CFA Level I Exam 2026: Professional Certification Practice Test —
Ethics, Quantitative Methods, Economics, Financial Statement
Analysis, Equity, Fixed Income & Portfolio Management — 190
Multiple-Choice Questions with Answers & Detailed Rationales
Ethical and Professional Standards
Question 1
A portfolio manager for a large pension fund has received a block of shares in a highly
anticipated IPO, allocated due to the fund's significant trading volume. The manager
allocates a large portion of the shares to his own personal account before allocating the
remainder to the pension fund's accounts. According to the CFA Institute Code of Ethics and
Standards of Professional Conduct, this action is:
A. Acceptable, as the IPO was allocated to the firm, which can distribute it as it sees fit.
B. Acceptable, provided the manager discloses the allocation to the pension fund's trustees
after the fact.
C. A violation of the standard concerning priority of transactions.
D. A violation of the standard concerning market manipulation.
Correct Answer: C
Explanation: The Standard on Priority of Transactions (III(B)) requires that client accounts
have priority over the manager's personal account. Self-dealing is a direct violation.
Question 2
An analyst is preparing a research report on a company and discovers that her firm's
investment banking division is currently advising the company on a major acquisition. The
analyst's report is objective and does not mention the acquisition. According to the
Standards of Practice Handbook, the analyst's primary concern should be to:
,A. Ensure the report's conclusion is consistent with the investment banking division's view to
maintain firm unity.
B. Disclose the potential conflict of interest to her supervisor but publish the report without
mentioning the investment banking relationship.
C. Publish the objective findings without regard to the investment banking relationship, as
she has no direct knowledge of the deal's terms.
D. Ensure the report is not influenced by the investment banking relationship and that any
material conflicts are disclosed to clients.
Correct Answer: D
Explanation: Standard VI(A) requires members to disclose all actual and potential conflicts of
interest that could impair objectivity. The independence of the research is paramount.
Question 3
A CFA charterholder is a guest lecturer at a university. During a presentation, he uses a case
study from a previous employer. He anonymizes the client's name and specific figures but
presents the core strategic problem and solution. To comply with the Code and Standards,
the lecturer should:
A. Proceed, as the client's identity has been protected through anonymization.
B. Request permission from the university's ethics board before presenting.
C. Obtain permission from his former employer to use the case study.
D. Refrain from using the case study, as it constitutes a breach of confidentiality.
Correct Answer: C
Explanation: Standard III(E) on Preservation of Confidentiality applies to former clients and
employers. Information from a former employer is generally considered confidential and
requires permission.
Question 4
,A member is a portfolio manager who also serves on the board of directors for a small,
publicly traded company. The company's CEO informs the board of a significant, non-public
earnings shortfall. The member should:
A. Immediately sell all shares of the company from his personal and client accounts.
B. Inform his clients of the situation and recommend they sell the stock.
C. Resign from the board to avoid any conflicts of interest.
D. Not act or cause others to act on the information until it is made public.
Correct Answer: D
Explanation: This is material non-public information (MNPI). Standard II(A) on Material
Nonpublic Information prohibits acting or causing others to act on it.
Question 5
An analyst includes a projection in her report that is based on a model with assumptions she
believes are overly optimistic. She clearly labels the projection as "highly speculative" and
includes a sensitivity analysis showing the impact of more conservative assumptions. By
doing so, the analyst has most likely:
A. Violated the standard on misconduct by making a misleading statement.
B. Satisfied her duty to have a reasonable and adequate basis for her recommendations.
C. Avoided a violation of the standard on communication with clients.
D. Fulfilled her duty of loyalty to her employer.
Correct Answer: B
Explanation: Standard V(A) on Diligence and Reasonable Basis is met when an analyst
conducts thorough research and discloses the risks and limitations of her analysis.
Question 6
, A member who is a sole proprietor of an investment advisory firm uses a third-party
research provider for all her recommendations. To comply with the Standards, she must:
A. Ensure the third-party provider is a CFA charterholder.
B. Conduct her own due diligence to ensure the research has a reasonable and adequate
basis.
C. Pass the entire cost of the research directly to her clients.
D. Disclose the third-party relationship only if a client asks.
Correct Answer: B
Explanation: Standard V(A) requires members to have a reasonable basis for
recommendations, even when using third-party research. They cannot blindly rely on others'
work.
Question 7
An analyst is asked by his supervisor to change a "sell" recommendation on a stock to a
"hold" to avoid upsetting a corporate client. The analyst believes the "sell" rating is accurate.
To comply with the Code and Standards, the analyst should most appropriately:
A. Comply with the supervisor's request to protect his job.
B. Refuse to change the recommendation and document the disagreement.
C. Change the recommendation but include a note that his personal view is "sell".
D. Report the supervisor to the CFA Institute immediately.
Correct Answer: B
Explanation: Standard I(A) on Knowledge of the Law and Standard IV(A) on Loyalty require
members to not engage in unethical behavior, even at the direction of a supervisor.
Question 8
Ethics, Quantitative Methods, Economics, Financial Statement
Analysis, Equity, Fixed Income & Portfolio Management — 190
Multiple-Choice Questions with Answers & Detailed Rationales
Ethical and Professional Standards
Question 1
A portfolio manager for a large pension fund has received a block of shares in a highly
anticipated IPO, allocated due to the fund's significant trading volume. The manager
allocates a large portion of the shares to his own personal account before allocating the
remainder to the pension fund's accounts. According to the CFA Institute Code of Ethics and
Standards of Professional Conduct, this action is:
A. Acceptable, as the IPO was allocated to the firm, which can distribute it as it sees fit.
B. Acceptable, provided the manager discloses the allocation to the pension fund's trustees
after the fact.
C. A violation of the standard concerning priority of transactions.
D. A violation of the standard concerning market manipulation.
Correct Answer: C
Explanation: The Standard on Priority of Transactions (III(B)) requires that client accounts
have priority over the manager's personal account. Self-dealing is a direct violation.
Question 2
An analyst is preparing a research report on a company and discovers that her firm's
investment banking division is currently advising the company on a major acquisition. The
analyst's report is objective and does not mention the acquisition. According to the
Standards of Practice Handbook, the analyst's primary concern should be to:
,A. Ensure the report's conclusion is consistent with the investment banking division's view to
maintain firm unity.
B. Disclose the potential conflict of interest to her supervisor but publish the report without
mentioning the investment banking relationship.
C. Publish the objective findings without regard to the investment banking relationship, as
she has no direct knowledge of the deal's terms.
D. Ensure the report is not influenced by the investment banking relationship and that any
material conflicts are disclosed to clients.
Correct Answer: D
Explanation: Standard VI(A) requires members to disclose all actual and potential conflicts of
interest that could impair objectivity. The independence of the research is paramount.
Question 3
A CFA charterholder is a guest lecturer at a university. During a presentation, he uses a case
study from a previous employer. He anonymizes the client's name and specific figures but
presents the core strategic problem and solution. To comply with the Code and Standards,
the lecturer should:
A. Proceed, as the client's identity has been protected through anonymization.
B. Request permission from the university's ethics board before presenting.
C. Obtain permission from his former employer to use the case study.
D. Refrain from using the case study, as it constitutes a breach of confidentiality.
Correct Answer: C
Explanation: Standard III(E) on Preservation of Confidentiality applies to former clients and
employers. Information from a former employer is generally considered confidential and
requires permission.
Question 4
,A member is a portfolio manager who also serves on the board of directors for a small,
publicly traded company. The company's CEO informs the board of a significant, non-public
earnings shortfall. The member should:
A. Immediately sell all shares of the company from his personal and client accounts.
B. Inform his clients of the situation and recommend they sell the stock.
C. Resign from the board to avoid any conflicts of interest.
D. Not act or cause others to act on the information until it is made public.
Correct Answer: D
Explanation: This is material non-public information (MNPI). Standard II(A) on Material
Nonpublic Information prohibits acting or causing others to act on it.
Question 5
An analyst includes a projection in her report that is based on a model with assumptions she
believes are overly optimistic. She clearly labels the projection as "highly speculative" and
includes a sensitivity analysis showing the impact of more conservative assumptions. By
doing so, the analyst has most likely:
A. Violated the standard on misconduct by making a misleading statement.
B. Satisfied her duty to have a reasonable and adequate basis for her recommendations.
C. Avoided a violation of the standard on communication with clients.
D. Fulfilled her duty of loyalty to her employer.
Correct Answer: B
Explanation: Standard V(A) on Diligence and Reasonable Basis is met when an analyst
conducts thorough research and discloses the risks and limitations of her analysis.
Question 6
, A member who is a sole proprietor of an investment advisory firm uses a third-party
research provider for all her recommendations. To comply with the Standards, she must:
A. Ensure the third-party provider is a CFA charterholder.
B. Conduct her own due diligence to ensure the research has a reasonable and adequate
basis.
C. Pass the entire cost of the research directly to her clients.
D. Disclose the third-party relationship only if a client asks.
Correct Answer: B
Explanation: Standard V(A) requires members to have a reasonable basis for
recommendations, even when using third-party research. They cannot blindly rely on others'
work.
Question 7
An analyst is asked by his supervisor to change a "sell" recommendation on a stock to a
"hold" to avoid upsetting a corporate client. The analyst believes the "sell" rating is accurate.
To comply with the Code and Standards, the analyst should most appropriately:
A. Comply with the supervisor's request to protect his job.
B. Refuse to change the recommendation and document the disagreement.
C. Change the recommendation but include a note that his personal view is "sell".
D. Report the supervisor to the CFA Institute immediately.
Correct Answer: B
Explanation: Standard I(A) on Knowledge of the Law and Standard IV(A) on Loyalty require
members to not engage in unethical behavior, even at the direction of a supervisor.
Question 8
