CFA® Program Level I Sample Questions
The questions below can help you prepare for the CFA Program Level I exam.
Setting yourself up for success
The sample questions shown here are to help you understand the format of the CFA Program Level I exam, the way that questions are asked, and how the correct answers are worked out. You can also use these questions to test your knowledge.
We've included 10 questions below, one per curriculum topic. You can download 20 extra questions by filling out the form at the bottom of the page.
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Sample questions
Q1. Ethical and Professional Standards
Which of the following statements is most accurate? Ethics can be described as:
A. A commitment to upholding the law
B. An individual’s personal opinion about right and wrong
C. A set of moral principles that provide guidance for our behavior
C is correct. Ethics can be described as a set of moral principles that provide guidance for our behavior; these may be moral principles shared by a community or societal group.
Q2. Quantitative Methods
An investor purchased 100 shares of a stock for USD34.50 per share at the beginning of the quarter. If the investor sold all of the shares for USD30.50 per share after receiving a USD51.55 dividend payment at the end of the quarter, the investor’s holding period return is closest to:
A. −13.0 percent
B. −11.6 percent
C. −10.1 percent
C is correct. Applying Equation 2, the holding period return is −10.1 percent, calculated as follows:
R = (3,050 − 3,450 + 51.55)/3,450 = −10.1%. The holding period return comprised of a dividend yield of 1.49 percent (=51.55/3,450) and a capital loss of −11.59 percent (= −400/3,450).
Q3. Economics
A company has total variable costs of $4 million and fixed costs of $3 million. Based on this information, the company will stay in the market in the long term if total revenue is at least:
A. $3.0 million
B. $4.5 million
C. $7.0 million
C is correct. A company will stay in the market in the long term if total revenue is equal to or greater than total cost. Because total costs are $7 million ($4 million variable costs and $3 million fixed costs), the company will stay in the market in the long term if total revenue equals at least $7 million.
Q4. Corporate Issuers
Which of the following organizational forms provides for the least owner liability of business debts?
A. General partnership
B. Private limited company
C. Sole proprietorship
B is correct. In both the sole proprietorship and general partnership forms of organization, the owners are personally liable for all debts assumed by the company. In a private limited company, owner (shareholder) liability is limited to the value of their ownership stake.
Q5. Financial Statement Analysis
For its fiscal year-end, Sublyme Corporation reported net income of USD200 million and a weighted average of 50,000,000 common shares outstanding. There are 2,000,000 convertible preferred shares outstanding that paid an annual dividend of USD5. Each preferred share is convertible into two shares of the common stock. The diluted EPS is closest to:
A. USD3.52
B. USD3.65
C. USD3.70
C is correct.
Diluted EPS = (Net income)/(Weighted average number of shares outstanding + New common shares that would have been issued at conversion)= USD200,000,000/[50,000,000 + (2,000,000 × 2)] = USD3.70
The diluted EPS assumes that the preferred dividend is not paid and that the shares are converted at the beginning of the period.
Q6. Equity Investments
Which of the following statements about exchange-traded funds is most correct?
A. Exchange-traded funds are not backed by any assets
B. The investment companies that create exchange-traded funds are financial intermediaries
C. The transaction costs of trading shares of exchange-traded funds are substantially greater than the combined costs of trading the underlying assets of the fund
B is correct. The investment companies that create exchange-traded funds (ETFs) are financial intermediaries. ETFs are securities that represent ownership in the assets held by the fund. The transaction costs of trading shares of ETFs are substantially lower than the combined costs of trading the underlying assets of the ETF.
Q7. Fixed Income
Assume that today (t = 0) the current US five-year Treasury note trades at a price equal to the bond’s face value of USD50,000,000. The security buyer takes delivery of the US Treasury note today and pays the security seller USD50,000,000. Assume a repo term of 45 days (and 360 days in a year) and a repo rate of 0.375%. If the buyer agrees to return the five-year Treasury note 45 days from today (t = T) to the seller, the repurchase price is closest to:
A. USD50,015,625
B. USD50,023,438
C. USD50,187,500
B is correct. USD50,023,438 is calculated as:
USD50,000,000 × [1 + (0.375% × 45/360)] = USD50,023,438.
In effect, the security seller borrows USD50,000,000 on a short-term basis at a low cost, with interest (USD23,438) paid at maturity, because the loan is collateralized by the US Treasury note.
A is incorrect because a repo term of 30 days, as opposed to 45 days, is incorrectly used:
USD50,000,000 × [1 + (0.375% × 30/360)] = USD50,015,625.
C is incorrect because the repo term and number of days in a year are not used:
USD50,000,000 × (1 + 0.375%) = USD50,187,500.
Q8. Derivatives
If a corporate issuer enters into a centrally cleared OTC derivative contract, which of the following risks is likely of most concern to the issuer and other participants in this market?
A. Interest rate risk
B. Counterparty credit risk
C. Systemic risk
C is correct. Because all the credit risk is taken on by the CCP, all participants in this market are most concerned that the CCP is able to satisfy its obligations to all contracts. A is incorrect because interest rate risk is an underlying risk that can be hedged or managed with certain OTC derivative contracts. B is incorrect because the CCP assumes the credit risk from all parties to the contracts.
Q9. Alternative Investments
Which of the following statements most correctly describes why commodity investments are thought to provide a hedge against inflation?
A. The returns on commodity investing are driven by commodity price changes, and inflation partially reflects these changes
B. Commodity prices increase after inflation rates increase
C. Expectations of higher inflation cause commodity prices to increase
A is correct. Commodity prices are a significant portion of consumer prices because commodities include aspects of everyday life, such as food and energy, and thus consumer price inflation will incorporate the effects of commodity price changes. By investing in commodities, an investor is, at least partially, hedged against the inflation that occurs with rising commodity prices. B is incorrect because inflation and commodity prices do not move together, but instead, changes in the inflation rate lag behind changes in commodity prices. C is incorrect because in this case, commodity price increases occur before inflation changes.
Q10. Portfolio Management
With respect to the portfolio management process, the asset allocation is determined in the:
A. Planning step
B. Feedback step
C. Execution step
C is correct. The client’s objectives and constraints are established in the investment policy statement and are used to determine the client’s target asset allocation, which occurs in the execution step of the portfolio management process.
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