1. Bull Advisors, based in Country Y, expanded its operations to Country X, where securities laws and regulations are less strict than either CFA Institute's Code and Standards or Country Y's laws and regulations. One of Bull's advisors, Joseph Telluci, CFA, travels to Country X to meet with a client. In a rush to meet with the client before she leaves for vacation, Telluci does not familiarize himself with Country X's securities laws and regulations. After the meeting, he begins the investment management process on behalf of the client based on the laws, regulations, and rules of Country Y and the Code and Standards. Has Telluci most likely violated Standard I(A) Knowledge of the Law  Yes  "Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations." Standard I(A) Knowledge of the Law requires members and candidates to understand local laws. When members or candidates do business in more than one country, they are required to know and understand both the Standards of Professional Conduct and the laws and regulations of each country. In all professional activities, they must follow the strictest of the applicable rules. Telluci does business in both Country Y (where Bull Advisors is based) and Country X (where the new client resides). Before doing business with the client, Telluci must be familiar with the set of securities laws and regulations in Country X—in addition to those of Country Y and the Code and Standards—so that he knows which rules to apply if a conflict arises. Without this knowledge, Telluci could not make an informed judgment. (Choices B and C) Although the rules of Country X are less strict than those of Country Y or the Code and Standards, Telluci violated Standard I(A) by not familiarizing himself with and understanding all the applicable laws and regulations. Things to remember: Standard I(A) Knowledge of the Law requires members and candidates to understand the laws and regulations in any country where they engage in professional activities, as well as the Code and Standards. In all cases, the strictest of these laws, rules, and regulations must be followed. 2. A put option on a stock is valued using a three-step binominal tree with the following underlying assumptions: What is the number of terminal nodes with a positive payoff for the put buyer? 1 The direction of the stock price movement has only two possible outcomes: up or down. At each point in time in this scenario, the next period's price will equal the current period's price multiplied either by 1.1 if the price moves up or by 0.95 if the price moves down. The put buyer will receive only a positive payoff (equal to the exercise price minus the stock price) if the stock price is less than the exercise price of GBP 45. At Time 3 in this binomial tree, only the bottom node shows a price less than GBP 45, at GBP 42.87. Things to remember: Binomial trees can be used for modeling underlying stock prices to estimate an option's payoff. At each point in time, the next period's stock price will either equal the current period's price multiplied by an upward or a downward factor. 3. Rashid Miah, CFA, negotiates with his employer, Tenor Capital, to work only part-time as a financial advisor while finishing a graduate degree, with the understanding that he will return to full-time work after graduation. After graduating, Miah remains employed part-time since Tenor does not have enough clients, and keeps him at a part-time status until more clients are obtained.

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