CFA Practice Question

CFA Practice Question

Andy Pilling is a bond trading specialist who recently started a special fund, the "Structured Bond Fund." The strategy behind this fund is quite complex, involving a mix of highly speculative, high-yield bonds and various tax-free municipal bonds for some stability. Andy has a strong view that the economy will remain vibrant and bullish over the next two years and hence, is not worried about the risky bonds. Assuming a falling rate scenario in this case allows the fund to project an expected return 130 basis points above the S&P 500 return. In his special report, Pilling does not disclose such assumptions nor does he reveal any details about the bond strategy. He does analyze the state of the economy and the future outlook in the report. Based on his reputation and his association with some big name academics, Pilling is able to obtain capital of close to 75 million dollars on this fund alone.

Andy has ______
A. violated Standard I (C) Misrepresentation.
B. violated Standard V (B) Communication with Clients and Prospective Clients by not revealing the assumptions and details about the strategy.
C. violated Standard III (A) Loyalty, Prudence, and Care by not disclosing the nature of the strategy.
Explanation: Standard V (B) - Communication with Clients and Prospective Clients requires members to describe the basic characteristics of an investment, the degree of risks involved and scenario analysis to illustrate possible losses under different market conditions. By suppressing such relevant details, Pilling has violated the CFA Institute Code of Ethics.

User Contributed Comments 0

You need to log in first to add your comment.