CFA 2018 level 3 feedback l3mock 1

77, Example 4 Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA Institute 2008 Modular Level III, Vol.. 64-66, Example 4 Study Session 1-2-a dem

Trang 1

Level 3 Mock Exam_2008

Click here to go to the online version of the Level III Study Guide.

Click here to go to the online version of the latest Candidate Bulletin.

1

Asset Manager Code of Professional Conduct, CFA Institute

2008 Modular Level III, Vol 1, pp 207-208

Study Session 2-6-a, b, c

summarize the ethical responsibilities required by the six components of the Asset Manager Code; interpret the Asset Manager Code in situations presenting issues of compliance, disclosure, or

professional conduct;

recommend practices and procedures designed to prevent violations of the Asset Manager Code

Shao must disclose the amount of commissions The Asset Manager Code of Conduct requires

that managers disclose to each client the actual fees and other costs charged to them, together with itemizations of such charges, when requested by clients The disclosure should include the specii c management fee, incentive fee, and the amount of commissions the manager has paid on the client’s behalf during the period

2

Standards of Practice Handbook (CFA Institute, 2005), p 77, Example 4

Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA

Institute

2008 Modular Level III, Vol 1, pp 64-66, Example 4

Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity Shao does not violate the Standards He recommends a fund with similar investment objectives

and discloses the use of simulated data in accordance with Standard III (D) The Standard requires members and candidates to avoid misstating performance or misleading clients

3

Standards of Practice Handbook (CFA Institute, 2005), pp 69-71

Institute

Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity

A member or candidate’s duty under Standard III(C) is satisi ed with respect to a particular investment

if they have thoroughly considered the investment’s place in the overall portfolio Shao has performed appropriate due diligence prior to making his recommendation

Trang 2

Standards of Practice Handbook (CFA Institute, 2005), pp 55-56

Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, Asset Manager Code of Professional Conduct, CFA Institute

2008 Modular Level III, Vol 1, pp 50, 196, 208

Study Sessions 1-2-a; 2-6-a, b, c

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity; summarize the ethical responsibilities required by the six components of the Asset Manager Code; interpret the Asset Manager Code in situations presenting issues of compliance, disclosure, or

professional conduct;

recommend practices and procedures designed to prevent violations of the Asset Manager Code Zhang’s policy should be disclosed to all clients Standard III (A) and the Asset Manager Code of Conduct (Section F.4.h) require members to disclose proxy voting policies to all clients

5

Standards of Practice Handbook (CFA Institute, 2005), p 65 (second paragraph)

Institute

2008 Modular Level III, Vol 1, p 57

Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity Shao allocates the shares on a pro rata basis such that each account receives a 2% allocation to the portfolio To meet the fair dealing requirements of Standard III (B) shares must be allocated among participating client accounts pro rata on the basis of order size

6

Asset Manager Code of Professional Conduct, CFA Institute

Study Session 2-6-a, b

summarize the ethical responsibilities required by the six components of the Asset Manager Code; interpret the Asset Manager Code in situations presenting issues of compliance, disclosure, or

professional conduct

Zhang must disclose the information regarding both its founder and the team of senior portfolio managers The Asset Manager Code of Conduct requires that managers disclose regulatory or

disciplinary action taken against the manager or its personnel related to professional conduct The Code also requires that managers disclose signiicant personnel or organizational changes that have occurred

7

Institute

Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity Jaeger violated Standard VII (B) when using the business cards His statement about passing the exams on the irst try was merely factual, while his business card, which he distributed to prospective clients, prematurely states that he is a CFA charterholder

Trang 3

Institute

2008 Modular Level III, Vol 1, pp 69-71, 73

Study Session1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity Jaeger violated Standard IV (A) The clients belong to Pegasus and Jaeger is not permitted to solicit

their business until he leaves Pegasus Neither reason is acceptable As stated in the Standards of

Practice Handbook, “Even though [Jaeger] does not receive monetary compensation for [his] services

at [Pegasus] …, [Jaeger] is considered an employee because [he] receives compensation and beneits

in the form of work experience and knowledge.”

9

Institute

2008 Modular Level III, Vol 1, pp 69-71, 74

Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity Jaeger’s use of the valuation methods is acceptable Standard IV (A) does not impose a prohibition

on the use of experience or knowledge gained at one employer from being used at another employer According to Standard IV (A), “Once an employee has left the irm, the skills and experience that

an employee obtains while employed are not ‘conidential’ or ‘privileged’ information.” Patel’s

incorporation/registration of her new irm occurred during non-work hours and does not violate the Standard of Loyalty to Employer

10

Institute

Study Session 1-2-b

recommend practices and procedures designed to prevent violations of the Code of Ethics and

Standards of Professional Conduct

Priority goes to clients Clients have priority over accounts in which Heritage personnel are beneicial owners

11

Institute

2008 Modular Level III, Vol 1, p 75

Study Session 1-2-b

recommend practices and procedures designed to prevent violations of the Code of Ethics and

Standards of Professional Conduct

The recommended procedures for compliance with the Standard relating to Additional Compensation Arrangements state that members should make immediate disclosure through a written report In addition, members must include the nature and amount of compensation, and the duration of the arrangement

Trang 4

Institute

Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by interpreting the Code and Standards in various situations involving issues of professional integrity According to the Standard relating to supervisory duties, the supervisor must carry out an

investigation rather than relying solely on statements by the employee In addition, the response should be more proactive than warning the employee to cease the activity and reporting the violation

up the chain of command

13

“Risk Management,” Don M Chance, Kenneth Grant, and John Marsland

Study Session 12-37-e

interpret and compute value at risk (VAR) and explain its role in measuring overall and individual position market risk

Decreasing the probability will incorporate more possible outcomes and increase the VAR measure

14

Study Session 12-37-g

discuss the advantages and limitations of VAR and its extensions, including cash low at risk, earnings

at risk, and tail value at risk

A is correct and this problem often derives from erroneous assumptions and models

15

Study Session 12-37-f

compare and contrast the analytical (variance-covariance), historical, and Monte Carlo methods for estimating VAR and discuss the advantages and disadvantages of each

A disadvantage of the historical method is that it relies completely on events of the past, and whatever distribution prevailed in the past might not hold in the future

16

Study Session 12-37-i

evaluate the credit risk of an investment position, including forward contract, swap, and option

positions

The market value is positive and since Galaxy is long the swap, Galaxy has the market value of the swap at risk if the counterparty defaults

17

Study Session 12-37-k

demonstrate the use of exposure limits, marking to market, collateral, netting arrangements, credit standards, and credit derivatives to manage credit risk

A party will not engage in too many derivative transactions with one counterparty The risk manager makes extensive use of quantitative credit exposure measures to guide them in the process to

determine where and when to limit exposure

Trang 5

Study Session 12-37-b

recommend and justify the risk exposures an analyst should report as part of an enterprise risk

management system

Liquidity risk is a separate risk from market risk It is the risk that a inancial instrument cannot be bought or sold without a signiicant concession in price because of the market’s potential inability to accommodate the trade size

19

“Capital Market Expectations,” John P Calverley, Alan M Meder, Brian D Singer, and Renato Staub

discuss, in relation to capital markets expectations, the limitations of economic data; data

measurement errors and biases; the limitations of historical estimates; ex post risk as a biased measure

of ex ante risk; biases in analysts’ methods; the failure to account for conditioning information; the misinterpretation of correlations; psychological traps; and model uncertainty

O’Reilly’s explanation of survivorship bias is correct

20

O’Reilly’s explanation of appraisal data bias is incorrect because calculated correlations with other assets tend to be smaller in absolute value compared to the true correlations O’Reilly is correct in that appraisal values tend to be less volatile than market determined values for identical assets and the true variance (and standard deviation) of the asset is biased downward

21

O’Reilly’s answer is incorrect with respect to correlation estimates High-frequency data are more sensitive to asynchronism across variables and, as a result, tend to produce lower correlation

estimates

Trang 6

O’Reilly’s explanation of the anchoring trap is incorrect The anchoring trap is the tendency of the mind to give disproportionate weight to the irst information it receives on a topic Initial impressions, estimates, or data anchor subsequent thoughts and judgments His explanation of the conirming evidence trap is correct

23

Study Session 6-23-c

demonstrate the application of formal tools for setting capital market expectations, including

statistical tools, discounted cash low models, the risk premium approach, and inancial equilibrium models

The covariance between Market 1 and Market 2 is calculated as follows:

M12 = (1.20 x 0.90 x 0.0225) + (0 x 0 x 0.0025) + [(1.20 x 0 + 0 x 0.90) x 0.0022] = 0.0243

24

Study Session 6-23-c

demonstrate the application of formal tools for setting capital market expectations, including

statistical tools, discounted cash low models, the risk premium approach, and inancial equilibrium models

According to the Grinold-Kroner model, the expected long-term developed market equity return is equal to the sum of the: 1) expected income return (dividend yield minus the percentage change in the number of shares outstanding), 2) expected nominal earnings growth return (long-term inlation rate plus long-term corporate earnings growth rate), and 3) repricing return (expansion rate for P/E multiples) In this case:

E(R e ) = [1.95 - ( -1.0)] + [1.75 + 3.50] + 0.15 = 2.95 + 5.25 + 0.15 = 8.35%

25

“Evaluating Portfolio Performance,” Jeffrey V Bailey, Thomas M Richards, and David E Tierney

2008 Modular Level III,

Vol 6, pp 36-42

Study Session 16-43-l

demonstrate, justify, and contrast the use of macro and micro performance attribution methodologies

to evaluate the drivers of investment performance

The incremental return attributed to the asset category investment strategy is calculated as follows:

Where = 3.48%

where 0.41% is the monthly risk-free rate (4.92% / 12)

Trang 7

2008 Modular Level III, Vol 6,

pp 36-42

The

aggregate manager benchmark or misit return is calculated as follows:

Where

r IS is the incremental return contribution of the Benchmarks strategy,

r Bij is the return of the jth manager’s benchmark

in asset category i, r Ci is the return on the ith asset category,

w i is the policy weight assigned to the ith asset category,

w ij is the policy weight assigned to the jth manager in asset category

i,

and A and M are the number of asset categories and managers, respectively The misit return is -0.09% calculated as follows:

r IS = 0.7 x 0.6 x (4.61 - 4.46) + 0.7 x 0.4 x (4.31 - 4.46) + 0.3 x 0.65 x (1.99 - 2.56) + 0.3 x 0.35 x (2.55 - 2.56) = -0.09%

27

The incremental return contribution of the investment manager is calculated as follows:

Where r IM is the incremental return contribution of the investment managers, r

Aij is the return on the

jth manager’s portfolio within asset category i, r Bij is the return of the jth manager’s benchmark in asset category i, w i is the policy weight assigned to the ith asset category, w ij is the policy weight

assigned to the jth manager in asset category i, and A and M are the number of asset categories

and managers, respectively In this case, return attributable to the investment managers is 0.08% calculated as follows:

r IM = 0.7 x 0.6 x (4.84 - 4.61) + 0.7 x 0.4 x (4.10 - 4.31) + 0.3 x 0.65 x (1.72 - 1.99) + 0.3 x 0.35 x (3.43 - 2.55) = 0.0775% ≈ 0.08%

Trang 8

The Pure Sector Allocation column total of -0.035 indicates that Cottonwood was not successful during the period of the analysis in overweighting sectors that would outperform the market If

that strategy were successful, the column total would have been positive and large relative to the portfolio’s Total Value Added However, Cottonwood was successful in selecting undervalued

securities within sectors as evidenced by the Within Sector Allocation total of 0.451 This was the driver of the portfolio’s Total Value Added before expenses of 0.424

29

Study Session 16-43-o

explain the management factors that contribute to a ixed-income portfolio’s total return and interpret the results of a ixed-income performance attribution analysis

O’Kelly’s description of the interest rate management effect is incorrect It should be calculated

by subtracting the return of the entire Treasury universe from the aggregate return of the repriced securities The description of the sector/quality effect is correct

30

Study Session 16-43-o

explain the management factors that contribute to a ixed-income portfolio’s total return and interpret the results of a ixed-income performance attribution analysis

O’Kelly’s description of the security selection effect being an “arithmetic average” is incorrect The portfolio’s security selection effect is the market-value weighted average of all the individual security selection effects The description of trading activity is correct

31

“Fixed-Income Portfolio Management - Part I,” H Gifford Fong and Larry D Guin

Study Session 8-27-a, b

compare and contrast, with respect to investment objectives, the use of liabilities as a benchmark with the use of a bond index as a benchmark;

discuss the range of index-oriented bond investment strategies and compare and contrast pure

bond indexing, enhanced indexing, and active investing with respect to the objectives, techniques, advantages, and disadvantages of each

Thain’s statement is incorrect because if Flagstone had speciic liabilities to match, then the liability itself becomes the benchmark

Trang 9

2008-III-8-27-c

discuss the criteria for selecting a benchmark bond index and justify the selection of a speciic index when given a description of an investor’s risk aversion, income needs, and liabilities

The Lehman Aggregate index represents a diversiied portfolio of sectors and has medium-term duration which should generate reasonable returns with moderate price sensitivity as interest rates luctuate Statement 2 clearly indicates that the Flagstone endowment fund has a medium-term

horizon and generally seeks to avoid capital losses

33

discuss the range of index-oriented bond investment strategies and compare and contrast pure

bond indexing, enhanced indexing, and active investing with respect to the objectives, techniques, advantages, and disadvantages of each

The portfolio’s large deviations from the benchmark indicate that Allied makes signiicant active bets that resulted in large tracking risk An indexing strategy should have resulted in over or

underweighting of sectors on a small scale with the objective to earn back the 0.15% in management fees

34

Study Session 8-27-d

review and justify the means, such as matching duration and key rate durations, by which an enhanced indexer may seek to align the risk exposures of the portfolio with those of the benchmark bond index The portfolio’s contribution to spread duration (2.68) is greater than that for the benchmark

(2.25) resulting in a mismatch of risk exposures The difference is primarily because of the larger contribution to spread duration of corporate bonds in the portfolio (1.75) compared to the benchmark (1.32) despite having the same nominal representation (22.0%)

35

Study Session 8-27-d

review and justify the means, such as matching duration and key rate durations, by which an enhanced indexer may seek to align the risk exposures of the portfolio with those of the benchmark bond index Matching the effective duration of the portfolio to the benchmark reduces tracking error resulting from a parallel shift in the yield curve Matching key rate durations will reduce tracking error

resulting from a non-parallel shifts such as a twist in the yield curve

Trang 10

Study Session 8-27-e

contrast and illustrate the use of total return analysis and scenario analysis to assess the risk and return characteristics of a proposed trade

The semiannual total return that the manager would expect to earn on the new trade is:

The trade will result in a capital gain of (101.50 - 100) = 1.50 and coupon interest of 3.00 The

horizon is six months; therefore, the number of periods is one The bond was acquired at par or 100 Because the horizon is six months, the coupon payment received in six months is not reinvested Total return = 4.50 / 100 = 4.50%

37

“Risk Management Applications of Option Strategies,” Don M Chance

Study Session 13-39-a

determine and interpret the value at expiration, proit, maximum proit, maximum loss, breakeven underlying price at expiration, and general shape of the graph for the major option strategies (bull spread, bear spread, butterly spread, collar, straddle, box spread)

Initial cost of collar = (put premium - call premium) x 30,000 shares

= (0.95 - 0.80) x 30,000 = $4,500

At expiration: Value of QQQQ = 30,000 shares x $33 = $990,000

The put and call both expire out of the money Proit from the collar = QQQQ value at expiration - initial QQQQ

value - initial cost of collar

= $990,000 – $900,000 – $4,500 = $85,500

Định dạng
Số trang	17
Dung lượng	722,19 KB