1. Alexander Newton, CFA, is the chief compliance officer for Mills Investment Limited.

Newton
institutes a new policy requiring the pro rata distribution of new security issues to all established
discretionary accounts for which the new issues are appropriate. The policy also provides for the
distribution of new issues to newly established discretionary accounts where appropriate after their
one-month anniversary date. This policy is disclosed to all existing and potential clients. Did Newton
violate any CFA Institute Standards of Professional Conduct?

A. No.
B. Yes, because the distribution policy should treat all discretionary accounts equally.
C. Yes, because disclosure of inequitable allocation methods does not fulfill the duty for fair and
equitable trade allocation procedures.

2. When Jefferson Piedmont, CFA, joined Branch Investing, Branch began using a quantitative stock
selection model Piedmont had developed on his own personal time prior to his employment with
Branch. One year later when Piedmont left the firm, he found the original copy of the model he had
developed in a file at his home and presented it to his new employer, who immediately began using
the model. According to the Standards of Practice Handbook, did Piedmont violate any CFA Institute
Standards of Professional Conduct?

A. No.
B. Yes, because he misappropriated property now belonging to Branch.
C. Yes, because he failed to inform his new employer the model was the same one used by his
previous employer.

3. Lawrence Hall, CFA, and Nancy Bishop, CFA, began a joint research report on Stamper
Corporation. Bishop visited Stamper’s corporate headquarters for several days and met with all
company officers. Prior to the completion of the report, Bishop was reassigned to another project. Hall
utilized his and Bishop’s research to write the report but did not include Bishop’s name on the report,
because she did not agree with Hall’s conclusion included in the final report. According to the CFA
Institute Standards of Practice Handbook, did Hall violate any CFA Institute Standards of
Professional Conduct?

A. No.
B. Yes, with respect to misrepresentation.
C. Yes, with respect to diligence and reasonable basis.

4. According to the Global Investment Performance Standards (GIPS), which of the following is not a
part of the verification process? Testing whether the:

A. firm has complied with all the composite construction requirements.

B. verification is undertaken by the compliance department in the absence of a third party.
C. firm’s processes and procedures are designed to calculate results in compliance with GIPS
standards.

5. Umi Grabbo, CFA, is a highly regarded portfolio manager for Atlantic Advisors (AA), a mid-sized
mutual fund firm investing in domestic securities. She has watched the hedge fund boom and on
numerous occasions suggested her firm create such a fund. Senior management has refused to commit
resources to the area. Attracted by potential higher fees associated with hedge funds, Grabbo and
several other employees organize a hedge fund to invest in international securities. Grabbo is careful
to work on the fund development only on her own time. Because AA management thinks hedge funds
are a fad, she does not inform her supervisor about the hedge fund creation. According to the
Standards of Practice Handbook, Grabbo should most likely address which of the Standards
immediately?

A. Disclosure of Conflicts.
B. Priority of Transactions.
C. Additional Compensation Arrangements.

6. David Donnigan enrolled to take the Level II CFA examination in the current year, however he did
not take the exam. Donnigan advised his employer he passed Level II. Subsequently, he registered to
take the Level II exam the next year. Which CFA Institute Standard of Professional Conduct did
Donnigan least likely violate?

A. Duty to employer.
B. Professional misconduct.
C. Referencing Candidacy in the CFA Program.

7. Jeffrey Jones passed the Level I CFA examination in 1997 and the Level II examination in 2009.
He is not currently enrolled for the Level III examination. According to the CFA Institute Standards of
Professional Conduct, which of the following is the most appropriate way for Jones to refer to his
participation in the CFA Program?

A. Jeffrey Jones, CFA (expected 2011).

B. Candidate in the CFA Institute CFA Program.
C. Passed Level II of the CFA examination in 2009.

8. Rebecca Wong is enrolled to take the Level I CFA examination. Her friend William Leung had
purchased Level I study materials from a well-known CFA review program the previous year. Leung
made a photocopy of the previous year’s copyrighted materials and sold it to Wong to help her study.
Who violated the CFA Institute Code of Ethics or any Standards of Professional Conduct?

A. Both violated.
B. Neither violated.
C. Only Leung violated.

9. Nicholas Bennett, CFA, is a trader at a stock exchange. Another trader approached Bennett on the
floor of the exchange and verbally harassed him about a poorly executed trade. Bennett in response
pushed the trader and knocked him to the ground. The exchange, after investigation, cleared Bennett
from any wrongdoing. Which of the following best describes Bennett’s conduct in relation to the CFA
Institute Code of Ethics or Standards of Professional Conduct? Bennett:

A. did not violate any Code or Standard.

B. violated the Professional Misconduct Standard.
C. violated both Misconduct and Integrity of Capital Markets Standards.

10. Albert Nyakenda, CFA, was driving to a client’s office where he was expected to close a multi-
million dollar deal, when he was pulled over by a traffic policeman When Nyakenda, realized the
policeman planned to wrongly ticket him for speeding, he offered to buy him “lunch” so that he could
quickly get to his client’s office. The alternative was to go to the police station and file a complaint of
being wrongly accused that would also involve going to court the next day to present his case. The
lunch would cost significantly more than the ticket. Did Nyakenda violate the CFA Code of Ethics?
A. Yes.
B. No, because he was wrongly accused.
C. No, because the cost of lunch is more than the ticket

11. Delaney O’Keefe, a CFA candidate, is a portfolio manager at Bahati Management Company. The
company is considering investing offshore for the first time, particularly in North America, on behalf
of their clientele, whom are all high net worth individuals. O’Keefe does not have experience in
offshore investments so she hires Mark Carlson, CFA of Carlson Consulting on the basis of his CFA
Charter, to undertake due diligence exercises on the top ten portfolio managers in North America,
ranked by Assets under Management (AUM). To avoid violating any Code and Standards, O’Keefe
should most likely undertake:

A. a sampling of the suitability of North America for clients.

B. a due diligence exercise on Mark Carlson and Carlson Consulting.
C. the due diligence exercise on the top ten asset managers herself.

12. Reiko Kimisaki, CFA, is an investment advisor for a national social security fund in a frontier
market with a very limited and illiquid capital market and a very young labor force with an investment
time horizon of 25 – 30 years. She has been asked to suggest ways to increase the investment return of
the overall portfolio. After careful assessment of the Fund’s previous investment history, and available
asset classes, she considers investment in private equity. What is Kimisaki’s lowest priority to avoid
any Code of Ethics and Standards of Professional Conduct violations prior to making this investment
recommendation?

A. Assess the risk tolerance of the Fund.

B. Analyze the expected returns of private equity in the market.
C. Determine if the Investment Policy Statement allows for alternative investments.
13. While waiting in the business class lounge before boarding an airplane, Becca Msafari, CFA, an
equity analyst, overhears a conversation by a group of senior managers, including members of the
Board, from a large publicly listed bank. The managers discuss staff changes necessary to
accommodate their regional expansion plans. Msafari heard several staff names mentioned. Under
what circumstances could Msafari most likely use this information when making an investment
recommendation to her clients?

A. Under no circumstances.
B. If she does not breach the confidentiality of names of staff.
C. If the discussed changes are unlikely to affect the public perception of the bank.

14. Norman Bosno,,CFA acts as an outside portfolio manager to a Sovereign Wealth Fund. Raphel
Palmeti, a Fund Official, approaches Bosno to interest him in investing in Starlite Construction
Company. He tells Bosno if he approves a two million dollars investment in Starlite by the Fund
Bosno will receive a “bonus” that will make him wealthy. Palmeti also adds if Bosnoviak decides not
to invest, he will lose the Fund account. After doing a quick and simple analysis, Bosno determines
the investment is too risky for the Fund. If Bosno agrees to make the investment what Standard is
least likely to be violated?

A. Loyalty, Prudence and Care

B. Diligence and Reasonable Basis.
C. Additional Compensation Arrangements.
15. Francesca Ndenda, CFA and Grace Rutabingwa work for New Age Managers where Rutabingwa
reports to Ndenda on a daily basis, working in the same department. It has come to the attention of
Ndenda that Rutabingwa received a Notice of Enquiry from the Professional Conduct Program at the
CFA Institute regarding a potential cheating violation when he sat for the CFA exam in June. As
Rutabingwa’s supervisor, Ndenda is afraid the behavior of Rutabingwa will be seen as a violation of
the CFA Code and Standards. Does Ndenda have cause for concern?

A. Yes.
B. No, because her responsibilities do not apply.
C. No, not until Rutabingwa is found guilty of cheating.

16. Jean-Luc Schlumberger, CFA, is an independent research analyst providing equity research on
companies listed on exchanges in emerging markets. He often incorporates statistical data he obtained
from the web sites of the World Bank and the Central Banks of the various countries into the body of
his research reports. While not indicated within the reports, whenever his clients ask where he gets his
information he informs them the information is in the public domain, so he doesn’t keep his own
records. When the clients ask for the specific web site addresses he provides the information. Which
Standard has Schlumberger most likely violated?

A. Misconduct.
B. Record Retention.
C. Misrepresentation.

17. Oni Erobo, CFA, is the General Partner in a real estate development project and is responsible for
completing the project within an 18-month period and within budget. Erobo is expected to receive
equity of 20% if the project comes within budget. Concerned that project costs would escalate, the
Limited Partners require Erobo to cap expenses at 15% above budget. Costs were within expectation
up until the last month of construction when costs of imported lighting fixtures (accounting for
roughly 5% of total costs) escalated by more than 50%. As a result, the overall return declined below
the partners expected 35% ROI. Erobo did not inform the Limited Partners about the increased costs.
Did Erobo violate the CFA Code of Ethics and Standards of Professional Conduct?

A. No.
B. Yes, because returns are lower than expected by the Partners.
C. Yes, because he did not disclose the increased costs to his Partners.

18. A Central Bank fines a commercial bank for not following statutory regulations with regard to
making specific non-performing loan provisions on three loans. Louis Marie Buffet, CFA, sits on the
Board of Directors of the Commercial Bank as a non-executive director, representing minority
shareholders. He also chairs the internal audit committee of the bank that determines the provisioning
policy of the bank. Mercy Gatabaki, CFA is the bank’s external auditor and follows international
auditing standards whereby she tests the loan portfolio by randomly selecting loans to check for
compliance in all aspects of Central Bank regulations. Which Charterholder is most likely in violation
of the Code and Standard?

A. Both.
B. Buffet.
C. Gatabaki.