CFA Level 1 Sample Questions with all Correct & 100%
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Graded A+
The feature of a well-functioning investment industry that gives investors the ability to quickly buy
and sell a significant amount of an investment without having a material impact on the price is
described as:
A liquidity
B competitive markets
C risk transfer ✔Correct Answer-A
According to fundamental ethical and professional principles applicable to the investment industry,
which group should have its interests ranked first?
A Clients
B Employers
C Co-workers ✔Correct Answer-A
Regulators often seek public consultation prior to the implementation of new regulations in order to:
A ensure the new rules are favorable to those likely to be affected
B educate consumers and service providers on the new rules
C improve the final rules by undertaking a cost-benefit analysis ✔Correct Answer-C
A financial advisory firm that implements internal policies regarding information barriers, suitability
standards, and restrictions on self-dealing is addressing issues related to which of the following types
of regulation?
A Sales practices rules
B Trading rules
C Disclosure rules ✔Correct Answer-A
The best financial statement to use to find information about what a company owns and owes others
is called the:
A income statement
B balance sheet
C cash flow statement ✔Correct Answer-B
If two variables do not have a strong (linear) relationship, the correlation coefficient between the
two variables will be closest to:
A0
B -1
C +1 ✔Correct Answer-A
In contrast to forward contracts, futures contracts:
A trade on organized exchanges
B have contract sizes tailored to investor needs
C have negotiable expiration dates ✔Correct Answer-A
Which type of private equity strategy is most likely used to finance a start-up company?
A Growth equity
,B Buyout
C Venture capital ✔Correct Answer-C
In commercial real estate investment, the amount derived from discounting future cash flows of
lease and rental payments plus capital appreciation represents the value of the:
A asset
B equity
C liability ✔Correct Answer-A
The type of bank that is exclusively owned by its members is a:
A savings and loan bank
B commercial bank
C mutual bank ✔Correct Answer-C
A form of pension plan in which the participant has some ability to determine how pension
contributions are invested is described as a(n):
A defined contribution plan
B endowment plan
C defined benefit plan ✔Correct Answer-A
An investor attempting to replicate a price-weighted index would hold an equal:
A percentage of outstanding shares of each security in the index
B amount invested in each security in the index
C number of units (shares) of each security in the index ✔Correct Answer-C
From the standpoint of taxes, investors will benefit from:
A deferring taxes to the future if tax rates will be higher in the future
B realizing gains via stock repurchases as opposed to receiving the same gains as dividends
C selling appreciated shares to meet cash needs instead of borrowing against them ✔Correct
Answer-B
If a decrease in the selling price of a company's only product results in an increase in the company's
total revenue, the demand for the company's product is:
A elastic
B unit-elastic
C inelastic ✔Correct Answer-A
Which of the following actions taken by a central bank is expansionary?
A Increasing the reserve requirement
B The purchase of government bonds
C Increasing its policy rate ✔Correct Answer-B
Which of the following government actions will most likely lead to an increase in the level of
aggregate demand? A reduction in:
A transfer payments
B public spending on social goods and infrastructure
C the capital gains tax ✔Correct Answer-C
If Mexico is running a large current account deficit with Canada, which of the following will most
likely occur?
A Canada will reduce its imports from Mexico
,B The Mexican peso will depreciate relative to the Canadian dollar
C There will be an increase in Canadian exports to Mexico ✔Correct Answer-B
If a company is liquidated, proceeds from asset sales are distributed to common shareholders:
A before unsecured debt investor and preferred shareholder, claims are paid
B after secured debt investor and preferred shareholder, claims are paid
C after preferred shareholder claims are paid but before unsecured debt investor claims are paid
✔Correct Answer-B
Which of the following is not a sovereign bond issue?
A State of New York municipal bond
B US Treasury note
C German bund ✔Correct Answer-A
Which of the following bonds contains an embedded option that provides the issuer certain rights?
A Putable bond
B Callable bond
C Convertible bond ✔Correct Answer-B
At which stage in the trading process is cash exchanged for securities between parties in a given
security trade?
A Settlement
B Confirmation
C Clearing ✔Correct Answer-A
A consumer pays off a car loan held by a bank with which he has no other business. Which of the
following is the most appropriate document management practice for the bank to follow?
A Return all documents to the consumer
B Shred all documents related to the transaction
C Determine which documents to retain and which to dispose of ✔Correct Answer-C
Diversification will not help reduce a portfolio's:
A systematic risk
B specific risk
C overall risk ✔Correct Answer-A
Compared with passive investment management, active investment management will involve:
A tracking a benchmark
B market timing
C lower transaction costs ✔Correct Answer-B
Which of the following is not a factor to consider in a document classification system?
A Direction in which documents flow
B Ensuring that all documents are standardized
C Source of the document ✔Correct Answer-B
A fund manager's alpha is that part of the fund's return that can be attributed to:
(a) the market
(b) skill
(c) luck ✔Correct Answer-B
, Which of the following is considered an institutional investor?
(a) Accredited investor
(b) Sovereign wealth fund
(c) Separately managed account ✔Correct Answer-B
A limitation of the value at risk (VaR) approach to measuring risk is that it fails to specify:
(a) the probability that a loss could occur
(b) a time frame for potential losses
(c) the maximum loss that could occur ✔Correct Answer-C
The possibility that a portfolio manager will lose money because the bond valuation model he uses is
flawed is an example of:
A operational risk
B investment risk
C compliance risk ✔Correct Answer-A
A fund manager does not compare his portfolio with the benchmark in terms of:
A performance
B composition
C fees ✔Correct Answer-C
Phil Jones, CFA, has just finished researching Alpha One Inc. and is about to issue an unfavorable
report on the company. His manager does not want him to state any adverse opinions about Alpha
One, as it could adversely affect their firm's relations with the company, which is an important
investment banking client. Which of the following actions by the manager most likely violates
Standard I (B): Independence and Objectivity?
A Putting Alpha One on a restricted list
B Asking Jones to issue a favorable report
C Asking Jones to only state facts about the company ✔Correct Answer-B
Which of the following is least likely a violation of Standard I (D): Misconduct?
A Engaging in frequent fights on the trading floor
B Offering higher-quality services to certain clients
C Getting intoxicated during office hours ✔Correct Answer-B
Martha Stevens, CFA, is an investment manager who uses her friend, Robert James, exclusively for
her clients' brokerage transactions. James provides better services than other brokers in return for a
slightly higher price, which Stevens believes is justified. Which of the following statements is most
accurate?
A Stevens is in violation of Standard III (A): Loyalty, Prudence and Care.
B Stevens is in violation of Standard III (B): Fair Dealing.
C Stevens has not violated any standard. ✔Correct Answer-C
Alexis King, CFA, an investment manager at Invest One Corporation, is asked by her supervisor to
make a presentation to a potential client. In the presentation, King uses weighted composites of all
similar portfolios to present the firm's performance over the past 10 years, during which the firm
earned an average return of 13%. Which of the following statements is most accurate?
A King has violated Standard III (D): Performance Presentation.
B King has violated Standard I (C): Misrepresentation.
C King has not violated any standards. ✔Correct Answer-C
Verified Answers |Actual Complete Exam |Already
Graded A+
The feature of a well-functioning investment industry that gives investors the ability to quickly buy
and sell a significant amount of an investment without having a material impact on the price is
described as:
A liquidity
B competitive markets
C risk transfer ✔Correct Answer-A
According to fundamental ethical and professional principles applicable to the investment industry,
which group should have its interests ranked first?
A Clients
B Employers
C Co-workers ✔Correct Answer-A
Regulators often seek public consultation prior to the implementation of new regulations in order to:
A ensure the new rules are favorable to those likely to be affected
B educate consumers and service providers on the new rules
C improve the final rules by undertaking a cost-benefit analysis ✔Correct Answer-C
A financial advisory firm that implements internal policies regarding information barriers, suitability
standards, and restrictions on self-dealing is addressing issues related to which of the following types
of regulation?
A Sales practices rules
B Trading rules
C Disclosure rules ✔Correct Answer-A
The best financial statement to use to find information about what a company owns and owes others
is called the:
A income statement
B balance sheet
C cash flow statement ✔Correct Answer-B
If two variables do not have a strong (linear) relationship, the correlation coefficient between the
two variables will be closest to:
A0
B -1
C +1 ✔Correct Answer-A
In contrast to forward contracts, futures contracts:
A trade on organized exchanges
B have contract sizes tailored to investor needs
C have negotiable expiration dates ✔Correct Answer-A
Which type of private equity strategy is most likely used to finance a start-up company?
A Growth equity
,B Buyout
C Venture capital ✔Correct Answer-C
In commercial real estate investment, the amount derived from discounting future cash flows of
lease and rental payments plus capital appreciation represents the value of the:
A asset
B equity
C liability ✔Correct Answer-A
The type of bank that is exclusively owned by its members is a:
A savings and loan bank
B commercial bank
C mutual bank ✔Correct Answer-C
A form of pension plan in which the participant has some ability to determine how pension
contributions are invested is described as a(n):
A defined contribution plan
B endowment plan
C defined benefit plan ✔Correct Answer-A
An investor attempting to replicate a price-weighted index would hold an equal:
A percentage of outstanding shares of each security in the index
B amount invested in each security in the index
C number of units (shares) of each security in the index ✔Correct Answer-C
From the standpoint of taxes, investors will benefit from:
A deferring taxes to the future if tax rates will be higher in the future
B realizing gains via stock repurchases as opposed to receiving the same gains as dividends
C selling appreciated shares to meet cash needs instead of borrowing against them ✔Correct
Answer-B
If a decrease in the selling price of a company's only product results in an increase in the company's
total revenue, the demand for the company's product is:
A elastic
B unit-elastic
C inelastic ✔Correct Answer-A
Which of the following actions taken by a central bank is expansionary?
A Increasing the reserve requirement
B The purchase of government bonds
C Increasing its policy rate ✔Correct Answer-B
Which of the following government actions will most likely lead to an increase in the level of
aggregate demand? A reduction in:
A transfer payments
B public spending on social goods and infrastructure
C the capital gains tax ✔Correct Answer-C
If Mexico is running a large current account deficit with Canada, which of the following will most
likely occur?
A Canada will reduce its imports from Mexico
,B The Mexican peso will depreciate relative to the Canadian dollar
C There will be an increase in Canadian exports to Mexico ✔Correct Answer-B
If a company is liquidated, proceeds from asset sales are distributed to common shareholders:
A before unsecured debt investor and preferred shareholder, claims are paid
B after secured debt investor and preferred shareholder, claims are paid
C after preferred shareholder claims are paid but before unsecured debt investor claims are paid
✔Correct Answer-B
Which of the following is not a sovereign bond issue?
A State of New York municipal bond
B US Treasury note
C German bund ✔Correct Answer-A
Which of the following bonds contains an embedded option that provides the issuer certain rights?
A Putable bond
B Callable bond
C Convertible bond ✔Correct Answer-B
At which stage in the trading process is cash exchanged for securities between parties in a given
security trade?
A Settlement
B Confirmation
C Clearing ✔Correct Answer-A
A consumer pays off a car loan held by a bank with which he has no other business. Which of the
following is the most appropriate document management practice for the bank to follow?
A Return all documents to the consumer
B Shred all documents related to the transaction
C Determine which documents to retain and which to dispose of ✔Correct Answer-C
Diversification will not help reduce a portfolio's:
A systematic risk
B specific risk
C overall risk ✔Correct Answer-A
Compared with passive investment management, active investment management will involve:
A tracking a benchmark
B market timing
C lower transaction costs ✔Correct Answer-B
Which of the following is not a factor to consider in a document classification system?
A Direction in which documents flow
B Ensuring that all documents are standardized
C Source of the document ✔Correct Answer-B
A fund manager's alpha is that part of the fund's return that can be attributed to:
(a) the market
(b) skill
(c) luck ✔Correct Answer-B
, Which of the following is considered an institutional investor?
(a) Accredited investor
(b) Sovereign wealth fund
(c) Separately managed account ✔Correct Answer-B
A limitation of the value at risk (VaR) approach to measuring risk is that it fails to specify:
(a) the probability that a loss could occur
(b) a time frame for potential losses
(c) the maximum loss that could occur ✔Correct Answer-C
The possibility that a portfolio manager will lose money because the bond valuation model he uses is
flawed is an example of:
A operational risk
B investment risk
C compliance risk ✔Correct Answer-A
A fund manager does not compare his portfolio with the benchmark in terms of:
A performance
B composition
C fees ✔Correct Answer-C
Phil Jones, CFA, has just finished researching Alpha One Inc. and is about to issue an unfavorable
report on the company. His manager does not want him to state any adverse opinions about Alpha
One, as it could adversely affect their firm's relations with the company, which is an important
investment banking client. Which of the following actions by the manager most likely violates
Standard I (B): Independence and Objectivity?
A Putting Alpha One on a restricted list
B Asking Jones to issue a favorable report
C Asking Jones to only state facts about the company ✔Correct Answer-B
Which of the following is least likely a violation of Standard I (D): Misconduct?
A Engaging in frequent fights on the trading floor
B Offering higher-quality services to certain clients
C Getting intoxicated during office hours ✔Correct Answer-B
Martha Stevens, CFA, is an investment manager who uses her friend, Robert James, exclusively for
her clients' brokerage transactions. James provides better services than other brokers in return for a
slightly higher price, which Stevens believes is justified. Which of the following statements is most
accurate?
A Stevens is in violation of Standard III (A): Loyalty, Prudence and Care.
B Stevens is in violation of Standard III (B): Fair Dealing.
C Stevens has not violated any standard. ✔Correct Answer-C
Alexis King, CFA, an investment manager at Invest One Corporation, is asked by her supervisor to
make a presentation to a potential client. In the presentation, King uses weighted composites of all
similar portfolios to present the firm's performance over the past 10 years, during which the firm
earned an average return of 13%. Which of the following statements is most accurate?
A King has violated Standard III (D): Performance Presentation.
B King has violated Standard I (C): Misrepresentation.
C King has not violated any standards. ✔Correct Answer-C
