Exam CFA® Level 1 topic 1 question 53 discussion

Actual exam question from Test Prep's CFA® Level 1

Question #: 53
Topic #: 1

Grey recommends the purchase of a mutual fund that invests solely in long-term U.S. Treasury bonds. He makes the following statements to his clients:
I. "The payment of the bond is guaranteed by the U.S. government; therefore, the default risk of the bonds is virtually zero."
II. "If you invest in the mutual fund, you will earn a 15 percent rate of return each year for the next several years." Did Grey's statements violated AIMR's Code and
Standards?

A. Neither statement violated the Code and Standards.
B. Statement I and II violated the code and Standards.
C. Only statement I violated the Code and Standards.
D. Only statement II violated the Code and Standards.

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Suggested Answer: D 🗳️
This question deals with Standard IV (B.6), Prohibition against Misrepresentation. Statement I is a factual statement that discloses to clients and prospects accurate information about the terms of the investment instrument. Statement II, which guarantees a specific rate of return, is an opinion stated as a fact and therefore violates Standard IV (B.6).

by KAla7223 at Jan. 30, 2023, 6 a.m.

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KAla7223

1 year, 11 months ago

D. Only statement II violated the Code and Standards. According to AIMR's Standard IV (A.1), a financial analyst must have a reasonable basis for making representations. The analyst must have a reasonable basis for the investment recommendations made. The statement made by Grey that the rate of return will be 15 percent each year is an unwarranted claim and violates the AIMR's Code and Standards.

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Exam CFA® Level 1 topic 1 question 53 discussion

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KAla7223

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