard V (A), Diligence and Reasonable Basis. Although they
[members] are not required to become experts in every technical aspect of the models, they must
understand the assumptions and limitations inherent in any model and how the results were used in
the decision-making process. Therefore, to use quantitative models in her investment research, a
member is only required to understand the assumptions and limitations inherent in the model
developed by others, as described in the response rationale for the correct answer.

C. Correct because according to Standard V (A), Diligence and Reasonable Basis, Members and
candidates need to have an understanding of the parameters used in models and quantitative
research that are incorporated into their investment recommendations. Although they are not
required to become experts in every technical aspect of the models, they must understand the
assumptions and limitations inherent in any model and how the results were used in the decision-
making process. Therefore, to use quantitative models in her investment research, a member is
required to understand the assumptions and limitations inherent in the model developed by others.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

51.

A. Correct because according to Standard III(A) Loyalty Prudence and Care, from time to time, a
client will direct a manager to use the client's brokerage to purchase goods or services for the client,
a practice that is commonly called "directed brokerage "Because brokerage commission is an asset
of the client and is used to benefit that client, not the manager such a practice does not violate any
duty of loyalty. Also, the member or candidate should disclose to the client that the client may not
be getting best execution from the directed brokerage. In addition, conflicts may arise when an
investment manager uses client brokerage to purchase research services, a practice commonly
called "soft dollars" or "soft commissions." A member or candidate who pays a higher brokerage
commission than ne or she would normally pay to allow for the purchase of goods or services,
withou corresponding benefit to the client, wotates the duty of loyalty to the client in this case the
research is of high quality and beriefits the client, so Newman is not in violation of the Standard

B. Incorrect because according to Standard III(A) Loyalty, Prudence and Care, conflicts may arise
when an investment manager uses client brokerage to purchase research services, a practice
commonly called "soft dollars" or "soft commissions." A member or candidate who pays a higher

24
CFA Program Level I for February 2024

brokerage commission than he or she would normally pay to allow for the purchase of goods or
services, without corresponding benefit to the client, violates the duty of loyalty to the client. In this
case, the research is of high quality and benefits the client, so Newman is not in violation of the
Standard.

C. Incorrect, because according to Standard III(A) Loyalty, Prudence and Care, from time to time, a
client will direct a manager to use the client's brokerage to purchase goods or services for the client,
a practice that is commonly called "directed brokerage." Because brokerage commission is an asset
of the client and is used to benefit that client, not the manager, such a practice does not violate any
duty of loyalty.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

52.

A. Incorrect because according to Standard V (B), Communication with Clients and Prospective
Clients, facts must be separated from opinions, as described in the response rationale for the correct
answer.

B. Incorrect because according to Standard III (B), Fair Dealing, Members and Candidates must deal
fairly and objectively with all clients when providing investment analysis, making investment
recommendations, taking investment action, or engaging in other professional activities. Also,
Standard III(B) does not state equally because members and candidates could not possibly reach all
clients at exactly the same time-whether by printed mail, telephone (including text messaging),
computer (including internet updates and e-mail distribution). facsimile (fax), or wire. Each client has
unique needs, investment criteria, and investment objectives, so not all investment opportunities
are suitable for all clients. In this case, the email was sent to all clients, and then clients got a call, so
they all received the recommendation in a fair manner.

In addition, Standard V (B). Communication with Clients and Prospective Clients, suggests:
communication is not confined to a written report of the type traditionally generated by an analyst
researching a security, company, or industry. A presentation of information can be made via any
means of communication, including in-person recommendation or description, telephone
conversation, media broadcast, or transmission by computer (e.g., on the internet).

C. Correct because according to Standard V (B), Communication with Clients and Prospective Clients,
opinion be separated from fact. Violations often occur when reports fail to separate the past from
the future by not indicating that earnings estimates, changes in the outlook for dividends, or future
market price information are opinions subject to future circumstances. In this case, the statement
was referring to future outcome which may or may not turn out to be true, thus a violation.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

53.

A. Incorrect because Kon violated Standard V (C). Record Retention, by re-creating supporting
records frommemory as described in the correct response rationale.

25
CFA Program Level I for February 2024

B. Incorrect because according to Standard V (C), Record Retention, Kon-did not violate the
Standards by publishing the updated research report since she obtained the express consent of her
former employer. Standard V(C), Record Retention, states When a member or candidate leaves a
firm to seek other employment, the member or candidate cannot take the property of the firm,
including original forms or copies of supporting records of the member's or candidate's work, to the
new employer without the express consent of the previous employer.

C. Correct because according to Standard V (C), Record Retention, a member must not re-create
supporting records from memory. Standard V(C), Record Retention, states The member or candidate
cannot use historical recommendations or research reports created at the previous firm because the
supporting documentation is unavailable. For future use, the member or candidate must re-create
the supporting records at the new firm with information gathered through public sources or directly
from the covered company and not from memory or sources obtained at the previous employer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

54.

A. Correct because according to Standard III(D), Performance Presentation, if the presentation is

brief, the member or candidate must make available to clients and prospects, on request, the
detailed information supporting that communication. By making available detailed supporting
information on request, Joy does not violate Standard III(D). In addition, Joy does not violate
Standard III(B), Fair Dealing, which states that members and Candidates must deal fairly and
objectively with all clients when providing investment analysis, making investment
recommendations, taking investment action, or engaging in other professional activities.

B. Incorrect because Standard III(B), Fair Dealing, has not been violated as described in the response
rationale of the correct answer

C. Incorrect because Standard III(D), Performance Presentation, has not been violated as described
in the response rationale of the correct answer.

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

55.

A. Incorrect because Hostettler violated the Standards as described in the justification for the correct
answer.

B. Incorrect because Hostettler would need to disclose the referral arrangement to both existing and
prospective clients as described in the justification for the correct answer.

C. Correct because according to Standard VI (C), Referral Fees, members must disclose to clients and
potential clients any referral arrangements and must disclose all consideration. "Consideration
includes all fees, whether paid in cash, in soft dollars, or in-kind." Thus, Hostettler would need to
disclose the full bi-lateral referral arrangement to both clients and prospective clients.

26
CFA Program Level I for February 2024

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

56.

A. Incorrect because according to Standard VI(C), Referral Fees, Huang must disclose the estimated
dollar value of the fee as described in the correct response rationale.

B. Incorrect because Standard VI(C), Referral Fees, allows members to accept client referral fees
under certain conditions as described in the correct response rationale.

C. Correct because according to Standard VI(C), Referral Fees, members must disclose both the
nature of the consideration and the estimated dollar value. Appropriate disclosure means that
members and candidates must advise the client or prospective client, before entry into any formal
agreement for services, of any benefit given or received for the recommendation of any services
provided by the member or candidate. In addition, the member or candidate must disclose the
nature of the consideration or benefit-for example, flat fee or percentage basis. one-time or
continuing benefit, based on performance, benefit in the form of provision of research or other
noncash benefit-together with the estimated dollar value. Consideration includes all fees, whether
paid in cash. in soft dollars, or in kind.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

57.

A. Correct because according to Standard III(E) relating to preservation of confidentiality, members

and candidates should convey to clients that not all firm-sponsored resources may be appropriate
for such communications.

B. Incorrect because according to Standard III(E) relating to preservation of confidentiality, members

and candidates should encourage their firm to conduct regular periodic training on confidentiality
procedures for all firm personnel, including portfolio associates, receptionists, and other non-
investment staff who have routine direct contact with clients and their records. The training should
be for firm personnel and not for clients.

C. Incorrect because Standard III(E) relating to preservation of confidentiality, does not require
members or candidates to become experts in information security technology, but they should have
a thorough understanding of the policies of their employer.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

58.

A. Incorrect because according to Standard VII(B), Reference to CFA Institute, the CFA Designation
and the CFA Program, both have violated the Standard, as described in the response rationale of the
correct answer

27
CFA Program Level I for February 2024

B. Incorrect because according to Standard VII(B), Reference to CFA Institute, the CFA Designation
and the CFA Program, both have violated the Standard, as described in the response rationale of the
correct answer.

C. Correct because according to Standard VII(B), Reference to CFA Institute, the CFA Designation and
the CFA Program, Petrov violates Standard VII(B) because where individuals may anonymously
express their opinions, pseudonyms or online profile names created to hide a member's identity
should not be tagged with the CFA designation. Lynn violates Standard VII(B) because if an individual
is registered for the CFA Program but declines to sit for an exam or otherwise does not meet the
definition of a candidate as described in the CFA Institute Bylaws, then that individual is no longer
considered an active candidate

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

59.

A. Correct because according to Standard IV (A), Loyalty, there is a requirement that members and
candidates abstain from independent competitive activity that could conflict with the interests of
their employer. Jacobs' teaching assignment at a business school on weekends does not appear to
be in conflict with her role as a portfelio manager. Also, with respect to Standard IV (B), Addisonal
Compensation Arrangements. Members and Candidates must not accept gifts, benefits,
compensation, or consideration that competes with or might reasonably be expected to create a
conflict of interest with their employer's interest unless they obtain written consent from all parties
involved. Because her teaching activity is not in competition with, nor would it be expected to create
a conflict of interest with her employer she is not in violation of the Standards regarding her
teaching assignment. Jacobs is also not in violation of the Standards with respect to her actions to
make arrangements to start a competing business because a departing employee is generally free to
make arrangements or preparations to go into a competitive business before terminating the
relationship with his or her employer as long as such preparations do not breach the employee's
duty of loyalty There is nothing in this instance to suggest that is the case.

B. Incorrect because neither Jacob's weekend teaching assignment nor her actions to make
arrangements to go into competing business before terminating the relationship with her employer
is in violation of the Standards, as described in the justification for the correct answer.

C. Incorrect because neither Jacob's weekend teaching assignment nor her actions to make
arrangements to go into competing business before terminating the relationship with her employer
is in violation of the Standards, as described in the justification for the correct answer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

60.

A. Incorrect because according to Standard VII(B), Reference to CFA Institute, the CFA Designation,
and the CFA Program, a person is a candidate in the CFA Program if the person's application for
registration in the CFA Program has been accepted by CFA Institute, as evidenced by issuance of a
notice of acceptance, and the person is enrolled to sit for a specified examination. As this individual

28
CFA Program Level I for February 2024

has not registered for the Level III exam the individual cannot refer to himself/herself as a CFA
candidate.

B. Incorrect because according to Standard VII(B), Reference to CFA Institute, the CFA Designation,
and the CFA Program, a person is a candidate in the CFA Program if the person's application for
registration in the CFA Program has been accepted by CFA Institute, as evidenced by issuance of a
notice of acceptance, and the person is enrolled to sit for a specified examination. As this individual
has not registered for the Level III exam the individual cannot refer to himself/herself as a CFA
candidate.

C. Correct because according to Standard VII(B), Reference to CFA Institute, the CFA Designation,
and the CFA Program, a person is a candidate in the CFA Program if the registered person has sat for
a specified examination but exam results have not yet been received.

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

61.

A. Incorrect because according to Standard VII(B), Reference to CFA Institute, the CFA Designation,
and the CFA Program, those who have earned the right to use the Chartered Financial Analyst
designation are encouraged to do so but only in a manner that does not misrepresent or exaggerate
the meaning or implications of the designation in addition, if the candidate then goes on to claim or
imply superior ability by obtaining the designation in only three years, however, he or she is in
violation of Standard VII(B). Lee states that as a CFA charterholder, he achieves better investment
performance results. Therefore, he has violated the Standard VII(B).

B. Incorrect because according to Standard VII(B), Reference to CFA Institute, the CFA Designation,
and the CFA Program, if a candidate passes each level of the exam in consecutive years and wants to
state that he or she did so, that is not a violation of Standard VII(B) because it is a statement of fact.
Lee only states the fact that he passed all three CFA Program examinations in three consecutive
years. Therefore, he has not violated the Standard VII(B).

C. Correct because according to Standard VII(B), Reference to CFA Institute, the CFA Designation,
and the CFA Program, those who have earned the right to use the Chartered Financial Analyst
designation are encouraged to do so but only in a manner that does not misrepresent or exaggerate
the meaning or implications of the designation. In addition, if the candidate then goes on to claim or
imply superior ability by obtaining the designation in only three years, however, he or she is in
violation of Standard VII(B). Lee states that as a CFA charterholder, he achieves better investment
performance results. Therefore, he has violated the Standard VII(B).

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

62.

A. Correct because according to Standard IV(C), Responsibilities of Supervisors, Members and

Candidates must make reasonable efforts to ensure that anyone subject to their supervision or

29
CFA Program Level I for February 2024

authenty complies with applicable laws, rules, regulations, and the Code and Standards Therefore,
Statement 1 is accurate:

B. Incorrect because according to Standard IV(C), Responsibilities of Supervisors, if the member or

candidate cleany cannot discharge supervisory responsibilities because of the absence of a
compliance system or because of an madequate compliance system, the member or candidate
should decline in writing to accept supervisory responsibility until the firm adopts reasonable
procedures to allow adequate exercise of supervisory responsibility. Therefore, Statement 2 is not
accurate

C. Incorrect because according to Standard IV(C) Responsibilities of Supervisors, if the member or

candidate Clearly cannot discharge supervisory responsibilities because of the absence of a
compliance system or because of an inadequate compliance system, the member or candidate
should decline in writing to accept supervisory responsibility until the firm adopts reasonable
procedures to allow adequate exercise of supervisory responsibility Therefore Statement 2 is not
accurate.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

63.

A. Correct because according to Standard V (A), Diligence and Reasonable Basis, A member or
candidate may rely on others in his or her firm to determine whether secondary or third-party
research is sound and use the Information in good faith unless the member or candidate has reason
to question its validity or the processes and procedures used by those responsible for the research.
Berkstein relied on her senior colleague's due diligence, and there is nothing in the case to suggest
she has reason to question it, hence no violation. Nor did Brooks violate the Standard by leaving his
name on the group report: The conclusions or recommendations of the group report represent the
consensus of the group and are not necessarily the views of the member or candidate, even though
the name of the member or candidate is included on the report. In some instances, a member or
candidate will not agree with the view of the group. If, however, the member or candidate believes
that the consensus opinion has a reasonable and adequate basis and is independent and objective,
the member or candidate need not decline to be identified with the report if the member or
candidate is confident in the process, the member or candidate does not need to dissociate from the
report even if it does not reflect his or her opinion.

B. Incorrect because according to Standard V (A). Diligence and Reasonable Basis, Brooks can leave
his name in the report even if he disagrees with the conclusion, as described in the response
rationale for the correct answer.

C. Incorrect because according to Standard V (A), Diligence and Reasonable Basis Berkstein can rely
on her colleagues to do the due diligence, as described in the response rationale for the correct
answer

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

30
CFA Program Level I for February 2024

64.

A. Correct because according to Standard V (B), Communication with Clients and Prospective Clients
If recommendations are contained in capsule form (such as a recommended stock list), members
and candidates should notify clients that additional information and analyses are available from the
producer of the report. Also, Members and candidates must disclose significant risks known to them
at the time of the disclosure Members and candidates cannot be expected to disclose risks they are
unaware of at the time recommendations or investment actions are made. In this case, the central
bank action happened after the recommendation was sent out, and it was an unexpected move, so
Watt cannot be blamed for not warning clients and causing portfolio losses.

B. Incorrect as Watt did not violate Standard V (B), Communication with Clients and Prospective
Clients, as described in the response rationale for the correct answer.

C. Incorrect as Watt did not violate Standard V (B), Communication with Clients and Prospective
Clients, as described in the response rationale for the correct answer

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

65.

A. Incorrect because according to the fundamentals of compliance of the GIPS standards, Non-
discretionary portfolios must not be included in a firm's composites

B. Incorrect because according to the fundamentals of compliance of the GIPS standards, Statements
referring to the calculation methodology as being 'in accordance, 'in compliance' or 'consistent with
the Global Investment Performance Standards, or similar statements, are prohibited.

C. Correct because according to the fundamentals of compliance of the GIPS standards, If

documented client- imposed restrictions interfere with the implementation of the intended strategy
to the extent that the portfolio is no longer representative of the strategy, the firm may determine
that the portfolio is non-discretionary.

Ethical and Professional Standards: describe the fundamentals of compliance, including the
recommendations of the GIPS standards with respect to the definition of the firm and the firm's
definition of discretion

66.

A. Incorrect because according to the GIPS standards one of the key concepts of the standards is the
required uses of composites. A composite is an aggregation of one or more portfolios managed
according to a similar investment mandate, objective, or strategy. Therefore, it is a key concept that
the GIPS standards require to aggregate one or more portfolios managed according to similar
investment strategies in a composite.

B. Incorrect because according to the GIPS standards, the GIPS standards rely on the integrity of
input data, the quality of which is critical to creating accurate performance presentations. Therefore,
it is a key concept to rely on the integrity of input data.

31
CFA Program Level I for February 2024

C. Correct because according to the GIPS standards, the GIPS standards do not address every aspect
of performance measurement. Therefore, it is not a key concept of the GIPS standards to address
every aspect of performance measurement.

Ethical and Professional Standards: describe the key concepts of the GIPS Standards for Firms

67.

A. Incorrect because according to the recommended procedures for compliance with Standard III (B),
Fair Dealing, a common practice to assure fair dealing is to communicate recommendations
simultaneously within the firm and to customers.

B. Incorrect because according to the recommended procedures for compliance with Standard III (B),
Fair Dealing, a common practice to assure fair dealing is to communicate recommendations
simultaneously within the firm and to Customers

C. Correct because according to the recommended procedures for compliance with Standard III (B).
Fair Dealing, a common practice to assure fair dealing is to communicate recommendations
simultaneously within the firm and to customers Members and candidates should encourage firms
to develop guidelines that prohibit personnel who have prior knowledge of an investment
recommendation from discussing or taking any action on the pending recommendation. Members
and candidates should encourage firms to develop guidelines that prohibit personnel who have prior
knowledge of an investment recommendation from discussing or taking any action on the pending
recommendation.

Ethical and Professional Standards: evaluate practices, policies, and conduct relative to the CFA
Institute Code of Ethics and Standards of Professional Conduct

68.

A. Correct because according to Standard V (B), Investment Analysis, Recommendations, and Actions
- Communication with Clients and Prospective Clients, Members and candidates cannot be expected
to disclose risks they are unaware of at the time recommendations or investment actions are made.
In assessing compliance with Standard V(B), it is important to establish knowledge of a purported
significant risk or limitation. A one-time investment loss that occurs after the disclosure does not
constitute a pertinent factor in assessing whether significant risks and limitations were properly
disclosed. Having no knowledge of a risk or limitation that subsequently triggers a loss may reveal a
deficiency in the diligence and reasonable basis of the research of the member or candidate but may
not reveal a breach of Standard V(B).

B. Incorrect because described conduct does not violate the Standard V(A) Diligence and Reasonable
Basis, Members and Candidates must: 1.Exercise diligence, independence, and thoroughness in
analyzing investments, making investment recommendations, and taking investment actions. 2.Have
a reasonable and adequate basis, supported by appropriate research and investigation, for any
investment analysis, recommendation, or action.

C. Incorrect because according to Standard V (B), Communication with Clients and Prospective
Clients, The appropriateness of risk disclosure should be assessed on the basis of what was known at
the time the investment action was taken (often called an ex ante basis). Members and candidates

32
CFA Program Level I for February 2024

must disclose significant risks known to them at the time of the disclosure. Members and candidates
cannot be expected to disclose risks they are unaware of at the time recommendations or
investment actions are made. In assessing compliance with Standard V(B), it is important to establish
knowledge of a purported significant risk or limitation. A one-time investment loss that occurs after
the disclosure does not constitute a pertinent factor in assessing whether significant risks and
limitations were properly disclosed.

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

69.

A. Incorrect because according to the recommended procedures for compliance with Standard V (A),
Diligence and Reasonable Basis, members and candidates should encourage their firms to adopt a
standardized set of critena for evaluating the adequacy of external advisers. Therefore, customizing
the evaluation criteria for each extemal advisor is not a recommended procedure for compliance
wits Standard V (A).

B. Incorrect because according to the recommended procedures for compliance with Standard V (A).
Diligence and Reasonable Basis, members and candidates should encourage their firms to develop
derailed written guidance that establishes minimum levels of scenario testing of all computer-based
models used in developing rating, and evaluating financial insturnerds. Therefore establishing
maximum levels of spenand testing is incorrect

C. Correct because according to the recommended procedures for compliance with Standard V (A),
Diligence and Reasonable Basis, members and candidates should encourage their firms to establish a
policy requiring that research reports, credit ratings, and investment recommendations have a basis
that can be substantiated as reasonable and adequate. An individual employee (a supervisory
analyst) or a group of employees (a review committee) should be appointed to review and approve
such items prior to external circulation to determine whether the criteria established in the policy
have been met. Therefore, appointing a supervisory analyst to determine whether research reports
have a reasonable and adequate basis, before circulating the reports externally, is a recommended
procedure for compliance with Standard V (A).

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

70.

A. Correct because according to Standard V (C) Record Retention, Local regulators often impose
requirements on members, candidates, and their firms related to record retention that must be
followed Firms may also implement policies detailing the applicabile time frame for retaining
research and client communication records. Fulfilling such regulatory and firm requirements satisfies
the redbrements of Standard V(C) In the absence of rematory guidance or firm pallets, CFA Institute
recommends ceanteteing records tot at least seven years Here, there is no appesable jay Also
picasicoeimentative of the baital industar andy tedd counts preferences ace not relevant lasteart,
the memberhes to abide by the firm's policy to maintain records for at least 5 years.

33
CFA Program Level I for February 2024

B. Incorrect because according to Standard:V (C) Reed Retentions, Local regulators oden
yapose.reqethente on mempers, candidates and the firms related to record retention that must be
followed Firms nas atse implement policies telaining the applicable tere Baibe to retaining research
and cheat compianication records. Fulfilling such regulatory and arm requirements satisfies the
requirements of Standard VIC) in the apesnice of registory guidance or firm policies. CFA rostitme
recommends maintaining records for at least seven years, riese (here is no appicable law Also, the
recommendation of the local industry body and the clients' preferences are no! relevam instang: the
member nas to abide by the firm's policy to matatato records for at least 5 years

C. Incorrect because according to Standard V (C), Record Retention. Local régulators often impose
requirements on members, candidates, and then firms related to record retention that must be
followed Fenis may also implement policies detailing the applicable time frame for retaining
research and client communication records Fulfilling such regulatory and firm requirements satisfies
me requirements of Standard V(C) in the absence of regulatory guidance or firm policies, CFA
Instiane recommends maintaining records for at least seven years Here there is no applicable law
Also, the recommendation of the local industry body and the chents' preferences are not relevant
instead the member has to abide by the firm's policy to maintain records for at least 5 years.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Issues of professional integrity Professional Conduct to situations involving

71.

A. Incorrect because Standard VI(B), Priority of Transactions, recommends blackout/restricted

periods to prohibit members from early personal trading ("front-running"), not to discourage clients
from trading. According to the recommended procedures for compliance with Standard VI(B),
investment personnel involved in the investment decision-making process should establish blackout
periods prior to trades for clients so that managers cannot take advantage of their knowledge of
client activity by "front-running" client trades (trading for one's personal account before trading for
client accounts)

B. Incorrect because Standard VI(B), Priority of Transactions, makes no recommendation with

respect to members supplying clients with copies of personal securities transactions. According to
the recommended procedures for compliance with Standard VI(B), investment personnel should be
required to direct their brokers to supply to firms duplicate copies or confirmations of all their
personal securities transactions and copies of periodic statements for all securities accounts.

C. Correct because according to the recommended procedures for compliance with Standard VI(B),
Priority of Transactions, members and candidates should preclear their participation in IPOs, even in
situations without any conflict of interest between a member's or candidate's participation in an IPO
and the client's interest

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

34
CFA Program Level I for February 2024

72.

A. Correct because according to Standard V (C), Record Retention, The retention requirement
applies to decisions to buy or sell a security as well as reviews undertaken that do not lead to a
change in position.

B. Incorrect because according to Standard V (C), Record Retention, Records may be maintained
either in hard copy or electronic form.

C. Incorrect because the member only violates Standard V (C), Record Retention, by discarding the
records that do not lead to changes in positions, as described in the response rationale for the
correct answer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

73.

A. Correct because according to Standard V(B), Communication with Clients and Prospective Clients,
The member or candidate must keep clients and other interested parties informed on an ongoing
basis about changes to the investment process. Also, For purposes of Standard V(B), communication
is not confined to a written report. A presentation of information can be made via any means of
communication, including in-person recommendation description, telephone conversation.
Therefore, Lorraine does not violate Standard V(B) because changing the investment process is not
prohibited and verbal communication by phone regarding this change is permitted.

B. Incorrect because Lorraine has not violated Standard V(B), Communication with Clients and
Prospective Clients, as described in the response for the correct answer.

C. Incorrect because Lorraine has not violated Standard V(B), Communication with Clients and
Prospective Clients, as described in the response for the correct answer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

74.

A. Incorrect because actions involving unearned designations not only violate Standard IV (A),
Loyalty but also Standard I (D), Misconduct. The Standard relating to loyalty deals with matters
related to employment Members must act for the benefit of their employer and not deprive their
employer of the advantage of their skills and abilities, divulge confidential information, or otherwise
cause harm to their employer Actions regarding uneamed designations are potentially harmful to an
employer

B. Incorrect because actions involving unearned designations not only watate Standard IV (A),
Loyalty but also Standard I (D), Misconduct. The standard relating to misconduct requires, Members
must not engage in any professional cotiduct involving dishonesty fraud of decse or cemant any ect
that reflects adversely on their professional reputation, integoty or competence Actions regarding
unearned designations are dishonest an act of Iraud and deceitful and will reflect adversely on a
person's professional reputatida, integnty and competesos

35
CFA Program Level I for February 2024

C. Correct because actions involving unearned designations are violations of Standard IV (A), Loyalty
but also Standard I (D), Misconduct. The Standard relating to loyalty deals with matters related to
employment, Members and Candidates must act for the benefit of their employer and not deprive
their employer of the advantage of their skills and abilities, divulge confidential information, or
otherwise cause harm to their employer. Actions regarding unearned designations are potentially
harmful to an employer. The standard relating to misconduct requires, Members and Candidates
must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any
act that reflects adversely on their professional reputation, integrity, or competence. Actions
regarding uneamed designations are dishonest, an act of fraud and deceitful and will reflect
adversely on a person's professional reputation, integrity and competence

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

75.

A. Correct because according to Standard VI(A), Disclosure of Conflicts Members and Candidates
must make full and fair disclosure of all matters that could reasonably be expected to impair their
independence and objectivity or interfere with respective duties to their clients, prospective clients
and employer. In addition, sell-side members and candidates should disclose any matenally
beneficial ownership interest in a secuaty or other investeract that the member or candidates
recommending Chan has en beneficial ownncship in her birither's account so she is ttet redared to
disclose it. Therefore: Chan has not violated the Standard VI(A)

In addron, Standard V(B), Communicaban with Clients and Prospective Clients states that roeritters
and candidates should communicate in a recoremeodatie de factors that were instruowntel in
nioking the insestment recommendation Audical part of this remeremant is to distinguish clearly
batween opinions and facts in preparing a research report, the member or candidate must present
the basic characteestics of the securities being analyzed, which will allow the reader to evaluate the
report and incorporate infomation the reader deems relevant to his or her investment decision-
making process. Standard V(B) is addressing the investment process communication with clients.
Chan has not violated the Standard V(B)

B. Incorrect because according to Standard VI(A), Disclosure of Conflicts Members and Candidates
must make full and fair disclosure of all matters that could reasonably be expected to impair their
independence and objectivity or interfere with respective duties to their clients, prospective clients,
and employac In addition, sell-side members and candidates should disclose any materially
beneficial ownership interest in a security or other investment that the member or candidate is
recommending Chan has no beneficial ownership in her brother's account, so she is not required to
disclose it. Therefore, Chan has not violated the Standard VI(A)

C. Incorrect because Standard V(B), Communication with Clients and Prospective Clients, states that
members and candidates should communicate in a recommendation the factors that were
instrumental in making the investment recommendation A critical part of this requirement is to
distinguish clearly between opinions and facts. In preparing a research report, the member or
candidate must present the basic characteristics of the security(ies) being analyzed, which will allow
the reader to evaluate the report and incorporate information the reader deems relevant to his or
her investment decision-making process. Standard V(B) is addressing the investment process
communication with clients. Chan has not violated the Standard V(B)

36
CFA Program Level I for February 2024

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

76.

A. Correct because according to Standard VII (A), Conduct as Participants in CFA Institute Programs,
CFA Institute program rules, regulations, and policies prohibit candidates from disclosing confidential
material gained during the exam process Examples of information that cannot be disclosed by
candidates sitting for an exam include but are not limited to broad topical areas and formulas tested
or not tested on the exam. Further All aspects of the exam, including questions, broad logical areas,
and formulas tested or not tested, are considered confidential pohl such time as CFA Institute elects
to rotease them publicly Theres no vodication that CFA Institute bas released details about the
exam. Therefore, Macmara has violated Standard VII (A) by staring Thankfully, the CAPM forumeife
was not lested

B. Incorrect because Standard VII (A) Conduct as Participants in CFA Institute Programs, does not
cover expressing opinions regarding CFA Institute, the CFA Program, or other CFA Institute programs
Members and candelates are free to disagree and express their disagreement with CFA Institute on
its policies, its procedures. or any advocacy positions taken by the organization. When expressing a
personal opinion, a candidate is prohibited from disclosing content-specific information, including
any actual exam question and the information as to subject matter covered or not covered in the
exam Macraana has not disclosed content-specific information but has only expressed har opinion
about the CFA exams. Therefore, Macmara has not violated Standard VII (A) by wating CFA exams
are outrageously difficult

C. Incorrect because according to Standard VII (A), Conduct as Participants in CFA Institute Programs,
Macmara has violated Standard VII (A) only by writing "Thankfully, the CAPM formula was not
tested". CFA Institute program rules, regulations, and policies prohibit candidates from disclosing
confidential material gained during the exam process. Examples of information that cannot be
disclosed by candidates sitting for an exam include but are not limited to: broad topical areas and
formulas tested or not tested on the exam. Further, All aspects of the exam, including questions,
broad topical areas, and formulas, tested or not tested, are considered confidential until such time
as CFA Institute elects to release them publicly. There is no indication that CFA Institute has released
details about the exam.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

77.

A. Correct because according to Standard I (C), Misrepresentation, changing pricing providers should
not be based solely on the justification that the new provider reports a higher current value of a
security

B. incorrect because Standard I(C) [Misrepresentation) does not require that a benchmark always be
provided in order to comply Some investment strategies may not lend themselves to displaying an
appropriate benchmark because of the complexity or diversity of the investments included Grae's
ownership of several liquid and illiquid asset classes exhibits a diversity of investments

37
CFA Program Level I for February 2024

C. Incorrect because Standard ((C) [Misrepresentation] does not require that a benchmark always be
provided in order to comply. Some investment strategies may not lend themselves to displaying an
appropriate benchmark because of the complexity or diversity of the investments included Grae's
ownership of liquid and illiquid securities suggests a diversity of investments, so marketing
performance without a benchmark is not a violation of the Standard

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

78.

A. Incorrect because consultants cannot make a claim of compliance unless they actually manage the
assets for which they are making a claim of compliance. They can claim to endorse the GIPS
standards and/or require that their investment managers comply with the GIPS standards.

B. Correct because asset owners may comply with the GIPS standards in the same way as firms if
they compete for business. If they don't compete for business but report their performance to an
oversight body, asset owners may choose to comply with the GIPS Standards for Asset Owners.

C. Incorrect because only a firm managing assets can claim compliance. Similarly, software (and the
vendors who supply software) cannot be 'compliant.' Software can assist firms in achieving
compliance with the GIPS standards (e.g., by calculating performance in a manner consistent with
the calculation requirements of the GIPS standards), but only a firm managing assets can claim
compliance once the firm has satisfied all applicable requirements of the GIPS standards.

Ethical and Professional Standards: explain why the GIPS standards were created, who can claim
compliance, and who benefits from compliance

79.

A. Correct because according to the GIPS standards, in cases in which laws and/or regulations
conflict with the GIPS standards, firms are required to comply with the laws and regulations and
make full disclosure of the conflict in the GIPS Report.

B. Incorrect because, as explained in the justification for the correct answer, firms are required to
comply with the laws and regulations and make full disclosure of the conflict in the GIPS Report

C. Incorrect because, as explained in the justification for the correct answer, firms are required to
comply with the laws and regulations and make full disclosure of the conflict in the GIPS report.

Ethical and Professional Standards: describe the fundamentals of compliance, including the
recommendations of the GIPS standards with respect to the definition of the firm and the firm's
definition of discretion

80.

A. Correct because according to the GIPS standards, The FIRM MUST include terminated
COMPOSITES on this list for at least five years after the COMPOSITE TERMINATION DATE

38
CFA Program Level I for February 2024

B. Incorrect because firms must include terminated composites on the firm's list of composite
descriptions for at least five years after the composite termination date, as described in the
response rationale for the correct answer, and not for 7 years.

C. Incorrect because firms must include terminated composites on the firm's list of composite
descriptions for at least five years after the composite termination date, as described in the
response rationale for the correct answer, and not for 10 years.

Ethical and Professional Standards: describe the fundamentals of compliance, including the
recommendations of the GIPS standards with respect to the definition of the firm and the firm's
definition of discretion

81.

A. Correct because according to the GIPS standards, verification is performed with respect to an
entire firm, not on specific composites or pooled funds.

B. Incorrect because according to the GIPS standards, Verification is a process by which an

independent verification firm (verifier) conducts testing of a firm on a firm-wide basis in accordance
with the required verification procedures of the GIPS standards

C. Incorrect because according to the GIPS standards. Once a firm claims compliance with the GIPS
standards, it may voluntarily hire an independent third party to perform a verification in order to
increase confidence in the firm's claim of compliance

Ethical and Professional Standards: describe the concept of independent verification

82.

A. Correct because according to the recommended procedures for compliance with Standard II (E),
Preservation of Confidentiality, avoid disclosing any information received from a client except to
authorized fellow employees who are also working for the client. Is the information background
material that, if disclosed, will enable the member or candidate to improve service to the client?

B. Incorrect because according to the recommended procedures for compliance with Standard II (E),
Preservation of Confidentiality, members should encourage the development of procedures that
appropriately reflect the firm's size and business operations and not only large firm's standard
models.

C. Incorrect because according to the recommended procedures for compliance with Standard II (E),
Preservation of Confidentiality, members should encourage the development of procedures that
appropriately reflect the firm's size and business operations and not only large firm's standard
models.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

39
CFA Program Level I for February 2024

83.

A. Correct because according to the recommended procedures for compliance with Standard II(A)
Material Nonpublic Information the use of watch lists is a minimum element of such a system. The
minimum elements of include, but are not limited to, the review of employee trading through the
maintenance of "watch" rumor" lists.

B. Incorrect because according to the recommended procedure for compliance with Standard II(A)
Material Nonpublic

such a system "restricted" and " Information, prohibition on all types of proprietary activity when a
firm comes into possession of material nonpublic information is not appropriate. For example, when
a firm acts as a market maker, a prohibition on proprietary trading may be counterproductive to the
goals of maintaining the confidentiality of information and market liquidity

C. Incorrect because according to the recommended procedure for comprence with Standard 11(A)
Material Nonpublic Information interdepartmental communication between such departments and
their employees should be generally minimized to restrict the possible flow on material nonpublic
information The guidance notes that The minimum elements of such a system include but are not
limited to, the substantial control of relevant interdepartmental communications preferably through
a clearance area wifhmm the firm in either the compliance.or legal depettraent

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

84.

A. Correct because according to the Standard II(B), market manipulation includes (1) the
dissemination of false or misleading information Also, information-based manipulation includes, but
is not limited to, spreading false rumors to induce trading by others. For example, members and
candidates must refrain from "pumping up the price of an investment by issuing misleading positive
information or overly optimistic projections of a security's worth only to later "dump" the
investment (i e sell it) once the price, fueled by the misleading information's effect on other market
participants, reaches an artificially high level.

B. incorrect because according to Standard ((B), independence and objectivity. Members and
Candidates must use reasonable care and judgment to achieve and maintain independence and
objectivity in their professional activities Members and Candidates must not offer, solicit, or accept
any gift, befisfit, compensation, or consideration that reasonably could be expected to compromise
their own or another's independence and objectivity.

C. Incorrect because according to Standard II(A), metenal nenpublic information Members and
Candidates who possess material nonpublic information that could affect the value of an mvestment
must not act or cause others to act on the information.

Ethical and Professional Standards: evaluate practices, policies, and conduct relative to the CFA
Institute Code of Ethics and Standards of Professional Conduct

40
CFA Program Level I for February 2024

85.

A. Correct because according to the GIPS standards, only a firm managing assets can claim
compliance once the firm has satisfied all applicable requirements of the GIPS standards. Further,
asset owners may comply with the GIPS standards in the same way as firms if they compete for
business. If they don't compete for business but report their performance to an oversight body,
asset owners may choose to comply with the GIPS Standards for Asset Owners. Therefore, a pension
fund that manages investments for its beneficianes can claim compliance with the GIPS standards

B. Incorrect because according to the GIPS standards, consultants cannot make a claim of
compliance unless they actually manage the assets for which they are making a claim of compliance.
Therefore, an investment consulting firm that focuses on enabling clients to self-manage their
investments cannot claim compliance with the GIPS standards.

C. Incorrect because according to the GIPS standards, software (and the vendors who supply
software) cannot be "compliant." Software can assist firms in achieving compliance with the GIPS
standards (eg, by calculating performance in a manner consistent with the calculation requirements
of the GIPS standards), but only a firm managing assets can claim compliance once the firm has
satisfied all applicable requirements of the GIPS standards.

Ethical and Professional Standards: explain why the GIPS standards were created , who can claim
compliance, and who benefits from compliance

86.

A. Incorrect because both statements violate Standard VII(B), Reference to CFA Institute, the CFA
Designation, and the CFA Program as described in the correct response rationale.

B. Incorrect because both statements violate Standard VII(B), Reference to CFA Institute, the CFA
Designation, and the CFA Program as described in the correct response rationale

C. Correct because both statements violate Standard VII(B), Reference to CFA Institute, the CFA
Designation, and the CFA Program by implying that superior performance from someone with the
CFA designation can be expected. Statements referring to CFA Institute, the CFA designation, or the
CFA Program that overstate the competency of an individual or imply, either directly or indirectly,
that superior performance can be expected from someone with the CFA designation are not allowed
under the standard. Improper References... 'CFA charterholders achieve better performance
results'... 'As a CFA charterholder, I am the most qualified to manage client investments.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

87.

A. Incorrect because Bravoria violated Standard III(A)-Loyalty, Prudence, and Care

B. Incorrect because Bravoria provided his client with investment statements more frequently than
required, ie., quarterly.

41
CFA Program Level I for February 2024

C. Correct because Bravoria violated Standard III(A)-Loyalty, Prudence, and Care as he had not
updated his client's profile in more than two years and thus should not have made further
investments, particularly in high-risk investments, until such time as he updated the client's risk and
return objectives, financial constraints, and financial position. Bravoria provided his client with
investment statements more frequently than that which is required, ie, quarterly, so was not in
violation of regular account information

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

88.

A. Incorrect because GIPS standards certainly do not eliminate the need for in-depth due diligence
on the part of the investor.

B. Correct because compliance enables the GIPS-compliant firm to participate in competitive bids
against other compliant firms throughout the world.

C. Incorrect because as described in the response rationale for the correct answer compliance
enables the GIPS- compliant firm to participate in competitive bids against other compliant firms
throughout the world but GIPS standards certainly do not eliminate the need for in-depth due
diligence on the part of the investor.

Ethical and Professional Standards: describe the fundamentals of compliance, including the
recommendations of the GIPS standards with respect to the definition of the firm and the firm's
definition of discretion

89.

A. Incorrect because the GIPS standards certainly do not eliminate the need for in-depth due
diligence on the part of the client or investor, but compliance with the Standards enhances the
credibility of investment management firms that have chosen to undertake this responsibility.

B. Correct because compliance enables the GIPS-compliant firm to participate in competitive bids
against other compliant firms throughout the world.

C. Incorrect because complying with the GIPS standards is voluntary. Compliance with the GIPS
standards is not typically required by legal or regulatory authorities.

Ethical and Professional Standards: explain why the GIPS standards were created, who can claim
compliance, and who benefits from compliance

90.

A. Incorrect because once a firm claims compliance with the Standards, they may voluntarily hire an
independent third party to perform a verification in order to increase confidence in the firm's claim
of compliance Therefore, the firm is not required to but may elect an independent third party to
perform verification of the firm's claim of compliance

42
CFA Program Level I for February 2024

B. Correct because firms that claim compliance with the GIPS standards are responsible for their
claim of compliance and for maintaining that compliance That is finns self regulate their claim of
compliance. Therefore including when compliance is verified by an independent third party, the firm
is always responsible for maintaining that compliance

C. Incorrect because the determination of which portfolios to include in the Composite should be
done according to pre-established criteria (ie., on an ex-ante basis), not after the fact.

Ethical and Professional Standards: explain the purpose of composites in performance reporting

91.

A. Correct because Delgado did not violate Standard VII (A), Responsibilities as a CFA Institute
Member of CFA Candidate. Candidates are prohibited from disclosing confidential material gained
during the exam process but are free to discuss the examination in a general manner, such as the
fact that she found the exam difficult. Regarding her opinion about the CFA Institute a member must
not engage in any conduct that cpropromises the reputation or integrity of CFA Imititute Hoveva
Sisudeti VI (A) fack mat shear expressing epiatons regarding the CFA Program or CFA Institute.
Therefore, Delgado's voicing berapinima is not a conducttom compromises the reputation or
integrity of CFA Institute

B. Incorrect because Delgado did not violate the Standards by posting information about the exam
on a public website, as described in the Response Rationale for the answer key

C. Incorrect because Delgado did not violate the Standards by expressing her opinion that the CFA
Program and CFA Institute were losing credibility with the public, as described in the Response
Rationale for the answer key

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

92.

A. Incorrect because for the purposes of Standard VI(A), Disclosure of Conflicts, members and
candidates beneficially own securities or other investments if they have a direct or indirect
pecuniary interest in the securities, have the power to vote or direct the voting of the shares of the
securities or investments or have the power to dispose ec aurect the disposition of the security or
investment. Therefore, the member is candidated a beneficial owner for shares held in both Account
1 and Account 2.

B. Incorrect becuase for the purposes of Standard VI(A) Disclosure of Conflicts, reembiers and
candidates beneficially own securities ar other investments if they have a direct or indirect pecuniary
interest in the securities bave the power to vote or direct the voting of the shares of the securities or
investments, or have the power to disposé ecdirect the disposition of the secunty or investment.
Therefore, the member is considered a bedeficial owner for shares held in both Account 1 and
Account 2

C. Correct because for the purposes of Standard VI(A) Disclosure of Conflicts, members and
candidates beneficially own securities or other investments if they have a direct or indirect
pecuniary interest in the securities, have the power to vote or direct the voting of the shares of the

43
CFA Program Level I for February 2024

securities or investments, or have the power to dispose or direct the disposition of the security or
investment. Therefore, the member is considered a beneficial owner for shares held in both Account
1 and Account 2

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

93.

A. Incorrect because a claim of compliance requires that all fee-paying discretionary accounts be
included in at least one composite. It does not include all accounts which could include non-
discretionary accounts.

B. Correct because one of the key concepts of the standards is the required use of composites. A
composite is an aggregation of one or more portfolios managed according to a similar investment
mandate, objective, or strategy. The requirement to create, use and maintain composites is
designed to prevent firms from cherry-picking-using the best-performing accounts to represent the
performance of an investment strategy.

C. Incorrect because a composite must include all actual, fee-paying, discretionary portfolios
managed in accordance with the same investment mandate, objective, or strategy. It does not
include non-discretionary accounts.

Ethical and Professional Standards: explain the purpose of composites in performance reporting

94.

A. Incorrect because securing a controlling, dominant position in a financial instrument to exploit

and manipulate the price of a related derivative and/or the underlying asset is transaction-based
manipulation, however, Standard II(B) is not intended to preclude transactions undertaken on
legitimate trading strategies. To win a proxy vote is a legitimate strategy.

B. Incorrect because Standard II(B) is not intended to preclude transactions undertaken on

legitimate trading strategies based on perceived market inefficiencies. The intent of the action is
critical to determining whether it is a violation of this standard.Therefore the member does not
violate the Standard

C. Correct because Members and Candidates must not engage in practices that distort prices or
artificially inflate trading volume to give with the intent to mislead market participants. Transactions
that artificially affect prices or volume the impression of activity or price movement in a financial
instrument, which represent a diversion from the expectations of a fair and efficient market.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

95.

A. Incorrect because one of the objectives of the GIPS standards is to promote investor interests and
instill investor confidence, and not to promote financial regulator interests

44
CFA Program Level I for February 2024

B. Correct because one of the objectives of the GIPS standards is to promote industry self-regulation
on a global basis.

C. Incorrect because one the objectives of the GIPS standards is to obtain worldwide acceptance of a
single standard [not diverse standards] for calculating and presenting performance.

Ethical and Professional Standards: explain why the GIPS standards were created, who can claim
compliance, and who benefits from compliance

96.

A. Incorrect because recommended procedures for compliance with Standard I (A), Knowledge of
the Law, state that pertinent information that highlights applicable laws and regulations might be
distributed to employees or made available in a central location. Thus, the recommended procedure
is to provide such information to employees and not to clients.

B. Correct because recommended procedures for compliance with Standard I (A), Knowledge of the
Law, state Establish procedures for reporting violations: Firms might provide written protocols for
reporting suspected violations of laws, regulations, or company policies.

C. Incorrect because recommended procedures for compliance with Standard I (A) Knowledge of the
Law, state that when in doubt about the appropriate action to undertake, it is recommended that a
member or candidate seek the advice of compliance personnel or legal counsel concerning legal
requirements If a potential violation is being committed by a fellow employee. it may also be
prudent for the member or candidate to seek the advice of the firm's compliance department or
legal counsel. The recommended procedures for compliance with Standard I (A) do not suggest
seeking advice of regulatory agency personnel

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

97.

A. Correct because Murphy has not violated any Standards. Standard V(B), Communication with
Clients and Prospective Clients, requires members, use reasonable judgment in identifying which
factors are important to their investment analyses, recommendations, or actions and include those
factors in communications with clients and prospective client. Murphy has done this when she
reviewed the investment rationale behind buying the security and the potential investment risks.
The appropriateness of risk disclosure should be assessed on the basis of what was known at the
time the investment action was (often called an ex ante basis)

98.

A. Incorrect because Standard II(B), Market Manipulation, require members to uphold market
integrity by prohibiting market manipulation. Market manipulation includes practices that distort
security prices or trading volume with the intent to deceive people or entities that rely on
information in the market. The intent here is to minimize tax liability and not to deceive

45
CFA Program Level I for February 2024

B. Correct because Standard II(B), Market Manipulation, require members to uphold market
integrity by prohibiting market manipulation. Market manipulation includes practices that distort
security prices or trading volume with the intent to deceive people or entities that rely on
information in the market. This is an example of information- base manipulation as misleading fake
information affects other market participants.

C. Incorrect because Standard II(B), Market Manipulation require members to uphold market
integrity by prohibiting market manipulation. Market manipulation includes practices that distort
security prices or trading volume with the

intent to deceive people or entities that rely on information in the market. Order splitting is
legitimate for optimal trade executions.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

99.

A. Correct because neither Paralova or Klemmer violated CFA Standards through their statements.
Paralova did not violate Standard VII(B) Reference to CFA Institute the CFA Designation and the CFA
Program when she made her comments about what getting the Charter will reflect and the hope for
a pey raise The Standard states When relarning to CFA Institute CFA Institute membership, the CFA
designation, or candidacy in the CEA Prodam Members and Candidates must not misrepresent or
exaggerate fine meaning or implications of membership in CFA Institute, holding the CFA designation
or candidacy in the CFA program Klemmer did not violate Standard VII (B) Refdanse to CFA Instituts,
the CFA Desiggetion and the CFA Program when he expressell his opinion that Paralova's potential
pay raise will reflect her enhanced skills. Klammer diso complied with Standard VII(A)
Responsibilities as a CFA Institute Member or CFA Candidate, Conduct as Participants in CFA Institute
Programs when steting an asinion about the difficulty of the exam without revealing any specific
details or the need to study all subjects The Standard states that candidates must out angage in any
conduct that compromises the integhty validity, or security of CFA Institute programs

B. Incorrect as Paralova did not violate Standard VII (B) Reference to CFA Institute, the CFA
Designation, and the CFA Program when she made her comments about what getting the Charter
will reflect and the hope for a pay raise. The Standard states, When referring to CFA Institute, CFA
Institute membership, the CFA designation, or candidacy in the CFA Program, Members and
Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA
Institute, holding the CFA designation, or candidacy in the CFA program

C. incorrect as Klemmer did not violate Standard VII (B) Reference to CFA Institute, the CFA
Designation, and the CFA Program when he expressed his opinion that Paralova's potential pay raise
will reflect her enhanced skills Klemmer also complied with Standard VII(A) Responsibilities as a CFA
Institute Member or CFA Candidate, Conduct as Participants in CFA Institute Programs when stating
an opinion about the difficulty of the exam without revealing any specific details or the need to
study all subjects. The Standard states that candidates must not engage in any conduct that
compromises…the integrity, validity or security of CFA Institute programs.

Ethical and Professional Standards: explain how the

46
CFA Program Level I for February 2024

practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards
of Professional Conduct

100.

A. Incorrect because Covington did violate the Standards in that she did not follow her employer's
compliance procedures, Standard VI(B).

B. Incorrect as there is nothing to indicate she violated Standard V(A)-Diligence and Reasonable
Basis.

C. Correct because prior clearance processes guard against potential and actual conflicts of interest,
members are required to abide by their employer's compliance procedures, Standard VI(B).

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

101.

A. Incorrect because Standard IV (C), Responsibilities of Supervisors, states that if a member cannot
establish an adequate compliance system, the member or candidate should decline in writing to
accept supervisory responsibility until the firm adopts reasonable procedures.... The Standard does
not indicate that the member should resign a position due to inadequate compliance systems
Standard I (A) Knowledge of the Law, states that members should resign in certain situations
involving legal violations by colleagues or their firms and not due to flaws in compliance systems.

B. Correct because Standard IV (C), Responsibilities of Supervisors, states if the member or candidate
clearly cannot discharge supervisory responsibilities because of the absence of a compliance system
or because of an inadequate compliance system, the member or candidate should decline in writing
to accept supervisory responsibility until the firm adopts reasonable procedures to allow adequate
exercise of supervisory responsibility

C. Incorrect because Standard IV (C), Responsibilities of Supervisors, states members and candidates
must promote actions by all employees under their supervision and authority to comply with
applicable laws, rules regulations, and firm policies and the Code and Standards Ensuring compliance
only by Charterholders would not comply with the Standard.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

102.

A. Incorrect because the trade allocation procedure does not meet the requirements of Standard
VI(B), which requires client transactions to be given precedence over transactions made on behalf of
the member's or candidate's firm or personal transactions.

B. Correct because Standard VI(B)-requires client transactions to be given precedence over

transactions made on behalf of the member's or candidate's firm or personal transactions. Because
the advisor trades alongside his chen's and allocates trades on a rotating basis, there are times when

47
CFA Program Level I for February 2024

the advisor's trades will receive pnority over his clients in violation of the Code and Standards. A
member or candidate having the same investment positions or being co-invested with clients does
not always create a conflict. Some clients in certain investment situatients require members or
candidates to have aligned interests Personal investment positions or transactions of members or
candidates or their fians should never, however, adversely atlect client Investments

C. Incorrect because even though trade alincation procedures should be disclosed to clients in this
case the procedure fails to meet the requirement of the Code artd Standards so disclosure is not
sufficient and the procedures should be revised

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

103.

A. Incorrect because Kawasaki has violated the Standards.

B. Correct because Standard VI(C) requires disclosure of any compensation, consideration, or benefit
received from or paid to others for the recommendation of products or services. Even without cash
changing hands the arrangement provides for a quid pro quo referral of clients and should be
disclosed.

C. Incorrect because this Standard has not been violated as it relates to disclosure to clients of the
general principles of the investment process used and not disclosure of any compensation,
consideration, or benefit received from or paid to others for the recommendation of products or
services as Standard VI(C) requires

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

104.

A. Incorrect because, according to Standard VII (A), Members and candidates are free to disagree
and express their disagreement with CFA Institute on its policies, its procedures, or any advocacy
position taken by the organization. When expressing a personal opinion, a candidate is prohibited
from disclosing content-specific information, including any actual exam question and the
information as to subject matter covered or not covered in the exam. Bernod is free to disagree with
CFA Institute policies.

B. Correct because Standard VII (A), Conduct as Participants in CFA Institute Programis, states
Standard VII (A) covers the conduct of CFA Institute members, and candidates, involven with the CFA
Progtern and prohibits any conduct that undermines the public's confidence that the CFA charter
represents a devol of achievement based on ment and ethical conduct. Conduct covered includes
het is out arnited to improperty using an associabon with CFA Institute to hurther personal or
professional goats Borced veolated the Standard by stating that his involvement in exam waiting
gave him unique investment insights that will be of value to his firm's clients

C. Incorrect because according to Standard VII (A), Members and candidates are free to disagree and
express their disagreement with CFA Institute on its policies, its procedures, or any advocacy
position taken by the organization. When expressing a personal opinion, a candidate is prohibited

48
CFA Program Level I for February 2024

from disclosing content-specific information, including any actual exam question and the
information as to subject matter covered or not covered in the exam Bernod is free to disagree with
CFA Institute policies, but he violated VII (A), as described in the justification for the correct answer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

105.

A. Correct because Professional Conduct inquiries come from a number of sources including the
monitoring of online and social media to detect disclosure of confidential exam information.

B. Incorrect because candidate conduct is monitored by exam proctors who complete reports on
candidates suspected to have violated testing rules during the exam and at the exam center.

C. Incorrect because members and candidates must self-disclose on the annual Professional Conduct
Statement all matters that question their professional conduct, such as involvement in civil litigation
or a criminal investigation or being the subject of a written complaint. Disclosure of confidential
exam information will not be found on the annual statement.

Ethical and Professional Standards: describe the structure of the CFA Institute Professional Conduct
Program and the process for the enforcement of the Code and Standards

106.

A. Correct because receiving a gift, benefit, or consideration from a client can be distinguished from
gifts given by entities seeking to influence a member or candidate to the detriment of other clients.
In a client relationship, the client has already entered some type of compensation arrangement with
the member, candidate, or his or her firm. A gift from a client could be considered supplementary
compensation.

B. Incorrect because compensation arrangements should not link analyst remuneration directly to
investment banking assignments in which the analyst may participate as a team member.

C. Incorrect because portfolio managers have a responsibility to respect and foster the intellectual
honesty of sell- side research. Therefore, it is improper for portfolio managers to threaten or engage
in retaliatory practices, such as reporting sell-side analysts to the covered company in order to
instigate negative corporate reactions.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

107.

A. Correct because Regali did not violate Standard II (A), Nonpublic Material Information The
Standards permit the use of industry experts. Members and candidates may provide compensation
to individuals [industry experts] for their insights without violating this standard in this case, the
industry experts are unaffiliated with the trials and thus do not have access to inside intermation on
the trials so their insights can be used to make investment decisions The Standards also permit the

49
CFA Program Level I for February 2024

sell-side analysts to dismbute material information to only clients. Simply baceuse the pubis in
general would find the conclusions material dnes not require that the analyst make his or her work
public

B. Incorrect because distributing the report to only her clients (and not making it public) is not a
violation of Standard II (A), Nonpublic Material Information. The Standards permit the sell-side
analysts to distribute material information only to clients. Simply because the public in general
would find the conclusions material does not require that the analyst make his or her work public

C. Incorrect because Regali did not violate Standard II (A), Nonpublic Material Information The
Standards permit the use of industry experts. Members end candidates may provide compensation
to individuals [industry experts] for their insights without violating this standard In this case, the
industry experts are unaffiliated with the trials and thus do not have access to inside information on
the trials, so their opinions can be used to make investment decisions

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

108.

A. Correct because Standard II(A), Material Nonpublic Information, states that Members and
Candidates who possess material nonpublic information that could affect the value of an investment
must not act or cause others to act on the information Also, Members and candidates must not use
material nonpublic information to influence their investment actions related to derivatives.
Therefore, a member analyst buying call option on a company stock after learning from its CEO that
the company will report earnings exceeding arsalyst expectation is a violation of Standard II(A). In
contrast, a member analyst buying an oil company stock after speaking to a well- known industry
expert who believes oil prices will rise due to geopolitical risk is not a violation of Standard II(A) This
is because a well-known industry expert's view is unlikely to be nonpublic information. Therefore,
only Action 1 violates Standard II(A).

B. Incorrect because only Action 1 violates Standard II(A), Material Nonpublic Information as
described in the response rationale of the correct answer.

C. Incorrect because only Action 1 violates Standard II(A), Material Nonpublic Information as
described in the response rationale of the correct answer.

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

109.

A. Correct because Standard III (B), Fair Dealing, states that if the issue is oversubscribed, then the
issue should be prorated to all subscribers. In addition, if the investment professional's family-
member accounts are managed similarly to the accounts of other clients of the firm, however, the
family-member accounts should not be excluded from buying such shares.

B. Incorrect because Standard III (B), Fair Dealing, states that if the issue is oversubscribed, then the
issue should be prorated to all subscribers.

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CFA Program Level I for February 2024

C. Incorrect because Standard III (B), Fair Dealing, states that if the investment professional's family-
member accounts are managed similarly to the accounts of other clients of the firm, however, the
family-member accounts should not be excluded from buying such shares.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

110.

A. Correct because Standard III (B), Fair Dealing, states. For example, when making investments in
new offerings or in secondary financings, members and candidates should distribute the issues to all
customers for whom the investments are appropriate in a manner consistent with the policies of the
firm for allocating blocks of stock. In addition, if the issue is oversubscribed, members and
candidates should forgo any sales to themselves or their immediate families in order to free up
additional shares for chents. If the investment professional's family-mernber accounts are managed
similarly to the accounts of other clients of the firm, however the family-member accounts should
not be excluded from buying such shares In this case. Lee's brother has a standard fee-paying regular
account, the IPO is suitable, so Lee should include his brother in the pro-rata allocation of the IPO
shares

B. Incorrect because Standard III (B), Fair Dealing, states that Lee should have included his brother's
account in the IPO allocation, as described in the rationale for the correct answer

C. Incorrect because Standard III (C), Suitability, requires that members and candidates who are in an
investment advisory relationship with clients consider carefully the needs, circumstances, and
objectives of the clients when determining the appropriateness and suitability of a given investment
or course of investment action. Lee subscribes to an IPO for those clients for whom he has assessed
it is suitable and not for a client for whom the investment is not suitable. Therefore, he has not
violated the Standards.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

111.

A. Correct because Standard III (E), Preservation of Confidentiality, requires Members and
Candidates must keep information about current, former, and prospective clients confidential. Also,
this standard protects the confidentiality of client information even if the person or entity is no
longer a client of the member or candidate.

B. Incorrect because the requirements of Standard III (E) are not intended to prevent members and
candidates from cooperating with an investigation by the CFA Institute Professional Conduct
Program (PCP)

C. Incorrect because Members and Candidates must keep information about current, former, and
prospective clients confidential unless the client or prospective client permits disclosure of the
information.

Ethical and Professional Standards:demonstrate the application of the Code of Ethics and Standards
of Professional Conduct to situations involving issues of professional integrity

51
CFA Program Level I for February 2024

112.

A. Correct because Standard III (E), Preservation of Confidentiality, requires that members and
candidates preserve the confidentiality of information communicated to them by them clients
prospective clients, and former cliends Further, da dient or former client expressly autherizes the
mumbents, candidate to disclose informatien, however, the member or candidate may follow the
terms of the authorization and provide the information: The unsolicited stock omter from the chant
is confidential So Berr must obtain the original client's adoration before recommending the stock to
other clients Therefore Barr has violated Standard 11 (E) by executing without the oeminal's cbent
authenzation a single block trade for the onginal client as well as other clients for whom the stock 15
Suitable

B. Incorrect because according to the recommended procedures for compliance with Standard III (E),
Preservation of Confidentiality, the simplest, most conservative, and most effective way to comply
with Standard III (E) is to avoid disclosing any information received from a client except to authorized
fellow employees who are also working for the client. Barr discusses the order with her firm's
analysts to determine how the unsolicited stock order will impact the client's portfolio. As analysts
work for the clients, Barr has not violated Standard III (E) by discussing unsolicited client orders with
her analysts

C. Incorrect because Barr has violated Standard III (E), Preservation of Confidentiality, only by
executing a single block trade for the original client as well as other clients for whom the stock is
suitable, as described in the response rationale for the correct answer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

113.

A. Incorrect because the member violates Standard I (A), as described in the response rationale for
the correct answer.

B. Incorrect because Standard III (B), Fair Dealing, states that Members and Candidates must deal
fairly and objectively with all clients when providing investment analysis, making investment
recommendations, taking investment action, or engaging in other professional activities. However,
this case is not about fairness related to investment analysis, making investment recommendations,
taking investment action on behalf of clients. Instead, the member violates Standard I (A),
Knowledge of the Law, as described in the respanse rationale for the correct answer

C. Correct because Standard 1 (A), Knowledge of the Law, states that Members and Candidates must
understand and comply with all applicable laws, rules, and regulations. While Standard III (E),
Preservation of Confidentiality, states that When permissible under applicable law, members and
candidates shall consider the PCP an extension of themselves when requested to provide
information about a client in support of a PCP investigation into their own conduct, this case clearly
states that disclosure is not permitted by applicable law. Therefore, the member violates Standard I
(A) by disclosing client information.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

52
CFA Program Level I for February 2024

114.

A. Incorrect because Standard II(A), Material Nonpublic Information, has been violated by both
Hadid and Jackson as described in the response rationale of the correct answer

B. Incorrect because Standard II(A), Material Nonpublic Information, has been violated by both
Hadid and Jackson as described in the response rationale of the correct answer.

C. Correct because Standard II(A), Material Nonpublic Information, states that Members and
Candidates who possess material nonpublic information that could affect the value of an investment
must not act or cause others to act on the information Also, Members and candidates must not use
matenal nonpublic information to influence their investment actions related to derivatives. Hadid
caused Jackson to act by telling Jackson about her work on SML Jackson acts on the information and
buys call options on SML. Therefore, both Hadid and Jackson violate Standard II(A).

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

115.

A. Incorrect because according to Standard II(B), Market Manipulation, members are prohibited
from disseminating false, not verifiable, information to induce trading by others. Market
manipulation includes the dissemination of false or misleading information and Information-based
manipulation includes spreading false rumors to induce trading by others.

B. Incorrect because Standard II(B) Market Manipulation allows trading strategies based on
perceived market inefficiencies. Standard II(B) is not intended to preclude transactions undertaken
on legitimate trading strategies based on perceived market inefficiencies.

C. Correct because Standard II(B), Market Manipulation, prohibits such activity. Transaction-based
manipulation includes, but is not limited to securing a controlling, dominant position in a financial
instrument to exploit the price of the underlying asset.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

116.

A. Incorrect because Standard III (E), Preservation of Confidentiality, states that this standard
protects the confidentiality of client information even if the person or entity is no longer a client of
the member or candidate.

B. Incorrect because Standard III (E), Preservation of Confidentiality, states that if applicable law
requires members even if the information concerns illegal activities on the part of the client,
members and candidates should not disclose such information

C. Correct because Standard III (E), Preservation of Confidentiality, states that members must keep
information about current, former and prospective clients confidential unless the client or
prospective client permits disclosure of the information

53
CFA Program Level I for February 2024

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

117.

A. Incorrect because, as described in the rationale for the correct answer, Lee has violated both
Standard III(A) and Standard III(C).

B. Incorrect because, as described in the rationale for the correct answer, Lee has violated both
Standard III(A) and Standard III(C)

C. Correct because Standard III(C), Suitability, When Members and Candidates are in an advisory
relationship with a client, they must determine that an investment is suitable to the client's financial
situation and consistent with the client's written objectives, mandates, and constraints before
making an investment recommendation or taking investment action. Also the investment
professioners determination of suitability should reflect only the investment recommendations or
actions that is prudani persen would be willing to undertako Not every investment opportunity will
be suitesla fol every porttobe, regardless of the potential retum being offetod. Lee has ichmated bar
clionis mandate of an eqoanweignæd portfolin and is in sublation of this slenderd Further, according
to Standard II(A Loyalty Prudence and Core Members and Candidates have a duty of loyal to their
clients and must ectoth reasonable cate and exercise prodent judgment Also members and
candidates ruuse follha any guidelilies ser by their of ants for lermanedamot of tads jissels Lea 6
decistan not to, rehance tradition is a violation of this Standard. So Lee has violated both Standard
III(C) and Standard III(A).

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

118.

A. Incorrect because Standard IV (B), Additional Compensation Arrangements, requires members

and candidates to obtain permission from their employer before accepting compensation or other
benefits from third parties for the services rendered to the employer or for any services that might
create a conflict with their employer's interest Compensation and benefits include direct
compensation by the client and any indirect compensation or other benefits received from third
parties.

B. Incorrect because Standard IV (B), Additional Compensation Arrangements, requires members

and candidates to obtain permission from their employer before accepting compensation or other
benefits from third parties for the services rendered to the employer or for any services that might
create a conflict with their employer's interest Compensation and benefits include direct
compensation by the client and any indirect compensation or other benefits received from third
parties

C. Correct because Standard IV (B), Additional Compensation Arrangements, requires members and
candidates to obtain permission from their employer before accepting compensation or other
benefits from third parties for the services rendered to the employer or for any services that might
create a conflict with their employer's interest Compensation and benefits include direct

54
CFA Program Level I for February 2024

compensation by the client and any indirect compensation or other benefits received from third
parties.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

119.

A. Inorrect because Taylor violated Standard IV (B), Additional Compensation Arrangements. The
standard states that Members and Candidates must not accept gifts, benefits, compensation, or
consideration that competes with or might reasonably be expected to create a conflict of interest
with their employer's interest unless they obtain consent from all parties involved Taylor must
inform his employer and obtain consent for accepting the front-row ticket to an upcoming sold out
match.

B. Incorrect because Standard III (A), Loyalty, Prudence, and Care, states that Members and
Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise
prudent judgment. The violation described in this question of receiving additional compensation
without employer consent does not pertain to Standard III(A)

C. Correct because Standard IV (B), Additional Compensation Arrangements. states that Members
and Candidates must not accept gifts, benefits, compensation, or consideration that competes with
or might reasonably be expected to create a conflict of interest with their employer's interest unless
they obtain consent from all parties involved. Taylor must inform his employer and obtain consent
for accepting the front-row ticket to an upcoming sold out match. Therefore, he has violated this
Standard

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

120.

A. Incorrect because Standard V (A), Diligence and Reasonable Basis, states members and candidates
who are directly involved with the use of external advisers need to ensure that their firms have
standardized criteria for reviewing these selected external advisers and managers. This is not a
requirement of Standard III (C), Suitability

B. Incorrect because Standard V (A), Diligence and Reasonable Basis, states members and candidates
who are directly involved with the use of external advisers need to ensure that their firms have
standardized criteria for reviewing these selected external advisers and managers. This is not a
requirement of Standard I (B), Independence and Objectivity.

C. Correct because Standard V (A), Diligence and Reasonable Basis, states members and candidates
who are directly involved with the use of external advisers need to ensure that their firms have
standardized criteria for reviewing these selected external advisers and managers. Such criteria
would include, but would not be limited to, the following:

reviewing the adviser's established code of ethics, understanding the adviser's compliance and
internal control procedures, assessing the quality of the published return information, and reviewing
the adviser's investment process and adherence to its stated strategy

55
CFA Program Level I for February 2024

Understanding the managers' compliance procedures is a criteria for selecting external managers.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

121.

A. Incorrect because Standard VI(A), Disclosure of Conflicts requires members and candidates to
make full and fair disclosure of all matters that could reasonably be expected to impair their
independence and objectivity or interfere with respective duties to their clients, prospective clients,
and employer and protects investors and employers by requiring members and candidates to fully
disclose to clients, potential clients, and employers all actual and potential conflicts of interest. Once
a member or candidate has made full disclosure, the member's or candidate's employer clients, and
prospective clients will have the information needed to evaluate the objectivity of the investment
advice or action taken on their behalf.

B. Incorrect because Standard VI(A), Disclosure of Conflicts, makes no requirement or

recommendation with respect to fair dealing between and among clients. According to Standard
III(B), Fair Dealing, Members and Candidates must deal fairly and objectively with all clients when
providing investment analysis, making investment recommendations, taking investment action, or
engaging in other professional activities

C. Correct because Standard VI(A), Disclosure of Conflicts requires members and candidates to make
full and fair disclosure of all matters that could reasonably be expected to impair their independence
and objectivity or interfere with respective duties to their clients, prospective clients, and employer
and protects investors and employers by requiring members and candidates to fully disclose to
clients, potential clients, and employers all actual and potential conflicts of interest. Once a member
or candidate has made full disclosure, the member's or candidate's employer, clients, and
prospective clients will have the information needed to evaluate the objectivity of the investment
advice or action taken on their behalf.

Ethical and Professional Standards: identify conduct that conforms to the Code and Standards and
conduct that violates the Code and Standards

122.

A. Correct because the member has not violated either of the Standards. Standard 1 (C),
Misrepresentation, prohibits members and candidates from guaranteeing clients any specific return
on volatile investments. The member is not making a guarantee of implying a future retum to the
prospective client and therefore is not in violation of this Standard. Standard III (D), Performance
Presentation, states a member or candidate must give a fair and complete presentation of
performance information whehever communicating data with respect to the performance history of
individual accounts composites or groups of accounts, or composites of an analyst's or firm's
performance results. Furthermore, members and candidates should not state or imply that clients
will obtain or benefit from a rate of return that was generated in the past. The member is stating a
fact that the composite shows outperformance; gross of fees, and not implying future returns and
therefore is not in violation of this Standard.

56
CFA Program Level I for February 2024

B. Incorrect because the member has not guaranteed a rate of future returns and so has not violated
Standard I (C), Misrepresentation, as described in the rationale for the correct answer

C. Incorrect because the member has properly used a composite return to represent past
performance and has not guaranteed a rate of future returns and so has not violated Standard III (D),
Performance Presentation, as described in the rationale for the correct answer

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

123.

A. Incorrect because the member has returned investor capital, which is not a violation of the Code
and Standards. However, the member has violated Standard I(C), which prohibits members and
candidates from guaranteeing clients any specific return on volatile investments. With the return of
their capital, investors did not lose their original investment, but they did suffer an economic
opportunity loss.

B. Correct because the member has misrepresented the returns she could realistically achieve for
her clients, violating Standard I(C), which prohibits members and candidates from guaranteeing
clients any specific return on volatile investments.

C. Incorrect because the investment mandate is not a violation of the Code and Standards. The
mandate is very broadly defined and while it may or may not be appropriate, there is not enough
information in the vignette to make this determination. The promised, but unachieved, yield is the
violation that can be clearly identified.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

124.

A. Incorrect because according to the GIPS standards misleading practices include Representative
Accounts: Selecting a top-performing portfolio to represent the firm's overall investment results for
a specific mandate. Therefore, the GIPS standards does not allow the use of a representative
account to present the firm's overall investment results.

B. Incorrect because presenting an 'average' performance history that excludes portfolios whose
poor performance was weak enough to result in termination of the firm is known as survivorship
bias and is a misleading practice when presenting investment performance data. Therefore,
presenting performance history that only includes accounts remaining at the firm (and excludes
accounts that has left the firm) is incorrect

C. Correct because the GIPS standards are a practitioner-driven set of ethical principles that
establish a standardized, industry-wide approach for investment firms to follow in calculating and
presenting their historical investment results to prospective clients. Therefore, the GIPS standard
establish a standardized approach to investment results to presenting historical prospective clients
and this answer is Correct the definition of the firm and

57
CFA Program Level I for February 2024

Ethical and Professional Standards: describe the fundamentals of compliance, including the
recommendations of the GIPS standards with respect to the definition of the firm and the firm's
definition of discretion

125.

A. Correct because the objectives of the GIPS standards are as follows: Promote fair, global
competition among investment firms.

B. Incorrect because the GIPS standards certainly do not eliminate the need for in-depth due
diligence on the part of the client or investor, but compliance with the Standards enhances the
credibility of investment management firms that have chosen to undertake this responsibility.

C. Incorrect because complying with the GIPS standards is voluntary. Compliance with the GIPS
standards is not typically required by legal or regulatory authorities. Also, the preamble to the GIPS
standards states that by adhering to a global standard, firms in countries with minimal or no
investment performance standards can compete for business on an equal footing with firms from
countries with more-developed standards.

Therefore, it is clear that GIPS standards were not created to serve as a mandatory performance
standard for asset management firms in countries without investment performance regulation.

Ethical and Professional Standards: explain why the GIPS standards were created, who can claim
compliance, and who benefits from compliance

126.

A. Incorrect because the portfolio manager took property of his former employer, proprietary
trading software, and violated Standard IV(A)-Loyalty. Although the manager created the software
himself, it was during a period of time when the large money manager employed him and the
software is not his property to take.

B. Incorrect because the member violated Standard IV(A)-Loyalty as he did not act for the benefit of
his former employer. In this case, the member may cause harm to his former employer if his
weekend messages result in clients moving to his new business.

C. Correct because the portfolio manager received permission to use his investment performance
history from his prior employer. The member violated his non-solicitation agreement by indicating
his availability to new clients on several social media sites accessible by clients of his former
employer. This is a violation of Standard IV(A)- Loyalty because he did not act for the benefit of his
former employer. In this case, the member may cause harm to his former employer if his weekend
messages result in clients moving to his new business from his former employer. The member also
violated this standard by taking his employer's property, trading software

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

127.

58
CFA Program Level I for February 2024

A. Correct because the recommended procedures for compliance with Standard I (C),
Misrepresentation, state that can also help prevent misrepresentation by specifically designating
which employees are authorized to speak on behalf of the firm.

B. Incorrect because the recommended procedures for compliance with Standard I (C),
Misrepresentation, state that contain firms that firms can assist members by periodically reviewing
employee correspondence representations of individual or firm qualifications. Performing quarterly
competence reviews of employees who deliver firm presentations to clients is not a recommended
procedure.

C. Incorrect because the recommended procedures for compliance with Standard I (C),
Misrepresentation, state that members and candidates should encourage their employers to
develop procedures for verifying information of third party firms. Therefore, it is not a
recommended procedure for firms to ensure each employee develops processes for verifying
information of third party firms provided to clients.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

128.

A. Incorrect because the recommended procedures for compliance with Standard VI (B), Priority of
Transactions, recommend that investment personnel should examine all planned personal trades to
identify possible conflicts pnor to the execution of the trades Therefore, a recommended procedure
for compliance with the Standard is to examme all plantied personal trades prior to [not
immediately after] the execution of the trade

B. Correct because the recommended procedures for compliance with Standard VI (B), Priority of
Transactions examinend that investment personeel should be required to direct their brokers to
supply to firms duplicate copies or confirmations of all their personal securities transactions and
copies of penodic statements for all seconties accounts

C. Incorrect because the recommended procedures for compliance with Standard VI (B), Priority of
Transactions, recommend that disclosure by investment personnel to the firm should be made upon
commencement of the employment relationship and at least annually thereafter & Therefore, a
recommended procedure for compliance with the Standard is to disclose upon commencement of
the employment relationship and at least annually thereafter [not a one off disclosure on
commencement of employment only]

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

129.

A. Incorrect because, as described in the rationale for the correct answer, both Procedure 1 and
Procedure 2 are recommended procedures

B. Incorrect because, as described in the rationale for the correct answer, both Procedure 2 and
Procedure 1 are recommended procedures.

59
CFA Program Level I for February 2024

C. Correct because the recommended procedures for compliance with Standard III(C), Suitability,
state that an investor's objectives and constraints should be maintained and reviewed penodically to
reflect any changes in the chent's circumstances. Annual review is reasonable unless business or
other reasons such as a major change in market conditions, dictate more frequent review In
addition, in formulating an investment policy for the client, the member of candidats should take the
following info consideration performance measuremeal boochmarks Therefore, both pcccddures are
recommended for compliance with Standard III(C)

Ethical and Professional Standards: recommend practices and procedures.designad to prevent

votations of the Code of Etnies and Stanniards of Professional Coudact

130.

A. Incorrect because according to Standard I(B), Independence and Objectivity, members are
permitted to accept token business-related gifts. Per the Standard, members and candidates must
limit the acceptance of gratuities and/or gifts to token items. Firms should consider a strict value
limit for acceptable gifts that is based on the local or regional customs and should address whether
the limit is per gift or an aggregate annual value.

B. Correct because this is a requirement of Standard I(B), Independence and Objectivity. Issuer-paid
research conducted by independent analysts, however, is fraught with potential conflicts. Members
must adhere to strict standards of conduct that govern how the research is to be conducted and
what disclosures must be made in the report. Analysts must engage in thorough, independent, and
unbiased analysis and must fully disclose potential conflicts of interest, including the nature of their
compensation.

C. Incorrect because according to Standard I(B), Independence and Objectivity, it is recommended

(not required) that members pay for commercial transportation and hotel charges, not meals, when
attending meetings at an issuer's headquarters.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

131.

A. Correct because under Standard I(A), Knowledge of the Law, members and candidates have a
responsibility to step away and dissociate from the [unethical] activity. Inaction combined with
continuing association with those involved in illegal or unethical conduct may be construed as
participation or assistance in the illegal or unethical conduct

B. Incorrect because under Standard I(A), Knowledge of the Law, a failure to report is less likely to be
construed as a violation than a failure to dissociate from unethical conduct, the impact of inactivity
on the integrity of capital market can be significant. Although the Code and Standards do not compel
members and candidates to report violations to their governmental or regulatory organizations...,
such disclosure may be prudent under certain circumstances.

C. Incorrect because under Standard I(A), Knowledge of the Law, while members and candidates
must understand the applicable laws and regulations of the countries and jurisdictions where they

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engage in professional activities, members and candidates are not required to have detailed
knowledge of or be experts on all the laws that could potentially govern their activities.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

132.

A. Correct because under Standard IV(C), Responsibilities of Supervisors, members and candidates
should encourage their employers to provide their codes to clients... the code of ethics will be
effective in conveying that the firm is committed to conducting business in an ethical manner and in
the best interests of the clients.

B. Incorrect because under Standard IV(C), Responsibilities of Supervisors, members and candidates
are encouraged to recommend [not require] that their employers adopt a code of ethics. Adoption
of a code of ethics is critical to establishing a strong ethical foundation for investment advisory firms
and their employees.

C. Incorrect separate language because under Standard IV(C), Responsibilities of Supervisors,

members are recommended to the code of ethics from compliance procedures. A stand-alone codes
of ethics should be written in plain and should address general fiduciary concepts. They should be
unencumbered by numerous detailed procedures

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

133.

A. Correct because verification is performed with respect to an entire firm, not on specific
composites or pooled funds.

B. Incorrect because verification is performed with respect to an entire firm, not on specific
composites or pooled funds

C. Incorrect because verification must be performed by an independent third party. A firm cannot
perform its own verification.

Ethical and Professional Standards: describe the concept of independent verification

134.

A. Incorrect because this is not permitted by Standard V(C), Record Retention. For future use, the
member or candidate must re-create the supporting records at the new firm with information
gathered through public sources or directly from the covered company and not from memory or
sources obtained at the previous employer.

B. Incorrect because this is not permitted by Standard V(C), Record Retention. For future use, the
member or candidate must re-create the supporting records at the new firm with information

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gathered through public sources or directly from the covered company and not from memory or
sources obtained at the previous employer.

C. Correct because this is consistent with Standard V(C), Record Retention. For future use, the
member or candidate must re-create the supporting records at the new firm with information
gathered through public sources or directly from the covered company and not from memory or
sources obtained at the previous employer.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

135.

A. Correct because verification is performed with respect to an entire firm, not on specific
composites.

B. Incorrect because verification of GIPS standards must be conducted by a third party, not the firm
itself. verification must be performed by an independent third party. A firm cannot perform its own
verification.

C. Incorrect because be verification does not ensure the accuracy of any specific composite
presentation.

Ethical and Professional Standards: describe the concept of independent verification

136.

A. Incorrect because the design of both performance calculation and firm policies related to pooled
fund maintenance are assured by a GIPS verifier: verification provides assurance on whether the
firm's policies and procedures related to composite and pooled fund maintenance, as well as the
calculation, presentation, and distribution of performance, have been designed in compliance with
the GIPS standards and have been implemented on a firm-wide basis

B. Incorrect because the design of both performance calculation and firm policies related to pooled
fund maintenance are assured by a GIPS verifier: verification provides assurance on whether the
firm's policies and procedures related to composite and pooled fund maintenance, as well as the
calculation, presentation, and distribution of performance, have been designed in compliance with
the GIPS standards and have been implemented on a firm-wide basis.

C. Correct because verification provides assurance on whether the firm's policies and procedures
related to composite and pooled fund maintenance, as well as the calculation, presentation, and
distribution of performance, have been designed in compliance with the GIPS standards and have
been implemented on a firm- wide basis

Ethical and Professional Standards: describe the concept of independent verification

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CFA Program Level I for February 2024

137.

A. Correct because according to Standard V (A), Diligence and Reasonable basis, Members and
Candidates must

1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment

recommendations, and taking investment actions

2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for
any investment analysis, recommendation, or action.

Additionally, the results of research are not always clear, and different people may have different
opinions based on the same factual evidence. In this case, the committee may have valid reasons for
issuing a report that differs from the analyst's original research. The firm can issue a report that is
different from the original report of an analyst as long as there is a reasonable and adequate basis
for its conclusions

Generally, analysts must write research reports that reflect their own opinion and can ask the firm
not to put their name on reports that ultimately differ from that opinion. When the work is a group
effort, however, not all members of the team may agree with all aspects of the report. Ultimately,
members and candidates can ask to have their names removed from the report, but if they are
satisfied that the process has produced results or conclusions that have a reasonable and adequate
basis, members and candidates do not have to dissociate from the report even when they do not
agree with its contents.

Yong was thorough in her research and There is no evidence to assume that she did not have a
reasonable and adequate basis for her recommendation. Additionally there is no violation of the
standard relating to loyalty, prudence and care.

B. Incorrect because according to Standard III (A), Loyalty, Prudence, and Care Members and
Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise
prudent judgment. Members and Candidates must act for the benefit of their clients and place their
clients' interests before their employer's or their own interests. By contrast, this case is about
whether Yong was thorough in her analysis. This case does not pertain to Standard III (A). Therefore,
Standard III (A) has not been violated.

C. Incorrect because Yong has not violated this Standard as described in the rationale to the correct
response.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

138.

A. Incorrect because according to the recommended procedures for compliance with Standard I (B),
Independence and Objectivity, if the firm is unwilling to permit dissemination of adverse opinions
about a corporate client, members and candidates should encourage the firm to remove the
controversial company from the research universe and put it on a restricted list so that the firm
disseminates only factual information about the company. Therefore a member should encourage
her firm to place a company on (not remove a company from) a restricted list if the firm is unwilling
to permit dissemination of adverse opinion about the company So Statement 1 is not accurate.

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CFA Program Level I for February 2024

B. Correct because according to Standard I (B), Independence and Objectivity, one type of benefit is
the allocation of shares in oversubscribed IPOs to investment managers for their personal accounts.
This practice affords managers the opportunity to make quick profits that may not be available to
their clients. Such a practice is prohibited under Standard I (B) Therefore, a member is prohibited
from accepting benefits from corporate issuers in the form of allocation of shares in oversubsonbed
IPOs that are suitable for firm's clients So Statement 2 is accurate

C. Incorrect because according to the recommended procedures for compliance with Standard I (B),
Independence and Objectivity, if the firm is unwilling to permit dissemination of adverse opinions
about a corporate client, members and candidates should encourage the firm to remove the
controversial company from the research universe and put it on a restricted list so that the firm
disseminates only factual information about the company. Therefore, a member should encourage
her firm to place a company on (not remove a company from) a restricted list if the firm is unwilling
to permit dissemination of adverse opinion about the company. So, Statement 1 is not accurate.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

139.

A. Incorrect because according to Standard IV (A), Loyalty, in matters related to their employment,
Members and Candidates must act for the benefit of their employer and not deprive their employer
of the advantage of their skills and abilities, divulge confidential information, or otherwise cause
harm to their employer. Working on weekends for a charity to do tasks that do not compete with
her investment role employer does not violate this Standard

B. Correct because according to Standard I (D), Misconduct, Members and Candidates must not
engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that
reflects adversely on their professional reputation, integrity, or competence. Overcharging the
charity by any amount is fraud and reflects adversely on Melmo as an investment professional and
potentially on her employer and and the investment profession.

C. Incorrect because according to Standard I (D), Misconduct, Members and Candidates must not
engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that
reflects adversely on their professional reputation, integrity, or competence. Further, and according
to Standard IV (A), Loyalty, in matters related to their employment, Members and Candidates must
act for the benefit of their employer and not deprive their employer of the advantage of their skills
and abilities, divulge confidential information, or otherwise cause harm to their employer. Working
on weekends for a charity does not violate either Standard. However, overcharging the charity is
fraud and reflects adversely on Melmo as an investment professional and potentially on her
employer and on the investment profession.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

140.

A. Incorrect because according to Standard VI(A), Disclosure of Conflicts, when members or

candidates providing investment services also serve as directors they should be isolated from those

64
CFA Program Level I for February 2024

making investment decisions by the use of firewalls or similar restrictions Standard VI(A) protects
investors and employers by redunog members and candidates to fully disclose to clients, potential
clients, and employers all actual and potential conflicts of interest. Once a member or carididate has
made full disclosure the member's or candidate's employer, clients. and prospective clients will have
the informahda otieded to dvaluate the ablactively al ine investment advace jer action taken on their
behalf. Therefore, with disclosure accepting the hoard position is acceplebie

B. Correct because according to Standard VI(A), Disclosure of Conflicts, equally important is the
disclosure of arrangements in which the firm benefits directly from investment recommendations.
An obvious conflict of interest is the rebate of a portion of the service fee some classes of mutual
funds charge to investors. Members and candidates should ensure that their firms disclose such
relationships so clients can fully understand the costs of their investments and the benefits received
by their investment manager's employer

C. Incorrect because according to the recommended procedure for compliance with Standard VI(A),
Disclosure of Conflicts, if a member, a candidate, or a member's or candidate's firm has outstanding
agent options to buy stock as part of the compensation package for corporate financing activities,
the amount and expiration date of these options should be disclosed as a footnote to any research
report published by the member's or candidate's firm. Therefore, a member need not place the
company on a restricted list and issue factual information about the company if the member's firm
holds options on the company's shares

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

141.

A. Incorrect because according to Standard VI(B), Priority of Transactions, members and candidates
should fully disclose to investors their firm's policies regarding personal investing. The information
about employees' personal investment activities and policies will foster an atmosphere of full and
complete disclosure and calm the public's legitimate concerns about the conflicts of interest posed
by investment personnel's personal trading.

B. Correct because according to Standard VI(B), Priority of Transactions, investment personnel

involved in the investment decision-making process should establish blackout periods prior to trades
for clients so that managers cannot take advantage of their knowledge of client activity by "front-
running" client trades (trading for one's personal account before trading for client accounts)

C. Incorrect because according to Standard VI(B ), Priority of Transactions, members or candidates

may undertake transactions in accounts for which they are a beneficial owner only after their clients
and employers have had adequate opportunity to act on a recommendation. Family accounts that
are client accounts should be treated like any other firm account and should neither be given special
treatment nor be disadvantaged because of the family relationship.

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

142.

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CFA Program Level I for February 2024

A. Incorrect because Garcia has not violated Standard III (B), Fair Dealing, by calling her largest client,
since she widely disseminated the recommendation and provided the information to all her clients
prior to discussing it with her largest client. Members and candidates should establish procedures
for the timing of dissemination of investment recommendations so that all clients are treated fairly-
that is, are informed at approximately the same time. Once this distribution has occurred, the
member or candidate may follow up separately with individual clients, but members and candidates
should not give favored clients advance information when such advance notification may
disadvantage other clients.

B. Correct because Garcia has violated Standard III (B), Fair Dealing, by disseminating the sell
recommendation to her largest client before the recommendation is sent to all clients. Each member
or candidate is obligated to ensure that information is disseminated in such a manner that all clients
have a fair opportunity to act on every recommendation. Garcia has not violated Standard III (B) by
calling her largest client, since she widely disseminated the recommendation and provided the
information to all her clients prior to discussing it with her largest client. Members and candidates
should establish procedures for the timing of dissemination of investment recommendations so that
all clients are treated fairly-that is, are informed at approximately the same time. Once this
distribution has occurred, the member or candidate may follow up separately with individual clients,
but members and candidates should not give favored clients advance information when such
advance notification may disadvantage other clients.

C. Incorrect because Garcia has not violated Standard III (B), Fair Dealing, by calling her largest client,
since she widely disseminated the recommendation and provided the information to all her clients
prior to discussing it with her largest client. Members and candidates should establish procedures
for the timing of dissemination of investment recommendations so that all clients are treated fairly-
that is, are informed at approximately the same time. Once this distribution has occurred, the
member or candidate may follow up separately with individual clients, but members and candidates
should not give favored clients advance information when such advance notification may
disadvantage other clients

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

143.

A. Incorrect because according to Standard V (C), Investment Analysis, Recommendations, and

Actions - Record Retention, Local regulators often impose requirements on members, candidates,
and their firms related to record retention that must be followed. Firms may also implement policies
detailing the applicable time frame for retaining research and client communication records.
Fulfilling such regulatory and firm requirements satisfies the requirements of Standard V(C). In the
absence of regulatory guidance or firm policies, CFA Institute recommends maintaining records for
at teast seven years

B. Incorrect because Incorrect because according to Standard V (C), Investment Analysis,

Recommendabons and Actions - Record Retention. Local regulators often impose requirements on
members, candidates and their firms related to recard retention that must be followed. Firms may
also implement policies defailing the applicable time frame for retaining research and client
communication records Fulfilling such regulatory and firm requirements satisfies the requirements

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CFA Program Level I for February 2024

of Standard V(C). In the absence of regulatory guidance or firm policies, CFA Institute recommends
maintaining records for at least seven years

C. Correct because according to Standard V (C), Investment Analysis, Recommendations, and Actions
- Record Retention, Local regulators often impose requirements on members, candidates, and their
firms related to record retention that must be followed. Firms may also implement policies detailing
the applicable time frame for retaining research and client communication records. Fulfilling such
regulatory and firm requirements satisfies the requirements of Standard V(C). In the absence of
regulatory guidance or firm policies, CFA Institute recommends maintaining records for at least
seven years

Ethical and Professional Standards: recommend practices and procedures designed to prevent
violations of the Code of Ethics and Standards of Professional Conduct

144.

A. Incorrect because Standard VI (C), Referral Fees, states the responsibility of members and
candidates to inform their employer, clients, and prospective clients of any benefit received for
referrals of customers and clients. Therefore, a member has to inform his employer and his potential
clients.

B. Incorrect because Standard VI (C), Referral Fees, states the responsibility of members and
candidates to inform their employer, clients, and prospective clients of any benefit received for
referrals of customers and clients.
Therefore, a member has to inform his employer and his potential clients.

C. Correct because Standard VI (C), Referral Fees, states the responsibility of members and
candidates to inform their employer, clients, and prospective clients of any benefit received for
referrals of customers and clients

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

145.

A. Correct, because the GIPS standards rely on the integrity of input data, the quality of which is
critical to creating accurate performance presentations. The underlying valuations of portfolio
holdings drive performance. It is essential for these and other inputs to be accurate. The GIPS
standards require firms to adhere to certain calculation methodologies to allow for comparability
across firms.

B. Incorrect, because meeting the objectives of fair representation and full disclosure is likely to
require more than simply adhering to the minimum requirements of the GIPS standards. Firms
should also adhere to the recommendations to achieve best practice in the calculation and
presentation of performance. In addition, GIPS standards will continue to evolve over time to
address additional areas of investment performance and firms will be required to keep up with the
updated standards.

C. Incorrect, because the GIPS standards require firms to create and maintain composites for all
strategies for which the firm manages segregated accounts or markets to segregated accounts. Firms

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CFA Program Level I for February 2024

must include all actual, fee- paying, discretionary segregated accounts in at least one composite
defined by investment mandate, objective, or strategy Non-discretionary accounts must not be
included in composites.

Ethical and Professional Standards: describe the key concepts of the GIPS Standards for Firms

146.

A. Incorrect because, according to Standard V (C), Record Retention, records created as part of a
member's or candidate's professional activity on behalf of his or her employer are the property of
the firm, not the client.

B. Incorrect because, according to Standard V (C), Record Retention, records created as part of a
member's or candidate's professional activity on behalf of his or her employer are the property of
the firm, not the member.

C. Correct because, according to Standard V (C), Record Retention, records created as part of a
member's or candidate's professional activity on behalf of his or her employer are the property of
the firm.

Ethical and Professional Standards: demonstrate the application of the Code of Ethics and
Standards of Professional Conduct to situations involving issues of professional integrity

147.

A. Correct, because the identical material reflected in her previous client's proposal belongs to that
client, even though she wrote it on their behalf as their consultant. To use it in its identical format
would be considered plagiarism. In addition, the description also identifies a proprietary process and
is therefore not applicable to her existing client's investment process. Consequently to prevent
violating Standard I(C) Misrepresentation the matenal should be removed. The Standard states
Members and Candidates must not knowingly make any misrepresentations relating to investment
analysis recommendations, actions, or other professional activities Standard ((C) Misreptesamatieri
prohibits dingeausm in the preparation of matenal for distribution to emplayers associates clients
prespects heton gauerat public Macharia should also repad the use of plagiarized materal to the
clieption they can take action to prevent the event being repeefed in the future (Staticierd IA,
Knowlengerof the Law Alowing the use of plagiarized material reflects poorly on a tion and can hurl
hair tedutaben By reporting to and cliard Machana is also protachida tes interests of her clients
(Standard A) Loyalty. Pruderece and Care)

B. Incorrect, Standard I(A) Knowledge of the Law states if a member has reasonable grounds to
believe that ongoing activities within a firm are illegal or unethical, the member or candidate must
dissociate, or separate, from the activity. In this case, Macharia is required to protect the interests of
her clients (Standard III(A) Loyalty, Prudence, and Care) by helping them avoid plagiarism and
misrepresenting their investment process (Standard I(C) Misrepresentation). To most effectively do
this, the first step should be to attempt to stop the behavior by bringing it to the attention of the
employer (or client in this case) through a supervisor or the firm's compliance department

C. Incorrect, because making a few changes here and there would be insufficient to avoid the
statement from being considered plagiarized or misrepresenting the firm's investment process by

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using a description of the previous client's proprietary investment process. Macharia has a duty to
take the necessary action to prevent this unethical behavior. To do otherwise would cause her to
violate Standard I(A) Knowledge of the Law and Standard I(C) Misrepresentation. Standard I(A)
Knowledge of the Law states if a member has reasonable grounds to believe that ongoing activities
within a firm are illegal or unethical, the member or candidate must dissociate, or separate, from the
activity. When direct discussions with the person committing the violation are unsuccessful, the first
step should be to attempt to stop the behavior by bringing it to the attention of the employer
through a supervisor or the firm's compliance department. Standard I(C) Misrepresentation states
Members and Candidates must not knowingly make any misrepresentations relating to investment
analysis, recommendations, actions, or other professional activities

Ethical and Professional Standards: evaluate practices, policies, and conduct relative to the CFA
Institute Code of Ethics and Standards of Professional Conduct

148.

A. Correct. GIPS standards are ethical standards for investment performance presentation to ensure
fair representation and full disclosure of investment performance. So, Statement 1 is a key concept
of the GIPS standards.

B. Incorrect because, the GIPS standards require firms to create and maintain composites for all
strategies for which the firm manages accounts or markets to segregated accounts. Firms must
include all actual, fee- paying, discretionary segregated segregated accounts in at least one
composite defined by investment mandate, objective, or strategy. So, Statement 2 is not a key
concept of the GIPS standards.

C. Incorrect because the GIPS standards do not address every aspect of performance measurement
and will continue to evolve over time to address additional areas of investment performance. So,
Statement 3 is not a key concept of the GIPS standards.

Ethical and Professional Standards: describe the key concepts of the GIPS Standards for Firms

69