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Basic Question 3 of 6
Your supervisor asks you to write a report on XYZ, Inc. He indicates that it is important for the firm to get a favorable evaluation since your firm's underwriting department is hoping to do substantial business with XYZ in the future. You engage in a lengthy analysis of the firm and are convinced, on the basis of your work, that the firm is indeed undervalued.
B. You should refrain from issuing any recommendation because objectivity is not possible.
C. You should issue a buy recommendation if you believe your analysis was objective and adequate.
A. You should issue a buy recommendation anyway to maintain independence.
B. You should refrain from issuing any recommendation because objectivity is not possible.
C. You should issue a buy recommendation if you believe your analysis was objective and adequate.
User Contributed Comments 14
| User | Comment |
|---|---|
| robkaz | I think B. is also possible. If C., the analyst should at least disclose the business relationship. |
| tawi | I think the answer is C, any report should have been on the basis of extensive and adequate research which was indeed conducted and this information/data used in the resaerch should be disclosed. This will form evidence for the rationale at arriving at any recommendation and will prove ovjectivity (this excludes B a a possible answer). What do you all think? |
| CFADY | I prefer C as well. |
| dipta | Prefer C. The opinion would have been resulted from the extensive research and not due to the employee relationship |
| TheProfet | C is no doubt the correct answer. In the US, it is common practice for investment banking firms to disclose that the firm has in the past done business with, or is seeking to do business with the covered Company. Also, the analyst generally makes a certification regarding his or her interests in the covered Company as well. |
| teddajr | Does the statement "that the firm is indeed undervalued" mean, that the stocks of the firm in-question are undervalued? Sorry, for the stupid qns. |
| mystimate | Good question. |
| sergashev | Supervisor should have not put analyst under constraint of favorable report. Analyst should have started working on the report only after warning the supervisor that the report would be objective based of facts. |
| sanyukta | i agree with sergashev and for robkaz i say write ur report truthfully and if ur supervisor is not happy, u have done ur job and u dissociate urself from the process if he tries to put any pressure and take legal counsel.. |
| TammTamm | C is correct because the analyst still did the research and determined it was a buy. I would still keep records of the research I peformed. But that's just me. |
| got2pass | the question did say "on the basis of your work"...which would imply independence and not considering the influence |
| ljamieson | XYZ sure gets a lot of attention these days. |
| bantoo | I completely failed and ticed B |
| kahh | @Sergashev and Sanyukta, My assumption is that the supervisor may in this case have more relevant experience in stock-picking so he/she may just need the analyst to do the ground work for them knowing that the stock is definitely a buy |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
CFA® 2025 Level I Curriculum, Volume 6, Module 3.