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CFA · Practice questions

Ten CFA Level I questions, with the reasoning behind the best answer

By Mustafa K. Al-Dori · Edition 2026.2, verified 9 October 2026 · 8 min read

The short answer

Try the ten questions below in 15 minutes, counting only your first answer. They are original, not CFA Institute questions, each has three options as at Level I and each is mapped to a topic. Several wrong answers come from a plausible slip, such as skipping a step or using the wrong formula, so read every explanation.

Most Level I misses are not ignorance. The candidate knows the concept and loses the mark to a missed step or a half-remembered formula. These ten questions are written to catch that, and every explanation says why the runner-up fails.

How should you use these questions?

CFA Institute publishes no fixed pass mark, so no practice score predicts your result. A set like this does something more useful: it shows which habits cost you marks. Answer on paper, count only your first choice and read every explanation, including those for questions you got right.

The ten questions are original and use the three-option format of Level I. They cover all ten topic areas except alternative investments, which does not lend itself to a one-line question. Allow 15 minutes. At the real exam you get about 90 seconds a question, so the set is also a pace check. Use your authorised calculator for the numerical ones.

For the weights behind these topics, read the CFA exam map.

Ethics, quantitative methods, economics, statements and corporate finance: five questions

Question 1 · Ethics · Standard VI(A), disclosure of conflicts

An analyst's firm is the lead underwriter of a company's bond issue. The analyst is about to publish a research report on that company. What is the analyst's obligation?

A. No disclosure is needed if the report is accurate
B. Disclose the underwriting relationship to clients and prospective clients
C. Stop covering any company the firm does business with

Show answer
Answer: B. Standard VI(A) requires full and fair disclosure of matters that could reasonably impair independence, objectivity or the duties owed to clients. The relationship is a conflict, so it must be disclosed. C is the runner-up: the Standards do not ban coverage, they require transparency.

Question 2 · Ethics · Standard I(B), independence and objectivity

A company she covers offers an analyst a fully paid week at a resort to tour its factory before she publishes a rating. What should she do?

A. Accept, because her report will remain accurate
B. Decline the paid extras, or pay her own way, so that her rating cannot be seen as bought
C. Accept, and disclose the trip after she publishes

Show answer
Answer: B. Standard I(B) asks members to keep independence and objectivity and to avoid gifts that could reasonably be expected to compromise them. C is the runner-up: disclosure afterwards is better than silence, but it does not remove the compromise.

Question 3 · Quantitative methods · time value of money

An investor deposits 1,000 for three years at 8 per cent a year, compounded annually. What is the value at the end of year three?

A. 1,240.00
B. 1,259.71
C. 1,331.00

Show answer
Answer: B. The future value is 1,000 × 1.08³ = 1,259.71. A is the runner-up: it uses simple interest (1,000 × (1 + 3 × 0.08)) and ignores interest earned on interest.

Question 4 · Economics · exchange rates

Other things equal, a central bank unexpectedly raises its policy rate. What is the most likely effect on the domestic currency?

A. It appreciates, as higher returns attract foreign capital
B. It depreciates, because borrowing becomes more costly
C. It is unchanged, because policy rates do not affect currencies

Show answer
Answer: A. Higher domestic interest rates raise the return on domestic assets, so demand for the currency rises and it tends to appreciate. B is the runner-up: it confuses the effect on borrowers with the effect on foreign investors.

Question 5 · Financial statement analysis · cash flow statement

A company reports net income of 100, depreciation of 30 and an increase in accounts receivable of 20. Using the indirect method, what is cash flow from operations?

A. 90
B. 110
C. 150

Show answer
Answer: B. Start with net income, add back non-cash depreciation and subtract the increase in receivables: 100 + 30 − 20 = 110. C is the runner-up: it adds the receivables increase instead of subtracting it, though a larger receivable ties up cash.

Corporate finance, equities, fixed income, derivatives and portfolios: five questions

Question 6 · Corporate finance · capital budgeting

A project costs 1,000 today and returns 600 at the end of each of the next two years. The cost of capital is 10 per cent. What is the net present value?

A. About +41.32
B. About −41.32
C. About +200.00

Show answer
Answer: A. Discount each inflow: 600/1.10 = 545.45 and 600/1.21 = 495.87, which sum to 1,041.32. Subtract the 1,000 cost to get +41.32. C is the runner-up: it adds the cash flows without discounting (1,200 − 1,000).

Question 7 · Equities · dividend discount model

A stock is expected to pay a dividend of 2.00 next year. The required return is 9 per cent and dividends are expected to grow at 4 per cent a year for ever. What is the value per share under the Gordon growth model?

A. 22.22
B. 40.00
C. 50.00

Show answer
Answer: B. The value is D1 / (r − g) = 2.00 / (0.09 − 0.04) = 40.00. A is the runner-up: dividing by 0.09 alone ignores growth. C divides by the growth rate by mistake.

Question 8 · Fixed income · interest rate risk

A bond has a modified duration of 5. Yields rise by 50 basis points. What is the approximate change in the bond's price?

A. A fall of about 2.5 per cent
B. A rise of about 2.5 per cent
C. A fall of about 5 per cent

Show answer
Answer: A. The approximate price change is −modified duration × change in yield = −5 × 0.005 = −2.5 per cent. Prices move opposite to yields, which rules out B. C ignores that 50 basis points is half of one percentage point.

Question 9 · Derivatives and risk management · option payoffs

An investor buys a call option with a strike price of 50 and pays a premium of 3. At expiry the share price is 58. What is the investor's profit per share?

A. 8
B. 5
C. 3

Show answer
Answer: B. The payoff at expiry is 58 − 50 = 8. Subtract the 3 premium paid to get a profit of 5. A is the runner-up: it reports the payoff, not the profit.

Question 10 · Portfolio construction · CAPM

The risk-free rate is 3 per cent, the expected market return is 8 per cent and a stock's beta is 1.2. What return does the CAPM give?

A. 9.0 per cent
B. 9.6 per cent
C. 12.6 per cent

Show answer
Answer: A. The CAPM gives rf + beta × (market return − rf) = 3 + 1.2 × 5 = 9.0 per cent. B is the runner-up: it multiplies beta by the whole market return (1.2 × 8). C then adds the risk-free rate to that.

What do your misses tell you?

Count your first answers, then match each miss to a habit.

If you missed… The habit Do this
1 or 2 Treating ethics as common sense Work Standards cases and name the Standard before you choose
3, 6, 7, 8, 9 or 10 Formula slips Write the formula, then the inputs, then the result, and check the units
4 Mixing up who gains from a rate change Ask who the foreign investor is and what return they see
5 Skipping a step in a statement Draw the three-line start: net income, non-cash items, working capital

If you missed more than three, return to the study plan and move hours into stage C, topic practice. If you missed none, test your timing with a full official mock exam. Chapter 5 of CredenTrek For CFA has you rate yourself on every topic, and Appendix B adds a weekly plan.

Your next step
  1. Answer all ten questions in 15 minutes, counting only your first choice.
  2. Write the topic behind each miss and rate yourself from 1 to 5 on it.
  3. For each miss, write one sentence on why the runner-up fails.
  4. Check that your question bank names your exam year and level and explains every answer.

Questions readers ask

Are these real CFA exam questions?
No. They were written for this page and are not CFA Institute questions. Each follows the three-option Level I format and is mapped to a topic. Use them to find weak habits, not to predict the wording you will see.
How many options does a Level I question have?
Three. That makes guessing more tempting but also makes the runner-up answer more important, because a single slip often leads straight to one of the wrong options.
Do the formulas appear on the exam?
Do not rely on that. Learn each formula and its inputs, and practise with your authorised calculator so the keys are second nature.
How do I choose a question bank?
Choose one and use it thoroughly. Check that it follows the outline for your exam year, explains every answer and states its refund policy in writing. Also use the official mock exams.
Sources

This guide is independent and is not endorsed by CFA Institute. Facts change: confirm them on the official page before you act.