CFA Level I · CFA Level I Exam · Guidance for Standard V: Investment Analysis, Recommendations, and Actions
A candidate's recommendation relies on a quantitative valuation model. After a review, she modifies the model by changing the way terminal growth is estimated, which shifts the target prices of several covered stocks. Her firm's next report supports its conclusions with the model output. Which action is most consistent with Standard V(B)?
She should support the quantitative analysis with readily available reference material and disclose the methodology change. Standard V(B) guidance requires both, so readers can follow and challenge the reasoning. Revised target prices alone do not explain the change, and no tolerance threshold excuses nondisclosure.
- AProvide readily available supporting reference material for the quantitative work and disclose the change in methodology.Correct
- BKeep the change internal because target price revisions already signal that the model changed.
- CDisclose the change only if the revised target prices differ from the earlier ones by more than the firm's usual tolerance.
Explanation
The guidance says advice based on quantitative research must be supported with readily available reference material, and changes in methodology must be disclosed. Price revisions alone do not tell readers why the numbers moved. A firm-set tolerance threshold is not part of the Standard.
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