A.

Shawn must respond in writing to the letter and provide all information requested about
the accusation.
B. Shawn may hire an attorney to respond to the letter from AIMR on his behalf
C. Shawn may elect to relinquish his CFA charter and membership of AIMR and not
to respond to the letter but will be permanently disallowed future participation in
the CFA program
D. Shawn must respond to the letter in writing and provide all information requested by the
designated officer in charge of the investigation

10. Which of the following is NOT a part of the Professional Standards Policy Committee’s
(PSPC) powers over CFA candidates:

A. Removal of a candidate from the CFA program for not putting a pencil down promptly
when the proctor of the level I exam announces that the time is up for writing exam
answers
B. Reporting your violations to legal authorities if they think it is appropriate
C. Public Censure or Private Censure
D. All of the above are powers of the PSPC

Fanky Quattro, CFA and portfolio manager of You Can Trust Us (YCTU) mutual fund and
individual portfolio management services recently received a call from one of the brokers
covering his account. The broker had 25,000 shares of an initial public offering that was priced
at $13 dollars a share and opened for trading at $30. The broker said to Fanky “I’m glad to get
these to you, but we expect you to buy more shares in the aftermarket to support the stock. And
we also strongly suggest that you take a hard look at our other investment banking deals if you
want to continue getting allocations like this.”

Based on the information above, Fanky decides to put the entire allocation into his largest three
clients so that each one gets a 1% position. He decided to allocate the shares this way because
the position would be too small to impact the mutual fund.

11. Which of the following is true?

A. Fanky should not take the shares because of the implied quid pro quo;
B. Fanky is in direct violation with the higher standards of AIMR by accepting shares that
are not “blue skied.”
C. Fanky violated AIMR rules by not dealing fairly with all of his clients.
D. Fanky has not made any violations at this point given the information above.

12. The Designated Officer (D.O.), when reviewing a violation of AIMR’s code of ethics, can
perform which of the following duties?

SASF Mock Exam Answers December 2004 – Level I Page 4 of 30

 A. Institute a private censure for minor infractions to which the covered person can accept
by not responding or can reject in writing within 30 days of receipt of the private censure
notification;
B. Request material and notify the covered person of the right to be represented by counsel;
C. Terminate the investigation;
D. All of the above.

13. Which of the following is not one of the parties the GIPS standards were created for?

A. Prospective clients but not existing clients

B. International investment management firms
C. Prospective clients and existing clients
D. Domestic investment management firms

14. Which of the following is not a key characteristic of GIPS?

A. If local law conflicts with GIPS the firm is required to comply with the local law and
must disclose the conflict.
B. If local law conflicts with GIPS the firm is required to comply with GIPS because it
is the higher standard.
C. GIPS are the minimum world wide standard where local laws may not exist.
D. Applies to the presentation of investment performance on behalf of a third party.

Study Session #2 – Quantitative Methods

2004 Prof. John M. Veitch, CFA. All rights reserved. Reproduction in any form, in whole or in part, is
prohibited without permission.

15. You are investigating buying a machine that involves an upfront expense of $600,000 today,
a disposal cost of $750,000 at the end of the sixth year. It will generate $1,000,000 in
revenue at the end of each of the next five years. What is the maximum amount you would be
willing to pay for this machine assuming that your required rate of return is 7.5%?

A. $ 4,045,885
B. $ 3,445,885
C. $ 3,931,856
D. $ 2,959,914

Three separate cash flows: outflow today, annuity for 5 years, cash outflow end of year 6.
1. PV of Outflow today: -$ 600,000

A 1 $1,000,000 1
2. PV of 5-year annuity: = 1 N
1 5
$4,045,885
r 1 r .075 1.075

SASF Mock Exam Answers December 2004 – Level I Page 5 of 30