CFA Level I - Portfolio Management and Wealth Planning:
Top 100 Questions
1. Question: Which of the following is the first step in the portfolio management
process?
a) Performance evaluation
b) Investment policy statement (IPS) creation
c) Asset allocation
d) Security selection
Answer: b) Investment policy statement (IPS) creation
2. Question: The primary purpose of an Investment Policy Statement (IPS) is to:
a) Guarantee investment returns.
b) Provide a framework for making investment decisions.
c) Select specific securities for the portfolio.
d) Measure the performance of the portfolio manager.
Answer: b) Provide a framework for making investment decisions.
3. Question: Which of the following elements is typically included in the client
objectives section of an IPS?
a) Specific asset allocations
b) Risk tolerance and return requirements
c) Benchmarks for performance evaluation
d) Rebalancing policy
Answer: b) Risk tolerance and return requirements
4. Question: Which of the following best describes a client with a low risk tolerance?
a) Seeks high potential returns regardless of potential losses.
b) Is comfortable with significant fluctuations in portfolio value.
c) Prioritizes preservation of capital over high growth.
d) Has a long investment time horizon.
Answer: c) Prioritizes preservation of capital over high growth.
5. Question: Which of the following best describes a client with a long investment time
horizon?
a) Needs access to their funds within one year.
b) Is saving for retirement in 30 years.
, c) Is focused on generating income in the short term.
d) Prefers highly liquid investments.
Answer: b) Is saving for retirement in 30 years.
6. Question: Which of the following is a constraint typically included in the IPS?
a) Client's risk tolerance
b) Client's return objective
c) Time horizon and liquidity needs
d) Benchmark selection
Answer: c) Time horizon and liquidity needs
7. Question: The asset allocation decision is primarily concerned with:
a) Selecting individual stocks and bonds.
b) Determining the appropriate mix of broad asset classes in a portfolio.
c) Measuring the performance of different asset classes.
d) Timing the market by shifting between asset classes frequently.
Answer: b) Determining the appropriate mix of broad asset classes in a portfolio.
8. Question: Which of the following is a top-down approach to portfolio construction?
a) Selecting individual securities based on fundamental analysis.
b) Determining asset allocation first, then selecting securities within each asset class.
c) Building a portfolio based on the investment themes identified by the client.
d) Focusing on sector rotation strategies.
Answer: b) Determining asset allocation first, then selecting securities within each
asset class.
9. Question: Which of the following is a bottom-up approach to portfolio construction?
a) Allocating assets based on macroeconomic forecasts.
b) Selecting individual securities that appear undervalued, regardless of asset class
allocation.
c) Focusing on industry trends and sector analysis.
d) Constructing a portfolio to match the composition of a market index.
Answer: b) Selecting individual securities that appear undervalued, regardless of
asset class allocation.
10. Question: Strategic asset allocation involves:
a) Making short-term adjustments to asset class weights based on market forecasts.
b) Establishing long-term target asset class weights based on the client's IPS.
c) Shifting asset allocations frequently to capitalize on market inefficiencies.
d) Maintaining a static asset allocation mix over time.
, Answer: b) Establishing long-term target asset class weights based on the client's
IPS.
11. Question: Tactical asset allocation involves:
a) Maintaining a fixed asset allocation mix over the long term.
b) Making short-term adjustments to strategic asset class weights based on perceived
market opportunities.
c) Selecting individual securities within each asset class.
d) Primarily focusing on risk control rather than return enhancement.
Answer: b) Making short-term adjustments to strategic asset class weights based on
perceived market opportunities.
12. Question: Which of the following is a passive portfolio management strategy?
a) Active security selection based on fundamental analysis.
b) Market timing to buy low and sell high.
c) Indexing to match the performance of a specific market benchmark.
d) Sector rotation based on economic cycles.
Answer: c) Indexing to match the performance of a specific market benchmark.
13. Question: Which of the following is an active portfolio management strategy?
a) Holding a portfolio that replicates the S&P 500 index.
b) Rebalancing a portfolio back to its target weights periodically.
c) Using fundamental analysis to identify undervalued stocks.
d) Investing in a broad-based ETF with low fees.
Answer: c) Using fundamental analysis to identify undervalued stocks.
14. Question: The efficient market hypothesis (EMH) suggests that:
a) Active management can consistently outperform passive management.
b) Market prices fully reflect all available information.
c) Technical analysis is a reliable tool for predicting future prices.
d) Investors always behave rationally.
Answer: b) Market prices fully reflect all available information.
15. Question: The weak form of the EMH states that:
a) Stock prices reflect all public and private information.
b) Stock prices reflect all publicly available information.
c) Stock prices reflect only past market data (price and volume).
d) Fundamental analysis is useless.
Answer: c) Stock prices reflect only past market data (price and volume).
Top 100 Questions
1. Question: Which of the following is the first step in the portfolio management
process?
a) Performance evaluation
b) Investment policy statement (IPS) creation
c) Asset allocation
d) Security selection
Answer: b) Investment policy statement (IPS) creation
2. Question: The primary purpose of an Investment Policy Statement (IPS) is to:
a) Guarantee investment returns.
b) Provide a framework for making investment decisions.
c) Select specific securities for the portfolio.
d) Measure the performance of the portfolio manager.
Answer: b) Provide a framework for making investment decisions.
3. Question: Which of the following elements is typically included in the client
objectives section of an IPS?
a) Specific asset allocations
b) Risk tolerance and return requirements
c) Benchmarks for performance evaluation
d) Rebalancing policy
Answer: b) Risk tolerance and return requirements
4. Question: Which of the following best describes a client with a low risk tolerance?
a) Seeks high potential returns regardless of potential losses.
b) Is comfortable with significant fluctuations in portfolio value.
c) Prioritizes preservation of capital over high growth.
d) Has a long investment time horizon.
Answer: c) Prioritizes preservation of capital over high growth.
5. Question: Which of the following best describes a client with a long investment time
horizon?
a) Needs access to their funds within one year.
b) Is saving for retirement in 30 years.
, c) Is focused on generating income in the short term.
d) Prefers highly liquid investments.
Answer: b) Is saving for retirement in 30 years.
6. Question: Which of the following is a constraint typically included in the IPS?
a) Client's risk tolerance
b) Client's return objective
c) Time horizon and liquidity needs
d) Benchmark selection
Answer: c) Time horizon and liquidity needs
7. Question: The asset allocation decision is primarily concerned with:
a) Selecting individual stocks and bonds.
b) Determining the appropriate mix of broad asset classes in a portfolio.
c) Measuring the performance of different asset classes.
d) Timing the market by shifting between asset classes frequently.
Answer: b) Determining the appropriate mix of broad asset classes in a portfolio.
8. Question: Which of the following is a top-down approach to portfolio construction?
a) Selecting individual securities based on fundamental analysis.
b) Determining asset allocation first, then selecting securities within each asset class.
c) Building a portfolio based on the investment themes identified by the client.
d) Focusing on sector rotation strategies.
Answer: b) Determining asset allocation first, then selecting securities within each
asset class.
9. Question: Which of the following is a bottom-up approach to portfolio construction?
a) Allocating assets based on macroeconomic forecasts.
b) Selecting individual securities that appear undervalued, regardless of asset class
allocation.
c) Focusing on industry trends and sector analysis.
d) Constructing a portfolio to match the composition of a market index.
Answer: b) Selecting individual securities that appear undervalued, regardless of
asset class allocation.
10. Question: Strategic asset allocation involves:
a) Making short-term adjustments to asset class weights based on market forecasts.
b) Establishing long-term target asset class weights based on the client's IPS.
c) Shifting asset allocations frequently to capitalize on market inefficiencies.
d) Maintaining a static asset allocation mix over time.
, Answer: b) Establishing long-term target asset class weights based on the client's
IPS.
11. Question: Tactical asset allocation involves:
a) Maintaining a fixed asset allocation mix over the long term.
b) Making short-term adjustments to strategic asset class weights based on perceived
market opportunities.
c) Selecting individual securities within each asset class.
d) Primarily focusing on risk control rather than return enhancement.
Answer: b) Making short-term adjustments to strategic asset class weights based on
perceived market opportunities.
12. Question: Which of the following is a passive portfolio management strategy?
a) Active security selection based on fundamental analysis.
b) Market timing to buy low and sell high.
c) Indexing to match the performance of a specific market benchmark.
d) Sector rotation based on economic cycles.
Answer: c) Indexing to match the performance of a specific market benchmark.
13. Question: Which of the following is an active portfolio management strategy?
a) Holding a portfolio that replicates the S&P 500 index.
b) Rebalancing a portfolio back to its target weights periodically.
c) Using fundamental analysis to identify undervalued stocks.
d) Investing in a broad-based ETF with low fees.
Answer: c) Using fundamental analysis to identify undervalued stocks.
14. Question: The efficient market hypothesis (EMH) suggests that:
a) Active management can consistently outperform passive management.
b) Market prices fully reflect all available information.
c) Technical analysis is a reliable tool for predicting future prices.
d) Investors always behave rationally.
Answer: b) Market prices fully reflect all available information.
15. Question: The weak form of the EMH states that:
a) Stock prices reflect all public and private information.
b) Stock prices reflect all publicly available information.
c) Stock prices reflect only past market data (price and volume).
d) Fundamental analysis is useless.
Answer: c) Stock prices reflect only past market data (price and volume).
