II. "If you invest in the mutual fund, you will earn a 15 percent rate of return each year for the next several years." Did Grey’s statements violated AIMR’s Code and Standards?

Grey recommends the purchase of a mutual fund that invests solely in long- term U.S.

Treasury bonds. He makes the following statements to his clients:

I. "The payment of the bond is guaranteed by the U.S. government; therefore, the default risk of the bonds is virtually zero."

II. "If you invest in the mutual fund, you will earn a 15 percent rate of return each year for the next several years." Did Grey’s statements violated AIMR’s Code and Standards?
A . Neither statement violated the Code and Standards.
B . Statement I and II violated the code and Standards.
C . Only statement I violated the Code and Standards.
D . Only statement II violated the Code and Standards.

View Answer

Answer: D

Explanation:

This question deals with Standard IV (B.6), Prohibition against Misrepresentation. Statement I is a factual statement that discloses to clients and prospects accurate information about the terms of the investment instrument. Statement II, which guarantees a specific rate of return, is an opinion stated as a fact and therefore violates Standard IV (B.6).