[单项选择]Laura James is the head portfolio manager for National Fund, a U.S. based mutual fund with a well-respected track record. National’s primary focus is on large-cap domestic equities, and the fund has consistently posted high returns relative to its peer group over the past seven years. Much of National’s recent success is from its investments in the U.S. automobile industry, which have posted extraordinary returns due to a favorable economic scenario. Over the past seven years, the U.S. economy has been expanding, foreign competition has not met consumer expectations, and oil prices have remained low. These factors have contributed to an increase in market share for the domestic producers (at the expense of foreign competitors), and the result has been strong earnings for the top U.S. automakers. 　　Ford Motor Company, in particular, has enjoyed tremendous success in this environment. Ford has capitalized on the trend toward bigger vehicles, particularly sport utility vehicles (SUVs),
A. Profits are high and competition increases from other firms in the industry.
B. Profits increase as firms enter the industry.
C. Profits are low and firms flee the industry.
D. Prices could increase or decrease depending on the level of profits.

[单项选择]Laura James is the head portfolio manager for National Fund, a U.S. based mutual fund with a well-respected track record. National’s primary focus is on large-cap domestic equities, and the fund has consistently posted high returns relative to its peer group over the past seven years. Much of National’s recent success is from its investments in the U.S. automobile industry, which have posted extraordinary returns due to a favorable economic scenario. Over the past seven years, the U.S. economy has been expanding, foreign competition has not met consumer expectations, and oil prices have remained low. These factors have contributed to an increase in market share for the domestic producers (at the expense of foreign competitors), and the result has been strong earnings for the top U.S. automakers. 　　Ford Motor Company, in particular, has enjoyed tremendous success in this environment. Ford has capitalized on the trend toward bigger vehicles, particularly sport utility vehicles (SUVs),
A. Produce higher end vehicles.
B. Maintain the same product mix as 5 years ago.
C. Gain market share if it produces high end vehicles.
D. Produce lower end vehicles.

[单项选择]A portfolio manager anticipates a major increase in market interest rates. Which trading strategy would be most likely to generate above average returns in a bond investment Purchasing:（）
A. short maturity bonds with high coupon rates.
B. speculative grade bonds with high coupon rates.
C. bonds that will increase the average duration of the investment portfolio.

[单项选择]A fixed income portfolio manager is evaluating investments in the mortgage market but is concerned about prepayment risk. The security that will most likely minimize prepayment risk is.（）
A. mortgage passthrough security.
B. a portfolio of interest-only mortgage loans.
C. tranche B of a collateralized mortgage obligation.

[单项选择]In a perfectly efficient market, portfolio managers should do all of the following EXCEPT:（）
A. rebalance their portfolio when changes are necessary.
B. diversify to eliminate systematic risk.
C. quantify their risk and return needs within the bounds of the client’s liquidity, income, time horizon, legal, and regulatory constraints.

[单项选择]Scott LaRue is a portfolio manager for Washington Advisors. Washington has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Washington model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research-an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as "buys" by the model. LaRue has conducted some research on his own and feels the model would be improved by adding some factors. Based on his research, he applied his own version of the model, which is occasionally in conflict with the Washington model. LaRue discloses his model to his own clients but not to his superviso
A. violating the Standards by not considering the appropriateness of the recommendations to clients.
B. violating the Standards by not being objective.
C. violating the Standards by not having a reasonable and adequate basis for his investment recommendation.

[单项选择]Frank Jameson is a portfolio manager with 90 percent of the large-cap diversified mutual fund he controls invested in common stocks. Jameson is concerned the overall market will decline by a significant amount over the next two months due to a slowing of the general economy. Which of the following actions will provide a hedge for the mutual fund（　）
A. Purchasing call options on the S&P 500. 
B. Writing put options on the S&P 500. 
C. Purchasing put options on the Standard and Poor’s 500 Index (S&P 500).

[单项选择]A portfolio manager is looking at an investment that has an expected annual return of 10% with a standard deviation of annual returns of 5%. Assuming the returns are approximately normally distributed, the probability that the return will exceed 20% in any given year is closest to:（）
A. 0.0%.
B. 4.56%.
C. 2.28%.

[单项选择]A portfolio manager is analyzing a $2000000 venture capital investment. If the project succeeds until the end of the sixth year, the net present value (NPV) of the project is $ 6587000. The project has a 32. 69 percent probability of surviving to the end of the sixth year. The expected NPV of the project is:（）
A. $ 6587000.
B. $ 4587000.
C. $ 807090.

[单项选择]Paul Salyer, CFA and portfolio manager is making a presentation to a prospective client. Paul says that as a new portfolio manager, he made an average annual rate of return of 50 percent in the last two years at his previous firm and that based on this, he can guarantee a 50 percent return to the client. Which of the following statements is in accordance with the Standard Ⅲ (D), Performance Presentation（）
A. Implying that he can guarantee a return.
B. Imputing his past performance to future performance.
C. Stating his past performance as long as it is fact.

[单项选择]Pamela Gee is a portfolio manager. She is planning to establish her own money management firm. She has already informed her employer, Branford, Inc., about her plans. In her remaining time at Branford, she can:（）
A. start the registration of her new company.
B. solicit Branford colleagues but not Branford clients.
C. inform her current clients about her resignation and let them know how to reach her, in case any problems arise in the future.

[单项选择]A portfolio manager adds a new stock that has the same standard deviation of returns as the existing portfolio but has a correlation coefficient with the existing portfolio that is less than +1. Adding this stock will have what effect on the standard deviation of the revised portfolio’s returns The standard deviation will:（）
A. increase.
B. remain unchanged.
C. decrease.

[单项选择]A fixed income portfolio manager owns a $5 million par value noncallable bond. The bond’s duration is 5.6 and the current market value is $5125000. The dollar duration of the bond is closest to:（）
A. $280000.
B. $287000.
C. $700000.

[单项选择]Vincent Chase, CFA, is a portfolio manager for an investment advisory firm. Chase delegates some of his supervisory- duties to Janet Marshall, CFA, after educating Marshall on methods to prevent and detect violations of the firms of the firm’s compliance procedures. Despite these efforts, Chase discovers that an employee reporting to Marshall may have violated the procedures. According to the Standards of Practice Handbook, Chase’s least likely initial course of action must be to:（）
A. suspend the employee.
B. increase supervision of Marshall.
C. initiate an investigation to determine the extent of the wrongdoing.

[单项选择]Stanley Crux, CFA, a portfolio manager at NWS Asset Management Ltd, calls a friend to join him for dinner. The friend, a financial analyst at D&M Corporation declines the invitation and explains that she is performing due diligence on Orca Electronics, a company that D&M is about to acquire. After the phone call, Crux searches the Internet for any news of the acquisition but finds nothing. Upon verifying that Orca is on NWS’s approved stock list, Crux purchases Orca’s common stock and call options for the NWS clients. Two weeks later, D＆M announces its intention to acquire Orca. The next day, Crux sells all of the Orca securities, giving the fund a profit of $ 3 million. According to the Standards of Practice Handbook, did Crux violate any CFA Institute Standards of Professional Conduct（）
A. No.
B. Yes, because he traded on material nonpublic information.
C. Yes, because he only purchased stock and options for selective clients, not all clients.

[单项选择]ZhongYi Xie, CFA, a portfolio manager for PIA Investments, plans to manage the portfolios of several family members in exchange for a percentage of each portfolio’ s profits. As his family members have requested that ZhongYi Xie provide the services outside his employment with PIA, he notifies his employer in writing of his prospective outside employment. Two weeks later, ZhongYi Xie has received no response from his employer and begins managing the family members’ portfolios. By managing these portfolios, did ZhongYi Xie violate any CFA Institute Standards of Professional Conduct（）
A. No.
B. Yes, because he failed to obtain written consent from his employer.
C. Yes, because he failed to disclose the outside employment to his existing clients.

[单项选择]Kenneth, CFA, is a portfolio manager at A&B limited, if he suspects a colleague at his company of engaging in ongoing illegal activities, as according to the AIMR Standards of Professional Conduct, he is required to take all of the following actions EXCEPT:（）
A. determine whether the conduct is, in fact, illegal. 
B. disassociate himself from any illegal activity. 
C. report the illegal violations to the appropriate governmental or regulatory organizations.