New York Chartered Financial Analyst
(CFA) Examination Practice Questions
And Correct Answers (Verified Answers)
Plus Rationales 2025|2026 Q&A |
Instant Download Pdf
1. Which of the following best describes the primary objective of
financial reporting?
a) To determine tax liability
b) To provide useful information to investors and creditors
c) To comply with legal requirements
d) To maximize company profits
Financial reporting’s primary goal is to provide information useful for
investment and credit decisions.
2. Under IFRS, which financial statement is required in addition to those
under U.S. GAAP?
, a) Statement of retained earnings
b) Statement of changes in equity
c) Statement of shareholders’ rights
d) Statement of taxation
IFRS requires a statement of changes in equity, while U.S. GAAP does
not always require it.
3. Which of the following is a Level 1 input in fair value measurement?
a) Quoted prices in active markets for identical assets
b) Adjusted models with unobservable inputs
c) Broker quotes for similar assets
d) Management estimates
Level 1 inputs are directly observable quoted prices in active markets.
4. A company records revenue when cash is collected. This accounting
method is known as:
a) Accrual basis
b) Cash basis
c) Modified accrual
d) Deferred recognition
Cash basis recognizes revenue when cash is received, unlike accrual
basis.
5. Which of the following ratios best measures a company’s liquidity?
a) Debt-to-equity ratio
b) Current ratio
, c) Return on equity
d) Net profit margin
The current ratio measures short-term liquidity by comparing current
assets to current liabilities.
6. Which monetary policy tool involves buying and selling government
securities?
a) Open market operations
b) Discount rate changes
c) Reserve requirement adjustments
d) Fiscal stimulus
Open market operations control money supply via security purchases
and sales.
7. If the correlation between two assets is -1, what does this imply?
a) No relationship between returns
b) Weak negative relationship
c) Perfect positive relationship
d) Perfect negative relationship
A -1 correlation means the assets move exactly in opposite directions.
8. In the Capital Asset Pricing Model (CAPM), the slope of the Security
Market Line (SML) represents:
a) Market beta
b) Market risk premium
c) Risk-free rate
, d) Systematic risk variance
The slope of the SML is the market risk premium: (E(Rm) – Rf).
9. Which of the following is an example of unsystematic risk?
a) Inflation rate increase
b) Global recession
c) Company management fraud
d) Interest rate hike
Unsystematic risk is company-specific and diversifiable, such as fraud.
10. According to GIPS standards, firms must present performance
for a minimum of:
a) 3 years
b) 7 years
c) 5 years
d) 10 years
GIPS requires at least 5 years of compliant performance history.
11. Which of the following is most likely to increase a bond’s
duration?
a) Higher coupon rate
b) Shorter maturity
c) Lower coupon rate
d) Higher yield
(CFA) Examination Practice Questions
And Correct Answers (Verified Answers)
Plus Rationales 2025|2026 Q&A |
Instant Download Pdf
1. Which of the following best describes the primary objective of
financial reporting?
a) To determine tax liability
b) To provide useful information to investors and creditors
c) To comply with legal requirements
d) To maximize company profits
Financial reporting’s primary goal is to provide information useful for
investment and credit decisions.
2. Under IFRS, which financial statement is required in addition to those
under U.S. GAAP?
, a) Statement of retained earnings
b) Statement of changes in equity
c) Statement of shareholders’ rights
d) Statement of taxation
IFRS requires a statement of changes in equity, while U.S. GAAP does
not always require it.
3. Which of the following is a Level 1 input in fair value measurement?
a) Quoted prices in active markets for identical assets
b) Adjusted models with unobservable inputs
c) Broker quotes for similar assets
d) Management estimates
Level 1 inputs are directly observable quoted prices in active markets.
4. A company records revenue when cash is collected. This accounting
method is known as:
a) Accrual basis
b) Cash basis
c) Modified accrual
d) Deferred recognition
Cash basis recognizes revenue when cash is received, unlike accrual
basis.
5. Which of the following ratios best measures a company’s liquidity?
a) Debt-to-equity ratio
b) Current ratio
, c) Return on equity
d) Net profit margin
The current ratio measures short-term liquidity by comparing current
assets to current liabilities.
6. Which monetary policy tool involves buying and selling government
securities?
a) Open market operations
b) Discount rate changes
c) Reserve requirement adjustments
d) Fiscal stimulus
Open market operations control money supply via security purchases
and sales.
7. If the correlation between two assets is -1, what does this imply?
a) No relationship between returns
b) Weak negative relationship
c) Perfect positive relationship
d) Perfect negative relationship
A -1 correlation means the assets move exactly in opposite directions.
8. In the Capital Asset Pricing Model (CAPM), the slope of the Security
Market Line (SML) represents:
a) Market beta
b) Market risk premium
c) Risk-free rate
, d) Systematic risk variance
The slope of the SML is the market risk premium: (E(Rm) – Rf).
9. Which of the following is an example of unsystematic risk?
a) Inflation rate increase
b) Global recession
c) Company management fraud
d) Interest rate hike
Unsystematic risk is company-specific and diversifiable, such as fraud.
10. According to GIPS standards, firms must present performance
for a minimum of:
a) 3 years
b) 7 years
c) 5 years
d) 10 years
GIPS requires at least 5 years of compliant performance history.
11. Which of the following is most likely to increase a bond’s
duration?
a) Higher coupon rate
b) Shorter maturity
c) Lower coupon rate
d) Higher yield
