CFA Practice Question

CFA Practice Question

James Johnson runs a high income fund and concentrates mostly on utilities. A friend who works for a start-up pharma firm gives Johnson a tip that the FDA has approved a drug for the pharma firm. Based on the tip Johnson immediately purchases the pharma firm's stock for his high income fund. The pharma firm does not pay dividends, nor does it expect to pay dividends in the near future. Which of the following Standards has Johnson violated?

I. Standard III (C) Suitability.
II. Standard II (A) Material Nonpublic Information.
III. Standard V (A) Diligence and Reasonable Basis.
A. I and II.
B. II and III.
C. I, II and III.
Explanation: Purchasing based only on a tip violates Diligence. Also non-material public information used to trade. Finally, such risky stocks are not suitable for clients who have invested in a high income fund.

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birdperson the tri-fecta!
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