CFA Level 1 Sample Questions with
100% Correct Answers
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 - 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 - 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 - 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 - 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 -
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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - Answer-C
Diversification will not help reduce a portfolio's:
A systematic risk
B specific risk
,C overall risk - Answer-A
Compared with passive investment management, active investment management will
involve:
A tracking a benchmark
B market timing
C lower transaction costs - 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 - 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 - Answer-B
Which of the following is considered an institutional investor?
(a) Accredited investor
(b) Sovereign wealth fund
(c) Separately managed account - 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 - 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 - Answer-A
A fund manager does not compare his portfolio with the benchmark in terms of:
A performance
B composition
C fees - 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 - 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 - 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. - 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. - Answer-C
Frank Henry, CFA, works as an investment manager at Beta Financials. One of his
clients offered him a free trip to Mauritius for excellent performance, which Henry
accepted. Henry's boss recently learned about this arrangement from another
employee, but did not do anything about the arrangement, as the client was very
important to the firm. Which of the following is most likely?
A Henry violated Standard IV (B): Additional Compensation Arrangements.
B Henry's boss violated Standard IV (C): Responsibilities of Supervisors.
C Henry violated Standard IV (B): Additional Compensation Arrangements and his boss
violated Standard IV (C): Responsibilities of Supervisors. - Answer-C
Which of the following is least likely a violation of Standard V (B): Communication with
Clients and Prospective Clients?
A An analyst recommends an investment to a client without going into specific details
because she feels that the client would not be able to understand the complex models
involved.
B An analyst divulges confidential information about current clients to prospective
clients.
C An analyst states his strong beliefs as facts in a research report. - Answer-B
Which of the following is most likely a violation of Standard III (B): Fair Dealing?
100% Correct Answers
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 - 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 - 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 - 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 - 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 -
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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - Answer-C
Diversification will not help reduce a portfolio's:
A systematic risk
B specific risk
,C overall risk - Answer-A
Compared with passive investment management, active investment management will
involve:
A tracking a benchmark
B market timing
C lower transaction costs - 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 - 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 - Answer-B
Which of the following is considered an institutional investor?
(a) Accredited investor
(b) Sovereign wealth fund
(c) Separately managed account - 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 - 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 - Answer-A
A fund manager does not compare his portfolio with the benchmark in terms of:
A performance
B composition
C fees - 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 - 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 - 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. - 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. - Answer-C
Frank Henry, CFA, works as an investment manager at Beta Financials. One of his
clients offered him a free trip to Mauritius for excellent performance, which Henry
accepted. Henry's boss recently learned about this arrangement from another
employee, but did not do anything about the arrangement, as the client was very
important to the firm. Which of the following is most likely?
A Henry violated Standard IV (B): Additional Compensation Arrangements.
B Henry's boss violated Standard IV (C): Responsibilities of Supervisors.
C Henry violated Standard IV (B): Additional Compensation Arrangements and his boss
violated Standard IV (C): Responsibilities of Supervisors. - Answer-C
Which of the following is least likely a violation of Standard V (B): Communication with
Clients and Prospective Clients?
A An analyst recommends an investment to a client without going into specific details
because she feels that the client would not be able to understand the complex models
involved.
B An analyst divulges confidential information about current clients to prospective
clients.
C An analyst states his strong beliefs as facts in a research report. - Answer-B
Which of the following is most likely a violation of Standard III (B): Fair Dealing?
