level_II_mock_exam_afternoon_versionb_answers_2014第二套下午

Kostecka
Jacob Kostecka, CFA, is a portfolio manager at Forkson Investment Management, an asset management and research focused organization. After obtaining his CFA charter last month, Kostecka was transferred to the private wealth management division at Forkson.
Dharshi Bope, a private wealth client, was involved in a major motorcycle accident and is in critical condition, fighting for his life. Bope is a single parent with a daughter, Paveen Nathoo, in her mid-twenties. Since the accident, Nathoo has managed her father’s affairs, paying all expenses, including investment advisory fees. In several conversations with Nathoo, Kostecka highlighted Bope’s low risk tolerance and investment goal of capital preservation. Nathoo has indicated her interest in managing the account more aggressively and possibly moving to another management firm. Nathoo recently petitioned the court to appoint her full power of attorney to legally manage Bope’s affairs. Prior to the court decision, Nathoo asks Kostecka to invest her father’s account in the initial public offering (IPO) of Chatterbox, a highly sought after social media company that has yet to generate a profit.
Nathoo establishes a non-discretionary investment account at Forkson tied to her newly established business. Shortly thereafter, Kostecka joins the board of , a smaller social media competitor to Chatterbox. Based on his knowledge of Chatterbox, Kostecka believes the stock of Jabbertalk is a good investment, even though it is not yet profitable. Buoyed by his faith in social media, Kostecka ultimately purchases shares of Jabbertalk’s IPO for Nathoo’s account, as well as for all clients he currently manages. When Kostecka informs Nathoo of the purchase, she expresses concern about her legal responsibilities and lack of accounting knowledge in overseeing the account. Kostecka provides Nathoo a list of recommended professionals he has worked with in the past, including attorneys and accountants. When he was in college 10 years earlier, Kostecka was engaged to one of the attorneys but broke off the relationship prior to their wedding, and one of the accountants was Kostecka’s college roommate. Since then, Kostecka has not had any contact with the lawyer and accountant.
In order to build his client base, Kostecka prepares performance informatห้องสมุดไป่ตู้on to show prospective clients. He includes the firm’s composite performance based on similar discretionary client portfolios that are in compliance with the GIPS Standards. In addition, Kostecka prepares his own composite performance, including all accounts he manages. This presentation includes Nathoo’s account assuming she had sold her shares of Jabbertalk. Along with his performance record, Kostecka provides a footnote disclosing the following language: “If your account is managed on a discretionary basis, you might expect results similar to those shown above.”
The Jabbertalk investment is profitable on the first day of trading, doubling from its opening price. Kostecka tells his clients the multifactor valuation model used by Forkson shows Jabbertalk stock is still undervalued. Forkson’s research report, due out the next day, will recommend investors hold their Jabbertalk shares. However, Kostecka tells all his clients simultaneously they should sell their shares because he believes Jabbertalk is overvalued and the stock price will fall soon. Kostecka notes he has followed through on this belief by selling his personal holdings of Jabbertalk shares. Nathoo ignores Kostecka’s recommendation to sell Jabbertalk. Over the next week, the stock declines 75%.
1.) With regard to the investment request made by Nathoo to invest in Chatterbox, Kostecka should most likely:
A. seek advice from the court. B. comply with her request. C. follow Bope’s investment goals.
The following week, the court approves Nathoo’s request to act on behalf of her father. Going through records in her father’s home, Nathoo discovers documents showing Bope embezzled several million dollars from his employer, a real estate development company. Most of these funds were placed directly into Bope’s personal account, for which Nathoo is now responsible. Nathoo informs Kostecka about her discovery; however, Kostecka does not act on this information, however, because it is a large account for Forkson.
Answer = C