CFA LEVEL III MOCK EXAM100 QUESTIONS
AND CORRECT DETAILED ANSWERS FOR
GUARANTEED SUCCESS / NEWEST
2025/2026 GRADED A+||BRAND NEW
VERSION!!
1. A primary objective of private wealth management is to:
A. Maximize nominal returns
B. Meet client goals after taxes and inflation
C. Minimize portfolio volatility
D. Match benchmark performance
*Explanation: Private wealth management focuses on achieving real, after-tax
objectives specific to the client’s goals rather than relative performance.
2. Which risk is most relevant for a retiree with significant future consumption
needs?
A. Market risk
B. Inflation risk
C. Liquidity risk
D. Longevity risk
*Explanation: Longevity risk refers to the possibility of outliving one’s assets, a
major concern for retirees.
, 3. A foundation that must distribute a fixed percentage of assets annually is
most exposed to:
A. Credit risk
B. Spending risk
C. Currency risk
D. Reinvestment risk
*Explanation: Spending risk is the risk that required distributions impair the
foundation’s ability to preserve capital.
4. A portfolio constructed using mean–variance optimization assumes:
A. Non-normal return distributions
B. Stable correlations
C. Quadratic utility or normal returns
D. Linear investor preferences
*Explanation: Mean–variance optimization relies on either normally distributed
returns or quadratic utility.
5. An increase in expected inflation will most likely reduce the value of:
A. Floating-rate bonds
B. Inflation-linked bonds
C. Equities
D. Fixed-rate nominal bonds
*Explanation: Higher inflation erodes the real value of fixed nominal cash flows.
6. Which asset class best hedges unexpected inflation?
A. Investment-grade bonds
B. Cash
C. Real estate
D. Growth stocks
, *Explanation: Real assets such as real estate tend to adjust with inflation.
7. A portfolio rebalancing strategy based on calendar dates is called:
A. Threshold rebalancing
B. Constant proportion
C. Periodic rebalancing
D. Tactical rebalancing
*Explanation: Periodic rebalancing occurs at fixed time intervals regardless of
portfolio drift.
8. Which behavioral bias causes investors to hold losing investments too long?
A. Anchoring
B. Overconfidence
C. Loss aversion
D. Mental accounting
*Explanation: Loss-averse investors avoid realizing losses, leading to suboptimal
decisions.
9. A key difference between defined benefit and defined contribution pension
plans is:
A. Contribution timing
B. Regulatory oversight
C. Who bears investment risk
D. Tax treatment
*Explanation: In DB plans, the sponsor bears investment risk; in DC plans,
participants do.
AND CORRECT DETAILED ANSWERS FOR
GUARANTEED SUCCESS / NEWEST
2025/2026 GRADED A+||BRAND NEW
VERSION!!
1. A primary objective of private wealth management is to:
A. Maximize nominal returns
B. Meet client goals after taxes and inflation
C. Minimize portfolio volatility
D. Match benchmark performance
*Explanation: Private wealth management focuses on achieving real, after-tax
objectives specific to the client’s goals rather than relative performance.
2. Which risk is most relevant for a retiree with significant future consumption
needs?
A. Market risk
B. Inflation risk
C. Liquidity risk
D. Longevity risk
*Explanation: Longevity risk refers to the possibility of outliving one’s assets, a
major concern for retirees.
, 3. A foundation that must distribute a fixed percentage of assets annually is
most exposed to:
A. Credit risk
B. Spending risk
C. Currency risk
D. Reinvestment risk
*Explanation: Spending risk is the risk that required distributions impair the
foundation’s ability to preserve capital.
4. A portfolio constructed using mean–variance optimization assumes:
A. Non-normal return distributions
B. Stable correlations
C. Quadratic utility or normal returns
D. Linear investor preferences
*Explanation: Mean–variance optimization relies on either normally distributed
returns or quadratic utility.
5. An increase in expected inflation will most likely reduce the value of:
A. Floating-rate bonds
B. Inflation-linked bonds
C. Equities
D. Fixed-rate nominal bonds
*Explanation: Higher inflation erodes the real value of fixed nominal cash flows.
6. Which asset class best hedges unexpected inflation?
A. Investment-grade bonds
B. Cash
C. Real estate
D. Growth stocks
, *Explanation: Real assets such as real estate tend to adjust with inflation.
7. A portfolio rebalancing strategy based on calendar dates is called:
A. Threshold rebalancing
B. Constant proportion
C. Periodic rebalancing
D. Tactical rebalancing
*Explanation: Periodic rebalancing occurs at fixed time intervals regardless of
portfolio drift.
8. Which behavioral bias causes investors to hold losing investments too long?
A. Anchoring
B. Overconfidence
C. Loss aversion
D. Mental accounting
*Explanation: Loss-averse investors avoid realizing losses, leading to suboptimal
decisions.
9. A key difference between defined benefit and defined contribution pension
plans is:
A. Contribution timing
B. Regulatory oversight
C. Who bears investment risk
D. Tax treatment
*Explanation: In DB plans, the sponsor bears investment risk; in DC plans,
participants do.
