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Answer: Not permissible since Bixby is misrepresenting the investment performance she and/or her firm is capable of delivering.
## Explanation This question relates to ethical standards in financial risk management, specifically regarding performance claims in promotional materials. **Key Analysis:** - The fund is a **mid-cap fund** with 40-60 different issues - Bixby claims the fund will **track the S&P 500 Index** (a large-cap index) while delivering a **2-4% return premium** - This creates a fundamental inconsistency: a mid-cap fund cannot realistically track a large-cap index like the S&P 500 **Why Option C is Correct:** - Bixby is making specific, quantifiable performance claims (2-4% premium) that cannot be guaranteed - Under professional standards (such as GARP's Code of Conduct and CFA Institute standards), investment professionals cannot make specific performance guarantees or promises - The statement misrepresents the investment performance capabilities by suggesting predictable outperformance - Even with quantitative models, future performance cannot be guaranteed **Why Other Options Are Incorrect:** - **Option A**: While modern portfolio theory supports the concept of risk factors, it does not justify making specific performance guarantees - **Option B**: This focuses on misrepresentation of services, but the primary issue is the performance guarantee, not service capability **Professional Standards Violation:** This violates the principle of **fair representation** and **avoiding misleading statements** about investment performance, which are core ethical requirements in financial risk management.
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Beth Bixby, FRM, oversees a mid-cap fund that is required to invest in a minimum of 40 and a maximum of 60 different issues. Bixby uses a quantitative approach to actively manage the assets. In promotional materials, she states that "through our complex quantitative approach, securities are selected that have similar exposures to a number of risk factors that are found in the S&P 500 Index. Thus the fund is designed to track the performance of the S&P 500 Index but will receive a return premium of between 2% and 4% according to our model's risk-return measures." This statement is:
A
Permissible since the assertion is supported by modern portfolio theory and estimates from the firms' model.
B
Not permissible since Bixby is misrepresenting the services that she and/or her firm are capable of performing.
C
Not permissible since Bixby is misrepresenting the investment performance she and/or her firm is capable of delivering.