Grey's Statements Violating AIMR's Code and Standards | CFA Level 1 Exam Prep

Grey's Statements Violating AIMR's Code and Standards

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Question

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?

Answers

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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Explanations

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A. B. C. 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).

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