QUESTION: 129

Although trade-date accounting is recommended, ________ accounting that is disclosed is acceptable for calculating performance.

settlement-date
maintenance
accrual
composite
Performance

Answer(s): A

Explanation:

Trade-date accounting is recommended when calculating performance, although settlement-date accounting is acceptable if disclosed. Because of the volatility and lengthy settlement periods of some markets, trade-date accounting is strongly recommended for calculating the performance of international portfolios.

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QUESTION: 130

Mayberry's Mayor, in consultation with the trustees of Mayberry's Village Investment Fund, has decided that the fund needs to become more aggressive in its investment objectives to generate funds for village renovations like a paved road, a new school and an activity center for kids. He discussed these requirements with the plan manager, Otis, and asked him to suggest a suitable risk profile and investment instruments to achieve the objectives within a year. Barney, a businessman from a neighboring town, is trying to decide if he should invest his excess capital in setting up businesses in Mayberry or another town, Februberry. These businesses promise to generate about 35 new jobs at various levels and stimulate consumer spending in the town in which they are set up. Barney wants to be sure that the businesses are set up in areas that have high growth promise. So he calls up Otis to find out about the Mayor's plans for the next two years for Mayberry's development. Otis sets up a meeting with Barney and outlines the proposed renovation projects. Otis does his best to convince Barney that Mayberry is the right place for Barney's businesses.

Barney has violated the Code of Ethics by discussing the plans with Otis.
II. Otis has violated the Code of Ethics by discussing the plans with Barney.
III. Neither Barney nor Otis violated any standards.
II only
III only
I and II only
I only

Answer(s): A

Explanation:

Otis has violated Standard IV (B.5) - Preservation of Confidentiality by revealing the Mayor's plans to Barney.
Any information that Otis receives in his capacity as a fund manager is strictly confidential and should not be revealed unless it is in connection with a criminal investigation or an AIMR investigation. Barney has not violated any Standards.

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QUESTION: 131

Felix Asterix is a shrewd industry analyst working for Obelix, Inc., a brokerage firm of some repute. Asterix had invested about $50,000 in a few stocks trading on the Australian exchange a year ago. Obelix itself is not active outside the US and Asterix's transactions do not represent any violations of the company policies. One of the Australian firms whose shares Asterix holds recently applied for a dual listing on the NYSE and will begin trading in the US in a month. Asterix has advised in his recent research reports that investors would be well-off investing in this dual-listed stock. He does not reveal his holdings in the Australian stock. Felix has:

not violated the AIMR standard since his transactions took place long before the dual listing and he is not obligated to reveal his personal holdings.
II. violated Standard III (C) - Disclosure of Conflicts to Employer.
III. violated Standard IV (3) - Independence and Objectivity.
IV. violated Standard IV (B.7) - Disclosure of Conflicts to Clients and Prospects.
I only
II and III only
II and IV only
II, III and IV only

Answer(s): D

Explanation:

This is a classic case of potential conflict and appearance of conflict of interests. Indeed, this kind of situation is so common that it is covered by multiple AIMR standards of ethics. Asterix, as an investment advisor and analyst, should be extremely careful about any potential conflicts of interest that might be perceived as affecting the objectivity of his judgment. Clearly, his substantial Australian holdings, while not in violation of company policies when purchased, are a source of bias now that the stock is trading in the US. Felix must discuss the situation with the Compliance Department at Obelix, Inc. and if he receives the permission to continue holding the stock, should reveal his vested interests to all his potential clients. This ensures that there is no perception of unfair bias and lack of objectivity in his investment recommendations.

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QUESTION: 132

Which of the following is/are required by AIMR-PPS with regards to calculation of returns?

For leveraged portfolios, the stated returns must be on an "all-cash" basis, removing the effects of debt financing.
II. Performance must be based on "gross" returns i.e. before necessary expenses like brokerage and SEC fees.
III. Composites must be asset-weighted using beginning-of-period weights.
none of them
I, II and III
I and III only
III only

Answer(s): D

Explanation:

For leveraged portfolios, PPS require a statement of performance using actual returns as well as on an "all- cash" basis (i.e. without leverage). Performance must be based on returns after trading expenses like brokerage and SEC fees. Composites must be asset-weighted using beginning-of-period weights.

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QUESTION: 129

Explanation:

QUESTION: 130

Explanation:

QUESTION: 131

Explanation:

QUESTION: 132

Explanation: