Chartered Financial Analyst (CFA) Level I
Examination Practice Exam 2026 | 100
Questions & Answers with Detailed
Rationales | Complete CFA Level I Exam
Prep & Study Guide
1. A portfolio has an expected return of 9% and a standard deviation of 12%.
Which measure best describes the dispersion of possible portfolio returns
around the expected return?
A. Variance
B. Standard deviation
C. Covariance
D. Correlation
Answer: Standard deviation
Rationale: Standard deviation measures the dispersion of returns around the
mean and is commonly used as a measure of investment risk.
2. Which type of sampling gives every member of a population an equal
probability of selection?
,A. Stratified sampling
B. Convenience sampling
C. Simple random sampling
D. Judgmental sampling
Answer: Simple random sampling
Rationale: Simple random sampling assigns each population member an equal
probability of being selected.
3. If the correlation coefficient between two assets is +1.0, diversification
between them will:
A. Eliminate all systematic risk
B. Provide the maximum possible diversification benefit
C. Provide no reduction in portfolio standard deviation beyond a weighted
average
D. Guarantee a positive portfolio return
Answer: Provide no reduction in portfolio standard deviation beyond a weighted
average
Rationale: Perfect positive correlation means the assets move together
proportionally, so there is no correlation-based diversification benefit.
4. A Type I error occurs when an analyst:
A. Fails to reject a false null hypothesis
B. Rejects a true null hypothesis
C. Accepts a true null hypothesis
D. Rejects a false alternative hypothesis
Answer: Rejects a true null hypothesis
Rationale: A Type I error is rejecting the null hypothesis when it is actually true.
5. Which probability distribution is commonly used to model a continuous
random variable with a symmetric bell-shaped distribution?
,A. Uniform distribution
B. Binomial distribution
C. Normal distribution
D. Poisson distribution
Answer: Normal distribution
Rationale: The normal distribution is continuous and symmetric around its mean,
producing the familiar bell-shaped curve.
6. Under the law of large numbers, as the number of observations increases,
the sample mean tends to:
A. Move farther from the population mean
B. Approach the population mean
C. Become exactly zero
D. Equal the median
Answer: Approach the population mean
Rationale: The law of large numbers states that the sample average tends to
converge toward the expected value as observations increase.
7. Which financial statement reports assets, liabilities, and shareholders'
equity at a specific point in time?
A. Income statement
B. Cash flow statement
C. Balance sheet
D. Statement of retained earnings
Answer: Balance sheet
Rationale: The balance sheet presents a company's financial position at a
particular date through assets, liabilities, and equity.
8. Under accrual accounting, revenue is generally recognized when it is:
, A. Collected in cash
B. Earned
C. Deposited into a bank
D. Invoiced only
Answer: Earned
Rationale: Accrual accounting recognizes revenue when it is earned, rather than
necessarily when cash is received.
9. Which ratio is calculated as current assets divided by current liabilities?
A. Quick ratio
B. Debt-to-equity ratio
C. Current ratio
D. Return on equity
Answer: Current ratio
Rationale: The current ratio measures short-term liquidity by comparing current
assets with current liabilities.
10.A company has current assets of $500,000 and current liabilities of
$250,000. Its current ratio is:
A. 0.5
B. 1.0
C. 2.0
D. 2.5
Answer: 2.0
Rationale: Current ratio = Current assets ÷ Current liabilities = $500,000 ÷
$250,000 = 2.0.
11.Which inventory valuation method generally assigns the oldest inventory
costs to cost of goods sold?
Examination Practice Exam 2026 | 100
Questions & Answers with Detailed
Rationales | Complete CFA Level I Exam
Prep & Study Guide
1. A portfolio has an expected return of 9% and a standard deviation of 12%.
Which measure best describes the dispersion of possible portfolio returns
around the expected return?
A. Variance
B. Standard deviation
C. Covariance
D. Correlation
Answer: Standard deviation
Rationale: Standard deviation measures the dispersion of returns around the
mean and is commonly used as a measure of investment risk.
2. Which type of sampling gives every member of a population an equal
probability of selection?
,A. Stratified sampling
B. Convenience sampling
C. Simple random sampling
D. Judgmental sampling
Answer: Simple random sampling
Rationale: Simple random sampling assigns each population member an equal
probability of being selected.
3. If the correlation coefficient between two assets is +1.0, diversification
between them will:
A. Eliminate all systematic risk
B. Provide the maximum possible diversification benefit
C. Provide no reduction in portfolio standard deviation beyond a weighted
average
D. Guarantee a positive portfolio return
Answer: Provide no reduction in portfolio standard deviation beyond a weighted
average
Rationale: Perfect positive correlation means the assets move together
proportionally, so there is no correlation-based diversification benefit.
4. A Type I error occurs when an analyst:
A. Fails to reject a false null hypothesis
B. Rejects a true null hypothesis
C. Accepts a true null hypothesis
D. Rejects a false alternative hypothesis
Answer: Rejects a true null hypothesis
Rationale: A Type I error is rejecting the null hypothesis when it is actually true.
5. Which probability distribution is commonly used to model a continuous
random variable with a symmetric bell-shaped distribution?
,A. Uniform distribution
B. Binomial distribution
C. Normal distribution
D. Poisson distribution
Answer: Normal distribution
Rationale: The normal distribution is continuous and symmetric around its mean,
producing the familiar bell-shaped curve.
6. Under the law of large numbers, as the number of observations increases,
the sample mean tends to:
A. Move farther from the population mean
B. Approach the population mean
C. Become exactly zero
D. Equal the median
Answer: Approach the population mean
Rationale: The law of large numbers states that the sample average tends to
converge toward the expected value as observations increase.
7. Which financial statement reports assets, liabilities, and shareholders'
equity at a specific point in time?
A. Income statement
B. Cash flow statement
C. Balance sheet
D. Statement of retained earnings
Answer: Balance sheet
Rationale: The balance sheet presents a company's financial position at a
particular date through assets, liabilities, and equity.
8. Under accrual accounting, revenue is generally recognized when it is:
, A. Collected in cash
B. Earned
C. Deposited into a bank
D. Invoiced only
Answer: Earned
Rationale: Accrual accounting recognizes revenue when it is earned, rather than
necessarily when cash is received.
9. Which ratio is calculated as current assets divided by current liabilities?
A. Quick ratio
B. Debt-to-equity ratio
C. Current ratio
D. Return on equity
Answer: Current ratio
Rationale: The current ratio measures short-term liquidity by comparing current
assets with current liabilities.
10.A company has current assets of $500,000 and current liabilities of
$250,000. Its current ratio is:
A. 0.5
B. 1.0
C. 2.0
D. 2.5
Answer: 2.0
Rationale: Current ratio = Current assets ÷ Current liabilities = $500,000 ÷
$250,000 = 2.0.
11.Which inventory valuation method generally assigns the oldest inventory
costs to cost of goods sold?
