1. Karen Jones, CFA, is an outside director for Valley Manufacturing. At a director’s meeting, Jones
finds out that Valley Corp. has made several contributions to foreign politicians that she suspects
were illegal. Jones checks with her firm’s legal counsel and determines that the contributions
were indeed illegal. At the next board meeting, Jones urges the board to disclose the
contributions. The board, however, votes not to make a disclosure. Jones’s most appropriate
action would be to:
A. protest the board’s actions in writing to the executive officer of Valley.
B. resign from the board and seek legal counsel as to her legal disclosure requirements.
C. inform her supervisor of her discovery and cease attending meetings until the matter is
2. Beth Bixby, CFA, uses a quantitative model to actively manage a portfolio of stocks with an
objective of earning a greater return than the market. Over the last three years, the returns to a
portfolio constructed using the model have been greater than the returns to the S&P Index by
between 2% and 4%. In promotional materials, Bixby states, “Through our complex quantitative
approach, we select a portfolio that has similar risk to the S&P 500 Index but will receive a
return between 2% and 4% greater than the index.” This statement is:
A. permissible because prior returns to the firm’s model provide a reasonable and adequate basis
for the promotional material.
B. permissible because the statement describes the basic characteristics of the fund’s risk and
C. not permissible because Bixby is misrepresenting the investment performance her firm can
reasonably expect to achieve.
3. Over the past two days, Lorraine Quigley, CFA, manager of a hedge fund, has been purchasing
large quantities of Craeger Industrial Products’ common stock while at the same time shorting
put options on the same stock. Quigley did not notify her clients of the trades, although they are
aware of the fund’s general strategy to generate returns. Which of the following statements is
most likely correct?
A. Quigley did not violate the Code and Standards.
B. Quigley violated the Code and Standards by manipulating the prices of publicly traded
C. Quigley violated the Code and Standards by failing to disclose the transactions to clients
before they occurred.