Kaplan考试和QBank二级（考友版）：Heckpoint考试3：学习环节 （题目+解析）15-17

CFALevelII

Questions#1-6of36

Questions1-6relatetoIGS.

TheNewYork-basedIrwinGoldreichSchmidt(IGS)isamid-sizedprivateequityfirmwith$300millioncapitalraisedfrom

itsinvestors.Amidaturbulentyear,thefirmhasrecentlydroppeditsunsuccessful$100millionbidforaNorwegianmedia

companyandisnowaggressivelysearchingfornewventureorbuyoutinvestmentsintheEurozone.Afterseveralmonths

ofintensesearch,IGSbelievesitidentifiedtwopotentialinvestments:

1.Sverig,arapidlyexpandingSwedishstart-upconstructioncompany.

2.L'Offre,astrugglingFrenchdepartmentstoreinexistencesincethelate19thCentury.

Followingseveralroundsofsuccessfulnegotiations,IGSmakesa$20millioninvestmentinSveriganda$100million

leveragedbuyoutinvestmentinL'Offre,committingtoanadditional$100millionforpossiblefuturecapitaldrawdowns.It

retainsallofSverig'smanagersbutreplacesL'Offre'smanagementteamwithexperiencedIGSmanagers,manyofwhom

areformercompanyseniorexecutives.

IGSalsosetsupSverig-L'OffrePrivateEquityFund(SLPEF),afundtomanagebothfirms.Thefundmanager's

compensationissetat20%ofprofitsnetoffees.IGSalsospecifiesthatthemanager'sprofitsarecalculatedontheentire

portfoliowhenportfoliovalueexceedsinvestedcapitalby30%.

Despitethemarket'srecentturbulence,Sverig'soriginalfoundersareextremelyoptimisticandbelievethefirmcouldbe

soldfor$400millioninsixyears.Toachievethis,theyspeculatethefirmneedsanothercapitalinfusionof$40millionin

fouryearsinadditiontothe$20millioncapitalinvestmenttoday.Giventhehighriskofthefirm,SLPEF'sprivateequity

investorsdecidethatadiscountrateof40%forthefirstfouryearsand30%forthelasttwoyearsisappropriate.The

foundersofSverigwanttohold5millionshares.

Question#1of36

QuestionID:1214399

IftotalproceedsnetoffeestoSLPEFareworth$180millionuponexitinayear,thefund'sgeneralpartner(GP)underthe

totalreturnusinginvestedcapitalmethodwouldreceiveacompensationof:

A)$0.

B)$12million.

C)$36million.

Question#2of36

QuestionID:1214400

AnappropriateequityvaluationtechniqueforSverigandL'Offre,respectively,wouldbethe:

Sverig

L'Offre

A)

B)

C)

Relativevalueapproach

Venturecapitalmethod

DCFmethod

Venturecapitalmethod

DCFmethod

Relativevalueapproach

Question#3of36

QuestionID:1214401

Commonriskfactor(s)facedbybothIGSinvestorsandthemanagersoftheprivateequityfirmis(are):

A)marketriskbutnotagencyrisk.

B)agencyriskbutnotmarketrisk.

C)bothmarketandagencyrisk.

Question#4of36

QuestionID:1214402

SLPEF'sgeneralpartner's(GP's)shareoffundprofits,andmanagement'srighttoselltheirequityinterestintheeventof

anacquisition,respectively,arecalled:

ProfitstotheGP

Management'srighttosell

A)

B)

C)

Carriedinterest

Ratchet

Ratchet

Distributionwaterfall

Carriedinterest

Tag-along,drag-alongclause

Question#5of36

QuestionID:1214403

Sverig'spost-moneyvaluationatthefirstroundoffinancing,usingtheNPVventurecapitalmethod,isclosestto:

A)$61.61million.

B)$50.08million.

C)$51.20million.

Question#6of36

QuestionID:1214404

Theappropriatestockpriceafterthefirst-roundoffinancingforSverig'sfirst-roundinvestorsisclosestto:

A)$6.24.

B)$8.32.

C)$6.02.

Questions#7-12of36

Questions7-12relatetoJeffMarkgraf,CFA.

JeffMarkgraf,CFA,isthemanagingdirectoratAlphaAlternativesLLP.Markgrafhasasuccessfultrackrecordofinvesting

inrealestateforhisinstitutionalclients.Markgrafisseekingtodiversifyhisscopeandislookingintoinvestingin

commoditiesandinprivateequity.

Markgrafreachesouttohiscollegefriend,BillSmall,whomanagesaprivateequityfundspecializinginleveraged

buyouts.MarkgrafasksSmallaboutwaysinwhichprivateequityfundsaddvaluetotheirportfolioinvestments.

Markgrafconcludesthatfuturescontractsofferthebestmechanismforhimtogainexposuretothecommoditiesmarket.

Heseekstodevelopfurtherunderstandingofthecomponentsoftotalreturnofaportfolioinvestedincommodityfutures.

Markgrafisintriguedbytheuseofswapstogainexposuretocommodities.Uponinvestigation,Markgrafdiscoversthata

swap(the"T-Zswap")isavailablefromAlpha'sbrokersthathasavariablepaymentbasedonthedifferenceinprice

betweentwocommodities.

Markgrafobservesthatcattlefuturespricesaregreaterthanthespotpriceswhilethecornfuturespricesarelessthanthe

spotprices.Markgrafalsoreadthatfuturespricesmaybeinfluencedbyweather.

Markgrafwantssomeexposuretopreciousmetalsandexpectstousesilverfuturescontractstoaccomplishthis.

Markgrafwillrollovermaturingcontractstothenextshortestavailablecontract.Markgrafbelievesthatsilverwillhelp

diversifyhisoverallportfolio,especiallysincesilverfuturespricesarelessthansilverspotprices.

Question#7of36

QuestionID:1214406

WhichofthefollowingwouldbeleastappropriateasapartofSmall'sresponsetoMarkgraf'squestion?

A)Optimizingfinancialleverage.

B)Creatingoperationalimprovement.

C)Incentivizingthegeneralpartner.

Question#8of36

QuestionID:1214407

Relativetoseasonalityinthedemandfornaturalgas,seasonalityindemandforoilismostlikelytobe:

A)aboutthesame.

B)greater.

C)lower.

Question#9of36

QuestionID:1214408

Earlyfrostinsomepartsofthecountryhasresultedindamagetocorncropsandatemporaryshortageinthesupplyof

corn.Underthetheoryofstorage,relativetothespotprices,futurespricesaremostlikelytobe:

A)thesame.

B)higher.

C)lower.

Question#10of36

QuestionID:1214409

QuestionID:1214410

QuestionID:1214411

The"T-Zswap"thatisavailablefromAlpha'sbrokersismostlikelya(n):

A)excessreturnswap.

B)basisswap.

C)totalreturnswap.

Question#11of36

Whichtheoryisleastlikelytoexplainthepricingrelationshipinthecattlefuturesmarket?

A)Theinsuranceperspective.

B)Thehedgingpressurehypothesis.

C)Thetheoryofstorage.

Question#12of36

Markgraf'spositioninsilverfuturescontractsismostlikelytoproducearollreturnthatis:

A)zero.

B)negative.

C)positive.

Questions#13-18of36

Questions115through120relatetoPortfolioManagement.

MillenniumInvestmentsCaseScenario

MillenniumInvestments(MI),aninvestmentadvisoryfirm,providesassetallocationrecommendationsforitsclients.

RichieShepard,senioranalystatMI,isusingatwo-factormacroeconomicmodeltoevaluateaportfoliooftwostocks:

WMBandREL.ThetwofactorsinthemodelaresurprisesininflationandinrealGDPgrowthrate(bothgivenin

percentages).Theportfolioisinvested60%inWMB.Factorsensitivityandotherinformationforthetwostocksareshown

inExhibit1.

Exhibit1:WMBandREL

StockE(R)InflationGDPGrowthRate

WMB

9%

–2.2

–1.0

+3.0

+3.3

REL10.8%

Anotherstock(notintheportfolio),PSL,hasafactorsensitivityof–0.9toinflationand+1.2toGDPgrowthrate.

Shepardisalsolookingatevaluatingthreeportfoliosusingasingle-factormodel.Informationaboutthethreeportfoliosis

showninExhibit2.

Exhibit2:PortfolioFactorSensitivityandExpectedReturn

PortfolioExpectedReturnFactorSensitivity

X

Y

Z

0.10

0.12

0.15

1.00

1.25

1.50

Shepardismeetingwithaclienttodiscussinclusionofactivelymanagedfundsinthatclient'sportfolio.Toprepareforthe

meeting,Shepardpreparesapresentationtoillustratethemeritsandrisksofthischange.Shepardcannotrecalltheterm

thatisusedtocapturethesumofactivefactorriskandactivespecificrisk.

Shepardfeelsthattheeconomyisfinallyoutofrecessionandpoisedforrobustgrowthoverthenextthreetofiveyears.

Question#13of36

QuestionID:1214413

QuestionID:1214414

QuestionID:1214415

UsingtheinformationinExhibit1,theexpectedreturnontheportfolioisclosestto:

A)8.4%.

B)9.2%.

C)9.7%.

Question#14of36

UsinginformationinExhibit1,theportfolio'ssensitivitytoinflationisclosestto:

A)–1.1.

B)–1.7.

C)–2.2.

Question#15of36

Lastyear,PSL'sactualreturnwas8%(0.5%unexplainedbythemodel).Inflationsurprise,aswellasGDPgrowthrate

surprise,was+0.5%.PSL'sexpectedreturnwasclosestto:

A)7.35%.

B)7.50%.

C)8.50%.

Question#16of36

QuestionID:1214416

UsinginformationinExhibit2,takingadvantageofanarbitrageopportunitywouldmostlikelyrequireshorting:

A)portfolioX.

B)portfolioY.

C)portfolioZ.

Question#17of36

QuestionID:1214417

ThetermthatShepardcannotrecallismostlikely:

A)activetotalrisk.

B)activerisksquared.

C)alpharisk.

Question#18of36

QuestionID:1214418

BasedonShepard'seconomicoutlook,itcanbemostappropriatelyconcludedthat:

A)governmentbondswilloutperformcorporatebonds.

B)higher-ratedcorporatebondswilloutperformlower-ratedcorporatebonds.

C)lower-ratedcorporatebondswilloutperformhigher-ratedcorporatebonds.

Questions#19-24of36

Questions19–24relatetoTerryHoltandBillMcGuire.

TerryHolt,CFA,isaninvestmentconsultantthatadvisesseveralinstitutionalclients,includingpensionfundsand

endowments.HoltisevaluatingtheperformanceofMagnaAlphafund.Heobtainsthefund'sactiveweightsandexpected

returnsrelativetothebenchmarkasshowninExhibit1.

Exhibit1:MagnaAlphaFund

AssetClass(i)PortfolioReturnE(R)BenchmarkReturnE(R)ActiveWeight

Pi

Bi

Equities

Bonds

Cash

13%

7%

12%

5%

10%

–11%

1%

3%

3%

BillMcGuire,Holt'ssupervisor,makesthefollowingstatements:

1.TheoptimalriskyportfolioforanyinvestoristheonewiththehighestSharperatioirrespectiveoftherisktoleranceof

theclient.

2.TheSharperatiowouldbethesameastheinformationratioforamarket-neutrallong-shortequityfundthathasthe

risk-freeassetastheportfolio'sbenchmark.

Holtthenobtainsdataonthreeactivefundsspecializingincommoditiesinvesting.Exhibit2presentsdataonthesefunds.

Exhibit2:FundData

Fund

Expectedactivereturn2.40%1.25%1.28%

Activerisk6%5%4%

PrimeReduxOptimus

McGuirerecommendsthatHoltinvestigatetwootherfunds,runbyactivemanagersAandB,aswell.Exhibit3showsthe

relevantinformation.

Exhibit3:ActiveManagersAandB

ManagerA:Investsinstocksandmakesbetsannually.Hasaninformationcoefficientof0.20andtransfercoefficientof

0.4.

ManagerB:Unconstrainedoptimizationinvolvingmonthlybetsonmarkettiming(rotationbetweenequityandcash).

ManagerBiscorrect55%ofthetime.

HoltmentionstoMcGuirethatonehastobecarefulaboutactivelymanagedfundsthatareactuallyclosetindexfunds.

Thesefundstendtobecharacterizedbyverylowactiverisk,highinformationratio,andaSharperatiothatisalmostthe

sameastheSharperatioforthefund'sbenchmark.

Question#19of36

QuestionID:1214420

UsingtheinformationinExhibit1,theexpectedactivereturnfromassetallocationforMagnaAlphafundisclosestto:

A)0.68%.

B)1.25%.

C)1.93%.

Question#20of36

QuestionID:1214421

RegardingMcGuire'sstatements:

A)bothstatementsarecorrect.

B)onlyonestatementiscorrect.

C)neitherstatementiscorrect.

Question#21of36

QuestionID:1214422

Whichcomponentofthefundamentallawofactivemanagementcapturestherelationshipbetweenrisk-adjustedactive

weightsandrisk-adjustedforecastedreturns?

A)Transfercoefficient.

B)Informationcoefficient.

C)Informationratio.

Question#22of36

QuestionID:1214423

UsingtheinformationinExhibit2,whichfundwouldbemostsuitableforaninvestorwithaconstraintofmaximumactive

riskof5%?

A)Prime.

B)Redux.

C)Optimus.

Question#23of36

QuestionID:1214424

ToachievethesameinformationratioasManagerB,thenumberofstocksthatManagerAmustmakeindependentbets

onisclosestto:

A)14.

B)19.

C)22.

Question#24of36

QuestionID:1214425

Holtisleastlikelytobecorrectaboutwhichfactorasanindicatorofaclosetindexfund?

A)Lowactiverisk.

B)Highinformationratio.

C)SameSharperatioasthebenchmark.

Questions#25-30of36

Questions25-30relatetoGlendaGarvey.

GlendaGarveyisinterningatSamsonFinancialinthesummertoearnmoneyforherlastsemesterofMBAstudies.She

tooktheLevelIIICFA®examinJunebuthasnotyetreceivedherresults.Garvey'sworkinvolvespreparingresearch

reportsonsmallcompanies.

Garveyisatlunchwithagroupofco-workers.Shelistenstotheirconversationaboutvariousstocksandtakesnoteofa

commentfromTonyTopel,aveterananalyst.TopelistalkingaboutValloEngineering,asmallstockhehastried

repeatedlytoconvincetheinvestmentdirectortoaddtothemonitoredlist.Whiletheinvestmentdirectordoesnotlike

Vallo,Topelhasfaithinthecompanyandhasgraduallyaccumulated5,000sharesforhisownaccount.Anotheranalyst,

MaryKennedy,tellsthegroupaboutKoralKoatings,apaintandsealantmanufacturer.Kennedyhasspentmostofthe

lastweekattheofficedoingresearchonKoral.Shehasconcludedthatthestockisundervaluedandconsensusearnings

estimatesareconservative.However,shehasnotfiledareportforSamson,nordoessheintendto.Shesaidshehas

purchasedthestockforherselfandadviseshercolleaguestodothesame.Aftershegetsbacktotheoffice,Garvey

purchases25sharesofValloand50sharesofKoralforherself.

Samsonpaysitsinternsverylittle,andGarveyworksasawaitressatadinerinthefinancialdistricttosupplementher

income.Thedinnercrowdincludesmanyanalystsandbrokerswhoworkatnearbybusinesses.Whilewaitingtablesthat

night,GarveyhearstwoemployeesofamajorbrokeragehousediscussingMetrona,ananotechnologycompany.The

restaurantpatronssaythatthebroker'sstaranalysthasissuedareportwithabuyratingonMetronathatmorning.The

dinersplantobuythestockthenextmorning.AfterGarveyfinisheshershift,restaurantmanagerMandyJones,a

longtimeSamsonclient,askstospeakwithher.JonescommendsGarveyforherhardworkattherestaurant,praisingher

punctualityandpositiveattitude,andoffershertwoticketstoaYankeesgameasabonus.

Thenextmorning,Garveybuys40sharesofMetronaforherownaccountatthemarketopen.Soonafterward,she

receivesacallfromHaroldKoons,oneofSamson'slargestmoney-managementclients.KoonssayshegotGarvey's

namefromBerthaWitt,whomanagestheKoons'saccount.KoonswantedtorewardtheanalystwhodiscoveredAnvil

Hammers,amachine-toolcompanywhosestocksoaredsoonafteritwasaddedtohisportfolio.Garveypreparedthe

originalreportonAnvilHammers.KoonsoffersGarveytwofreeround-tripticketstothecityofherchoice.Garveythanks

Koons,thenasksherimmediatesupervisor,KarlMay,aboutthegiftfromKoonsbutdoesnotmentionthegiftfromJones.

MayapprovestheKoons'gift.

AftertalkingwithMay,GarveystartsaresearchprojectonZenithEnterprises,afrozen-juicemaker.Garvey'sgathers

quarterlydataonthecompany'ssalesandprofitsoverthepasttwoyears.Garveyusesasimplelinearregressionto

estimatetherelationshipbetweenGDPgrowthandZenith'ssalesgrowth.NextsheusesaconsensusGDPestimatefrom

awell-knowneconomicdatareportingserviceandherregressionmodeltoextrapolategrowthratesforthenextthree

years.

Garveyisnotworkingatthedinerthatnight,soshegoeshometoworkonherbiographyforanonlineplacementservice.

Initshemakesthefollowingtwostatements:

Statement1:

Statement2:

I'maLevelIIICFAcandidate,andIexpecttoreceivemycharterthisfall.TheCFAprogramisa

grueling,3-part,graduate-levelcourse,andpassagerequiresanexpertiseinavarietyof

financialinstruments,aswellasknowledgeoftheforcesthatdriveoureconomyandfinancial

markets.

IexpecttograduatewithmyMBAfromBraxtonCollegeattheendofthefallsemester.Asboth

anMBAandaCFA,I'llbeinhighdemand.Hiremenowwhileyoustillhavethechance.

AkshayNagoree,CFA,isaportfoliomanagerforseveralpensionfundsatSamson.Hiswifeistreasurerand15%

shareholderofGatedonElectric.ThemarketvalueofMrs.Nagoree'sGatedonsharesisnow$2million.Samson's

researchdepartmentisrecommendingthestocktoitstrustofficersandpensionfundportfoliomanagers.

Question#25of36

QuestionID:1214385

Duringthelunchconversation,whichCFAInstituteStandardofProfessionalConductwasmostlikelyviolated?

A)III(B)FairDealing.

B)IV(A)Loyalty.

C)V(A)ReasonableBasis.

Question#26of36

QuestionID:1214386

DoesGarvey'sacceptanceofthegiftsfromKoonsandJonesviolateStandardI(B)IndependenceandObjectivity?

A)AcceptingKoons’giftwasaviolation.

B)AcceptingJones’giftwasaviolation.

C)Neithergiftwouldresultinaviolation.

Question#27of36

QuestionID:1214387

DidGarveyviolateStandardII(A)MaterialNonpublicInformationwhenshepurchasedValloandMetrona?

A)BuyingVallowasaviolation.

B)BuyingMetronawasaviolation.

C)Neitherpurchasewasaviolation.

Question#28of36

QuestionID:1214388

InherestimationofZenith'sfuturegrowthrate,whatstandarddidGarveyviolate?

A)StandardI(C)Misrepresentationregardingplagiarism.

B)StandardV(A)DiligenceandReasonableBasis.

C)BothI(C)andV(A).

Question#29of36

QuestionID:1214389

DidthetwostatementsinGarvey'sbiographyviolateStandardVII(B)ReferencetoCFAInstitute,theCFAdesignation,

andtheCFAprogram?

A)Statement1isaviolation.

B)Statement2isaviolation.

C)Bothstatementsareviolations.

Question#30of36

QuestionID:1214390

WhichofthefollowingisNagoree'smostappropriatecourseofactionfortheaccountsunderhismanagement?

A)NagoreeispermittedtobuyGatedonstockwithoutstipulationbecauseitishis

wife,nothe,whoisashareholderinGatedon.

B)Nagoreeispermittedtobuythestockafterdisclosinghiswife’sownershiptohis

supervisorandtothetrusteesofallthepensionfundshemanages.

C)Nagoreeisprohibitedfrombuyingthestockbecauseofhisinabilitytorenderan

unbiasedandobjectiveinvestmentopiniongivenhiswife’saffiliationwiththe

company.

Questions#31-36of36

Questions31-36relatetoMariaHarris.

MariaHarrisisaCFA®LevelIIIcandidateandportfoliomanagerforIslandwideHedgeFund.Harrisiscommonlyinvolved

incomplextradingstrategiesonbehalfofIslandwideandmaintainsasignificantrelationshipwithQuadrangleBrokers,

whichprovidesportfolioanalysistoolstoHarris.RecentmarketvolatilityhasledIslandwidetoincurrecord-hightrading

volumeandcommissionswithQuadrangleforthequarter.InappreciationofIslandwide'sbusiness,Quadrangleoffers

Harrisanall-expenses-paidweekofgolfatPebbleBeachforherandherhusband.Harrisdisclosestheoffertoher

supervisorandcomplianceofficerand,basedontheirapproval,acceptsthetrip.

HarrishaslunchthatdaywithC.K.Swamy,CFA,heroldcollegeroommateandfuturesister-in-law.WhileHarrisissitting

intherestaurantwaitingforSwamytoarrive,Harrisoverhearsaconversationbetweenthepresidentandchieffinancial

officer(CFO)ofProgressiveIndustries.ThepresidentinformstheCFOthatProgressive'sboardofdirectorshasjust

approveddroppingthecompany'scashdividend,despiteitsrecordofpayingdividendsforthepast46quarters.The

companyplanstoannouncethisinformationinaboutaweek.HarrisownsProgressive'scommonstockandimmediately

callsherbrokertosellhersharesinanticipationofapricedecline.

SwamyrecentlyjoinedDillonAssociates,aninvestmentadvisoryfirmasanequityanalyst.Swamyplanstocontinue

servingontheboardofdirectorsofLandmarkEnterprises,aprivatecompanyspecializinginonlinegamingownedbyher

brother-in-law,forwhichshereceives$2,000annually.Swamyalsoservesasanunpaidadvisortothelocalsymphony

oninvestingtheirlargeendowmentandreceivesfourseasonticketstothesymphonyperformances.

Afterlunch,AliceAdams,aclient,offersHarrisa1-weekcruiseasarewardforthegreatperformanceofheraccountover

thepreviousquarter.BertBaker,alsoaclient,hasofferedHarristwoairplaneticketstoHawaiiifhisaccountbeatsits

benchmarkbymorethan2%overthefollowingyear.

JuliannClark,aCFAcandidate,isananalystatDillonAssociatesandacolleagueofSwamy's.Clarkparticipatesina

conferencecallforseveralanalystsinwhichthechiefexecutiveofficeratDexsayshiscompany'sboardofdirectorshas

justacceptedatenderofferfromMonolithChemicalstobuyDexata40%premiumoverthemarketprice.Clarkcontacts

afriendandrelatestheinformationaboutDexandMonolith.Thefriendpromptlycontactsherbrokerandbuys2,000

sharesofDex'sstock.

EdMichaels,CFA,isdirectoroftradingatQuadrangleBrokers.Michaelshasrecentlyimplementedabuyprogramfora

client.Thisbuyprogramhasdrivenupthepriceofasmall-capstock,inwhichIslandwideownsshares,byapproximately

5%becausetheorderswerelargeinrelationtotheaveragedailytradingvolumeofthestock.Michaels'sfirmisaboutto

bringsharesofanOTCfirmtomarketinanIPO.Michaelshaspubliclyannouncedthat,asamarketmakerintheshares,

histradingdeskwillcreateadditionalliquidityinthestockoveritsfirst90daysoftradingbycommittingtominimumbids

andoffersof5,000sharesandtoamaximumspreadofone-eighth.

CarlPark,CFA,isaretailbrokerwithQuadrangleandhasbeenallocated5,000sharesofanoversubscribedIPO.Oneof

hisclientshasbeencomplainingabouttheexecutionpriceofatradeParkmadeforherlastmonth,butParkknowsfrom

researchingitthatthetradereceivedthebestpossibleexecution.Inordertocalmtheclientdown,Parkincreasesher

allocationofsharesintheIPOabovewhatitwouldbeifheallocatedthemtoallsuitableclientaccountsbasedonaccount

size.Heallocatesapro-rataportionoftheremainingsharestoatrustaccountheldathisfirmforwhichhisbrother-in-law

istheprimarybeneficiary.

Question#31of36

QuestionID:1214392

ByacceptingthetripfromQuadrangle,hasHarriscompliedwiththeCFAInstituteCodeandStandards?

A)Harrismayacceptthetripbecauseshemaintainsasignificantrelationshipwith

Quadranglethatcontributestotheperformanceofclientaccounts.

B)Harrismayacceptthetripbecauseshedisclosedthetriptohersupervisorand

complianceofficerandacceptedbasedontheirapproval.

C)HarrismaynotacceptthetripbecausetheofferfromQuadranglecouldimpedeher

abilitytomakeobjectiveinvestmentdecisionsonbehalfoftheclient.

Question#32of36

QuestionID:1214393

HaseitherHarrisorClarkviolatedStandardII(A)IntegrityofCapitalMarkets:MaterialNonpublicInformation?

A)Harrisisinviolation.

B)Clarkisinviolation.

C)Bothareinviolation.

Question#33of36

QuestionID:1214394

AccordingtotheStandardsofPractice,withrespecttothetwooffersfromAdamsandBaker,Harris:

A)mayacceptbothoffersifshedisclosesthemtoheremployer.

B)mayacceptbothgiftsonlyifshedisclosesthemtoheremployerandreceives

permission.

C)mustdisclosetheofferfromAdamstoheremployerifsheacceptsitbutmust

receiveheremployer’spermissiontoaccepttheofferfromBaker.

Question#34of36

QuestionID:1214395

HasMichaelsviolatedStandardII(B)IntegrityofCapitalMarkets:MarketManipulationwithrespecttoanyofthe

following?

A)Thebuyprogramisaviolation.

B)Theliquidityactivityisaviolation.

C)Thereisnoviolation.

Question#35of36

QuestionID:1214396

AccordingtoStandardIVDutiestoEmployers,whichofthefollowingismostlikelyrequiredofSwamy?Swamymust:

A)securewrittenpermissionfromheremployerbeforeperformingservicesforthe

symphony.

B)informherimmediatesupervisoratDilloninwritingthatshe(Swamy)mustcomply

withtheCodeandStandards.

C)disclosetoheremployeranyadditionalcompensationshereceivesfromLandmark

Enterprisesandsecurewrittenpermissiontoserveontheboard.

Question#36of36

QuestionID:1214397

WhichactionbyParkviolatedStandardIII(B)DutiestoClients:FairDealing?

A)Increasingallocationtotheproblemclient.

B)Decreasedallocationtothebrother-in-lawandotherfirmclients.

C)Bothactionsareviolations.

CFALevelII

Questions#1-6of36

Questions1-6relatetoIGS.

TheNewYork-basedIrwinGoldreichSchmidt(IGS)isamid-sizedprivateequityfirmwith$300millioncapitalraisedfrom

itsinvestors.Amidaturbulentyear,thefirmhasrecentlydroppeditsunsuccessful$100millionbidforaNorwegianmedia

companyandisnowaggressivelysearchingfornewventureorbuyoutinvestmentsintheEurozone.Afterseveralmonths

ofintensesearch,IGSbelievesitidentifiedtwopotentialinvestments:

1.Sverig,arapidlyexpandingSwedishstart-upconstructioncompany.

2.L'Offre,astrugglingFrenchdepartmentstoreinexistencesincethelate19thCentury.

Followingseveralroundsofsuccessfulnegotiations,IGSmakesa$20millioninvestmentinSveriganda$100million

leveragedbuyoutinvestmentinL'Offre,committingtoanadditional$100millionforpossiblefuturecapitaldrawdowns.It

retainsallofSverig'smanagersbutreplacesL'Offre'smanagementteamwithexperiencedIGSmanagers,manyofwhom

areformercompanyseniorexecutives.

IGSalsosetsupSverig-L'OffrePrivateEquityFund(SLPEF),afundtomanagebothfirms.Thefundmanager's

compensationissetat20%ofprofitsnetoffees.IGSalsospecifiesthatthemanager'sprofitsarecalculatedontheentire

portfoliowhenportfoliovalueexceedsinvestedcapitalby30%.

Despitethemarket'srecentturbulence,Sverig'soriginalfoundersareextremelyoptimisticandbelievethefirmcouldbe

soldfor$400millioninsixyears.Toachievethis,theyspeculatethefirmneedsanothercapitalinfusionof$40millionin

fouryearsinadditiontothe$20millioncapitalinvestmenttoday.Giventhehighriskofthefirm,SLPEF'sprivateequity

investorsdecidethatadiscountrateof40%forthefirstfouryearsand30%forthelasttwoyearsisappropriate.The

foundersofSverigwanttohold5millionshares.

Question#1of36

QuestionID:1214399

IftotalproceedsnetoffeestoSLPEFareworth$180millionuponexitinayear,thefund'sgeneralpartner(GP)underthe

totalreturnusinginvestedcapitalmethodwouldreceiveaco