Explanation

This question tests knowledge of Standard I(B) - Independence and Objectivity and Standard V(A) - Diligence and Reasonable Basis of the CFA Institute Code of Ethics and Standards of Professional Conduct.

Key Points:

1. Conflict of Interest: Ducumon is being asked by the investment banking department (which underwrote the IPO) to recommend shares to her clients. This creates a potential conflict of interest where the investment banking department's interests (to sell shares they underwrote) may conflict with Ducumon's duty to provide objective investment advice to her clients.

2. Independence and Objectivity (Standard I(B)): Members must maintain independence and objectivity in their professional activities. Ducumon must not allow the investment banking department's request to compromise her independent judgment.

3. Diligence and Reasonable Basis (Standard V(A)): Members must exercise diligence, independence, and thoroughness in analyzing investments and making investment recommendations. Ducumon has already analyzed Babyskin and concluded that the shares are not a buy at current price levels.

4. Professional Judgment: Even though Ducumon has a favorable opinion of the company, she believes the shares are overvalued at current prices. Recommending them would violate her professional judgment and duty to clients.

Why Option A is Correct:

• Ducumon should ignore the request because recommending shares she believes are overvalued would violate her duty to clients and her professional standards.
• She must maintain her independence from the investment banking department's pressure.
• Her analysis has already determined the shares are not a buy, so she should not recommend them.

Why Other Options are Incorrect:

• Option B: "Recommend the shares after additional analysis" is incorrect because Ducumon has already done her analysis and reached a conclusion. Additional analysis would likely be biased by the pressure from the investment banking department.
• Option C: "Follow the request as soon as the share price declines" is incorrect because this would still be following the investment banking department's directive rather than making an independent investment decision based on her analysis.

Ethical Principles:

• Loyalty to Clients: Ducumon's primary duty is to her clients, not to the investment banking department.
• Integrity: She must maintain her professional integrity by not recommending investments she believes are unsuitable.
• Objectivity: She must remain objective and not be influenced by internal pressures or conflicts of interest.