Chartered Financial Analyst Level I Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2026
Q&A| Instant Download Pdf
1. A portfolio manager is evaluating a client account under the CFA
Institute Code of Ethics. Which action most clearly violates the duty of
loyalty to clients?
A Providing equal investment opportunities to all clients
B Disclosing material nonpublic information to favored clients
C Executing trades in the order received
D Maintaining client confidentiality in all communications
B
This action violates the duty of loyalty because disclosing material
nonpublic information creates unfair advantage and breaches ethical
and regulatory standards.
2. Which statistical measure is most appropriate for describing the
central tendency of a highly skewed income distribution?
A Mean
B Mode
C Median
D Range
C
, The median is most appropriate because it is resistant to extreme
values and better represents the central location in skewed
distributions.
3. A security has expected return of 10% and standard deviation of 15%.
What does the standard deviation measure?
A Systematic risk only
B Total risk around the mean return
C Downside risk only
D Risk-free variability
B
Standard deviation measures total variability of returns around the
expected value, capturing both upside and downside deviations.
4. Which of the following is a characteristic of a normal distribution?
A Mean equals median equals mode
B It is skewed left
C It has undefined variance
D It is bounded between 0 and 1
A
In a normal distribution, all measures of central tendency are equal
due to perfect symmetry.
5. A company’s current ratio is 2.5. This indicates:
A The company cannot meet short-term obligations
B Current assets are 2.5 times current liabilities
C Long-term assets exceed liabilities
D Inventory is 2.5 times receivables
B
The current ratio compares current assets to current liabilities,
indicating short-term liquidity strength.
, 6. Which inventory valuation method results in the highest net income
during periods of rising prices?
A FIFO
B LIFO
C Weighted average
D Specific identification
A
FIFO assigns older, lower costs to expenses, resulting in higher
reported profits during inflation.
7. Under IFRS, which financial statement is required?
A Statement of retained earnings only
B Statement of comprehensive income
C Statement of capital adequacy
D Statement of cash reserves only
B
IFRS requires a statement of comprehensive income to report all
income and expense items.
8. What is the primary purpose of financial statement analysis?
A To compute tax liabilities
B To evaluate past, present, and future performance
C To set regulatory policy
D To determine audit fees
B
Financial statement analysis helps assess performance trends and
forecast future financial condition.
9. If interest rates rise, the price of a bond will generally:
A Increase
B Decrease
C Remain constant
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2026
Q&A| Instant Download Pdf
1. A portfolio manager is evaluating a client account under the CFA
Institute Code of Ethics. Which action most clearly violates the duty of
loyalty to clients?
A Providing equal investment opportunities to all clients
B Disclosing material nonpublic information to favored clients
C Executing trades in the order received
D Maintaining client confidentiality in all communications
B
This action violates the duty of loyalty because disclosing material
nonpublic information creates unfair advantage and breaches ethical
and regulatory standards.
2. Which statistical measure is most appropriate for describing the
central tendency of a highly skewed income distribution?
A Mean
B Mode
C Median
D Range
C
, The median is most appropriate because it is resistant to extreme
values and better represents the central location in skewed
distributions.
3. A security has expected return of 10% and standard deviation of 15%.
What does the standard deviation measure?
A Systematic risk only
B Total risk around the mean return
C Downside risk only
D Risk-free variability
B
Standard deviation measures total variability of returns around the
expected value, capturing both upside and downside deviations.
4. Which of the following is a characteristic of a normal distribution?
A Mean equals median equals mode
B It is skewed left
C It has undefined variance
D It is bounded between 0 and 1
A
In a normal distribution, all measures of central tendency are equal
due to perfect symmetry.
5. A company’s current ratio is 2.5. This indicates:
A The company cannot meet short-term obligations
B Current assets are 2.5 times current liabilities
C Long-term assets exceed liabilities
D Inventory is 2.5 times receivables
B
The current ratio compares current assets to current liabilities,
indicating short-term liquidity strength.
, 6. Which inventory valuation method results in the highest net income
during periods of rising prices?
A FIFO
B LIFO
C Weighted average
D Specific identification
A
FIFO assigns older, lower costs to expenses, resulting in higher
reported profits during inflation.
7. Under IFRS, which financial statement is required?
A Statement of retained earnings only
B Statement of comprehensive income
C Statement of capital adequacy
D Statement of cash reserves only
B
IFRS requires a statement of comprehensive income to report all
income and expense items.
8. What is the primary purpose of financial statement analysis?
A To compute tax liabilities
B To evaluate past, present, and future performance
C To set regulatory policy
D To determine audit fees
B
Financial statement analysis helps assess performance trends and
forecast future financial condition.
9. If interest rates rise, the price of a bond will generally:
A Increase
B Decrease
C Remain constant
