5. In conversation with a prospective client, a portfolio manager stated “I cannot guarantee that you will earn 18% on equities this year but I can provide you a range within which your return will lie. My range is quite popular among my clients and has a history of ten years. Each year, I develop the range by using financial models, economic forecasts and accredited reports. Based on the CFA Institute Standards, the portfolio manager: A.did not violate any standard. B.violated standard I-C ‘Misrepresentation’. C.violated standard III-D ‘Performance Presentation’. Correct Answer: B Reference: CFA Level I, Volume 1, Study Session 1, Reading 3, LOS-b. The portfolio manager violated standard I-C ‘Misrepresentation’ by providing a range. The standards prohibit manager from guaranteeing clients any specific return or even a range. Equity investments contain some elements of risks that make their returns inherently unpredictable. Providing a range is misleading to investors.
CFA Level I Mock Exam 1 – Solutions (AM) FinQuiz.com © 2018 - All rights reserved. 6 6. Eleanor Chavez, CFA is a senior analyst at W&W Securities (W&WS) and is responsible for managing the High Beta Mutual Fund (HBMF). Curtis Fowler, aged 56 and dependent on his portfolio returns, is W&WS’s client. His portfolio will now be managed by Chavez, who has been asked to invest 20% of his portfolio funds in HBMF. Chavez fills the request forms and immediately purchases shares of HBMF for Fowler. Is Chavez in compliance with codes and standards, and if not, what should be the recommended course of action for Chavez?
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