CFA Level I Practice Questions

• According to the CFA Institute, the Level I CFA Exam consists of 180 multiple-choice questions.
• You’ll have three answers to choose from on the CFA Level I exam, and the exam is split into two sessions.
• There are 90 questions in each session, and you’ll have 2 hours and 15 minutes each session to complete them on exam day.
• On average, you should allot around 90 seconds for each multiple-choice question when you take the actual exam.

Before you begin to take mock exams and practice questions, it’s helpful to know what the Level I CFA format looks like. There are 180 multiple-choice questions spread across two sessions and questions will vary in style.

On average, you’ll want to plan for about 90 seconds for each multiple-choice question on exam day. But during your exam prep, you can drill practice questions to shorten that time frame so you have more than enough time during the actual exam.

Remember, the Level I exam has 10 topic areas to focus on, each with different topic weights. Financial Reporting and Analysis (FRA) and Ethics are weighted heaviest, followed by Quantitative Methods, Corporate Finance, and Fixed Income. Derivatives, Economics, Alternative Investments, and Portfolio Management round out the Level I CFA curriculum.

Test your knowledge and check that you can apply what you have learned with 3,700+ practice questions and practice exams with our CFA Level I Test Bank.

CFA Level I Ethical and Professional Standards Practice Question

According to Standard III (C) Suitability, when members and candidates are in an advisory relationship with a client, they must:

1. Make a reasonable inquiry into a client’s marital status.
2. Judge the suitability of investments in the context of the client’s total portfolio.
3. Determine that an investment is suitable to a client without adherence to the client’s written objectives.

CFA Level I Quantitative Methods Practice Question

A distribution with excess kurtosis of 1.5 would most likely be considered:

1. Leptokurtic
2. Mesokurtic
3. Platykurtic

CFA Level I Economics Practice Question

Government transfer payments have which effect on GDP?

1. Increase government’s share of GDP because they are a form of government spending.
2. Decrease the household consumption part of GDP because people have to pay taxes to fund them.
3. No effect on GDP except as they lead to increases in household consumption.

CFA Level I Financial Reporting and Analysis Practice Question Practice Question

Under IFRS, which of the following financial statements most likely comprises the results of a company’s day-to-day business operations over a period of time?

1. Statement of financial position.
2. Statement of comprehensive income beginning with profit or loss from the income statement.
3. Cash flow statement.

CFA Level I Corporate Issuers Practice Question

ABC Corp. has a 6% 10-year bond outstanding, which is trading at a yield to maturity of 8%. The company’s marginal tax rate is 40%. The component cost of debt for ABC Corp. is closest to:

1. 3.6%
2. 4.8%
3. 8.0%

CFA Level I Portfolio Management and Wealth Planning Practice Question

The point at which the capital allocation line tangents the efficient frontier is the:

1. Optimal portfolio for a risk-averse investor.
2. Optimal risky portfolio for all investors irrespective of their risk preferences.
3. Optimal portfolio for all investors irrespective of their risk preferences.

CFA Level I Equity Investments Practice Question

An investor buys 1,000 shares priced at $100 on margin, and the initial margin required is 40%. If the maintenance margin is 30%, the investor will have to pay the first margin call if the share price falls below:

1. $70.00
2. $85.71
3. $90.00

CFA Level I Fixed Income Practice Question

Which tranche in a collateralized mortgage obligation (CMO) structure is most suitable for an investor who expects interest rates to fall?

1. A floating-rate tranche.
2. An inverse floating-rate tranche.
3. The first tranche in a sequential-pay CMO.

CFA Level I Derivatives Practice Question

Standardization of derivative market instruments does not facilitate the creation of:

1. Clearing operations
2. Settlement operations
3. Margin operations

Wiley’s free CFA practice exam assesses your current aptitude and understanding of every topic area included on the Level I exam and gives you a better understanding of your strengths and weaknesses. You can use this free information to better prepare for the exam.

CFA Level I Alternative Investments Practice Question

The Sharpe ratio for hedge fund indices is:

1. Often understated due to survivorship bias.
2. Generally higher than those for equity and bond indices.
3. A suitable measure of risk-adjusted return since returns are not always symmetrically distributed.

1. B
2. A
3. C
4. C
5. B
6. B
7. B
8. B
9. C
10. B

1. They should determine that an investment is suitable to a client. It should be consistent with his written objectives.
2. A normal distribution has excess kurtosis of 0. Excess kurtosis of 1.5 indicates greater than normal observations in the tails, thus being designated leptokurtic.
3. Transfer payments are government expenditures, but they are subtracted from government spending when calculating GDP. Any GDP effect from them shows up when they are spent by the recipients.
4. The operating activities section of a cash flow statement shows the cash results of the day-to-day operations of a company over a period of time. The statement of comprehensive income, under IFRS, can be presented either as a single statement of comprehensive income or as two statements—an income statement and a statement of comprehensive income that begins with profit or loss from the income statement. The latter statement includes all items that impact the owners’ equity but are not the result of day-to-day business operations or transactions with shareowners.
5. The cost of debt is the required return of investors in the bond, which is the yield to maturity less tax savings, which is:
   Cost of debt=kd(1−T)=8%×(1.00−0.40)=4.8%
6. The point at which the capital allocation line tangents the efficient frontier is the optimal risky portfolio for all investors irrespective of their risk preferences.
7. The initial margin requirement of 40% allows the investor to borrow 60%, or $60,000 of the $100,000 cost of the shares. If the price of the shares moves to P, the value of the equity is 1,000P – $60,000. This must equal 30% of 1,000P. This gives:
   1,000P−$60,000=300PorP=$85.71
8. When interest rates go down, an inverse floating-rate tranche of a CMO gets paid more coupon interest. In contrast, declining rates will result in lower interest being paid on a floating-rate tranche. The first tranche in a sequential-pay CMO will suffer contraction risk when interest rates go down.
9. Margin operations are not directly affected by the standardization of derivatives markets, as they are usually an internal function of brokerage firms.
10. The standard deviation in the denominator of the Sharpe ratio does not adequately indicate risk due to survivorship bias (i.e., higher-return funds remaining in the market), fat tails with greater extreme downside risk than the normal distribution used in standard deviation, and potentially overstated appraisals used in lieu of actual market prices.

By the time you’re ready to take the CFA Level I exam, you should be seeing practice questions in your sleep. Taking the time to focus on this format during your study sessions will help you nail down proper time management and understand the CFA program material until you’re ready to walk into the Level I exam with confidence.

Mastering CFA practice questions can seem like a daunting task, but it doesn’t have to be. Wiley’s CFA Level I Test Bank offers both calculative and conceptual questions, designed to really test your understanding and ensure you’re ready on exam day.

Wiley offers the best Level I study materials that are packed with practice questions, practice tests, and question banks that mimic the actual exam to help you pass the CFA exam the first time.