EFG Magazine

Business | Only 35% Pass Wall St.’s Toughest Test. How Much Does That Matter?

https://www.nytimes.com/2021/09/30/business/cfa-test-fail-pass.html

This summer, a record low number of C.F.A. test takers passed the first level of the notoriously difficult exams, reviving an old debate about the merits of the qualification.

Outside the New York Stock Exchange in September.
Outside the New York Stock Exchange in September. Credit... Victor Llorente for The New York Times

Sept. 30, 2021

When the pandemic hit, Irene Zhu decided to explore switching careers from tourism to finance. A lifelong math whiz, Ms. Zhu, 37, set her sights on becoming a chartered financial analyst, a highly coveted professional qualification in the investing world. But to do so, she would need to pass three notoriously difficult tests, the first of which she sat for in February — after staying up well past 1 a.m. on many nights studying.

She failed.

“I have to say, it was pretty messy,” Ms. Zhu said in a video chronicling her experience. “What made the C.F.A. exam really challenging for me is the time and effort that I needed to put in,” she said.

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚
Seth Wenig/Associated Press

This summer, a record low number of those who took the test to become chartered financial analysts — a highly coveted qualification in the investing world — actually passed the first level.

How would you do? →

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

The belief that one’s ethical standards are above average is most likely a reflection of which of the following behavioral biases?

  1. Overconfidence

  2. Short-term focus

  3. Situational influence

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

1 is correct.

The belief that one’s ethical standards are above average illustrates an overconfidence bias. An overconfidence bias will most likely lead individuals to overestimate the morality of their own behavior and can lead to a failure to consider important inputs and variables needed to make the best ethical decisions.

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

A regulator who requires financial advisers to merely consider the suitability of a product when making recommendations to clients would most likely be setting:

  1. Both a legal and an ethical standard

  2. An ethical standard

  3. A legal standard

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

3 is correct.

The regulator only sets a legal standard when requiring a financial adviser to merely consider suitability when making recommendations to clients. Requiring advisers to act as fiduciaries would be setting both a legal and an ethical standard; it would require the interests of the client to be above those of the firm or employee.

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

Under what circumstances could a client possibly win a lawsuit against a financial adviser, despite the financial adviser abiding by all regulatory and legal requirements?

  1. The adviser benefiting more from the relationship than the client

  2. The adviser not being subject to a code of ethics

  3. The adviser violating his employer’s published code of ethics

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

3 is correct.

If the client could prove the firm marketed its code of ethics (i.e., putting the interests of the client first) as a reason to hire the firm and the adviser violated the code, the court may rule in the client’s favor.

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

A financial contract offers to pay €1,200 per month for five years with the first payment made immediately. Assuming an annual discount rate of 6.5%, compounded monthly, the present value of the contract is closest to:

Could You Pass the C.F.A. Exam?

Lananh Nguyen
Lananh Nguyen Testing my skills 📚

2 is correct.

Using a financial calculator:

N=60; the discount rate, I/Y=(6.5/12)= 0.54166667; PMT=1,200; FV=0; Mode = Begin; Calculate PV: PV = 61,662.62.