NORTH CAROLINA CHARTERED FINANCIAL ANALYST (CFA) LEVEL 1 –
QUESTIONS AND CORRECT ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
2026 Q&A | INSTANT DOWNLOAD PDF.
*Core Domains*
*Ethical and Professional Standards*
*Quantitative Methods*
*Economics*
*Financial Statement Analysis*
*Corporate Issuers*
*Equity Investments*
*Fixed Income*
*Derivatives*
*Alternative Investments*
*Portfolio Management*
*Introduction*
*The purpose of this examination is to rigorously evaluate the candidate's master
,SECTION ONE: QUESTIONS 1–100
1. An analyst is calculating the holding period return for a stock. If the stock was
purchased for $50, paid a dividend of $1.50, and was sold for $55 after one year,
what is the holding period return?
A. 10.0%
B. 12.0%
🟢 C. 13.0%
D. 15.0%
🔴 RATIONALE: The holding period return is calculated as (Price end - Price
beginning + Dividend) / Price beginning. ($55 - $50 + $1.50) / $50 = 6. = 0.13
or 13.0%.
2. Under the CFA Institute Code of Ethics, which of the following is a primary
responsibility regarding client communication?
🟢 A. Disclosure of all conflicts of interest.
B. Guaranteeing positive investment returns.
C. Prioritizing the firm's interests over the client's.
D. Using inside information to benefit top-tier clients.
🔴 RATIONALE: Standard VI(A) requires members to disclose all matters that
could impair their objectivity or interfere with their duty to the client.
3. Which measure of central tendency is most affected by extreme outliers in a data
set?
, A. Median
B. Mode
🟢 C. Mean
D. Geometric Mean
🔴 RATIONALE: The arithmetic mean uses the value of every observation;
therefore, a very high or very low value will shift the average significantly, unlike the
median which is positional.
4. If the correlation between two assets is 0, what is the covariance between them?
🟢 A. 0
B. 1
C. -1
D. Cannot be determined
🔴 RATIONALE: Covariance = Correlation * (Standard Deviation A * Standard
Deviation B). If correlation is 0, the product is 0.
5. A bond is trading at a discount. Which of the following is true regarding its yield
measures?
A. Coupon rate > Current yield > Yield to maturity
🟢 B. Coupon rate < Current yield < Yield to maturity
C. Coupon rate = Current yield = Yield to maturity
D. Yield to maturity < Current yield < Coupon rate
🔴 RATIONALE: For a bond trading at a discount, the price must rise to par at
, maturity, making the YTM the highest yield, followed by current yield, and then the
coupon rate.
6. Which of the following is a characteristic of a perfectly competitive market?
A. High barriers to entry
🟢 B. Homogeneous products
C. Significant pricing power
D. Few sellers
🔴 RATIONALE: Perfect competition is defined by many small firms selling
identical (homogeneous) products with no barriers to entry.
7. Which inventory accounting method results in lower reported net income during
periods of rising prices?
🟢 A. LIFO
B. FIFO
C. Weighted Average Cost
D. Specific Identification
🔴 RATIONALE: Under LIFO (Last-In, First-Out), the most recent, higher costs are
assigned to Cost of Goods Sold (COGS), reducing pre-tax income.
8. A project has an NPV of $0. This implies:
A. The project loses money.
🟢 B. The project earns exactly the required rate of return.
C. The internal rate of return is negative.
QUESTIONS AND CORRECT ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
2026 Q&A | INSTANT DOWNLOAD PDF.
*Core Domains*
*Ethical and Professional Standards*
*Quantitative Methods*
*Economics*
*Financial Statement Analysis*
*Corporate Issuers*
*Equity Investments*
*Fixed Income*
*Derivatives*
*Alternative Investments*
*Portfolio Management*
*Introduction*
*The purpose of this examination is to rigorously evaluate the candidate's master
,SECTION ONE: QUESTIONS 1–100
1. An analyst is calculating the holding period return for a stock. If the stock was
purchased for $50, paid a dividend of $1.50, and was sold for $55 after one year,
what is the holding period return?
A. 10.0%
B. 12.0%
🟢 C. 13.0%
D. 15.0%
🔴 RATIONALE: The holding period return is calculated as (Price end - Price
beginning + Dividend) / Price beginning. ($55 - $50 + $1.50) / $50 = 6. = 0.13
or 13.0%.
2. Under the CFA Institute Code of Ethics, which of the following is a primary
responsibility regarding client communication?
🟢 A. Disclosure of all conflicts of interest.
B. Guaranteeing positive investment returns.
C. Prioritizing the firm's interests over the client's.
D. Using inside information to benefit top-tier clients.
🔴 RATIONALE: Standard VI(A) requires members to disclose all matters that
could impair their objectivity or interfere with their duty to the client.
3. Which measure of central tendency is most affected by extreme outliers in a data
set?
, A. Median
B. Mode
🟢 C. Mean
D. Geometric Mean
🔴 RATIONALE: The arithmetic mean uses the value of every observation;
therefore, a very high or very low value will shift the average significantly, unlike the
median which is positional.
4. If the correlation between two assets is 0, what is the covariance between them?
🟢 A. 0
B. 1
C. -1
D. Cannot be determined
🔴 RATIONALE: Covariance = Correlation * (Standard Deviation A * Standard
Deviation B). If correlation is 0, the product is 0.
5. A bond is trading at a discount. Which of the following is true regarding its yield
measures?
A. Coupon rate > Current yield > Yield to maturity
🟢 B. Coupon rate < Current yield < Yield to maturity
C. Coupon rate = Current yield = Yield to maturity
D. Yield to maturity < Current yield < Coupon rate
🔴 RATIONALE: For a bond trading at a discount, the price must rise to par at
, maturity, making the YTM the highest yield, followed by current yield, and then the
coupon rate.
6. Which of the following is a characteristic of a perfectly competitive market?
A. High barriers to entry
🟢 B. Homogeneous products
C. Significant pricing power
D. Few sellers
🔴 RATIONALE: Perfect competition is defined by many small firms selling
identical (homogeneous) products with no barriers to entry.
7. Which inventory accounting method results in lower reported net income during
periods of rising prices?
🟢 A. LIFO
B. FIFO
C. Weighted Average Cost
D. Specific Identification
🔴 RATIONALE: Under LIFO (Last-In, First-Out), the most recent, higher costs are
assigned to Cost of Goods Sold (COGS), reducing pre-tax income.
8. A project has an NPV of $0. This implies:
A. The project loses money.
🟢 B. The project earns exactly the required rate of return.
C. The internal rate of return is negative.
