CFA® Level I Exam Prep 2026 Comprehensive Study
Guide with 100 Practice Questions, Detailed
Explanations, and Verified Answers
SECTION 1: ETHICAL AND PROFESSIONAL STANDARDS (20
Questions)
Question 1
Which of the following BEST describes the primary purpose of the CFA Institute
Code of Ethics and Standards of Professional Conduct?
A) To provide a set of rules that, if followed, guarantee investment success
B) To establish and maintain high standards of integrity, competence, and
professionalism in the investment industry
C) To replace all local laws and regulations governing investment professionals
D) To create a legal framework for prosecuting unethical investment professionals
Answer: B
Rationale: The Code of Ethics and Standards of Professional Conduct establish
and maintain high standards of integrity, competence, and professionalism in the
investment industry. They do not guarantee investment success (Option A), replace
local laws (Option C)—members must comply with stricter requirements of laws
or the Code, or create a legal framework for prosecution (Option D)—they are self-
regulatory standards.
Question 2
A CFA charterholder is offered a material gift by a client. Under Standard I(B)
Independence and Objectivity, which of the following is the MOST appropriate
action?
A) Accept the gift only if it is disclosed to the charterholder's employer
B) Refuse all gifts regardless of value
C) Accept the gift without disclosure if it is of nominal value
,D) Accept the gift only if it does not influence the charterholder's objectivity and is
publicly disclosed
Answer: D
Rationale: Under Standard I(B) Independence and Objectivity, members must not
accept gifts or benefits that could compromise their independence and objectivity.
Any gift that could reasonably be expected to compromise objectivity must be
declined or the member must disclose the gift and obtain consent from their
employer. The key principle is that the gift must not influence objectivity, and
disclosure is critical.
Question 3
Which of the following actions would constitute a violation of Standard I(C)
Misrepresentation?
A) A member inadvertently omits a material fact from a research report
B) A member makes an exaggerated claim about a security's potential return in a
marketing presentation
C) A member uses historical data to support an investment recommendation
D) A member includes a disclaimer in a research report
Answer: B
Rationale: Standard I(C) Misrepresentation prohibits making false or exaggerated
claims about investment performance, services, or products. Making an
exaggerated claim about a security's potential return constitutes a
misrepresentation. Inadvertent omission of a material fact (Option A) may be a
violation of Standard V(A) Diligence and Reasonable Basis, not misrepresentation.
Using historical data (Option C) and including disclaimers (Option D) are not
violations.
Question 4
A CFA candidate is preparing for the Level I exam and shares sample questions
from a prep provider with a friend who is not a candidate. Which of the following
BEST describes this situation?
,A) This is permissible because the questions are from a prep provider, not the CFA
Institute
B) This violates the CFA Institute's policy on sharing exam content
C) This is permissible because both individuals are studying for the exam
D) This violates the candidate's duty to their employer
Answer: B
Rationale: Sharing exam content, including sample questions from prep providers
that replicate exam-style questions, may violate the CFA Institute's policy on
maintaining the integrity of the exam. Candidates are expected to protect the
confidentiality of exam-related materials. Options A and C are incorrect because
sharing any material that could compromise exam integrity is problematic.
Question 5
Under Standard III(A) Loyalty, Prudence, and Care, a CFA member managing
client assets must:
A) Maximize returns at all costs
B) Act in the client's best interest and exercise reasonable care and prudent
judgment
C) Follow all instructions from the client without question
D) Prioritize the interests of the firm over the client
Answer: B
Rationale: Standard III(A) requires members to act in the client's best interest,
exercise reasonable care and prudent judgment, and make investment decisions
that are appropriate for the client's objectives. Maximizing returns at all costs
(Option A) ignores risk considerations. Following client instructions without
question (Option C) may violate the duty of care if instructions are inappropriate.
Prioritizing firm interests (Option D) violates the fiduciary duty.
Question 6
Which of the following is a requirement of Standard III(B) Fair Dealing?
, A) All clients must receive the same investment recommendations at the same time
B) Members must deal fairly and objectively with all clients when disseminating
investment recommendations
C) Clients must be ranked by account size for priority service
D) Members must disclose all fees to clients
Answer: B
Rationale: Standard III(B) Fair Dealing requires members to deal fairly and
objectively with all clients when disseminating investment recommendations,
taking investment action, or providing investment advice. It does not require
identical treatment for all clients (Option A)—fair treatment means not
disadvantaging any client. Ranking clients by size (Option C) would violate fair
dealing. Fee disclosure (Option D) is addressed under other standards (V(B) and
III(D)).
Question 7
A CFA charterholder is asked by a client to recommend a security that the
charterholder's firm is currently underwriting. Under Standard VI(A) Disclosure of
Conflicts, what must the charterholder do?
A) Recommend the security without disclosure since it is for a client
B) Disclose the conflict of interest to the client before making the recommendation
C) Decline to recommend any security from the firm
D) Recommend the security only if it is the best option available
Answer: B
Rationale: Standard VI(A) Disclosure of Conflicts requires members to disclose to
employers, clients, and prospective clients all matters that could reasonably be
expected to impair their ability to make unbiased and objective recommendations.
The underwriting relationship is a material conflict that must be disclosed before
making the recommendation.
Question 8
Guide with 100 Practice Questions, Detailed
Explanations, and Verified Answers
SECTION 1: ETHICAL AND PROFESSIONAL STANDARDS (20
Questions)
Question 1
Which of the following BEST describes the primary purpose of the CFA Institute
Code of Ethics and Standards of Professional Conduct?
A) To provide a set of rules that, if followed, guarantee investment success
B) To establish and maintain high standards of integrity, competence, and
professionalism in the investment industry
C) To replace all local laws and regulations governing investment professionals
D) To create a legal framework for prosecuting unethical investment professionals
Answer: B
Rationale: The Code of Ethics and Standards of Professional Conduct establish
and maintain high standards of integrity, competence, and professionalism in the
investment industry. They do not guarantee investment success (Option A), replace
local laws (Option C)—members must comply with stricter requirements of laws
or the Code, or create a legal framework for prosecution (Option D)—they are self-
regulatory standards.
Question 2
A CFA charterholder is offered a material gift by a client. Under Standard I(B)
Independence and Objectivity, which of the following is the MOST appropriate
action?
A) Accept the gift only if it is disclosed to the charterholder's employer
B) Refuse all gifts regardless of value
C) Accept the gift without disclosure if it is of nominal value
,D) Accept the gift only if it does not influence the charterholder's objectivity and is
publicly disclosed
Answer: D
Rationale: Under Standard I(B) Independence and Objectivity, members must not
accept gifts or benefits that could compromise their independence and objectivity.
Any gift that could reasonably be expected to compromise objectivity must be
declined or the member must disclose the gift and obtain consent from their
employer. The key principle is that the gift must not influence objectivity, and
disclosure is critical.
Question 3
Which of the following actions would constitute a violation of Standard I(C)
Misrepresentation?
A) A member inadvertently omits a material fact from a research report
B) A member makes an exaggerated claim about a security's potential return in a
marketing presentation
C) A member uses historical data to support an investment recommendation
D) A member includes a disclaimer in a research report
Answer: B
Rationale: Standard I(C) Misrepresentation prohibits making false or exaggerated
claims about investment performance, services, or products. Making an
exaggerated claim about a security's potential return constitutes a
misrepresentation. Inadvertent omission of a material fact (Option A) may be a
violation of Standard V(A) Diligence and Reasonable Basis, not misrepresentation.
Using historical data (Option C) and including disclaimers (Option D) are not
violations.
Question 4
A CFA candidate is preparing for the Level I exam and shares sample questions
from a prep provider with a friend who is not a candidate. Which of the following
BEST describes this situation?
,A) This is permissible because the questions are from a prep provider, not the CFA
Institute
B) This violates the CFA Institute's policy on sharing exam content
C) This is permissible because both individuals are studying for the exam
D) This violates the candidate's duty to their employer
Answer: B
Rationale: Sharing exam content, including sample questions from prep providers
that replicate exam-style questions, may violate the CFA Institute's policy on
maintaining the integrity of the exam. Candidates are expected to protect the
confidentiality of exam-related materials. Options A and C are incorrect because
sharing any material that could compromise exam integrity is problematic.
Question 5
Under Standard III(A) Loyalty, Prudence, and Care, a CFA member managing
client assets must:
A) Maximize returns at all costs
B) Act in the client's best interest and exercise reasonable care and prudent
judgment
C) Follow all instructions from the client without question
D) Prioritize the interests of the firm over the client
Answer: B
Rationale: Standard III(A) requires members to act in the client's best interest,
exercise reasonable care and prudent judgment, and make investment decisions
that are appropriate for the client's objectives. Maximizing returns at all costs
(Option A) ignores risk considerations. Following client instructions without
question (Option C) may violate the duty of care if instructions are inappropriate.
Prioritizing firm interests (Option D) violates the fiduciary duty.
Question 6
Which of the following is a requirement of Standard III(B) Fair Dealing?
, A) All clients must receive the same investment recommendations at the same time
B) Members must deal fairly and objectively with all clients when disseminating
investment recommendations
C) Clients must be ranked by account size for priority service
D) Members must disclose all fees to clients
Answer: B
Rationale: Standard III(B) Fair Dealing requires members to deal fairly and
objectively with all clients when disseminating investment recommendations,
taking investment action, or providing investment advice. It does not require
identical treatment for all clients (Option A)—fair treatment means not
disadvantaging any client. Ranking clients by size (Option C) would violate fair
dealing. Fee disclosure (Option D) is addressed under other standards (V(B) and
III(D)).
Question 7
A CFA charterholder is asked by a client to recommend a security that the
charterholder's firm is currently underwriting. Under Standard VI(A) Disclosure of
Conflicts, what must the charterholder do?
A) Recommend the security without disclosure since it is for a client
B) Disclose the conflict of interest to the client before making the recommendation
C) Decline to recommend any security from the firm
D) Recommend the security only if it is the best option available
Answer: B
Rationale: Standard VI(A) Disclosure of Conflicts requires members to disclose to
employers, clients, and prospective clients all matters that could reasonably be
expected to impair their ability to make unbiased and objective recommendations.
The underwriting relationship is a material conflict that must be disclosed before
making the recommendation.
Question 8
