CFA Level 1 Sample Questions
The feature of a well-functioning investment industry that gives investors the ability to
quickly buy and sell a significant amount of an investment without having a material
impact on the price is described as:
A liquidity
B competitive markets
C risk transfer - answer A
According to fundamental ethical and professional principles applicable to the
investment industry, which group should have its interests ranked first?
A Clients
B Employers
C Co-workers - answer A
Regulators often seek public consultation prior to the implementation of new regulations
in order to:
A ensure the new rules are favorable to those likely to be affected
B educate consumers and service providers on the new rules
C improve the final rules by undertaking a cost-benefit analysis – answer C
A financial advisory firm that implements internal policies regarding information barriers,
suitability standards, and restrictions on self-dealing is addressing issues related to
which of the following types of regulation?
A Sales practices rules
B Trading rules
C Disclosure rules - answerA
The best financial statement to use to find information about what a company owns and
owes others is called the:
A income statement
B balance sheet
C cash flow statement - answerB
If two variables do not have a strong (linear) relationship, the correlation coefficient
between the two variables will be closest to:
A0
B -1
C +1 - answerA
In contrast to forward contracts, futures contracts:
A trade on organized exchanges
,B have contract sizes tailored to investor needs
C have negotiable expiration dates - answerA
Which type of private equity strategy is most likely used to finance a start-up company?
A Growth equity
B Buyout
C Venture capital - answerC
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 - answerA
The type of bank that is exclusively owned by its members is a:
A savings and loan bank
B commercial bank
C mutual bank - answerC
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 - answerA
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 - answerC
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 -
answerB
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 - answerA
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 - answerB
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 - answerC
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 - answerB
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 - answerB
Which of the following is not a sovereign bond issue?
A State of New York municipal bond
B US Treasury note
C German bund - answerA
Which of the following bonds contains an embedded option that provides the issuer
certain rights?
A Putable bond
B Callable bond
C Convertible bond - answerB
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 - answerA
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 - answerC
Diversification will not help reduce a portfolio's:
, A systematic risk
B specific risk
C overall risk - answerA
Compared with passive investment management, active investment management will
involve:
A tracking a benchmark
B market timing
C lower transaction costs - answerB
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 - answerB
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 - answerB
Which of the following is considered an institutional investor?
(a) Accredited investor
(b) Sovereign wealth fund
(c) Separately managed account - answerB
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 - answerC
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 - answerA
A fund manager does not compare his portfolio with the benchmark in terms of:
A performance
B composition
C fees - answerC
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
The feature of a well-functioning investment industry that gives investors the ability to
quickly buy and sell a significant amount of an investment without having a material
impact on the price is described as:
A liquidity
B competitive markets
C risk transfer - answer A
According to fundamental ethical and professional principles applicable to the
investment industry, which group should have its interests ranked first?
A Clients
B Employers
C Co-workers - answer A
Regulators often seek public consultation prior to the implementation of new regulations
in order to:
A ensure the new rules are favorable to those likely to be affected
B educate consumers and service providers on the new rules
C improve the final rules by undertaking a cost-benefit analysis – answer C
A financial advisory firm that implements internal policies regarding information barriers,
suitability standards, and restrictions on self-dealing is addressing issues related to
which of the following types of regulation?
A Sales practices rules
B Trading rules
C Disclosure rules - answerA
The best financial statement to use to find information about what a company owns and
owes others is called the:
A income statement
B balance sheet
C cash flow statement - answerB
If two variables do not have a strong (linear) relationship, the correlation coefficient
between the two variables will be closest to:
A0
B -1
C +1 - answerA
In contrast to forward contracts, futures contracts:
A trade on organized exchanges
,B have contract sizes tailored to investor needs
C have negotiable expiration dates - answerA
Which type of private equity strategy is most likely used to finance a start-up company?
A Growth equity
B Buyout
C Venture capital - answerC
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 - answerA
The type of bank that is exclusively owned by its members is a:
A savings and loan bank
B commercial bank
C mutual bank - answerC
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 - answerA
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 - answerC
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 -
answerB
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 - answerA
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 - answerB
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 - answerC
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 - answerB
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 - answerB
Which of the following is not a sovereign bond issue?
A State of New York municipal bond
B US Treasury note
C German bund - answerA
Which of the following bonds contains an embedded option that provides the issuer
certain rights?
A Putable bond
B Callable bond
C Convertible bond - answerB
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 - answerA
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 - answerC
Diversification will not help reduce a portfolio's:
, A systematic risk
B specific risk
C overall risk - answerA
Compared with passive investment management, active investment management will
involve:
A tracking a benchmark
B market timing
C lower transaction costs - answerB
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 - answerB
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 - answerB
Which of the following is considered an institutional investor?
(a) Accredited investor
(b) Sovereign wealth fund
(c) Separately managed account - answerB
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 - answerC
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 - answerA
A fund manager does not compare his portfolio with the benchmark in terms of:
A performance
B composition
C fees - answerC
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
