, Aligned with CFA Institute Candidate Body of Knowledge (CBOK)
Updated to reflect 2026/2027 curriculum changes
All questions verified for accuracy and relevance
Includes rationales for both correct and incorrect answers
Formatted to simulate the actual exam experience
Covers all major topic areas with appropriate weighting
Content Area Overview:
Content Area Questions Key Topics Weight
Ethical and Professional 1-20 Code of Ethics, Standards of Professional 10%
Standards Conduct, GIPS
Quantitative Methods 21-40 Time Value of Money, Probability, 10%
Statistics, Hypothesis Testing
Economics 41-70 Microeconomics, Macroeconomics, 15%
International Trade, Currency Exchange
Rates
Financial Reporting and 71-110 Financial Statements, Ratios, Inventories, 20%
Analysis Long-Lived Assets, Income Taxes
Corporate Issuers 111-130 Corporate Governance, Capital Budgeting, 10%
Cost of Capital, Leverage
Equity Investments 131-150 Market Organization, Indexes, Equity 10%
Valuation, Industry Analysis
Fixed Income 151-180 Bond Characteristics, Valuation, Term 15%
Structure, Credit Analysis
Derivatives and Portfolio 181-200 Options, Futures, Swaps, Portfolio Risk and 10%
Management Return, Diversification
Page 2
,Q1. Under IFRS, when reclassifying a financial asset from amortized cost to fair
value through profit or loss, which of the following statements is most accurate?
A. The reclassification is permitted only when the business model changes, and the
asset's fair value at reclassification date becomes the new carrying amount.
B. The reclassification is permitted at the entity's discretion, with any gain or loss
recognized in other comprehensive income.
C. The reclassification is prohibited once the asset is initially recognized.
D. The reclassification requires restatement of prior periods' financial statements.
Correct Answer: A. The reclassification is permitted only when the business model
changes, and the asset's fair value at reclassification date becomes the new carrying
amount.
Rationale: IFRS 9 allows reclassification only when the entity changes its business model
for managing financial assets. The reclassification is applied prospectively from the
reclassification date, and the asset's fair value at that date becomes the new carrying
amount. Gains or losses from the reclassification are recognized in profit or loss, not OCI.
Prior periods are not restated.
Why Wrong:
B - Reclassification is not at the entity's discretion; it requires a business model
change, and gains/losses go to profit or loss, not OCI.
C - Reclassification is permitted under specific circumstances, not prohibited.
D - Reclassification is applied prospectively, not retrospectively, so prior periods are
not restated.
Reference: IFRS 9 Financial Instruments, IAS 39
Q2. In the Mundell-Fleming model with perfect capital mobility and a fixed exchange
rate, an expansionary fiscal policy will most likely lead to:
A. An increase in output and an appreciation pressure on the domestic currency, which
the central bank offsets by selling domestic currency.
B. An increase in output and a depreciation of the domestic currency, which the central
bank offsets by buying domestic currency.
C. No change in output and an increase in official reserves.
D. A decrease in output and a decrease in official reserves.
Correct Answer: A. An increase in output and an appreciation pressure on the
domestic currency, which the central bank offsets by selling domestic currency.
Rationale: Under fixed exchange rates and perfect capital mobility, fiscal expansion raises
output and puts upward pressure on interest rates, attracting capital inflows and causing
appreciation pressure. The central bank must intervene by selling domestic currency
(buying foreign assets) to maintain the peg, which expands money supply and reinforces
the output increase.
Page 3
, Why Wrong:
B - Fiscal expansion causes appreciation, not depreciation, pressure in this model.
C - Output increases, and official reserves rise due to intervention, but not 'no change'.
D - Output increases, not decreases, and reserves rise, not fall.
Reference: Krugman & Obstfeld, International Economics, Ch. 18
Q3. Which of the following is least likely a characteristic of a bond issued with a
deferred coupon structure?
A. The issuer pays no coupon for an initial period, then pays higher coupons thereafter.
B. The bond is often issued at a deep discount to its par value.
C. The bond's yield to maturity is lower than the coupon rate during the deferred
period.
D. The bond may be attractive to issuers expecting future cash flows to service debt.
Correct Answer: C. The bond's yield to maturity is lower than the coupon rate during
the deferred period.
Rationale: Deferred coupon bonds typically have no coupon payments for an initial
period, so they are issued at a deep discount. The yield to maturity is higher than the
coupon rate during the deferred period because the investor receives no cash flows and the
bond's price appreciates to par over time. Thus, stating that YTM is lower than coupon
rate is incorrect.
Why Wrong:
A - Deferred coupon bonds indeed have no coupons initially, then higher coupons
later.
B - They are commonly issued at a deep discount to compensate for the lack of early
coupons.
D - Issuers may prefer deferred coupons to align with future cash flows.
Reference: Fabozzi, Fixed Income Analysis, 4th Ed., Ch. 2
Q4. Compared to a straight bond, a callable bond's effective duration is most likely to
be:
A. Lower when interest rates are low because the bond's price is capped by the call
price.
B. Higher when interest rates are low because the call option increases price sensitivity.
C. Unaffected by interest rate levels because duration is a static measure.
D. Higher when interest rates are high because the bond trades like a non-callable bond.
Correct Answer: A. Lower when interest rates are low because the bond's price is
capped by the call price.
Rationale: When interest rates fall, the callable bond's price approaches the call price,
limiting price appreciation. This reduces the effective duration compared to a straight
Page 4
Updated to reflect 2026/2027 curriculum changes
All questions verified for accuracy and relevance
Includes rationales for both correct and incorrect answers
Formatted to simulate the actual exam experience
Covers all major topic areas with appropriate weighting
Content Area Overview:
Content Area Questions Key Topics Weight
Ethical and Professional 1-20 Code of Ethics, Standards of Professional 10%
Standards Conduct, GIPS
Quantitative Methods 21-40 Time Value of Money, Probability, 10%
Statistics, Hypothesis Testing
Economics 41-70 Microeconomics, Macroeconomics, 15%
International Trade, Currency Exchange
Rates
Financial Reporting and 71-110 Financial Statements, Ratios, Inventories, 20%
Analysis Long-Lived Assets, Income Taxes
Corporate Issuers 111-130 Corporate Governance, Capital Budgeting, 10%
Cost of Capital, Leverage
Equity Investments 131-150 Market Organization, Indexes, Equity 10%
Valuation, Industry Analysis
Fixed Income 151-180 Bond Characteristics, Valuation, Term 15%
Structure, Credit Analysis
Derivatives and Portfolio 181-200 Options, Futures, Swaps, Portfolio Risk and 10%
Management Return, Diversification
Page 2
,Q1. Under IFRS, when reclassifying a financial asset from amortized cost to fair
value through profit or loss, which of the following statements is most accurate?
A. The reclassification is permitted only when the business model changes, and the
asset's fair value at reclassification date becomes the new carrying amount.
B. The reclassification is permitted at the entity's discretion, with any gain or loss
recognized in other comprehensive income.
C. The reclassification is prohibited once the asset is initially recognized.
D. The reclassification requires restatement of prior periods' financial statements.
Correct Answer: A. The reclassification is permitted only when the business model
changes, and the asset's fair value at reclassification date becomes the new carrying
amount.
Rationale: IFRS 9 allows reclassification only when the entity changes its business model
for managing financial assets. The reclassification is applied prospectively from the
reclassification date, and the asset's fair value at that date becomes the new carrying
amount. Gains or losses from the reclassification are recognized in profit or loss, not OCI.
Prior periods are not restated.
Why Wrong:
B - Reclassification is not at the entity's discretion; it requires a business model
change, and gains/losses go to profit or loss, not OCI.
C - Reclassification is permitted under specific circumstances, not prohibited.
D - Reclassification is applied prospectively, not retrospectively, so prior periods are
not restated.
Reference: IFRS 9 Financial Instruments, IAS 39
Q2. In the Mundell-Fleming model with perfect capital mobility and a fixed exchange
rate, an expansionary fiscal policy will most likely lead to:
A. An increase in output and an appreciation pressure on the domestic currency, which
the central bank offsets by selling domestic currency.
B. An increase in output and a depreciation of the domestic currency, which the central
bank offsets by buying domestic currency.
C. No change in output and an increase in official reserves.
D. A decrease in output and a decrease in official reserves.
Correct Answer: A. An increase in output and an appreciation pressure on the
domestic currency, which the central bank offsets by selling domestic currency.
Rationale: Under fixed exchange rates and perfect capital mobility, fiscal expansion raises
output and puts upward pressure on interest rates, attracting capital inflows and causing
appreciation pressure. The central bank must intervene by selling domestic currency
(buying foreign assets) to maintain the peg, which expands money supply and reinforces
the output increase.
Page 3
, Why Wrong:
B - Fiscal expansion causes appreciation, not depreciation, pressure in this model.
C - Output increases, and official reserves rise due to intervention, but not 'no change'.
D - Output increases, not decreases, and reserves rise, not fall.
Reference: Krugman & Obstfeld, International Economics, Ch. 18
Q3. Which of the following is least likely a characteristic of a bond issued with a
deferred coupon structure?
A. The issuer pays no coupon for an initial period, then pays higher coupons thereafter.
B. The bond is often issued at a deep discount to its par value.
C. The bond's yield to maturity is lower than the coupon rate during the deferred
period.
D. The bond may be attractive to issuers expecting future cash flows to service debt.
Correct Answer: C. The bond's yield to maturity is lower than the coupon rate during
the deferred period.
Rationale: Deferred coupon bonds typically have no coupon payments for an initial
period, so they are issued at a deep discount. The yield to maturity is higher than the
coupon rate during the deferred period because the investor receives no cash flows and the
bond's price appreciates to par over time. Thus, stating that YTM is lower than coupon
rate is incorrect.
Why Wrong:
A - Deferred coupon bonds indeed have no coupons initially, then higher coupons
later.
B - They are commonly issued at a deep discount to compensate for the lack of early
coupons.
D - Issuers may prefer deferred coupons to align with future cash flows.
Reference: Fabozzi, Fixed Income Analysis, 4th Ed., Ch. 2
Q4. Compared to a straight bond, a callable bond's effective duration is most likely to
be:
A. Lower when interest rates are low because the bond's price is capped by the call
price.
B. Higher when interest rates are low because the call option increases price sensitivity.
C. Unaffected by interest rate levels because duration is a static measure.
D. Higher when interest rates are high because the bond trades like a non-callable bond.
Correct Answer: A. Lower when interest rates are low because the bond's price is
capped by the call price.
Rationale: When interest rates fall, the callable bond's price approaches the call price,
limiting price appreciation. This reduces the effective duration compared to a straight
Page 4
