CFA LEVEL I EXAM PRACTICE QUESTIONS AND CORRECT ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
2026 Q&A | INSTANT DOWNLOAD PDF
Core Domains
1. Ethical and Professional Standards
2. Quantitative Methods (Time Value of Money, Probability, Statistics)
3. Economics (Micro, Macro, International)
4. Financial Statement Analysis (GAAP, IFRS, Ratios)
5. Corporate Finance (Capital Budgeting, Cost of Capital)
6. Equity Investments (Valuation, Market Efficiency)
7. Fixed Income (Bond Pricing, Duration, Credit Risk)
8. Derivatives (Forwards, Futures, Options, Swaps)
9. Alternative Investments (Hedge Funds, Real Estate, Commodities)
10. Portfolio Management (Risk, Return, Diversification)
Introduction
This practice examination is designed to replicate the rigor and scope of the CFA Level I Exam. It assesses
foundational knowledge across ten core domains, emphasizing ethical reasoning, financial analysis, quantitative
methods, and real-world investment decision-making. Each question follows a multiple-choice format, with many
set in scenario-based contexts to test your ability to apply principles under conditions similar to those faced by
,investment professionals. Correct answers are verified and accompanied by clear rationales to reinforce learning.
The structure promotes critical thinking, regulatory awareness, and professional judgment essential for success on
the actual exam.
SECTION ONE: QUESTIONS 1–100
Question 1
A portfolio manager receives a non-public tip from a corporate insider that a company will post unexpectedly
high earnings. The manager trades on this information for client accounts. Under the CFA Institute Code of
Ethics and Standards of Professional Conduct, this action is:
A. Permissible if the trade benefits clients and no personal gain is realized
B. Permissible if the manager does not disclose the source of the tip
C. Prohibited because it constitutes trading on material non-public information
D. Permissible only if the manager waits 24 hours before trading
🟢C
🔴 RATIONALE: Standard II(A) – Material Nonpublic Information strictly prohibits trading or inducing others to
trade based on material non-public information, regardless of client benefit or lack of personal gain.
,Question 2
Which of the following is most likely a violation of the CFA Institute Asset Manager Code of Professional
Conduct?
A. Disclosing to clients that soft dollars are used to pay for research
B. Voting all proxies in a manner consistent with client objectives without exception
C. Basing portfolio decisions solely on quantitative models without human oversight
D. Managing a concentrated portfolio without disclosing the lack of diversification
🟢D
🔴 RATIONALE: The Asset Manager Code requires full disclosure of material risks, including lack of
diversification. Failing to disclose concentration risk violates transparency and fair dealing standards.
Question 3
An analyst calculates the following for a stock: expected return = 12%, standard deviation = 20%, risk-free rate
= 3%. The Sharpe ratio is closest to:
A. 0.35
B. 0.45
C. 0.55
D. 0.65
, 🟢B
🔴 RATIONALE: Sharpe ratio = (Expected return – Risk-free rate) / Standard deviation = (0.12 – 0.03) / 0.20 =
0..20 = 0.45.
Question 4
Under IFRS, which of the following is least likely to be classified as an operating cash flow?
A. Cash received from customers
B. Cash paid to suppliers
C. Interest paid on debt
D. Dividends received from investments
🟢D
🔴 RATIONALE: Under IFRS, dividends received may be classified as operating OR investing. However, the “least
likely” to be operating is dividends received, as many firms classify them as investing; interest paid is often
operating under IFRS.
Question 5
A bond has a face value of $1,000, a 6% annual coupon, 5 years to maturity, and a yield to maturity of 7%. The
bond’s current price is closest to:
2026 Q&A | INSTANT DOWNLOAD PDF
Core Domains
1. Ethical and Professional Standards
2. Quantitative Methods (Time Value of Money, Probability, Statistics)
3. Economics (Micro, Macro, International)
4. Financial Statement Analysis (GAAP, IFRS, Ratios)
5. Corporate Finance (Capital Budgeting, Cost of Capital)
6. Equity Investments (Valuation, Market Efficiency)
7. Fixed Income (Bond Pricing, Duration, Credit Risk)
8. Derivatives (Forwards, Futures, Options, Swaps)
9. Alternative Investments (Hedge Funds, Real Estate, Commodities)
10. Portfolio Management (Risk, Return, Diversification)
Introduction
This practice examination is designed to replicate the rigor and scope of the CFA Level I Exam. It assesses
foundational knowledge across ten core domains, emphasizing ethical reasoning, financial analysis, quantitative
methods, and real-world investment decision-making. Each question follows a multiple-choice format, with many
set in scenario-based contexts to test your ability to apply principles under conditions similar to those faced by
,investment professionals. Correct answers are verified and accompanied by clear rationales to reinforce learning.
The structure promotes critical thinking, regulatory awareness, and professional judgment essential for success on
the actual exam.
SECTION ONE: QUESTIONS 1–100
Question 1
A portfolio manager receives a non-public tip from a corporate insider that a company will post unexpectedly
high earnings. The manager trades on this information for client accounts. Under the CFA Institute Code of
Ethics and Standards of Professional Conduct, this action is:
A. Permissible if the trade benefits clients and no personal gain is realized
B. Permissible if the manager does not disclose the source of the tip
C. Prohibited because it constitutes trading on material non-public information
D. Permissible only if the manager waits 24 hours before trading
🟢C
🔴 RATIONALE: Standard II(A) – Material Nonpublic Information strictly prohibits trading or inducing others to
trade based on material non-public information, regardless of client benefit or lack of personal gain.
,Question 2
Which of the following is most likely a violation of the CFA Institute Asset Manager Code of Professional
Conduct?
A. Disclosing to clients that soft dollars are used to pay for research
B. Voting all proxies in a manner consistent with client objectives without exception
C. Basing portfolio decisions solely on quantitative models without human oversight
D. Managing a concentrated portfolio without disclosing the lack of diversification
🟢D
🔴 RATIONALE: The Asset Manager Code requires full disclosure of material risks, including lack of
diversification. Failing to disclose concentration risk violates transparency and fair dealing standards.
Question 3
An analyst calculates the following for a stock: expected return = 12%, standard deviation = 20%, risk-free rate
= 3%. The Sharpe ratio is closest to:
A. 0.35
B. 0.45
C. 0.55
D. 0.65
, 🟢B
🔴 RATIONALE: Sharpe ratio = (Expected return – Risk-free rate) / Standard deviation = (0.12 – 0.03) / 0.20 =
0..20 = 0.45.
Question 4
Under IFRS, which of the following is least likely to be classified as an operating cash flow?
A. Cash received from customers
B. Cash paid to suppliers
C. Interest paid on debt
D. Dividends received from investments
🟢D
🔴 RATIONALE: Under IFRS, dividends received may be classified as operating OR investing. However, the “least
likely” to be operating is dividends received, as many firms classify them as investing; interest paid is often
operating under IFRS.
Question 5
A bond has a face value of $1,000, a 6% annual coupon, 5 years to maturity, and a yield to maturity of 7%. The
bond’s current price is closest to:
