CFA Level I "Guidance for Standards I–VII" Standard III(C)–Suitability, Standard V(A)–Diligence and Reasonable Basis, Standard VI(B)–Priority of Transactions Question 17 of 240 William Wong, CFA, is an equity analyst with Hayswick Securities. On the basis of his fundamental analysis, Wong concludes that the stock of a company he follows, Nolvec Inc., is substantially undervalued and will experience a large price increase. He delays revising his recommendation on the stock from "hold" to "buy" to allow his brother to buy shares at the current price. Wong is least likely to have violated the CFA Institute Standards of Professional Conduct related to: priority of transactions. duty to clients. reasonable basis. Question not answered There is nothing to suggest that Wong does not have a reasonable basis for his conclusion related to Nolvec, as required by Standard V(A). CFA Level I "Guidance for Standards I-VII," CFA Institute Standard III(A), Standard VI(B), Standard V(A) Question 18 of 240 Andrew Smith, CFA, works for Granite, a commercial bank that also has a sizable sell-side research division. Smith is presenting financing solutions to a potential business client, Dynamic Materials Corp. As part of his presentation, Smith mentions that Granite will initiate research coverage on Dynamic. Is Smith's arrangement most likely appropriate with regard to the Code and Standards? No, because Smith cannot offer to provide research coverage on a company if it becomes a corporate finance client
No, because Granite cannot provide research coverage on a corporate finance client because it constitutes a violation of research independence Yes Question not answered Under Standard I(B), members and candidates must protect their independence and objectivity. Agreeing to provide objective research coverage of a company does not constitute a violation of this standard, provided the analyst writing the report is free to come up with his own independent conclusion. Smith can agree to provide research coverage but cannot commit Granite's research department to providing a favorable recommendation. CFA Level I "Guidance for Standards I-VII," CFA Institute Standard I(B) Question 19 of 240 A company’s $100 par value preferred stock with a dividend rate of 9.5% per year is currently priced at $103.26 per share. The company’s earnings are expected to grow at an annual rate of 5% for the foreseeable future. The cost of the company’s preferred stock is closest to: 9.2%. 9.7%. 9.5%. Question not answered r p = D p /P p (or Dividend/Price) = ($100 × 0.095)/$103.26 = 9.2%. CFA Level I “Cost of Capital,” Yves Courtois, Gene C. Lai, and Pamela Peterson Drake Section 3.2 “Equity Valuation: Concepts and Basic Tools,” John J. Nagorniak and Stephen E. Wilcox Section 4.1 Question 20 of 240 When computing the cash flows for a capital project, which of the following is least likely to be included?
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