6.) Does the Fund's disclosure to its clients regarding the renewal of the license most likely
comply with the Asset Manager Code of Professional Conduct?
A. Yes, the disclosure included the termination of the fund manager
B. No
C. Yes, the disclosure included the out-of-court settlement and payment of fine
Ptolemy
The Ptolemy Foundation was established to provide financial assistance for education in the
field of astronomy. Tom Fiske, the foundation’s chief investment officer, and his staff of three
analysts use a top-down process that begins with an economic forecast, assignment of asset
class weights, and selection of appropriate index funds. The team meets once a week to discuss
a variety of topics ranging from economic modeling, economic outlook, portfolio performance,
and investment opportunities, including those in emerging markets.
At the start of the meeting, Fiske asks the analysts, Len Tuoc, Kim Spenser, and Pier Poulsen, to
describe The Ptolemy Foundation was established to provide financial assistance for education
in the field of astronomy. Tom Fiske, the foundation’s chief investment officer, and his staff of
three analysts use a top-down process that begins with an economic forecast, assignment of
asset class weights, and selection of appropriate index funds. The team meets once a week to
discuss a variety of topics ranging from economic modeling, economic outlook, portfolio
performance, and investment opportunities, including those in emerging markets.
describe and justify their different approaches to economic forecasting. They reply as follows.
Tuoc: I prefer econometric modeling. Robust models built with detailed regression
analysis can help predict recessions well because the established relationships among
the variables seldom change.
Spenser: I like the economic indicators approach. For example, the composite of leading
economic indicators is based on an analysis of its forecasting usefulness in past cycles.
They are intuitive, simple to construct, require only a limited number of variables, and
third-party versions are also available.
Poulsen: The checklist approach is my choice. This straightforward approach considers
the widest range of data. Using simple statistical method, such as time-series analysis,
an analyst can quickly assess which measures are extreme. This approach relies less on
subjectivity and is less time-consuming.”
The team then discusses what the long-term growth path for US GDP should be in the aftermath
of exogenous shocks because of the financial crisis that began in 2008. They examine several
reports from outside sources and develop a forecast for aggregate trend growth using the
simple labor-based approach and appropriate data chosen from the items in Exhibit 1.
Exhibit 1: 10-Year Forecast of US Macroeconomic Data
Growth in real consumer spending 3.10% Yield on 10-year Treasury bonds 2.70%
Growth in potential labor force 1.90%
Growth in total factor productivity 0.50%
Growth in labor force participation –0.3%
Growth in labor productivity 1.40% Change in trade deficit –0.5%
Upon a review of the portfolio and his discussion with the investment team, Fiske determines a
need to increase US large-cap equities. He prefers to forecast the average annual return for US
large-cap equities over the next 10 years using the Grinold–Kroner model and the data in Exhibit
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