CFA Ethical and Professional Standards 3

Question 1

Standard V(A) – Diligence and Reasonable Basis requires that investment recommendations be supported by:

Accepted Answer

Thorough research and a reasonable and adequate basis

Answer

Standard V(A) requires that any recommendation be based on thorough investigation and have a reasonable and adequate basis.

Question 2

A research analyst relies on a third-party model to generate earnings forecasts. Under Standard V(A), the analyst:

Accepted Answer

Should indicate reliance on third-party work and ensure it is sound

Answer

Members may use third-party research but must indicate the reliance and take reasonable steps to ensure it is sound.

Question 3

Standard V(B) – Communication with Clients requires distinguishing facts from opinions. Which statement in a research report is an opinion?

Accepted Answer

We believe the stock is undervalued by 20%

Answer

Valuation estimates and forward-looking conclusions are opinions, which must be clearly distinguished from factual data.

Question 4

Standard V(C) – Record Retention requires that CFA members maintain records supporting their analyses and recommendations for a minimum of:

Accepted Answer

7 years

Answer

Standard V(C) requires records to be maintained for a minimum of seven years.

Question 5

Under Standard VI(A) – Disclosure of Conflicts, when must conflicts of interest be disclosed?

Accepted Answer

Promptly and in plain language to clients and prospects

Answer

Standard VI(A) requires prompt, plain-language disclosure of all material conflicts to clients and prospects.

CFA Practice Test