CFA Practice Question

There are 291 practice questions for this study session.

CFA Practice Question

Your supervisor asks you to write a report on XYZ, Inc. He indicates that it is important for the firm to get a favorable evaluation since your firm's underwriting department is hoping to do substantial business with XYZ in the future. You engage in a lengthy analysis of the firm and are convinced, on the basis of your work, that the firm is indeed undervalued.

A. You should issue a buy recommendation anyway to maintain independence.
B. You should refrain from issuing any recommendation because objectivity is not possible.
C. You should issue a buy recommendation if you believe your analysis was objective and adequate.
Correct Answer: C

User Contributed Comments 14

User Comment
robkaz I think B. is also possible. If C., the analyst should at least disclose the business relationship.
tawi I think the answer is C, any report should have been on the basis of extensive and adequate research which was indeed conducted and this information/data used in the resaerch should be disclosed. This will form evidence for the rationale at arriving at any recommendation and will prove ovjectivity (this excludes B a a possible answer). What do you all think?
CFADY I prefer C as well.
dipta Prefer C. The opinion would have been resulted from the extensive research and not due to the employee relationship
TheProfet C is no doubt the correct answer. In the US, it is common practice for investment banking firms to disclose that the firm has in the past done business with, or is seeking to do business with the covered Company. Also, the analyst generally makes a certification regarding his or her interests in the covered Company as well.
teddajr Does the statement "that the firm is indeed undervalued" mean, that the stocks of the firm in-question are undervalued?
Sorry, for the stupid qns.
mystimate Good question.
sergashev Supervisor should have not put analyst under constraint of favorable report. Analyst should have started working on the report only after warning the supervisor that the report would be objective based of facts.
sanyukta i agree with sergashev and for robkaz i say write ur report truthfully and if ur supervisor is not happy, u have done ur job and u dissociate urself from the process if he tries to put any pressure and take legal counsel..
TammTamm C is correct because the analyst still did the research and determined it was a buy. I would still keep records of the research I peformed. But that's just me.
got2pass the question did say "on the basis of your work"...which would imply independence and not considering the influence
ljamieson XYZ sure gets a lot of attention these days.
bantoo I completely failed and ticed B
kahh @Sergashev and Sanyukta, My assumption is that the supervisor may in this case have more relevant experience in stock-picking so he/she may just need the analyst to do the ground work for them knowing that the stock is definitely a buy
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