CFA LEVEL III EXAM STUDY GUIDE
2026/2027 — ACCURATE QUESTIONS
WITH CORRECT DETAILED
SOLUTIONS | NEWEST VERSION
Description: This revision set covers the CFA Level III curriculum: Ethics, Behavioral
Finance, Capital Market Expectations, Asset Allocation, Fixed Income, Equity,
Alternatives, Derivatives, Risk Management, Trading, Performance Evaluation, and
Private Wealth/Institutional PM.
Keywords: CFA Level III, ethics, asset allocation, fixed income, derivatives, risk
management, performance evaluation, private wealth, institutional investors, behavioral
finance, mock exam, revision.
1. Which of the following is most consistent with the CFA Institute Code of Ethics?
A. Placing client interests after employer interests
B. Using material nonpublic information for personal gain
C. Acting with integrity and placing client interests first ✅
D. Disclosing confidential client information without consent
2. In behavioral finance, the tendency to seek information that confirms existing
beliefs is called:
A. Anchoring
B. Confirmation bias ✅
C. Loss aversion
D. Mental accounting
,3. The primary objective of the Asset Allocation process is to:
A. Maximize trading frequency
B. Match asset mix to investor objectives and constraints ✅
C. Eliminate all portfolio risk
D. Focus only on short-term returns
4. Which of the following is a constraint in the IPS?
A. Return objective
B. Risk tolerance
C. Liquidity ✅
D. Expected inflation
5. In fixed income, a bond’s duration measures:
A. Credit risk
B. Sensitivity to interest rate changes ✅
C. Liquidity risk
D. Inflation risk
6. A liability-driven investing (LDI) strategy is most appropriate for:
A. A young investor with high risk tolerance
B. A pension fund matching future liabilities ✅
C. A hedge fund seeking alpha
D. A day trader
7. Which of the following is a global market risk factor?
A. Inflation ✅
B. Company management
C. Product recall
D. Employee turnover
8. The Sharpe ratio measures:
A. Excess return per unit of total risk ✅
B. Excess return per unit of systematic risk
,C. Total return per unit of unsystematic risk
D. Alpha per unit of beta
9. In derivatives, a forward contract is:
A. Standardized and exchange-traded
B. Customized and traded over-the-counter ✅
C. Always settled daily
D. Only for equities
10. Which of the following is a type of alternative investment?
A. Private equity ✅
B. Treasury bill
C. Money market fund
D. Savings account
11. The Treynor ratio uses:
A. Standard deviation
B. Beta ✅
C. Tracking error
D. Information ratio
12. In performance evaluation, alpha measures:
A. Excess return over benchmark adjusted for risk ✅
B. Total return
C. Volatility
D. Correlation
13. A defined benefit pension plan’s primary risk is:
A. Inflation risk
B. Liability risk ✅
C. Currency risk
D. Sector risk
, 14. Which of the following is a behavioral bias?
A. Overconfidence ✅
B. Duration
C. Convexity
D. Beta
15. In equity valuation, a value stock typically has:
A. High P/E
B. Low P/B ✅
C. High growth
D. No dividends
16. The information ratio measures:
A. Active return per unit of active risk ✅
B. Total return per unit of total risk
C. Excess return per unit of beta
D. Return per unit of standard deviation
17. In fixed income, convexity is:
A. Always negative
B. The curvature of price-yield relationship ✅
C. A measure of credit risk
D. A measure of liquidity
18. A swap contract involves:
A. Exchange of cash flows ✅
B. Physical delivery of goods
C. Only equity trades
D. Only currency trades
19. Which of the following is an institutional investor?
A. Pension fund ✅
B. Individual retail investor
2026/2027 — ACCURATE QUESTIONS
WITH CORRECT DETAILED
SOLUTIONS | NEWEST VERSION
Description: This revision set covers the CFA Level III curriculum: Ethics, Behavioral
Finance, Capital Market Expectations, Asset Allocation, Fixed Income, Equity,
Alternatives, Derivatives, Risk Management, Trading, Performance Evaluation, and
Private Wealth/Institutional PM.
Keywords: CFA Level III, ethics, asset allocation, fixed income, derivatives, risk
management, performance evaluation, private wealth, institutional investors, behavioral
finance, mock exam, revision.
1. Which of the following is most consistent with the CFA Institute Code of Ethics?
A. Placing client interests after employer interests
B. Using material nonpublic information for personal gain
C. Acting with integrity and placing client interests first ✅
D. Disclosing confidential client information without consent
2. In behavioral finance, the tendency to seek information that confirms existing
beliefs is called:
A. Anchoring
B. Confirmation bias ✅
C. Loss aversion
D. Mental accounting
,3. The primary objective of the Asset Allocation process is to:
A. Maximize trading frequency
B. Match asset mix to investor objectives and constraints ✅
C. Eliminate all portfolio risk
D. Focus only on short-term returns
4. Which of the following is a constraint in the IPS?
A. Return objective
B. Risk tolerance
C. Liquidity ✅
D. Expected inflation
5. In fixed income, a bond’s duration measures:
A. Credit risk
B. Sensitivity to interest rate changes ✅
C. Liquidity risk
D. Inflation risk
6. A liability-driven investing (LDI) strategy is most appropriate for:
A. A young investor with high risk tolerance
B. A pension fund matching future liabilities ✅
C. A hedge fund seeking alpha
D. A day trader
7. Which of the following is a global market risk factor?
A. Inflation ✅
B. Company management
C. Product recall
D. Employee turnover
8. The Sharpe ratio measures:
A. Excess return per unit of total risk ✅
B. Excess return per unit of systematic risk
,C. Total return per unit of unsystematic risk
D. Alpha per unit of beta
9. In derivatives, a forward contract is:
A. Standardized and exchange-traded
B. Customized and traded over-the-counter ✅
C. Always settled daily
D. Only for equities
10. Which of the following is a type of alternative investment?
A. Private equity ✅
B. Treasury bill
C. Money market fund
D. Savings account
11. The Treynor ratio uses:
A. Standard deviation
B. Beta ✅
C. Tracking error
D. Information ratio
12. In performance evaluation, alpha measures:
A. Excess return over benchmark adjusted for risk ✅
B. Total return
C. Volatility
D. Correlation
13. A defined benefit pension plan’s primary risk is:
A. Inflation risk
B. Liability risk ✅
C. Currency risk
D. Sector risk
, 14. Which of the following is a behavioral bias?
A. Overconfidence ✅
B. Duration
C. Convexity
D. Beta
15. In equity valuation, a value stock typically has:
A. High P/E
B. Low P/B ✅
C. High growth
D. No dividends
16. The information ratio measures:
A. Active return per unit of active risk ✅
B. Total return per unit of total risk
C. Excess return per unit of beta
D. Return per unit of standard deviation
17. In fixed income, convexity is:
A. Always negative
B. The curvature of price-yield relationship ✅
C. A measure of credit risk
D. A measure of liquidity
18. A swap contract involves:
A. Exchange of cash flows ✅
B. Physical delivery of goods
C. Only equity trades
D. Only currency trades
19. Which of the following is an institutional investor?
A. Pension fund ✅
B. Individual retail investor
