CFA Practice Question

There are 361 practice questions for this study session.

CFA Practice Question

Benny Len is an analyst at a large brokerage firm. Benny has recently visited the head of operations at company HTY with a view to write a report on them. The operations director presents Benny with three production scenarios for the coming year: the optimistic, pessimistic, and realistic scenarios. When Benny writes his report, he only uses the optimistic production scenario. He does not report this as the optimistic scenario; rather, he reports these numbers as the numbers that are likely to be achieved. Based on this scenario, Benny recommends that the entire firm's clients purchase HTY stock. Has Benny violated the Code and Standards?
A. Yes, Benny should have reported all three production scenarios when writing his report.
B. No, Benny truly believed that the optimistic production numbers would be achieved.
C. Yes, Benny should have had his report checked by the head of equity research before releasing it to the firm's clients.
Explanation: Benny should have reported all three production scenarios when writing his report even if he believed that the optimistic scenarios was the correct one, as this will reflect all the possible outcomes of the business for the coming year. By only reporting the most optimistic scenario, Benny is misleading the firm's clients.

User Contributed Comments 3

User Comment
devendra If the company give 3 possible senario pessimistic, realistic & optimistic then the analyst has to report all the three senerio's even if he believes that one senerio has higher probablity than others as it could be misleading to the firm's clients
malawyer 2 things: 1) 3 management cases are far less than "all possible outcomes" - could come severly better or worse. 2) I have NEVER EVER WHILE STUDYING HUNDREDS OF REPORTS seen that in such a kind of research report scenario analysis has been used. but i just work in continental europe, maybe it's that.
soukhov So i think this rule is a good instrument for managment to manipulate public opinion.

1) what should i do, if managment gives 10 scenarios?
2) how should i use these scenarios, if i disagree whith them?
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